"Use of a newly available state and local incentive to build a replacement for the aging Rupp Arena will allow for the accelerated growth of neighboring districts. Lexington would be in a position to recover tax dollars that otherwise would have been disbursed around the state for key local economic development projects.
By applying for tax increment financing (TIF) in the replacement of Rupp Arena, additional developments within the proposed TIF district would see tax dollars generated by their improvements returned to them over the next 30 years. Those revenues would defray a portion of investments in a district that tentatively includes the Manchester Street Distillery District and the southern branch of the Newtown Pike Extension.
Under terms of the new TIF law passed by the 2007 general assembly, mixed-use projects that have a minimum cost of $200 million are eligible to capture local and state tax revenues above what is currently being generated within the district's boundaries without raising taxes. While those newly generated tax dollars — from greater property values, increases in the amount of sales, corporate income and personal income taxes — in the district would normally head to state coffers in Frankfort and to LFUCG for general distribution, all of the newly generated money will be returned for improvements in the outlined district.
"It provides us with an opportunity to do some substantial infill and redevelopment that I think we badly needed," Mayor Jim Newberry said in a press conference announcing Lexington Center's plans to seek out a consultant to develop the TIF district.
TIFs allow for more ambitious projects that require investment in infrastructure needed to support the full-scope of the development. Under the new law, signature TIFs, those starting at $200 million, allow developers to be reimbursed over 30 years, or until investments have been totally repaid for money they put into demolition of previous structures; improvements on the storm and drainage system; sidewalks and pedways; street lighting; burying utilities; public parks and spaces, as well as public art.
"This will give property owners and developers a chance to revisit and rethink what they want to do with their land in the area," Downtown Development Authority Director Harold Tate said at the press conference.
An almost perfect storm of events have converged in allowing the proposed downtown TIF district to be considered. Designs had already been set on extending Newtown Pike from I-75 all the way to the entrance of UK, and work had begun to convert the mostly neglected industrial area of Manchester Street into Lexington's Distillery District when pressure from developers in Louisville and northern Kentucky brought about the new TIF legislation.
In the 2006 biennial budget, the legislature allotted $75 million toward the construction of a new arena in downtown Louisville for the University of Louisville basketball team. That arena is scheduled to be open in time for the 2010 college basketball season, four years before Rupp's contract to host the Kentucky High School Athletic Association's annual Sweet 16 is set to expire. Concern has been expressed that the Sweet 16 and the money it brings into town each March could head west to what is anticipated to be a vastly superior arena on the downtown riverfront, complete with luxury boxes, club level premium seating, wider corridors where ancillary activities aside from the games can take place, and other amenities commonly found in new arenas but not in ones the age of Rupp.
"As you can well imagine, their arena opens in 2010; our building just celebrated its 30th anniversary in 2006. By the time you're 40 years old, just the changes in a building design and all the different things there (in Louisville) will potentially merit adjustments and reviews," Carl Hall, director of arena management for Rupp and the Lexington Center, told Business Lexington for an April story on the economic impact of the Sweet 16 and opening rounds of the NCAA Tournament.
"You can't really upgrade our arena because it's pretty much set by its width and length and height, and it's got bleachers upstairs. (An upgrade couldn't be done) without shutting down for two years," Hall said in April. "If you're going to do that, just build a new one somewhere, hopefully right across the street from where you exist, and build the next Rupp Arena, which is a core element for downtown Lexington."
These factors, along with a 2018 expiration of UK's agreement to play Wildcat basketball at Rupp — while a less-storied program in the state plays in a much newer arena with luxury suites and premium seating capable of generating increased revenue — may have made this the perfect time to draw together the plans for Rupp's part of town.
"As good as Rupp is, it already lacks a number of characteristics found in more contemporary arenas," Bill Owen, president and chief executive officer of Lexington Center, said at the press conference. "Without an effective plan to replace Rupp, Lexington risks losing the benefits of that partnership."
That is where the TIF is beneficial to Lexington, according to John Farris, who has consulted the Lexington Center until now. As former secretary of the Finance and Administration Cabinet under Gov. Ernie Fletcher, Farris oversaw the enactment of the TIF legislation and served as the original chairman of the State Tax Increment Financing Commission that gives final approval of TIF applications.
"The TIF provides a lot of flexibility to local governments that they didn't have before," he said. "Lexington being the second biggest city in the state should be able to take advantage of that."
Farris said he is no longer consulting on this planned TIF as he told its designers that it was best to bring an uninterested party, preferably non-local, with "no real skin in the game," in to complete the application for the TIF.
"Everybody is excited now. It is good to come in and get an objective view of what the best case is for everyone and hopefully the consultant will come in and do that," he said. "Potentially there are some things that are good for the Distillery District that are also good for the arena. If they both develop simultaneously, there should be some good synergistic elements to that; likewise, I think it is vice versa, the arena could benefit from the Distillery District, the Distillery District could benefit from a new arena and more development around that area."
While Owen said it was too early to tell what the total cost of the Lexington Center project would be, the combination of a new Rupp, the repurposing of the current Rupp edifice for extended convention space at the Lexington Center and a 3,500- to 5,000-seat performance center, along with the work slated for Manchester Street and elsewhere in the proposed district should reach the $200 million threshold. Doing so makes some of the daunting and often prohibitive costs of redevelopment attainable.
"The financial burden of taking some of the most interesting buildings in Lexington and bringing them into public use and into the fabric of Lexington would largely be made possible through a vehicle such as this," Barry McNees, managing partner of Manchester Development, LLC, the group developing the Distillery District, told Business Lexington in an April article on the passage of the TIF bill.
"The real impact has to do with timing and quality," McNees then noted about the ability to recapture money spent on infrastructure improvements his company would have to make. "It's the difference between unveiling something full-blown and something that has to occur at a less aggressive pace."
There can be multiple TIF districts active at one time in a city, and there are different levels of TIFs depending on overall cost. The lowest threshold of eligibility is for a $20 million project. In order to qualify for the "signature TIF," as the Rupp district is, a project must incorporate at least two types of uses: residential, retail, office space, restaurant or hospitality. At minimum, one of the secondary uses must be 20 percent of the overall square footage of the project, and no single retail entity can exceed 20,000 square feet, which rules out a big box store from being part of any incentivized development.
Developers of Louisville's Museum Plaza are anticipating reimbursements of up to $130 million over 30 years on their $465 million, 61-floor multipurpose skyscraper. They have told Business Lexington the project would not have left the ground had the TIF law not been in place.
Now downtown Lexington can aim for the same potential sought by Louisville's inner core with the ground breaking late last month of the Museum Plaza.
"We have a very clear understanding of what having a city-owned sports arena like Rupp Arena can provide for the economic activity of the region," Owen said. "Maintaining a state-of-the-art sports arena is critical for the long range success of our downtown."