A long story in the Courier Journal over the weekend examined the significant tax revenue shortfall at Louisville’s KFC Yum! Center:
The revenue needed to pay for the 15-month-old arena at Second and Main streets is falling short of expectations, putting the project at risk of failing to cover its debt and having its bonds relegated to “junk” status.
The main culprit is lagging revenue in a special taxing district that forms the foundation of the arena’s financing plan and is supposed to provide the Louisville Arena Authority with more than enough cash to pay its $349 million in bonds.
….The authority expected to have $26 million available — including $6.7 million from the taxing district — for its 2011 payment of $19.1 million. Instead, the district produced only $2.1 million in 2010, which goes toward the 2011 payment.
Coupled with lower-than-forecast income from arena operations, the authority expects to have only $14.6 million.
That’s the gist though there’s much more, including the projected $3M shortfall in 2012 that Jim Host says will be covered with money that was set aside for maintenance, and various other machinations to keep the city from being immediately on the hook.
Here in Lexington, the planned Rupp Area renovation — currently estimated at $260M for the arena and convention center — is quite a way from reality or funding. The city asked the state for $20M to help plan and design the re-do, Governor Beshear gave Lexington $3.5M and the city will throw in another $1.5M for a $5M starting fee.
(Coupled with Beshear’s projected outlays to President Capilouto to privatize student housing on the UK campus, it becomes clear Eli and Mitch’s big show of putting the emphasis on students and declaring themselves disinterested in state funding for the arena was at best a ploy to get the most money from the state and at worst was something of an F.U. to the city for not giving them the new Yum!-like arena they so desperately wanted.)
That $5 Million just for planning and design. A ton more money is going to have to come in and the Rupp Area task force is expected to come back with some thoughts on that financing situation soon. Meantime, conversations around the arena continue and one such is the possibility of selling the naming rights to the arena.
Naming rights bring in big money. They also mean you end up with terrible arena names. Rupp Arena isn’t going to be Rupp Arena or it would become The 5/3rd Toyota Prius Applebee’s Rupp Arena. Or something worse.
The Yum! Center got $75 Million in state funding and an awesomely cool name for a bonus pricetag… and you see how well they’re doing. Both WKYT and Jerry Tipton have looked at fan reaction to the prospect of selling the name of Rupp Arena and both found similarly disinterested fan bases. Tipton also brought us this alternative:
The Green Bay Packers are inviting fans to pay $250 for a share in a major renovation of Lambeau Field. It’s been suggested that Lexington might ask UK fans to buy an interest in the entertainment district. As an incentive, buyers could be eligible for a raffle of premium seating and parking for each home game.
The Packers, like UK, belong to the people, and Green Bay has done some overall interesting things to raise money for their team’s stadium expansions over the past several years. UK doesn’t seem similarly interested at the moment (they’re busy privatizing the student housing, remember).
In his recent book “Big-Time Sports in American Universities,” Dr. Clotfelter notes that between 1985 and 2010, average salaries at public universities rose 32 percent for full professors, 90 percent for presidents and 650 percent for football coaches.
The same trend is apparent in a 2010 Knight Commission report that found the 10 highest-spending athletic departments spent a median of $98 million in 2009, compared with $69 million just four years earlier. Spending on high-profile sports grew at double to triple the pace of that on academics. For example, Big Ten colleges, including Penn State, spent a median of $111,620 per athlete on athletics and $18,406 per student on academics.
Division I football and basketball, of course, bring in millions of dollars a year in ticket sales, booster donations and cable deals. Penn State football is a money-maker: 2010 Department of Education figures show the team spending $19.5 million and bringing in almost $73 million, which helps support 29 varsity sports. Still, only about half of big-time programs end up in the black; many others have to draw from student fees or the general fund to cover expenses. And the gap between top programs and wannabes is only growing with colleges locked into an arms race to attract the best coaches and build the most luxurious venues in hopes of luring top athletes, and donations from happy alumni.
It’s a long article and worth the read, even if these type of stories aren’t new. The explosion of money surrounding college sports has been happening for years and the deleterious effects that come with it should be no stranger to anyone involved in city planning or university sports. Sports teams both undergraduate and professional have routinely bilked taxpayers across the country, receiving new arenas at little cost to the teams and long term cost to their host communities.
Which is not to say that the process necessarily ends in failure. The University of Kentucky Wildcats are certainly a boon for Lexington’s economy, between the games, the restaurants, the vendors, the parking, the t-shirts, and everything else. It’s a brand for the city, too, and, of course, the Rupp plan (like the Yum! one) isn’t just about the arena, it’s about the whole of downtown.
So getting it right is important. Can the Task Force do that? Can they find realistic financing models, real investors? Can they come up with a sound economic plan that won’t lose the city money? Obviously that’s their challenge and what nearly everyone is waiting for (…”nearly” because there are certain powerful people and some fans who seem to erroneously think that leaving the arena as is amounts to some colossal failure… but we’ll get to that later, if it comes to that).
Dan Dickson in BizLex recently looked at Oklahoma City and their model:
Oklahoma City is often remembered for the devastating 1995 act of domestic terrorism that resulted in the loss of 168 lives and destruction of its federal building. But now, Oklahoma City is getting noticed for how it is financing public projects.
It’s called MAPS (Metropolitan Area Projects) and is a limited-term, one-cent sales tax that began in April 2010 and ends in December 2017. This latest local voter-approved initiative is funding eight projects and is expected to raise about $777 million.
Among the eight public projects are a new downtown convention center to attract larger conventions and bring additional revenue into the local economy, a downtown rail-based streetcar system with six miles of track, a large downtown public park and several senior health-and-wellness centers.
Being funding with a limited term, one-cent sales tax, the Oklahoma City projects are expected to be built debt free.
There are drawbacks and obstacles to something like that happening here in Kentucky, which Dan goes into, but presumably these are the sorts of ideas the Rupp Area Task Force is considering alongside the naming rights, debt-based and other forms of financing.
Part of the idea in the Space Group plan for the Rupp Area is transforming the entire area into an economic engine, not just the arena in hopes the blocks surrounding may also spring up, but putting the two goals together. As Michael Speaks, dean of the UK School of Design, wrote in the Herald this weekend:
Bates has proposed a design-focused district, which other cities have used very successfully to attract new businesses and talent.
Such districts have helped cities burnish their image, and enhance their brands. Well-designed public spaces, buildings, parks and even infrastructure are now recognized as ways to add economic value.
In New York, redevelopment of the derelict High Line elevated railway into a new, elevated urban park has transformed the lower west side of Manhattan into an economic engine generating $2 billion in private investment.
In Miami, developers have even used world-renowned architects to design parking garages. From Seoul, South Korea, where designation as “world design capital” has transformed the city into one of the most spectacular in Asia, to the design-led redevelopment of Syracuse, great design has become not only a quality of life issue, but an economic engine.
It’s possible to avoid the classic arena-based failures of other cities. Step one is getting a decent plan, and step two is making sure it actually is a decent plan. Downtown Lexington has enough problems, it doesn’t need junk bonds added on, but refusing to look at the options is as silly as blindly doing the University’s bidding.
Maybe we could raise revenue by privatizing Eli Capilouto.
Or did that already happen?