Episode 16 — Yum! Center History and UofL Accreditation

Yum! Center

  • Back in 2005, when Ernie Fletcher was Governor, the idea to build a Louisville arena bubbled up. It immediately had problems.
  • The state government said there were bigger issues, such as funding Medicaid.
  • Even the Louisville delegation was split on the idea, and then-Lt. Gov Steve Pence had to put together a pep talk at Locust Grove.
  • The biggest obstacle in the beginning was site selection: there were several sites discussed, but the main sites were a waterfront site 2nd and 3rd (the “LG&E” site), a site between 2nd and 3rd, bounded by Muhammad Ali and Liberty (would have been bounded by Third Street Dive and the Episcopal Diocese) (the “Water Company” site), and a new arena at the fairgrounds.
  • David Jones (Humana) and John Schnatter (Papa John) funded a study of the LG&E and Water Company sites, and determined that the Water Company site would cost about $120 million less and would be about exactly the same otherwise.
  • James Ramsey, Tom Jurich, and Rick Pitino lobbied heavily for the LG&E site. The most dramatic appeal for the LG&E site came when Rick Pitino told WHAS11 that “Louisville is not playing at [the Water Company] site”
  • Eventually, the task force that was created to study the issue agreed on the more expensive LG&E site, with the only dissenting vote coming from John Schnatter, who, despite calling the task force a “waste of time” and “rigged for the 2nd and Main site”, turned around and promised $5 million for the development for the site.
  • At the end of the day, Governor Fletcher (and, by proxy, the GOP-led KY Senate) and UofL very much wanted the 2nd and Main site, while the rest of the parties wanted the cheaper option. In the end, UofL (as the main tenant) got what they wanted.
  • The total debt for the arena was about $573 million, with $339 coming from bonds.
  • The biggest contributor to the cost was a $256 million from tax-increment financing. TIF is a tax strategy in which a portion of the taxes which the arena helps to generate go back to the costs of the arena. This is mostly sales and other excise taxes which would have gone to the state government. At the onset of the project, this was a six mile area around the arena.
  • The city of Louisville then pledged at minimum to pay $206 million to the arena, with the amount being allocated annually between a minimum range and a maximum range.
  • $84 million in fees
  • $63 million in luxury suite revenue
  • $37 million for naming rights.
  • Yum! Brands ended up paying $13.5 million for branding for 10 years, about half of what the arena authority thought.
  • Even though there were people such as Larry Clark (and many House Democrats), Doug Hawkins, John Schnatter, and many others who had serious reservations about the costs of the arena, the arena authority said throughout the process that finance would not be a serious issue.
  • UofL had a very favorable lease as the sole tenant in the arena. Jim Host, chair of the arena task force, told UofL trustees that, among many other things, that UofL would always have scheduling priority in the arena and that even if another tenant were interested in the building, that UofL would take priority over them.
  • The arena was built, and it opened in 2010. By 2012, there were new rumblings of serious problems.
  • It was identified by Terry Boyd in Insider Louisville that under Section 47 of UofL’s lease agreement that if the arena went into default, that UofL would have the option to buy the Yum Center (remember, their lease also allows them to control scheduling)
  • The projections used in the bond prospectus for the TIF have not ever been met. In 2013, people started talking about that. Chief among the critics back then was Denis Frankenberger. Frankenberger released a white paper that stated that the total bill over 40 years for the Yum! Center would be $839 million, significantly more than the arena authority’s estimate. He stated that the TIF has not brought in nearly enough money, and that the arena task force did poor work in putting it together. He accused them of “working backwards” from finding the amount they needed for the arena, figuring out how much the other partners would bring to the table, and saying the TIF would make up the rest. His work was considered overly pessimistic, but he did hammer home something that was/is absolutely true: the TIF payments were far below expectations.
  • In 2012, TIF revenue was expected to be $8.2 million and was actually $3.5 million. To make up the difference, the Yum Center cleared out it’s maintenance fund, and received extra payments from Metro Government.
  • S&P and Moody’s downgraded the bond rating for the Yum Center to “BB” (one of the “junk” ratings) based on the difficulty the Yum Center had paying off their bonds in 2013. (This is a cosmetic problem, as the bonds aren’t currently callable)
  • At this point, the lease from UofL came under considerable heat. In order to make more money from events, there needed to be more dates the Yum Center operated. However, given UofL’s scheduling priority, it would be increasingly difficult to find another tenant.
  • In November 2013, ESPN the Magazine ranked Louisville as the “top men’s college basketball team by revenue”, with $42.2 million in revenue and $15.5 million in cost, as well as a nations-best $1.35 million in profit per home game.
  • In a story by Joe Sonka in the LEO, Neil deMause, an expert on publicly owned stadium, said that it appeared that “Louisville is really going to be the poster child for TIF disasters”
  • Things calmed down for a while, but heated up again recently. The TIF area has continued to underperform, and Louisville Metro Government has had to kick in more payments that expected.
  • Governor Bevin has been significantly more willing to engage on the arena issue than either Governor Fletcher or Governor Beshear. Governor Bevin has called the university’s lease “overly generous in one direction” and called for it to change. He appointed Scott Cox as the arena authority chairman.
  • Mr. Cox reported that the arena probably wouldn’t be able to pay its (increasing) debt payments by 2021 unless something changed (more money, better financing)
  • Meanwhile, in November at the Metro Council, Democrat Marianne Butler and Republicans Kelly Downard and Angela Leet proposed an ordinance which would have eliminated the range of payments, and locked in the city’s contribution at the maximum amount. This proposal was attached to provisions allowing Mayor Greg Fisher the ability to take part in a renegotiation with the arena authority, hoping to get a revision of the TIF part of the financing, and some sort of lease renegotiation from UofL. The full Metro Council tabled this in December, but the budget committee unanimously approved the ordinance on December 9.
  • None of this sits well with Tom Jurich, who told Denise Bentley on the radio that “If they don’t want us in there, we’ll leave”, and further went on to say things like that he never wanted the arena downtown and instead favored an on-campus arena, and that he didn’t want to be “the only one who helps” fix the Yum Center’s problems.
  • So, here we are. In my opinion, the fight over the UofL lease has been baked into this cake since the beginning. I don’t know if Mr. Frankenberger is totally correct in his historical reading of the arena’s TIF district, but I definitely agree with Mr. deMause in that Louisville’s has been a disaster. We will continue to see if anything happens with the lease or with the city’s negotiating power.

References

UofL Accreditation — Jazmin

  • If you’ve listened to our podcast at all, you know a little something about Matt Bevin and the UL board. He abolished the board, appointed a new one, and then Judge Shepherd of Franklin Circuit Court put the old board back in place. There was some testimony in a hearing that suggested that there could be accreditation issues, and we also talked about that on the podcast
  • Surprise, there are accreditation issues!
  • How accreditation works
  • Accreditation basically ensures that higher ed institutions meet an acceptable level of quality. Accreditation is also important for being about to receive federal financial aid.
  • Colleges have accrediting agencies that are regional, and accrediting agencies must have approval from the Secretary of Education. UL’s accrediting agency is the Southern Association of Colleges and Schools (SACS).
  • A lot of factors go into maintaining accreditation: curriculum standards, financial solvency, faculty to student ratio, etc. SACS requirements are called Principles of Accreditation
  • Probation
  • It was announced last week that SACS would be placing UL on a 1 year probation, that could potentially to a second year
  • Will have no effect on funding or degrees
  • Still accredited
  • Why?
  • According to UL and acting President Pinto’s letter to the university, the single reason for this probationary period is the Board of Trustees
  • cited “issues with” its expectations that accredited universities have board members who can be removed “only for appropriate reasons and by a fair process”; that the board be “free from undue influence from political, religious, or other external bodies”
  • There is a SACS Principle of Accreditation that addresses this:
  • 3.2.4: The governing board is free from undue influence from political, religious, or other external bodies and protects the institution from each influence
  • 3.2.5: The governing board has a policy whereby members can be dismissed only for appropriate reasons and by a fair process
  • What says Matt Bevin?
  • Releases a statement that says: “UL’s accreditation is not at risk, nor will it ever be at risk because of any action taken by Gov. Bevin. Anyone who argues otherwise does not have UL’s best interest at heart.”
  • But it seems like what Bevin did with the Boards is the SOLE reason for the 1 year probation
  • Also, I am not real sure what that second sentence even means
  • Louisville up for reaffirmation of accreditation in April, that meeting has now been pushed to the fall. This is just speculation, but pushing the meeting back could mean that SACS is giving UL some time to get their shit together with the board
  • There are different levels of probation, and this is kind of just the first level. UL should have plenty of time to get this cleaned up. It takes A LOT to lose accreditation and it rarely ever happens.

Sources

Kentucky Board of Education Approves List of Principles for Charter Schools

  • Local boards of education should be the primary authorizers of charter schools and the Kentucky Board of Education should have final say.
  • Funding for charter schools shouldn’t hurt funding provided to other public schools.
  • Charter schools need to enter into performance-based contracts with the state. The state board or local boards would be in charge of establishing evaluation criteria to measure academic performance and the organizations’ finances.
  • Charters bust be “nonprofit, nonsectarian, and cannot be wholly or partially governed by a group that is a religious denomination or affiliation.”
  • Charter school teachers should be certified by Kentucky’s Education Professional Standards Board.
  • Whoever authorizes charter schools should focus on approving the schools in at-risk or under-served populations.
  • If there are too many student applicants to a charter school, a lottery should determine enrollment. Preference could still be given to under-served students.
  • “High expectations for parental involvement should be outlined and required.”
  • The state and local school district or board shouldn’t be held legally liable for the charter school’s actions.
  • Charter schools should have access to state funding for facilities.

References

Committee Investing Bevin Can’t Even Disband Itself

  • Rep. Jim Wayne was the head of the committee, which was investigating potential wrong-doing by Governor Bevin in the midst of the party-switching that he is alleged to have asked for (we’ve talked about this at length).
  • Rep. Wayne has resigned his post as chair of the committee in protest, because Speaker Stumbo refused his request to issue Russ Meyer a subpoena.
  • “The Speaker does not want any Democratic House member to be subpoenaed by the committee. It appears the Speaker’s granting of power to subpoena witnesses was conditional, making our efforts to arrive at the truth regarding changes against the Governor impossible”
  • After this happened, Rep. Arnold Simpson tried to dissolve the committee, but could not, as a quorum was not present.
  • Tweets from @mattbevin: “Despite breathless encouragement from @courierjournal & @heraldleader, Stumbo’s kangaroo court collapsed today, but has no quorum to disband”, “Kangaroo court assembled by @SpeakerStumbo too incompetent to even disband themselves but sure love the extra $$ they take from taxpayers”

References

Quick Hits