A law rushed through to salvage the finances of Louisville’s Yum! Center — again —received little attention in the torrent of legislation passed during the recently-completed 30-day session.
But both the bill — which extends a tax subsidy provided through a special taxing district, or TIF, out to 2054 — and the flawed process that has dogged this gonzo arena project from its inception deserve a closer look, even if only to serve as a cautionary tale for similar public projects.
To begin with the present, the Louisville Arena Authority, which oversees the downtown arena that claims the University of Louisville men’s basketball team as its marquee tenant, said it needed this change to avoid a default on over $300 million in bond indebtedness.
Right now the Yum! Center is making its payments, with significant subsidies from Louisville’s local government, the tax that’s returned through the TIF and money earned through hosting events, naming rights and ticket and concession sales. But the bonds are structured so payments jump significantly in 2020 and again in the next decade.
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The TIF, which the General Assembly has already rejiggered once, has fallen far short of the revenue promised, although it has improved and stabilized in recent years. Still, even with that, current revenues “will not be sufficient” to make those payments, as Scott Brinkman, secretary of Gov. Matt Bevin’s executive cabinet, explained delicately to a Senate committee.
With default looming, and Louisville maxed out at a $10.8 million annual subsidy going forward, the arena authority wants to extend the TIF and refinance the debt at better interest rates in hopes this will salvage the arena’s troubled finances.
While no one wants a default, there was a lot of skepticism about this proposal. Much of it centered on the role of U of L. As it should.
When the downtown, riverfront arena was proposed, U of L was less than enthusiastic but ultimately, in secret, a contract was worked out. That 2008 deal has been widely hailed as a sweetheart deal for U of L. The university keeps 90 percent of the revenue from ticket sales for men’s games, 88 percent from premium suite sales, all of program and half of concession and gift shop sales, plus separate deals on signage, video board and sponsorship revenues.
In the first year at the Yum! arena, U of L’s men’s basketball revenues jumped from $25.9 million to $40.9 million, making it the wealthiest basketball program in the country. “It’s scandalous how much they are taking away,” Rep. Jim Wayne, D-Louisville, said when the bill came up in the House Appropriations and Revenue Committee.
Wayne and other legislators, including Republican Sen. Chris McDaniel of Taylor Mill, argued for a larger, fixed commitment from U of L. But last December, when talk about more from the university arose, U of L Athletic Director Tom Jurich said the university might build its own arena since “I don’t think we’re wanted down there,” and that seemed to be all it took to scare off the powers that be from pressing on that point. Brinkman told the committee that U of L has agreed to pay an additional $2.5 million annually although no one from U of L was present to confirm that.
In addition to U of L’s profiteering, the timing of this legislation was troubling. At the request of the General Assembly, Auditor Mike Harmon’s office is conducting a review of the operations of the arena authority that’s likely to be complete this summer. Wayne wondered why, with a special session likely coming in the fall anyway, this couldn’t wait until after that report was in. Plus, any agreement with U of L could be finalized and available for review.
But, despite the huge financial stakes for state taxpayers — most of the subsidy from TIFs comes from diverting state revenues into the local project — the bill passed.
So, to recap: an arena project that began in the last decade with faulty, overly optimistic assumptions about TIF revenues and a contract designed to enrich U of L at the expense of the project, was rammed through in the final hours of this legislative session with no documented change in that agreement, a state audit still in the wings, and resting on the assumption that the arena will still be viable at mid-century.
A cautionary tale for sure.