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Louisville Arena Authority Review Assessment

Louisville Arena Authority Review Assessment

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Published by marcus_wdrb
The review assessment conducted by the Kentucky Auditor of Public Accounts.
The review assessment conducted by the Kentucky Auditor of Public Accounts.

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Published by: marcus_wdrb on Mar 17, 2014
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09/15/2014

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LAA Assessment Summary Capital Projects and Bond Oversight Committee Primary Concerns
1.
 
TIF: Can the TIF be retroactively changed, or changed at all? Also, question arose as to whether the TIF is properly monitored.
 LRC analysts indicated they could not find any language prohibiting a change in the TIF boundaries.
 
The APA was also unable to locate any statutory or contractual provisions regarding revision of TIF boundaries. As long as all parties are in agreement, we are not aware of any prohibition. As for the question of whether the TIF is properly monitored, that would entail expanded procedures to assess. (See conclusion.)
2.
 
Bond trustees have changed. There was a question as to whether the bond indenture document (pg 65) may raise questions as to whether or not this is permissible.
 Page 81 of the bond indenture document indicates the bond trustee may be removed with the prior written consent of or at the direction of the bond insurer as long as there has not been a default. There also appears to be a requirement to notify bond holders. One concern raised from an external source indicates bond holders must also approve the change in trustee. Based on the information presented in the bond indenture document, it appears bond holders must be notified of the change, but it does not appear the change in this circumstance requires approval of bond holders.
3.
 
Payments to Kentucky State Fair Board (KSFB): LAA is indicating it will no longer pay Negative Impact Reimbursements to KSFB, per agreement between LAA/KSFB in May 2013. KSFB issued a clarification indicating the settlement with LAA did not include the Negative Impact Reimbursements.
This is a legal matter due to the need for interpretation as to the status of the 2006 HB 380 (budget bill) language, and subsequent LAA and KSFB resolutions regarding the  settlement of amounts due. The following questions may be pertinent, but cannot be addressed by the APA:
 
 Is language in 2006-HB380 effective beyond the biennium budget?
 
Was the reimbur 
 sement agreed to because of KSFB’s role in operating/managing
the YUM! Center? Under that scenario KSFB could influence which events to host at the YUM! Center versus events to host at Freedom Hall, and therefore the  potential negative impact on Freedom Hall may be more clearly identified. Given that AEG now is the operator/manager for the YUM! Center, does that negate the requirement to reimburse KSFB since KSFB/Freedom Hall is now a competitor?  If the reimbursement was not based on this assumption, what is the basis for
 
determining the reimbursements under the current structure? This may need clarification.
 
 Is the LAA resolution for payment of $1.47M legally binding, and sufficient for overriding HB 380 language?
 
 Does KSFB have the authority to forgive prior debt of the LAA (for labor costs or  previous Negative Impact Reimbursement amounts)?
4.
 
Question as to whether UofL Athletics Assoc (ULAA) has a “sweetheart deal” with
its arrangements with LAA.
The LAA/ULAA agreement appears to have been legally executed, which is further evidenced by the terms of the agreement having been adhered to without known dispute  since the opening of the YUM! Center. Given the written agreement, whether a renegotiation can occur is a legal question between the parties and not one the APA can resolve. However, as S&P has indicated, it is clear that LAA the future outlook on future revenue streams are somewhat limited due to revenue sharing agreements. This would include the agreement with ULAA.
Capital Projects and Bond Oversight Committee Additional Concerns Raised
5.
 
Allegations have indicated there are possible conflicts of interest related to members of the LAA board. One example is that a LAA board member owns a bank that issues bonds.
 Review of the information provided to the APA was not sufficient to fully address whether conflicts of interest exists. The APA would be required to do expanded procedures in order to review necessary documents to determine whether conflicts exists in regards to  private businesses owned by LAA board members that may do business with LAA or other  stakeholders. In reviewing the circumstances surrounding the bank ownership of an LAA
board member, information available does not identify the LAA board member’s bank as
being a primary underwriter of LAA bonds; therefore, a conflict of interest is not apparent under these circumstances.
 
6.
 
$5.5 million in unexplained/unclassified expenditures noted.
Upon a review of documentation provided by LRC, it appears the unclassified expenditures are ULAA expenditures reported on its IRS 990 after executing its lease with LAA. If these are the expenditures in question, the LAA expenditures obtained would not provide the details necessary to analyze the ULAA detail.

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