January 24, 2012

Louisville arena TIF fund on verge of needing bailout

Hey, remember back in 2010 when it was reported that Louisville's tax-increment financing district wasn't actually generating any incremental taxes, and if things didn't improve the city would need to bail out its stadium fund with general revenues? Well, guess what:

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.

Arena authority chair Jim Host told the Louisville Courier-Journal that he has no plans to ask the city for money immediately, but did apparently tell city officials that he will ask for as much as an extra $3.3 million a year starting in 2013.

There are already plenty of reasons to be wary of TIFs, among others that much of the "new" tax revenue is actually money that would have been collected somewhere else in your city regardless. But the scariest part for city officials may be their uncertainty — a relatively small shortfall in consumer spending that causes tax proceeds to go down, not up, and in the words of subsidy expert Greg LeRoy, "a liability that was supposed to be taken care of by the TIF is now eating the lunch of the general fund."