Floyd lesson: If too good to be true, it is

Thunder Ridge race track in Prestonsburg was promoted in 1993 as a place that would boost both harness racing in Kentucky and the local economy.

Floyd County issued a $2.7 million bond to help underwrite its construction although it was understood that profits from the venture, not Floyd County taxpayers, would make the payments.

That hope soon began to dim as both the track and a related company went into bankruptcy following construction cost overruns and lower-than-expected revenues.

Now, with the collapse of recent negotiations to sell the track to Keeneland, it looks as if Floyd County could be stuck with the $2.1 million balance — equal to about 20 percent of the county’s annual budget — due on the bonds.

While Thunder Ridge has always been a uniquely snakebit project, this sad state of affairs should serve as a cautionary tale for other cities and counties considering lending their borrowing power and low interest rates to assist private developers.

Before the first ceremonial shovel hits the dirt, optimistic estimates for job creation and economic impact are used to convince local officials that they can help bring prosperity to their communities with almost no risk.

But history says that “almost” can be dangerous, whether the deals involve public bond financing or the more complex Tax Increment Financing (TIF) projects, like the cash-poor Yum! Center in Louisville, the troubled downtown development in Bowling Green, or the long-dormant CentrePointe project in Lexington.

Last year, a new law gave local governments another option to partner with private concerns on infrastructure projects without competitive bidding. Although there’s a provision for state review of the projects, it only kicks in if the contract exceeds 30 percent of the local government’s general fund revenue in the preceding year.

Cash-strapped local governments could benefit from leveraging private capital, and sometimes do. But the risk may be underrated while the rewards are far oversold.

Planning for Thunder Ridge began when efforts to legalize casinos centered on businesses that already had racetrack licenses. It’s likely that investors — including Kentucky bond heavyweights Terrell Ross and Murray Sinclaire, and former Gov. Julian Carroll (now a state senator) — were more motivated by the hope for mega profits from a casino than by a sincere desire to create a harness racing circuit or promote economic development in Floyd County.

When casinos failed to materialize, revenues from harness and stock car racing fell far short of what was needed to meet operational costs and pay down debt.

Thunder Ridge reorganized under bankruptcy law and refinanced its debt more than once so that, with occasional help from Floyd County, it has been able to hold off the day of financial reckoning for two decades.

With the wisdom of hindsight, Floyd County Attorney Keith Bartley calls the decision to issue the bonds “a huge mistake.”

County judges and mayors, fiscal courts and city councils must take this lesson to heart and ask hard questions, demand realistic numbers before they put taxpayers’ money at risk.

They should always keep in mind the first rule of investing: If it seems too good to be true, it probably is.

This story was originally published January 26, 2017 at 6:49 PM with the headline "Floyd lesson: If too good to be true, it is."