The state's top economic development official said in a letter to city officials this week that the state won't issue $30 million in state bonds for the controversial CentrePointe development.
The denial by the state to issue bond money is the latest snag in a more than six-year saga over the downtown development.
Larry Hayes, the secretary of the Kentucky Cabinet for Economic Development, sent Mayor Jim Gray a letter, dated Tuesday, saying that the city was the more appropriate entity to issue the bonds, not the state.
According to the letter, which was obtained by the Herald-Leader, Hayes said that the state was not interested in issuing the bonds for the three-story, 700-space underground parking garage that is part of the project because of the possibility that the state would be "assuming costly obligations that it does not generally assume."
The city and state originally approved a tax increment financing district for the project in 2008. Tax increment financing allows a private developer to recover costs associated with building public infrastructure — in this case, a parking garage.
Under the bond proposal, additional tax revenue generated from the project called "the increment" would be used to make the debt payments on the $30 million in bonds.
Designs for CentrePointe include a 12-story apartment building, an 18-floor Marriott hotel and a 10-story office tower, as well as retail and restaurant space. The project sits between South Limestone, West Vine, West Main and South Upper streets. It has been controversial since 2008 after a block of historic buildings was demolished.
CentrePointe developer Dudley Webb, of the Webb Companies, has repeatedly said that the city or the state would not be on the hook for debt payments if the project does not generate enough tax revenue.
Tuesday's letter comes just before the Urban County Council was set to pass a resolution backing Webb's application for state bond money. The council was expected to give that resolution both first and second readings at Thursday's meeting.
Kevin Atkins, the city's chief development officer, asked that the resolution be removed from Thursday night's agenda because of Hayes' letter, according to an email obtained by the Herald-Leader.
But Webb told the Herald-Leader Wednesday that he hoped the council would ask the state to reconsider its decision not to issue the bonds.
"I would hope they would go ahead and continue with the resolution and endorse the concept and appeal to the state to reconsider," Webb said.
Webb said that he hoped to attend Thursday night's council meeting so the council could discuss it. Regardless, he said the state's denial will not kill the project, which is currently under construction.
"These discussions are not adversarial by any means," Webb said of discussions between the city and state. "We are hoping to move it forward."
Webb said that the 2008 agreement between the state and then-Mayor Jim Newberry's administration regarding the tax increment financing district included a mechanism for the government to issue bonds for the parking garage. Webb said that agreement also states that neither the state or the city would be on the hook for the bonds if not enough tax revenue is generated to make the debt payments.
However, there was a later tax increment financing agreement, in 2013, among the state, city and CentrePointe.
Susan Straub, a spokeswoman for the city, said the city is still weighing what to do next.
"Obviously there are still key decisions being made about this project, and we need to carefully consider next steps," Straub said. "Our primary responsibility is to be cautious and minimize any public risk, while at the same time encourage a successful development so the tenants who have already announced their intentions can move in and once again bring jobs and activity to the block."