Warren County Fiscal Court and the Warren County Downtown Economic Development Authority would like to thank the Auditor of Public Accounts, Adam H. Edelen, and his staff for their work on the Examination of the Western Kentucky University· Gateway to Downtown Bowling Green Tax Increment Financing (TIF) Block 6 Wrap Project. The County and Authority have not had the opportunity to fully digest the report and recommendations, but will be prepared to address each of the findings and recommendations in the near future.
The County and Authority are pleased that the APA recognized that the Bowling Green TIF development is "one of the best examples of downtown revitalization in the Commonwealth."
While the County, City and Authority previously discovered many of the issues and weaknesses highlighted in the Report, and has already taken steps to address those issues, the Report includes information of which the County, City and Authority were not aware, such as the secret agreements between MFR and Rick Kelly (Report pages 26-27) and the use of bond proceeds for a loan to Hitcents (Report page 26). Counsel for the Authority and the County are reviewing the report to determine what would be the appropriate course of action.
The County, City and Authority notes that the APA did not specifically address the question which has been raised repeatedly by the Mayor: that is, were bond funds used in violation of Kentucky statute. This was one of the reasons why the City and the County invited the APA to conduct this audit. Although this point was not specifically addressed, the Report does note:
"An analysis of tenant allowances indicates significant overspending, and also that entities sharing common owners/management with the sub-developer spent more on tenant improvements than other subtenants. Also, one of the related entities, MR Group, was the only subtenant allowed to use tenant allowance for working capital." (Report, page 30). Pursuant to KRS 103.240, working capital is not a permitted use for bond funds.
As to the other issues addressed in the report, the County having negotiated with the City to take the lead in the TIF District and on Block 6 in particular, has worked with the Authority to address those issues. Many of these had already been identified by the Authority and County prior to this report and have already been addressed. The other recommendations will be implemented. Some of the steps already taken by the Authority and County include:
• The removal of MFR as the developer of the Block 6 Wrap project.
• The selection of Jerry Katzoff and Manhattan Capital as the new developer with extensive experience in real estate development projects and restaurants.
• The agreements with Katzoff and Manhattan Capital have been structured to limit the number of agreements in order to avoid inconsistencies. These agreements prohibit the use of bond funds in a manner used by MFR as highlighted in the report. The new agreements will require both County and City approval and sign off before any bond funds are expended. The agreements also prohibit related party transactions without the specific approval of the Authority.
• A new trustee has been selected for the new bond issue. The agreements are being prepared by different bond counsel and the Authority is being represented by new counsel.
• Alliance is no longer serving as the master developer as its contract has expired and will not be renewed.
It should be noted that since the creation of the Authority and the TIF District that there has been more than $250,000,000 of capital investment in downtown Bowling Green, including; SkyPac, Bowling Green Ballpark, WKU Alumni Center and the College of Nursing at The Medical Center. Many of these projects have been financed through bond issues. The overspending that resulted in the contractors not being paid and the filing of liens on the project comprises less than 1% of the total new construction development in the TIF District, and the total cost of the Block 6 Wrap project represents less than 10% of the total capital investment in the TIF District.
The Authority plans to announce in the upcoming months new projects within the TIF district.
Based upon the experience with the Block 6 Wrap project and the Auditor's Report, the County and Authority already have implemented guidelines to ensure appropriate financial controls on future projects. The TIF District has changed the face of downtown Bowling Green and made it an exciting destination, which will continue to improve the lives of Bowling Green and Warren County residents for years to come.
For more information, please contact:
For Warren County: County Attorney Amy Hale Milliken, 270-782-2760
County Judge: Executive Michael 0. Buchanon, 270-843-4146
For the Authority: Board Attorney, Scott A. Bachert, 270-782-81602