Lexington Center to repay $2.2 million to coal-severance fund

The Lexington Center Corp. will repay the state nearly $2.2 million by the end of December as part of a complex deal to get state funding to expand the downtown convention center.

Bill Owen, president and CEO of Lexington Center Corp., said the $2.2 million will come from Lexington Center reserves, which are about $5 million.

During a Lexington Center board meeting Thursday morning, Owen said Lexington Center agreed to repay the money by Dec. 31 as a result of negotiations between Gov. Matt Bevin’s administration and the General Assembly to get state funding and approval for the expansion. On Friday, after months of uncertainty, the legislature approved $60 million in state bond money and a companion bill that would allow the Lexington Urban County Council to raise its hotel and motel tax by 2.5 percentage points to pay for a $250 million expansion of the convention center.

Lexington Center manages Rupp Arena, the attached convention center and Lexington Opera House.

That increase of 2.5 percentage points will pay debt service on both the $60 million in state funding and $171 million in bank funding secured by Lexington Center. In addition, Mayor Jim Gray has put $10 million in city bond money in his proposed budget for the project.

The repayment of the more than $2 million stems from a failed attempt to get state funding for a much larger $350 million expansion and renovation of both Rupp Arena and the convention center.

In 2013, then-Gov. Steve Beshear authorized $2,187,500 from coal-severance funds to help pay for initial design and planning costs for that $350 million expansion and redesign. That money was coupled with city money, Lexington Center and other funds for a combined total of nearly $5 million for architectural and planning costs.

Many legislators from coal-producing counties objected to the use of the coal money for a project in Lexington. Gray promised in March 2014 that the city would repay the coal-severance fund.

The legislature never approved state bond money for the $350 million plan during the 2014 session. That $350 million overhaul was placed on hold in June 2014. That same year, Beshear vetoed language that would require the city to repay the coal-severance fund.

The money was never repaid.

Gray’s office did not have a comment about why the city didn’t repay the coal-severance fund. The city has had surpluses for the past several years. Its projected surplus for the fiscal year that ends June 30 is more than $6 million, city officials have said.

After 2014, Lexington Center tweaked its plans and has pursued the renovations of Rupp Arena and the convention center separately. Rupp Arena is undergoing a $15 million technology upgrade, including a new scoreboard hung from the center of the arena and new wi-fi.

The $250 million expansion of the convention center will include a new 100,000-square-foot exhibit hall and additional meeting space.

Senate President Robert Stivers, R-Manchester, said Friday, before the full Senate voted on the bill to increase the hotel and motel tax, that Lexington Center had agreed to sign over two acres of land as collateral for the $60 million in state money.

But a draft of the memorandum of agreement between the state and Lexington Center released at Thursday’s board meeting makes no reference of a land swap.

Owen said the state already owns 1.7 acres of the current Rupp Arena and the convention center complex. The state Finance and Administration Cabinet, which manages state property, has owned that land since a 1995 expansion of Heritage Hall. Plus, the state already has a revenue source — one fifth of the 2.5 percentage-point increase in the hotel tax — to pay off its $60 million bond.

“There is a security and a path to repayment,” Owen said of the dedication of the hotel tax to pay the $60 million bond.

The board formed a new committee Thursday for the convention center expansion. That new committee is likely to meet soon to begin securing $171 million in bank funding and hiring architects and contractors. Securing financing is expected to take several months.

“It’s been on track, but it needs to be on the fast track,” said Brent Rice, chairman of the board.

The Urban County Council also needs to approve the $10 million in city money, and the hotel and motel tax increase.

Councilman Bill Farmer Jr., a Lexington Center board member, said during Thursday’s meeting that he expects that the hotel tax increase will be passed by the 15-member council.

“It likely won’t be unanimous, but it will pass,” Farmer said.

If the council gives final approval of the $10 million and the hotel tax increase, the group hopes that construction could start in spring 2017. The convention center would remain open during construction.

This story was originally published April 21, 2016 at 2:45 PM with the headline "Lexington Center to repay $2.2 million to coal-severance fund."