The uncertainty of whether a new convention center will be built is already affecting Lexington's tourism business, and millions more could be at stake if a $351 million renovation plan does not move forward soon, board members of Lexington Center Corp. were told Thursday.
The Lexington Center Board, which oversees Rupp Arena, the convention center and its retail shops, also voted Thursday not to spend any additional state money from $5.5 million designated for project design until its future is certain. The construction plan calls for a revamped Rupp Arena and a new convention center.
The board learned Thursday that most of the $5.5 million for design has already been spent.
Frank Butler, Rupp project manager, recommended Thursday that the board not draw down the remaining $313,000 from a $2.5 million loan from the state because it has to be repaid.
"We have suspended all of our contracts," Butler said.
Bill Owen, the president and CEO of Lexington Center Corp., told the board that convention center business is not in jeopardy in 2015, but that there are questions about what conventions will come to the downtown center in 2016 and 2017.
"For fiscal year 2016, that's where we can't offer them firm dates," Owen said of potential conventions. "That really puts us in a difficult position."
Millions of dollars could be at stake.
A study conducted by Convention Sports and Leisure shows the direct impact of convention center business at $42 million, including hotel stays, dinner at restaurants and spending in Lexington shops.
The loss of those tourism dollars was the impetus for a letter sent by Brent Rice, chairman of the Lexington Center Corp., to President Eli Capilouto in late April.
Rice's letter, which was obtained by the Herald-Leader, says the uncertainty of the project's funding could drive up construction costs and adversely affect businesses dependent on the convention center.
Rice pushed Capilouto — whose support of the project has been lukewarm — to publicly support the project or the terms of the current lease will remain in place.
The letter gives Capilouto until May 23 (30 days) to respond. "The longer the uncertainty continues, the greater the loss," Rice wrote.
Rice said Thursday that he has not heard from Capilouto.
The city had asked for $80 million in state bond money for the project during the past legislative session, but the legislature ultimately decided not to fund the project, saying there were too many unanswered questions.
State legislative leaders said they also were confused on whether UK backed the project. Capilouto has frequently said that his focus is on improving the academic buildings on UK's campus.
Jay Blanton, a spokesperson for Capilouto, said they had no comment on Rice's letter.
Another substantial part of the $351 million financing plan is $40 million in bond money from the city. The Urban County Council has scheduled a meeting for June 23 to discuss the bond.
Vice Mayor Linda Gorton, who is on the Lexington Center Corp. Board, cautioned board members Thursday that the council will likely not take a vote on funding the $40 million bond after the June meeting.
"It is not part of this year's budget proposal," Gorton explained. "We would have to agree to issue the bonds this year, but the debt payments would not start until the following year."
A final decision might not be made until later this summer, Gorton said.
State leaders have said they wanted to see what the city would contribute to the project in addition to what UK would contribute before moving forward with discussions on the $80 million.
In addition to city and state funding, the plan also includes $35 million in fan support, $8 million from UK and $2 million for naming rights in addition to money generated by new business created by the renovations.
City officials have said they wanted to return to the legislature as early as January to get approval for the $80 million.
The Convention, Sports and Leisure study showed that the proposed expansion of the convention center could generate an additional $14 million in tourism revenue or about $56 million.
But there are questions within the hospitality industry about what will happen while the convention center is under construction for up to 18 months.
Owen told the board Thursday that it cannot sign contracts for 2016 with about a dozen conventions that return each year. If the convention center signs those contracts and it does not open, they could be financially liable, Owen said.
Deirdre Lyons — a Lexington Center Corp. board member and wife of Alltech czar Pearse Lyons — said she is concerned that if a convention has to find a temporary location while the Lexington convention center is under construction, they could choose to permanently move the convention to that location.
Others in the hospitality industry expressed similar concerns on Thursday.
Marty Rothchild, the general manager of the Hilton in downtown Lexington, said hotel bookings from contracts related to conventions are already down for 2015.
"We have heard from several repeat clients who are hesitant to sign agreements in 2016 and 2017 because they are unsure of the construction schedule," Rothchild said.
Nonetheless, Rothchild said he supports the $351 million construction project.
"We may be able to attract new business that will more than compensate for what revenue will be lost," Rothchild said of the closing of the convention center.
But Ron van Haaren, the president of the Bluegrass Hospitality Association, said his group is very concerned that the amount of money lost during both the uncertainty of the construction and the construction process could be more than people anticipated.
It will also hurt both Lexington Center Corp. and the city's convention and visitors bureau, now named VisitLex. The bureau is funded through the hotel and motel tax. If fewer people stay in Fayette County hotels over the next few years, that means less money for the visitors bureau to spend on advertising, he said.
But other areas will continue to advertise, van Haaren said.
"Hotels will survive but will be hurt if there are no conventions," he said. "But small businesses like restaurants may have to close."
Van Haaren said his group — which includes 65 hotels, restaurants and other tourism-related businesses — is also concerned that the $56 million in tourism-related revenue that is expected when the convention center is redone won't materialize immediately. It will take several years to ramp up.
"Conventions don't book for the day that you open," van Haaren said.
The convention and visitors bureau is trying to mitigate the loss of convention business by booking smaller conventions that can be hosted at area hotels or even at the Kentucky Horse Park, Owen said.
Rothchild said there could be a short-term financial pinch for some during the time that the project is under construction, but Lexington has to upgrade its convention facilities to stay competitive with similar markets.
"I am still for the plan, but I just hope that we can get it done quickly," Rothchild said.