State gives final OK for Louisville City FC soccer stadium financing

Louisville City FC has the green light to use tax-increment financing to subsidize its soccer stadium after the state gave the plan final approval Thursday.

The Kentucky Economic Development Finance Authority, or KEDFA, voted to give the soccer club and Louisville Metro Government $21.7 million to create a 20-year tax-increment financing district, or TIF, for the $193.1 million project in the Butchertown neighborhood.

Details of the plan remain unchanged from the version the state preliminarily approved in January.

TIFs are a common way to finance economic development projects. They allow local governments to divert future property tax revenues to pay for improvements expected to increase the general value of the area around the project, and encourage investment in what the government determines is a "blighted" area.

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The boundaries of the stadium TIF district are exactly the same as the 37-acre site designated as the development area, meaning only businesses located inside that boundary can generate new tax revenue.

The TIF will last for up to 20 years or until $21.7 million is invested in the project, whichever comes first. The clock on the 20 years starts only after KEDFA gives preliminary approval – in this case, in January – and once $20 million has been invested.

After reviewing a report by an independent consultant, KEDFA decided 60 percent of the expected revenue boost from the TIF district will be made available as an incentive to a developer. The remaining 40 percent is retained by the state.

The consultant determined the project would create a "net new positive impact on the Commonwealth," but details of the report were not made public. The city's proposal estimated the project could have a total economic impact of $3.8 billion and generate $122.9 million in state tax and $33 million in local tax revenues over 20 years.

Economic development projections are best estimates and sometimes don't live up to expectations. Property taxes do not automatically increase for existing property owners within a TIF district. A TIF district freezes allocations to certain taxing bodies for the life of the TIF, and the incremental taxes collected are deposited into a general TIF fund.

While a TIF doesn't divert current tax revenue, it can limit a government's future ability to raise money for other services and needs if too much tax base is locked up in TIFs.

The $21.7 million awarded Thursday falls short of the $30-35 million Louisville City FC owners had hoped to receive.

"We certainly would have liked to get as much as it possibly could've been, but we are happy with what we've got," club co-owner Mike Mountjoy said. "This is a significant commitment on the state's part. The city did its part with the acquisition of the ground and the sale back to us and the master development agreement. Now we've got the state stepping in and giving back a substantial portion of the sales use and property tax we generate building all this."

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When will construction start?

Louisville City FC must be playing in a soccer-specific stadium by March 2020 to remain a member of the United Soccer League. Construction is expected to begin in August.

"I used to tell my developers, 'Don't open the champagne bottle until the job is finished,'" Mountjoy said. "We have come a long way but we have a long way to go. ... We'll rest in 2020 when we open the doors and let fans stream into that stadium for 2020."

The stadium was initially supposed to have 10,000 seats, but Mountjoy told Courier Journal on Thursday that it will have 11,300 seats after officials decided they could add extra seats around the top rim without significant additional cost.

The site is south of interstates 64 and 65, north of Water Street and south of Witherspoon and Adams streets in the Butchertown neighborhood.

The 37-acre, mixed-use development is expected to include a soccer stadium and two hotels with 308 combined rooms as well as 20,000 square feet of retail space, 50,000 square feet of restaurant space and 340,000 square feet of office space.

Mountjoy said he expects construction on the office space to begin in spring 2019 and that the timeline for construction of the rest of the development is still evolving. The club has been contacted by potential tenants interested in the space but has not signed any agreements. Mountjoy said the club might also let tenants share ownership of buildings with the team.

Louisville Metro Government is partially funding the project through a $30 million bond, which will mature to $42 million. The city paid $24.1 million for land for the development and will use the leftover bond money for infrastructure improvements.

The deal approved by Metro Council says club owners must spend at least $130 million in private capital on the development, including $45 million on the stadium itself. Mountjoy said the club's ownership group, which comprises 47 investors, will contribute money and work with local banks for financing.

Louisville City FC has also agreed to repay $14.5 million to the city. Should the project fail, the city will get to keep the land for a use of its choosing.

Danielle Lerner: 502-582-4042; dlerner@courierjournal.com; Twitter: @Danielle_Lerner. Support strong local journalism by subscribing today: www.courier-journal.com/daniellel