Kentucky State Fair Board members great at spending money – as long as it isn't their own

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It’s understandable why the KFC Yum! Center authority would accept the forgiveness of most of its debt to the Kentucky State Fair Board with the same enthusiasm demonstrated by the University of Louisville basketball team when the Cardinals returned the NCAA championship trophy to that arena this spring. But that doesn’t make it right.

In a surprising move last May, the fair board forgave all but about $1.6 million of the arena authority’s $7.2 million obligation to the public agency.

Not that the arena doesn’t need all the help it can get. Since opening less than three years ago, it has accumulated more than $35 million in operating losses, is $800 million in debt and loses money – more than $1 million per month – faster than Peyton Silva can steal a basketball from an opposing point guard.

Little hope exists for an economic turnaround as long as the current lopsided lease with the University of Louisville Athletic Association – guaranteeing the association an inordinate 90 percent of much of the arena’s revenue – is in place.

Recently, the powers that be tried to put a positive spin on the whole situation. However, not only were their claims questionable, their timing wasn’t the greatest either.

Just about the same time Louisville Arena Authority Chairman Larry Hayes was telling reporters that the facility had experienced a “phenomenal year,” Moody’s Investor Services was downgrading the status of the bonds originally issued to build it.

And if Hayes’ claims were questionable, it was downright misleading for the authority to report a “net operating” profit of $221,813 in April without including interest payments on the bonds, which is more than $1.7 million per month. In fact, when one considers interest expenses, the arena has never had a profitable month.

Misleading investors gets people in hot water in the private sector. Apparently, arena authorities in Louisville get a pass, just as they’re getting from their buddies on the state fair board.

The only problem: It’s not the fair board’s loan money to forgive. Kentucky taxpayers statewide – who were forced by the legislature to shell out $75 million during former Gov. Ernie Fletcher’s administration just to build the facility – are the real ones on the hook.

And what of the legality of this whole fiasco?

According to local businessman Denis Frankenberger, who recently issued a report calling for a renegotiated lease between the University of Louisville and the arena authority, “it is believed to be illegal for the directors of a state agency to forgive a substantial debt owed by a private corporation to the public.

”That view is reinforced by J. Bruce Miller, who served as the state fair board’s attorney during Gov. Paul Patton’s administration.

It’s reasonable for public agencies and governments to work out mutually beneficial arrangements that result in “common sense” actions that benefit citizens, Miller said.

But, he added, it’s a different matter altogether when an arrangement involves a public entity like the fair board forgiving debt owed by a private, if nonprofit, agency.

“Short of an executive order by the governor, I don’t see how it could be legally done,” he said.

And though I’d love to see the day where the KFC Yum! Center becomes as much of an economic success as it has been a favorite venue of sports fans and concertgoers, fiscal responsibility dictates that this brand of debt-forgiveness is a policy faux pas.

How, for example, can the fair board justify forgiving millions that belong to taxpayers when the board itself required $5.5 million from taxpayers just last year to survive, after having already cut its staff and budget?

But of course such arrangements are easier to come by when they are made using other people’s money.

“Nobody spends somebody else’s money as carefully as he spends his own,” was the astute observation of the late Nobel laureate Milton Friedman. “Nobody uses somebody else’s resources as carefully as he uses his own.”

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.