Metro Council ordinance seeks to lock in $240 million of KFC Yum - WDRB 41 Louisville News

Metro Council ordinance seeks to lock in $240 million of KFC Yum! Center payments

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LOUISVILLE, Ky. (WDRB) – If the University of Louisville agrees to contribute more money to pay off the KFC Yum! Center’s construction bonds, Metro government would commit $240 million toward arena debt over the next two decades, according to an ordinance introduced at the Metro Council.

The payments – between $9.8 million and $10.8 million a year – don’t represent an increase in the maximum amount the city already had pledged under an agreement struck prior to the arena opening in 2010.

But the measure filed Thursday, sponsored by Democrat Marianne Butler and Republicans Kelly Downard and Angela Leet, abandons the prospect that the city could pay a minimum amount in arena debt costs each year. Those lesser payments would save Metro government roughly $3 million to $4 million annually.

The proposed adjustment to the city's commitment comes as the arena authority seeks to refinance the arena's outstanding debt, Downard said. At the same time, the state and U of L are being asked to alter their financial contributions.

"Everybody's agreeing to an increase in their participation, and that's what the ordinance says," Downard said. Removing the minimum payment is meant to give investors a solid annual pledge from Metro government that doesn't fluctuate, he said.

Downard also noted that the ordinance keeps intact a revenue-sharing agreement between the arena authority and the city if the arena has excess revenue after making debt payments; that hasn't happened since the project's early years.

Mayor Greg Fischer said Friday afternoon that he hadn't seen the ordinance, but added: "There's eminently doable solutions to this thing, and we'll evaluate what the best ones are for this city."

Council member Bill Hollander, D-9th District, raised several concerns with the measure on Friday and questioned why the council is "in a rush" to pass it. He said the ordinance was filed just hours before Thursday night's meeting, and "nobody knew it was coming."

Hollander specifically questioned the sponsors' desire to remove the minimum annual payments, instead locking the city in to higher amounts. The larger payments are triggered if the minimum amount isn't enough to help the Louisville Arena Authority make its debt obligations.

The difference between the minimum and maximum payments is about $80 million between now and 2039, when Metro government's pledge ends.

The city's deal, crafted by Downard and late Metro Council President Jim King, was meant to save millions per year in public funds -- as long as arena revenues came in on budget. That hasn't happened, forcing the city to pay the maximum of $9.8 million starting in 2013, rather than a lower amount of $6.5 million.

Hollander, the chair of the council's majority Democratic caucus, said officials ought to consider the implications of eliminating the minimum payments.

"This is money that, if we ever got to less than the maximum payments, could be used for other, pressing needs that won't be available if this is passed," he said.

Critics have cited the U of L lease as overly generous, giving the university an uneven share of arena revenues at a time when support from a tax increment financing district has fallen well below expectations, prompting the additional Metro government payments. The university's basketball teams are the main tenants of the Yum! Center.

"We will have some kind of discussions moving forward with the arena and the arena authority," said Kenny Klein, a U of L athletics spokesman.

The local legislation comes days after Scott C. Cox, the chairman of the Louisville Arena Authority, acknowledged that the board overseeing the Yum! Center may have difficulty making a series of ascending debt payments after 2021.

And Gov. Matt Bevin, who appoints the arena board along with Fischer, said earlier this month that U of L’s lease at the Yum! Center needs “adjustments.” Bevin named Cox to the board this year.

Asked if he supports changes to the university’s lease, Fischer said Thursday that “U of L is going to have to come to the table with something.”

“The city will have to also make commitments as well as the state, so it’s going to take all three parties here,” the mayor said.

The council’s proposal would let Fischer sign a revised agreement with the arena authority, solidifying the city’s payments of $240.4 million as long as several steps occur. They include a new U of L lease with the arena authority in which the university would contribute more “money, funds, or receipts toward the retirement of debt” – if Fischer believes the increased payments would be “sufficient” to help pay off the arena debt.

Hollander, however, questioned that language. "Presumably, a dollar is ‘sufficient’ to assist, right? $2 would be more and $3 would be more?” he said.

The ordinance also would be contingent on state approval of changes to the arena’s tax increment financing district, which sets aside some sales and property tax revenue for debt payments. (Cox said Monday that the arena authority wants to add years to the district to match when the bonds reach maturity.)

It also would need an opinion from the arena authority’s bond counsel that any new agreement would not “adversely affect” the bonds, including those that are tax-exempt, and approval from the bond insurer.

Tax increment financing was supposed to provide most of the money for the arena’s construction debt, but the proceeds have failed to meet expectations. Meanwhile, the debt payments rise steadily in the years to come, from $23.1 million this year to a peak of $37 million in 2029.

Citing a number of concerns about the financial health of the arena, the state’s Capital Projects and Bond Oversight Committee voted Tuesday to ask Kentucky’s auditor to conduct a special examination, and possibly an audit, of the arena authority.

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