Rupp, convention center furlough staff. Payment of $275 million expansion in question
It started on Thursday, March 12.
That’s the day the Kentucky High School Athletic Association girls’ Sweet Sixteen tournament abruptly halted all games as the novel coronavirus began to spread throughout Kentucky.
And the cancellations of events at Central Bank Center, which includes Rupp Arena and Lexington’s downtown convention center, kept coming.
Lexington Comic & Toy Con, one of its largest conventions, at first rescheduled and later canceled. Disney on Ice, University of Kentucky commencement, local high school graduations, Elton John, JoJo Siwa, Alltech and other education and religious conferences either canceled or postponed within a few short weeks.
Lexington Center Corporation also operates the Lexington Opera House. Nearly every event at the venue on Short Street was pulled from the schedule in March, April, May and into June.
“It’s been rather devastating,” said Bill Owen, president and CEO of Lexington Center Corp. “We were on track for another record revenue year.”
Not any more.
With Rupp Arena and the convention center now dark and little or no money coming in, Lexington Center had to ax its operating expenses. It furloughed a little more than 100 full- and part-time staff in mid-April.
A skeleton crew of 14 remaining staff took pay cuts. Those and other cost savings, such as a decrease in utility payments, will result in about a $600,000 a month savings to help Lexington Center Corp. balance its $18 million budget, Owen said.
But that’s just its day-to-day operating costs.
Central Bank Center is in the middle of a multi-year $275 million expansion of the convention center, which broke ground in 2018. To pay for that expansion, Lexington Center Corp. was banking on a little more than $6 million in hotel and motel taxes to pay off one loan or bond of $108 million.
But local hotel and motel taxes have been decimated over the past three months as hotels, which are typically full or nearly full during the spring and summer months, are mostly vacant.
In addition, increased revenue from a variety of sources was supposed to pay for a second $110 million bond. Furthermore, the city borrowed $30 million for the project. The remaining money to finance the $275 million project comes from a host of other sources.
The additional operating revenues costs Lexington Center was relying on to pay its debt on the second $110 million bond have also dwindled as events were canceled.
A $8.4 million payment on those two bonds is due in September.
Owen said the Lexington Center Corp. board, in tandem with its financial advisers, is working on a viable solution to keep the expansion project solvent and make debt payments on those bonds that total $218 million.
“Everything is on the table,” Owen said. “The problem we have right now is we have no idea when our operating revenues are going to come back. No one knows what this industry is going to look like in 12 months.”
Owen declined to say what those options include but didn’t rule out a second bond or loan to help cover those upcoming debt payments.
Owen said he is confident that the group will have a financial fix before the September bond payment.
Lexington Finance Commissioner Bill O’Mara told the Lexington-Fayette Urban County Council last week there is currently no additional money in Mayor Linda Gorton’s proposed $372 million budget for the convention center. The city makes its own debt payments on the $30 million it borrowed to help fund the expansion.
If it needs additional money from the city, Lexington Center has limited time to work out an agreement. The council, which is currently debating changes to Gorton’s budget, is expected to take its first vote June 9 on the budget for the fiscal year that begins July 1.
Gorton’s proposed budget is lean with more than $12.5 million in internal cuts, $6 million in reductions to outside agencies and little or no new borrowing or debt. To balance the books, Gorton has proposed using approximately $30.2 million in one-time money from various city saving accounts. The moves address the city’s more than $40 million shortfall for the next fiscal year. That shortfall is largely due to an expected precipitous drop in tax revenues.
If Lexington Center defaults or cannot pay the $108 million bond backed by the hotel and motel taxes, the city is not on the hook for those payments. But if Lexington Center can’t pay the debt on its $110 million bond supported by additional revenues, the city and taxpayers may have to fork over some money.
On that bond, if Lexington Center has to use all or part of its required reserve of $7.85 million to make a payment, the money taken from the $7.85 million has to be restored. If Lexington Center doesn’t have the money to replenish those reserves, then the merged government would have to come up with that money, O’Mara said.
Nearly every publicly-funded convention center is facing similar money woes. Many rely on local hotel and motel taxes to pay off bonds or loans or for operating costs.
Most convention centers lose money and typically need annual taxpayer appropriations. Lexington Center does not depend on allocations from the city of Lexington to balance its books. Typically revenue from Rupp Arena events offsets convention center losses and has made it possible for Central Bank Center to be self-sufficient.
Central Bank purchased the naming rights for the complex that includes the convention center and Rupp Arena earlier this year. The bank is not involved in the day-to-day operations of Rupp Arena or the convention center and is not responsible for the bonds associated with the expansion project.
One option not on the table is stopping or halting the expansion, Owen said. The contracts for that expansion have been signed.
Because Rupp and the convention center are now dark, that expansion is moving forward quickly. It was several months behind schedule in January. The work is now back on track with a possible completion date sometime in late 2021.
When completed, the expansion will include a new addition, a ballroom, more exhibit hall space, meeting rooms, a new lobby and a new two-story building along Main Street.
Rupp Arena will get a new glass and metal exterior. The bones of the new exterior are currently under construction.
“Our phase two of the expansion, which was supposed to start June 26, started May 3,” Owen said. “Saving time saves money.”
When concerts and sporting events will resume is not known. The same is true for conventions.
But many industry insiders think “drive-in” conventions will resume first. Lexington is an ideal market for conventions where people drive rather than fly to attend, Owen said.
As a result, Lexington may be better positioned than much larger convention markets to slowly bring back its conventions.
“What we don’t know is what will the new normal look like?” Owen said. “I do believe we will recover from this.”
This story was originally published May 12, 2020 at 12:11 PM.
