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."
May 04, 2011
Goldman Sachs touts Louisville arena as part of its plan to eat humanity's face do good deeds
If you read the kind of publications that Goldman Sachs advertises in, you may have noticed some ads from the vampire squid touting its role in helping save Louisville by selling bonds for its new basketball arena. (There's a Goldman-created video, too.) As the San Francisco Chronicle's David Sirota picks up the story:
As Goldman's ad tells it, Louisville's major problem was its need for a new arena. That's when the bank swooped in with a "financing strategy" to build the stadium, which then supposedly led to "a vibrant downtown scene, where new businesses are opening (and) existing businesses are expanding."
The only problem, writes Sirota: "If you do bother to click around the Internet, you'll inevitably find that the Louisville economic picture is anything but 'vibrant.' Today, the city is suffering from an 11 percent unemployment rate and a $22 million budget shortfall." He also cites the article we mentioned last fall that noted that Louisville's TIF district wasn't generating enough tax revenues to pay for the arena construction costs, which would leave the city having to dip into general funds to pay off those Goldman bonds.
And it gets even worse, according to Insider Louisville's Terry Boyd:
The truth is even weirder: Goldman Sachs fell short of being able to place all the arena bonds.
It was in fact Louisville-based brokerage Hilliard Lyons that saved the day, placing the highest-risk, lowest rated piece of the arena debt.
How do I know? I wrote the story for Business First last year.
Concludes Boyd: "We'll find out pretty soon if the arena's revenue will match our collective debt obligation. But one thing is for sure — you can bet Goldman Sachs makes money no matter what happens to tax payers."
September 17, 2010
Louisville TIF generating next to no arena money
Back in 2000, economic-subsidy expert Greg LeRoy of Good Jobs First said this to me about tax-increment financing, in which new tax money from a development is earmarked to pay off the development's bond costs:
"TIFs are among the most problematic kinds of subsidies in America today. Right now we're in the middle of this giant real estate boom, but real estate markets are cyclical. During the crash in real estate values in the early '90s, some places got caught in the downdraft, and the increment evaporated. And you've got a situation where a liability that was supposed to be taken care of by the TIF is now eating the lunch of the general fund."
From Wednesday's Louisville Courier-Journal:
Paying for the KFC Yum! Center depends on more people spending money downtown, but the plan to use rising sales tax revenues to cover part of the arena debt failed to produce a single penny last year....
And if sales tax projections continue to lag, Metro Government could have to come up with an extra $3.3 million to cover arena costs as early as 2012....
Without any of the $4.5 million in projected sales tax revenues, the project received just $678,000 worth of tax rebates last year — nearly all of it from property taxes.
Now, the KFC Yum! Center — yes, that really is its name — doesn't even open until next month, so it's possible things will look better in coming years. Still, you can't say Louisville wasn't warned.
October 27, 2009
Louisville study: New arena makes sun rise in east each day
Louisville's downtown arena has helped generate more than $100 million in nearby investment and construction, according to an economic impact analysis released Monday.
If you're a regular reader of this site, you've probably already guessed that this "analysis" was conducted by an entity with a stake in making the arena project look good (the Kentucky State Fair Board, which will run the place once it opens next year), and that the methodology was not quite as robust as one would like — in this case, they simply totaled up all the construction going on in the immediate vicinity, and then counted that all as "generated" by the arena, even in cases where developers told the Louisville Courier-Journal that they would have done the projects anyway.
Stay tuned for my own economic impact study showing how my purchase of new curtains helped lead to the construction of millions of square feet of new condo towers.