Fresh from Louisville comes a cautionary tale for those working on a financing plan for redoing Rupp Arena and creating an Arena, Arts and Entertainment District in downtown Lexington.
Money to make payments on $349 million in bonds on the KFC Yum Center is coming up short because economic activity in the surrounding area of downtown Louisville has been much less than predicted.
Sales taxes in the six-square-mile tax increment financing district came up about $4.5 million short of what was expected for the 2011 payment, reports The Courier-Journal.
Also, arena operations are generating less money than forecast.
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The arena authority can dip into surplus and maintenance funds to make the next couple of payments. But by 2013, Louisville has been advised by arena chairman Jim Host to be ready to increase its $6.5 million annual arena payment by as much as $3.3 million.
No doubt the uncertain economy is keeping people home and hurting ticket, restaurant and retail sales which will pick up with the economy.
But what's happening in Louisville also is consistent with the view of economists that public investment in sports arenas is bad economic policy.
John Vrooman, a sports economist at Vanderbilt University, told a C-J reporter that tax-increment financing for sports arenas is "very risky" and should not exceed 10 percent of the total debt.
Tax-increment financing makes up 35 percent of the Yum Center's annual debt payments, which is why the project is at risk of having its bonds downgraded.
We trust that task force members working on a financing proposal for the Lexington plan are paying attention to what's going on down Interstate 64.