Phillip M. Bailey, and Morgan Watkins

The Courier-Journal

State Auditor Mike Harmon has agreed to audit the Louisville Arena Authority after state lawmakers requested an examination of the organization's finances in light of ongoing concerns about the KFC Yum! Center's financial future.

In a Dec. 27 letter, Harmon said his office will evaluate the arena authority's compliance with its revenue-sharing agreement and other contracts. Also, the audit will look at internal controls to gain a thorough understanding of certain management operations.

"If these procedures identify additional risks or red flags, we will consider expanding the scope of the audit," Harmon said.

The examination was welcomed by Scott C. Cox, chairman of the arena authority, which manages the Yum Center, who said Monday that board members plan to meet with Harmon next week to learn about the audit's scope. He said the authority's contract with the University of Louisville will be part of the focus.

Harmon's letter follows a call from Democrats and Republicans on the legislature's Capital Projects and Bond Oversight Committee who asked for an audit of the arena authority. Legislators said they were worried that the arena authority wouldn't be able to cover its future debt payments and had concerns about the organization's arrangements with the University of Louisville and the Kentucky State Fair Board.

Michael Goins, Harmon's spokesman, said the audit hopefully will be completed by the summer. He said they will "simply be looking at the financial statements, looking over invoices. ... Our philosophy is we follow the data and see where it leads."

Cox also announced that legislation to amend the arena's tax increment financing, or TIF, district is likely to be filed in February during the remainder of the 30-day legislative session. He has been negotiating with city, state and university leaders on ways to pay for the board to cover the roughly $690 million in outstanding construction bonds, which it will be unable to cover by 2020.

"We’re hopeful that legislation will be initiated in February when they reconvene,” Cox said. "We have our fingers crossed there. We’re continuing to meet with legislators around the state to explain what our financial situation is and persuade them that now is the time to move on it."

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The TIF district is a main revenue pot for the arena project but has struggled to meet expectations. According to Cox, the legislation would, among other things, expand the TIF district lifespan to 30 years, which is a decade longer than allowed under current state law.

"They recognize that this is an economic winner for the state and the city, and that's why they're willing to help," he said.

As part of the new deal, the Louisville Metro Council approved a resolution last month giving Mayor Greg Fischer authority to negotiate new terms for the city’s financial contribution to the Yum Center’s debt. City leaders have said the university must do more financially to help the arena given metro government has been contributing the maximum payment of about $10 million in recent years.

Several council members criticized arena agreement as one that was transferring money from Louisville taxpayer to the U of L athletics association. In response, U of L athletics director Tom Jurich threatened that the men's and women's basketball teams would leave the Yum Center for a new home on campus.

Cox said if a new deal on the Yum Center isn't reached, it will result in the three partners paying more in the long run because of rising interest rates on the bonds. He said his team plans to talk with Jurich and Fischer separately this week to discuss the refinancing plan.

Reporter Phillip M. Bailey can be reached at (502) 582-4475 or pbailey@courier-journal.com. Reporter Morgan Watkins can be reached at (502) 875-5136 or mwatkins@courier-journal.com.

Previous coverage

Fischer given flexibility on Yum Center debt

Jurich: City wants U of L out of Yum Center

Metro Council sidelines Yum! Center debt plan

Bevin: City must carry most of Yum Center debt