Louisville mayor insists arena is doing just fine despite junk-bond status

Standard & Poor’s lowered its bond rating for the Louisville’s KFC Yum! Center to junk grade on Friday, which I thought about mentioning at the time but didn’t because this isn’t Field of Bondholders. (Inasmuch as I do like typing “KFC Yum! Center.”) Things are getting more interesting now, though, as Louisville Mayor Greg Fischer is having to fight off charges that the city might end up having to actually default on the arena debt:

“The payment of the bonds is not in question, and it’s not in jeopardy,” Fischer said in an interview Monday.

Moody’s Investors Service and Standard & Poor’s Ratings Services have both downgraded the status of the bonds that are paying off the arena’s construction costs, contending that the arena’s financing plan may not be able to cover the $340 million bond debt…

The downgrade prompted Louisville Metro Councilman Dan Johnson, D-21, to call for a renegotiation of the lease agreement between the Yum! Center’s oversight board, Louisville Arena Authority, and its main tenant, the University of Louisville, which Johnson said would make the arena more profitable and the bonds more stable.

“This report … gives the impression that the arena could default because it may be unable to pay bond debt,” Johnson said.

It’s important to remember here that the KFC Yum! Center itself has been fairly successful, in terms of arena operations: It may not have an anchor sports tenant other than the University of Louisville basketball team, but it’s been a relatively successful concert facility. As we’ve seen before, though, arenas generally have a tough time paying off their construction costs out of operating profits; in Louisville’s case, the bulk of the cost was supposed to be paid off via a tax increment financing district around the arena that diverts new tax revenue to pay for the building’s construction debt, but that money has fallen woefully short, with the city having to kick in an extra $9.8 million last year to make up the difference.

Johnson has called for renegotiating the city’s lease with the U of L to get the city more money — if only by ending the provision that allows the university to black out arena dates before and after its own games — which makes sense seeing the windfall the school gets from its lease. Fischer retorts that the problem isn’t the lease, it’s the TIF district — which also makes sense, albeit in a “we were dumb not to have an actual idea for paying for this” way.

In an indication of just how screwy TIF financing can be, Fischer says that all should be well now that the city approved shrinking the TIF district back in September, which is expected to bring in more money:

The TIF allows the arena to keep a portion of increased tax revenue generated by business the facility helps bring in to the taxing district. But the district boundaries were drawn so large that too little additional tax revenue was generated to pay off the arena debt.

Arena authorities, according to a previous Courier-Journal report, see the downsizing of the TIF district as a move that ultimately will increase revenues from businesses opening in the district, funneling more tax revenue to the arena.

In other words, businesses immediately adjacent to the arena are paying more taxes, but businesses a few blocks away are moving out, making the overall TIF impact closer to a net zero. By ignoring the arena’s impact on the broader area, then, and just focusing on the couple of blocks next to the arena, the city can only count the pluses and not the minuses, and everybody’s happy! Right?

U of Louisville turns $26.9m annual profit on basketball, as city takes $9.8m a year loss

If you like infographics, you’re just going to love this one from ESPN the magazine! Giant blue Rick Pitino monster! Brightly colored geometric shapes! The number “$25,800,000″ in really big type! It’s the perfect simulacrum of actual information, equally comprehensible for ages 5 to 55!

There is one interesting tidbit in there, actually, which is that the University of Louisville makes a whole lot of money on basketball, bringing in $42.4 million a year in revenue, and spending $15.5 million on expenses. (None of which, needless to say, go toward paying the athletes that people are actually paying to see.) That’s an annual profit of $26.9 million, or $1.35 million per home game, as portrayed by a giant red circle that brings to mind the diameter of Jupiter.

For the missing piece of the puzzle, we need to turn to Insider Louisville, which notes that the university’s basketball players aren’t the only ones getting the short end of the stick here:

If you’re taxpayer in Jefferson County, you need to keep one thing in mind while you’re looking at the stunning numbers the University of Louisville basketball program puts up on the P&L sheet … you’re subsidizing the program out of your pocket with at least $9.8 million annually, or almost $20 million during the last two years.

It’s actually worse than that, because Louisville’s tax increment financing district — property and sales tax revenues that are being kicked back to pay for the arena — is costing taxpayers an additional $3.5 million last year. (It was actually supposed to be more than that, but tax revenues fell woefully short, leaving the city to make up the difference.) Even if you count that as new revenue the city wouldn’t have gotten without the arena, though, which is arguable (some of it is likely cannibalized from elsewhere in the city), that’s still almost $10 million a year that Louisville residents are handing over to the university so that it can rake in record sports profits. At least it’s a public university, so I guess you can look at this as a back-door way of fighting the trend of reduced higher-education funding? Um, maybe?

Emanuel on DePaul arena: Hire architect first, ask questions later

How badly does Chicago Mayor Rahm Emanuel want to get his $300 million DePaul University basketball arena (which would use $125 million in public funds) built in a hurry? He’s only giving design firms a few weeks to submit proposals for the project, and isn’t letting them talk to community residents until after he’s picked a winner:

Community leaders want to know how the arena, also planned as a venue for concerts and convention meetings, would work, not just how it would look. Would it be a blank-walled urban fortress (think the United Center) on days when no events are scheduled? How will cars be routed through the historic district’s narrow streets? Where will loading docks go? Will there be enough transit to handle the crowds for concerts and DePaul men’s and women’s basketball games?

“We’ve been purposely kept out,” Tina Feldstein, president of the Prairie District Neighborhood Alliance, said Wednesday. Ideally, added the group’s co-vice president, Jeff Ayersman, the six architectural firms working on the arena should be “listening to the community.”

The project has already gotten state approval, and we’ve seen how Emanuel gets his way with the city council, so it looks pretty likely to go forward. Which, if nothing else, will give the rest of the world a good test case of whether building a 12,000-seat college basketball arena attached to a convention center is crazy stupid or a great idea waiting to happen. I know where I’d put my money, but thanks as always, Chicago, for being the nation’s wacky urban redevelopment guinea pig!

Illinois Gov signs bill to add Emanuel’s DePaul arena subsidy plan

Fresh from his win on Wrigley Field renovations, Chicago Mayor Rahm Emanuel got good news on one of his other pet projects yesterday, as Gov. Pat Quinn signed a bill that would help allow him to use public funds for a new arena for private DePaul University. Exactly what it does to help isn’t something that any Chicago-area news outlet seems to have reported, because Quinn mostly talked about building a third airport in Chicago, and what kind of modern journalist writes about things other than what the person giving the press conference wants them to write about? That’s just crazy talk.

Quinn’s bill-signing came one day after Chicago teachers protested 2,000 school layoffs that were announced last Friday, calling on the governor not to approve the DePaul project while the school system is “being decimated by massive budget cuts.” Maybe they should have tried mailing the governor a dead fish.

Kentucky diverting coal-recovery cash to pay for arena plans

There was a story last week in SI about how a renovation has been proposed for the University of Kentucky’s Rupp Arena from 2014 through 2016, and blah blah blah we knew this already, right? So I stopped reading, and my bad, because it turns out that to pay for $2.5 million in planning and design costs, reports ThinkProgress’s Travis Waldron, Kentucky will divert money that’s supposed to help mining communities weather the end of the coal economy:

The so-called coal severance tax generates more than $200 million a year in revenues for Kentucky. Half of that revenue goes immediately into the state’s general fund. The other half is split between two separate accounts for reinvestment into coal-producing counties, with those investments aimed at funding economic development projects that aren’t related to coal, and to foster economic development partnerships between eastern Kentucky counties. In the past, it has funded the creation of industrial parks, road, water, and other infrastructure projects, and scholarship programs for students from coal country. It is meant to address a reality that is staring Kentucky in the face: coal won’t be there forever, and the counties whose mountains have produced it for more than a century need something to turn to when the coal either runs out or is no longer worth mining.

What it isn’t meant to do is build arenas in Lexington. “That’s not what this money is for,” Carrie Ray, a research associate at the Mountain Association for Community Economic Development, an organziation based in Berea, Kentucky, told me. “It’s not intended to build a basketball arena that’s nowhere close to the coalfields.”

As Waldron notes, $2.5 million is a small amount of the $100 million set aside from this fund, but still, $2.5 million. Plus, given that the official source of the $300 million in state funds needed to pay for the actual renovation is “we’ll get back to you,” $2.5 milliion could be just the tip of the coal seam.

DePaul faculty, students protest Emanuel’s proposed arena deal

The list of people in Chicago who think Mayor Rahm Emanuel’s plan to spend $125 million on a new basketball arena for private DePaul University — which already includes pretty much everyone in Chicago, especially those who are already outraged by Emanuel’s plan to close 50 city schools to save money — can now add some new members: 24 DePaul professors who say that spending $70 million in university money on the arena is “wildly out of line with other university priorities.” According to DNAinfo:

The letter focuses on DePaul’s fiscal situation, specifically a cap and temporary postponement of annual raises and the “unprecedented” levels of student debt faced by students.

“2013 is for a lot of reasons, not the right time to get into this,” said Craig Sirles, an associate professor and chair of DePaul’s English Department.

A campus petition to oppose the arena plan, meanwhile, now has more than 1,000 signatures, including DePaul basketball player Cleveland Melvin.

 

More than one-third of Louisville arena revenues coming from government checks

There’s some new data on how Louisville’s annual subsidies are propping up the KFC Yum! Center, courtesy of the Louisville Courier-Journal:

The report doesn’t explicitly show how the arena authority pulled together the money to make its two debt payments last year totaling more than $20 million. Some of the money included more than $3 million borrowed from a renovation fund and an increase in Metro Government’s annual contribution to $9.8 million, from $6.5 million.

According to the report, the authority had $26.2 million in operating revenues and other support last year, up from $24.9 million the year before. That is largely [the] result of the additional city money, which made up the biggest chunk of arena revenues.

For those without access to a calculator, that’s fully 37% of the arena’s revenues that came via a check from the city government. And that’s not including the kicked-back property and sales taxes that are costing the city about $2 million a year — which is on the one hand good considering that this tax increment financing was supposed to provide about triple that amount, but on the other hand not so good since the city has to pay the arena bonds regardless, hence the need for the growing operating subsidy.

There’s still hope that AEG, which took over operations of the arena last year, will somehow work some magic that will reduce the building’s losses, but given their work elsewhere, don’t hold your breath. It seems likeliest that Louisville will simply have to learn an expensive lesson: If you’re spending $349 million in taxpayer money on a new arena whose only anchor tenant is a college basketball team, you probably have no hope of ever making your money back. Also: When the vampire squid talks, don’t listen.

Chicago impact study assumes DePaul will nearly quadruple attendance at new arena

That 12,000-seat DePaul University basketball arena that Chicago Mayor Rahm Emanuel wants to spend $125 million in city money on already sounded like a pretty bad idea, given that DePaul is 1) a private college that 2) only draws 8,000 fans a game and 3) has plenty of other arenas it can play at. But it sounds even more craptacular now that Crain’s Chicago has revealed the figures for how many of those tickets are actually used:

Attendance at Blue Demons home games in suburban Rosemont over the last three years has averaged around 2,900, according to Allstate Arena ticket records obtained by Crain’s. That’s about 35 percent of the school’s reported numbers and 30 percent of what McPier officials are projecting for the new arena…

This past season, the official average number of fans that went to DePaul home games at Allstate Arena was even lower: 2,610 based on the Ticketmaster scan system, which tracks exactly how many people come inside.

That is far below DePaul’s reported average home game attendance of 7,938 over those 16 home games. Over the course of the entire season, the school reported total attendance at Allstate Arena at 127,020. The actual attendance was 41,771.

Why are more than 5,000 people a game buying tickets and then not using them? They’re not, explains Crain’s — the discrepancy is largely because of tickets that the university itself buys, then makes available to students or charities free of charge. But even students and charities don’t want to go to DePaul basketball games, so the seats remain empty.

Why does any of this matter? Because the economic impact study commissioned to support the arena project counts those phantom fans as actual money-spending consumers:

That report projects an average attendance of 9,500 at DePaul men’s basketball games in the new 10,000-seat arena, or 152,000 people over 16 games. That’s more than 40 percent of the projected annual attendance of 370,000 for all events at the arena, including concerts, shows and conventions.

While the school would likely still pay to reserve student seats to games at the new arena, recent history suggests the butts won’t actually be in the seats, nor would the fans be out and about spending money in the neighborhood.

So, to recap:

Emanuel’s proposed DePaul arena would use $125m in city money, sap schools budget

Remember how I said yesterday that we’d have to wait till later this week for financial details of Chicago Mayor Rahm Emanuel’s plan to build a $300 million arena for DePaul University? Well, turns out we only had to wait a few hours, thanks to whichever City Hall sources leaked them to the Chicago Sun-Times:

Mayor Rahm Emanuel’s plan to build a 12,000-seat basketball arena near McCormick Place that would double as a home for mid-sized shows would be built with $125 million in public funds — $55 million in tax-increment financing and $70 million in hotel taxes, sources said Tuesday.

That’s a pretty big chunk of change for what amounts to a minor-league-sized arena that would be mostly used by a private Catholic university along with, maybe, some conventions or something? And TIF money, as has been covered extensively in the past, has in Chicago in particular ended up raiding property-tax revenues that would otherwise be used for school funding — something that WLS radio reporter Bill Cameron tried to ask Emanuel about yesterday, but “he fled to his SUV and left.”

The Sun-Times article also makes it look like there’s some significant neighborhood opposition to the arena plan, with South Loop neighborhood group leader Tina Feldstein declaring, “We’re not afraid of tall buildings. We’re not asking for this to be quiet with no activity. But, we want to see it become a destination [year-round] — not a few times a year. An arena with 12,000 seats is a massive wall that’s essentially going to just deaden the neighborhood.” Mayors usually get what they want in these projects, especially Chicago mayors, but in terms of public perception, Emanuel is already digging himself a pretty big hole to start.

Louisville arena to turn a profit, thanks to more city money

Finally some good news about Louisville’s KFC Yum! Center, the college basketball arena that has been hemorrhaging money since TIF revenues started falling massively short three years ago: The chair of the Louisville Arena Authority now says that under a new operations manager, the arena should “show a pretty amazing operating profit this year” and may soon be able to move its bonds out of junk status.

That’s indeed great news, since it means that the beleaguered arena won’t be needing any more annual subsidies from the city to remain afloat, right?

After having to unexpectedly increase the city’s contribution to debt service in this fiscal year, Mayor Greg Fischer’s 2013-14 budget includes a $9.8 million contribution as TIF revenues are again expected to not meet original projections.

Oh. Well, never mind, then. But at least it’s nice that the arena can turn a profit when the city gives it $10 million to subsidize its operations, or something? Hey, I’m trying not to be negative here! Somebody help me out!