The Louisville Arena Authority and the University of Louisville’s athletics department have regularly failed to meet deadlines on their annual payments under the Yum Center’s lease agreement, according to state Auditor Mike Harmon’s long-awaited audit.
That was the lone finding in Harmon’s five-month review released Thursday, which says the payment delay — caused by both the arena board and U of L — provides an increased risk of undetected errors and cash flow problems for the Yum Center’s revenue-sharing arrangements.
But the university’s athletics department is disputing who is to blame for the overdue payments to the area.
According to auditors, the payment is to be calculated by April 20 of each year and made 10 days later. In the two years reviewed by auditors, however, both the calculation and payment were completed after those deadlines.
It recommends better coordination between the arena authority, U of L and other third parties to ensure the deadlines are met.
Arena Authority Chairman Scott Cox said he takes full responsibility for the 16-member board’s role in those late payments. He said the 10-day turnaround time will have to be amended but the board accepts the lone finding.
“It will not be repeated, and we appreciate the constructive criticism from the auditor,” Cox said
U of L Athletics Association spokesman Kenny Klein, however, bristled at the auditor’s assertion that his department should take responsibility for the late payments.
According to Klein, it is the arena board that supplies the university with the final revenue figures that are used to calculate its payment.
“Once that figure is provided, U of L writes a check soon thereafter,” he said.
Klein said the arena board does not have all of those other revenue sources available by April 20 and that Cox and other arena officials noted the late payments were not the university’s fault. He also noted U of L provides regular updates on its revenue projections during the men’s and women’s college basketball seasons.
“It is disappointing that the audit release earlier today did not specify the reasons for the timing of payments,” Klein said.
In a separate letter addressed to Cox, the state auditor also outlined other matters that were discovered during the course of his examination that did not rise to the level of audit findings.
Among the most troubling was the lack of sufficient deposits into a so-called Senior Reserve Fund meant for future renovation and replacements at the arena. The reserve was supposed to have received $3 million annually for the past six years, but Harmon’s office found its total balance was just $624,700.
Harmon said the Yum Center is a state-of-the-art facility where repairs and renovations are inevitable. He said the arena board should build a sufficient reserve fund so that future improvements do not rely upon debt.
Other concerns were the absence of an independent analysis of arena operations, no full-time arena staff and the lack of competitive bidding before signing a 10-year extension of AEG’s management contract for the arena.
Harmon said he will present the audit, including his additional observations, to members of the state legislature’s Capital Projects and Bond Oversight Committee at its June 20 meeting. He said in a statement that the Yum Center is an important investment for the state, city and U of L but criticized how the arena board’s financial position “has faltered badly,” while U of L’s athletics department “has dramatically improved.”
The audit lands amid ongoing negotiations between the city, state and U of L over how best to refinance the Yum Center’s $690 million construction debt. Cox acknowledged earlier this week that U of L still hasn’t come to the table with an agreement to amend its arena lease.
Harmon added his voice to the chorus of state and city leaders who are asking U of L to do more to stabilize the Yum Center’s financial future.
“The state has stepped up with a willingness to expand the TIF, but now it’s time for all parties involved to make the commitment necessary to put the arena on a sustainable path,” Harmon said.
The Yum Center’s annual debt payments are set to increase over the next decade and arena officials have warned the board won’t be able to make its bond payments by 2020.
State lawmakers approved a plan extending the lifespan of a tax increment financing, or TIF, district surrounding the Yum Center for another 25 years. Supporters believe those changes will give the arena board a better net to collect tax revenue to pay off the debt.
The Louisville Metro Council also helped out by granting Mayor Greg Fischer the power to negotiate a new payment plan for the arena. Currently, the city spends roughly $9.8 million toward the 22,000-seat facility’s debt.
U of L interim President Greg Postel said in a statement to the Courier-Journal this week that the university is being a “team player” with the city and state. He said they hope to finalize “a creative solution” that will give an additional $2.5 million to the arena authority.
Reporter Phillip M. Bailey can be reached at (502) 582-4475 or [email protected].
