LOUISVILLE, Ky. (WDRB) – Kentucky state auditor Adam Edelen has no plans to conduct a formal audit of the Louisville Arena Authority after aiding legislative researchers on a variety of issues involving the arena board, a spokeswoman said.
"The (Legislative Research Commission) asked us to assist them in answering some questions, and we've done that," Edelen spokeswoman Stephenie Hoelscher said.
Edelen's office completed a three-page "assessment summary" of the authority as part of a review for the Capital Projects and Bond Oversight Committee, which monitors the state-issued bonds that built the KFC Yum! Center at Second and Main streets downtown. The building is home to the University of Louisville's basketball teams.
The panel is to discuss the summary at its Tuesday meeting in Frankfort.
Some members of the bond oversight committee have raised questions about whether the arena authority can void payments it was contractually obligated to make to the Kentucky State Fair Board for business lost when U of L stopped playing at Freedom Hall.
"The biggest thing I worry about is that relationship between the arena authority and the fair board and the reimbursement issue," said State Rep. Chris McDaniel (R-Latonia). "This is going to have general fund implications, and we've got to think long and hard about the way things are proceeding."
Gov. Steve Beshear's budget proposal for the next two years includes $12.7 million in general fund money for the fair board, part of the Kentucky Tourism, Arts and Heritage Cabinet, to cover a "cumulative and ongoing revenue shortfall "due to the loss of U of L basketball at the Kentucky Exposition Center, the closure of the Executive East hotel, a decline in state fair revenues and the loss of the Kentucky Kingdom lease.
The arena authority, which hired AEG to replace the fair board as the building's manager in 2012, estimated that U of L's move to the Yum! Center would result in an overall net loss of $5.3 million to the fair board. However, the fair board and arena authority agreed to a $1.5 million settlement that included the reimbursement and other amounts owed to the fair board.
Fair board spokeswoman Amanda Storment said board chairman Mark Lynn, a former arena authority member, and arena authority chairman Larry Hayes are negotiating a reimbursement amount based on a fair board proposal. She declined to provide details.
Edelen's office concluded that the reimbursement issue is a "legal matter" because it depends on how a 2006 budget bill is interpreted. For example, is the language in the budget legally binding beyond 2008, when it expired?
In addressing three other "primary" concerns of the committee, the auditor's office:
1. Agreed with legislative analysts that there is no legal or other provision that would have kept the arena authority from shrinking a tax-increment financing district that helps pay off the project's construction debt.
2. Concluded that the arena authority's change in bond trustee didn't require approval of the arena bond holders.
3. Determined that a revenue-sharing agreement between the arena authority and U of L was "legally executed."
The auditor's office had been asked to look into whether the university had gotten a "sweetheart deal." Some arena critics have long questioned an arrangement that has boosted U of L's basketball profits even as the arena has struggled to make debt payments.
The deal, Edelen's office concluded, "appears to have been legally executed, which is further evidenced by the terms of the agreement having been adhered to without known dispute since the opening of the YUM! Center.
"Given the written agreement, whether a renegotiation can occur is a legal question between the parties and not one the (Auditor of Public Accounts) can resolve."
The auditor's office also reviewed information it was provided on possible conflicts of interest related to members of the arena authority board. The report didn't elaborate on the allegations, beyond citing an example of a board member who "owns a bank that issues bonds."
The board member wasn't named. Current arena authority members include Metro Council President Jim King, president of King Southern Bank; William Summers V, a vice president at Central Bank; Rick Guillaume, a retired BB&T executive; and Dan Ulmer, retired chairman and CEO of PNC Bank.
Because the board member's bank wasn't a primary underwriter of the arena bonds, "a conflict of interest is not apparent under these circumstances," the report found.
However, Edelen's office noted that it could examine board members and management for potential conflicts of interest in the event of a formal review. But that isn't planned, Hoelscher said.