Kentucky lawmakers seek audit of Louisville Arena Authority - WDRB 41 Louisville News

Kentucky lawmakers seek audit of Louisville Arena Authority

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FRANKFORT, Ky. (WDRB) – In a new round of scrutiny over the KFC Yum! Center, a Kentucky legislative panel voted unanimously Tuesday to ask for a state audit of the Louisville Arena Authority.

The General Assembly’s capital projects and bond oversight committee expects it will approve a formal letter seeking the review by Kentucky Auditor of Public Accounts Mike Harmon at a meeting next month. The committee previously agreed to hire a consultant to evaluate the arena’s “funding process,” but that hasn't happened.

The new push by state lawmakers raises a number of longstanding concerns, including whether the arena authority will be able to make a series of escalating debt payments in the coming years, and a lease that directs much of the building’s revenue to the University of Louisville.

And it comes as the state’s former attorney general and auditor, who sided with the arena authority in issues raised by the legislative committee, are no longer in office.

“This is not done to be critical of the arena authority or the people who are managing the arena,” said committee member Rep. Jim Wayne, D-Louisville. “It’s to make sure the arena is functioning well from a fiscal perspective.”

Arena authority officials were not at the meeting in Frankfort. Authority chairman Scott C. Cox said in a telephone interview that an audit is "unnecessary," but he said he would welcome such a review if it happens.

Dogged by lower-than-expected returns from a tax increment financing district near the Yum! Center, the politically-appointed arena authority has struggled at times to make debt payments. Those payments are set to increase, from the $22.3 million in principal and interest owned during the year ending Dec. 1, 2015, to a peak of $37 million in 2029.

Meanwhile, Wall Street has taken notice. Bond rating firm Moody’s said in research last year that the arena’s projections call for enough revenue to pay off debt, but it noted an “ascending debt service payment profile and limitations related to its operating agreements.”

Wayne said he also would like to revisit whether the Kentucky State Fair Board was legally able to void some payments owed by the arena authority as part of a deal struck before U of L’s basketball teams moved from Freedom Hall, operated by the fair board, to the Yum! Center in 2010.

The fair board maintains it is owed $11.1 million for revenue taken from Freedom Hall as of January 2016. And while the two groups settled a management fee dispute, with the arena authority agreeing to pay $1.5 million, slightly more than $1 million has yet to be paid, said Amanda Storment, a fair board spokeswoman.

Wayne said in an interview after the meeting that the committee might pursue a ruling from Attorney General Andy Beshear about other legal issues, such as whether any arena authority members have or had conflicts of interest that could nullify the authority’s lease with U of L, which critics have argued is overly generous.

Former Attorney General Jack Conway issued an informal opinion last year that avoided ruling on any potential conflicts, saying “we are not presented with any specific information as to the persons who may have had the conflicts or the laws such persons may have violated.”

Wayne said the issue “was not settled by Jack Conway in our request. So that would be something that I would hope eventually would be answered.”

Andy Beshear briefly served on the arena authority while an attorney in private practice.

The board is appointed by Kentucky's governor and Louisville's mayor. Cox, named to the board by Gov. Matt Bevin in June, said the authority is working on steps to strengthen its financial position.

"We're servicing the debt, we continue to service the debt. I don't think we've ever missed a payment, nor will we," he said. "But I can tell you we are working with our partners to improve the financial prospects of the arena."

Cox declined to discuss specifics of those plans, but he said he expects the tax increment financing revenues for 2015 to be "$10 million or more for the very first time, and I think that in the long term is going to get nothing but better."

Those revenues were $8 million in 2014, up from $7.4 million in 2013 and $5.7 million in 2012. The TIF district is a bellwether of the arena’s intricate financing plan, which uses revenues from arena events, sponsorships, state tax subsidies and an annual payment from Louisville metro government to cover bond payments.

But testifying before the committee on Tuesday, Louisville businessman Denis Frankenberger and attorney J. Bruce Miller warned of dire financial straits for the arena. Miller, who has pushed for an NBA team in Louisville, predicted the arena will go “bankrupt” and become a “national embarrassment” for Louisville.

(Miller also told lawmakers he knows of an investor, whom he declined to name, who is interested in bringing a team to a renovated Freedom Hall.)

For his part, Frankenberger criticized the amount of local and state subsidies used in the arena project compared with the proceeds U of L gets under its arena lease, which gives the university the bulk of some arena revenues, such as proceeds from private suite sales. U of L keeps 88 percent of those monies.

“Basically what you’ve got is a conduit by which taxpayer dollars are funneled through and out the other end and they go into the University of Louisville Athletic Association,” he said. “It’s a taxpayer scam.”

Harmon, the state auditor, will review any request for an audit once it’s received, spokesman Michael Goins said.

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