U of L decision to increase contributions is a big piece of KFC Yum! Center's rescue plan
Flawed revenue estimates led to red ink for the arena.
LOUISVILLE, Ky. (WDRB) -- The KFC Yum! Center has helped transform downtown Louisville, but less than seven years after it opened, the arena is drowning in red ink and in need of the kind of financial rescue offered by the University of Louisville.
It was supposed to be a slam dunk. When the Yum! Center was built, the Arena Authority said paying for it was not going to be an issue. The main reason for the optimism was the creation of the taxing district, or TIF, that surrounds the arena. The state is giving a portion of the sales and property taxes generated by downtown businesses such as hotels and restaurants to the Yum! Center.
Projections were that the revenue from the TIF would be more than enough to pay the debt. But those projections were wrong.
“It is no secret that TIF revenues have underperformed projections,” State Auditor Mike Harmon told legislators during a hearing on June 20.
Harmon said his audit found that the original estimates of TIF revenue were overly optimistic and based on bad information.
“I know they definitely, obviously, wanted this arena built," Harmon said. "But I can't speak to their intentions. We just know, based on our review of it, it does appear that it was flawed."
Between 2010 and 2016, the TIF was supposed to generate $71.6 million. Instead, it produced just $37.9 million. With that revenue falling short, the Yum! Center was in danger defaulting on its bond payments by as early as 2020.
“Because the TIF revenues haven't materialized, it's put additional pressure on other resources like, in particular, the University of Louisville lease,” said WDRB reporter Marcus Green.
The state has increased its contribution to the Yum! Center, extending by 25 years the length of time the arena can collect revenue from the TIF. The city of Louisville is expected to continue its maximum level of funding, $10.8 million a year.
U of L’s decision to increase its contribution to $2.4 million a year and concede control over some arena dates was a big piece of the puzzle.
“All parties realize we had a heavy lift, a very expensive asset that we all have to figure out how to pay for, and the action today is part of that,” said U of L Interim President Greg Postel.
Arena Authority chairman Scott Cox said he is now optimistic about the arena's future.
“I'm incredibly confident," he said. "This is a great day for the arena. It's a great day for the city."
Cox said, assuming the Arena Authority can reach a long-term deal with the city to continue its current level of funding, the Yum! Center is in a better position to refinance its debt.
Going forward, Cox said there is a more realistic expectation of how much money to expect from the TIF.
- Amid rancor, U of L trustees OK new KFC Yum! Center deal
- City, state seek to avert KFC Yum! Center debt crunch
- Arena authority chair ‘extremely concerned’ about lack of new U of L lease
- KFC Yum! Center bill clears Kentucky legislature, heads to governor
- State auditor says arena deal built on faulty projections
Copyright 2017 WDRB Media. All rights reserved.