Politics & Government

Group wants $100 million tax break to lure developer for Rupp Arena’s parking lot

Lexington Center Corp. is looking into developing the nearly 20-acre High Street parking lot across from Rupp Arena and the convention center. It wants the city to approve a tax increment financing or TIF district for the entire Rupp Arena and High Street complex.
Lexington Center Corp. is looking into developing the nearly 20-acre High Street parking lot across from Rupp Arena and the convention center. It wants the city to approve a tax increment financing or TIF district for the entire Rupp Arena and High Street complex. rgarrison@herald-leader.com

The agency that runs Rupp Arena wants the city and state to approve a $100 million tax break that it can use to lure a developer to build a parking garage, hotel, restaurants and retail space on its High Street parking lot across from the basketball arena.

According to documents submitted to the city, Lexington Center Corporation wants to create a tax increment financing district to help develop the nearly 20-acre parking lot into an entertainment district that will include a 10-screen movie theater, which is already under construction; a possible 160-room hotel; and 70,000 square feet of restaurant and retail space.

Bill Owen, president and CEO of Lexington Center, said the agency tried to get a developer for the High Street lot two years ago but could not find one willing to build a large garage to replace the surface parking lost on High Street. An ongoing expansion of the Lexington Convention Center, which the agency also runs, and a proposed new park on adjacent land will also eliminate hundreds of parking spaces adjacent to Rupp Arena.

“We discovered after we issued the RFPs that it was unrealistic for a developer to come in and take care of LCC’s parking needs,” Owen said.

Tax increment financing uses new taxes generated within the district to pay for public infrastructure, such as parking garages. According to documents submitted to the city, an estimated $101.9 million in tax revenue generated by businesses in the new district would be given back to Lexington Center over 30 years instead of going to the state and city. That includes $90.3 million in state taxes and $11.6 million in local taxes.

If approved, Lexington Center would use the first $65 million to pay for a parking structure, sewer infrastructure and other site work. If a private developer builds the garage, Lexington Center will reimburse the developer, but only if new tax dollars are generated by the development, said Lexington Center officials.

The proposed district includes the High Street parking lot, Rupp Arena and the attached convention center, and what city leaders hope will eventually become Town Branch Park, a proposed 10-acre park behind Rupp between Jefferson Street and Oliver Lewis Way.

The Lexington-Fayette Urban County Council must approve the TIF district. Kevin Atkins, chief development officer for Lexington, said the council will likely hear more about the proposal later this month. If approved locally, the application goes to the Kentucky Economic Development Finance Authority, which has final say on the tax break.

Owen said a developer has not been selected.

The ongoing $241 million expansion of the convention center will mean more people attending conventions, which will drive up demand for hotel rooms, he said.

Atkins said the city is still working on a master agreement with Lexington Center, which will spell out obligations that Lexington Center and a developer must meet.

“We will build precautions into this TIF to protect the public’s investment,” Atkins said. “We are going through the same process with this TIF as with any other.”

Documents provided to the city projects spending of $395.5 million in the district, the vast majority of which is public dollars. That figure includes $241 million for the convention center expansion and $58.5 million in private investment.

In total, the project is estimated to generate $3 billion in revenue over a 30-year period and 563 jobs annually.

Owen said the tax break will not be used to pay off debt for the renovation and expansion of the convention center. That project is being paid for through a combination of additional revenue from a new lease with the University of Kentucky, taxpayer money provided by the city and state, and an increase in hotel and motel taxes.

“This (the TIF District) was part of the downtown master plan in 2005,” Owen said.

Tax increment financing districts were approved by the state legislature in 2002 in an effort to attract developers to blighted areas. Since then, the program has been expanded dramatically, sometimes allowing developers to get huge tax breaks for building in prosperous areas.

The Lexington Center project qualifies as a “signature” project — a large development in which more than $200 million is being spent, according to documents submitted to the city.

To qualify, Lexington Center must show that the district is either in a low-income area or where development has stalled because of inadequate infrastructure.

In documents to the city, Lexington Center said “commercial activity within the development area has been in a state of economic decline for years.” It also argues that public infrastructure in the area is inadequate.

That argument is undercut by the fact that a new movie theater is already under construction at the corner of High Street and South Broadway and the convention center project has been funded, said Pam Thomas, a senior fellow with the Kentucky Center for Economic Policy. Thomas was previously a long-time staffer for the Legislative Research Commission and helped write the original 2002 TIF legislation.

The Lexington Center Corporation wants to create a special taxing district to help lure a developer to build a parking garage, hotel and retail and restaurant space on the High Street parking lot. The prospective TIF district includes the 10-screen Krikorian theater. Charles Bertram cbertram@herald-leader.com

“Essentially they are bootstrapping a public project that has most of its financing in place to help private development that may happen anyway,” Thomas said.

TIFs were designed to help private developers build in areas that have extraordinary issues that make the cost of development too high, she said.

Lexington has approved seven TIF districts since 2002: the Summit, a large retail development on Nicholasville Road; the City Center project on a block bound by Limestone, Main, Upper and Vine streets; the Red Mile; along Midland Avenue; the Turfland development area; 21 C Museum Hotel; and the University of Kentucky Coldstream Research Park.

Coldstream is in the process of receiving final approval from the state.

According to information provided to the council on Jan. 30, the city has so far given developers more than $1 million in taxes generated by active TIF districts — the Red Mile, 21 C Museum Hotel, Turfland and the Summit.