RICK KELLEY STATEMENT REGARDING AUDITOR EDELEN’S SPECIAL EXAMINATION REPORT

Rick Kelley has been involved in seeking a transformation of downtown Bowling Green since 2002.  His family’s love for downtown traces back to 1945 when they opened an office supply store on State Street.  He probably knows more about our TIF district simply because he has been the driving force behind the concept.  He was instrumental in getting our TIF approved at the state, city and county levels, for discovering creative financing mechanisms necessary during a recession and for bringing developers to the table to create approximately $275 million in capital investment to date.  He had a lot of help along the way as many shared this vision for a vibrant downtown including Alliance Corporation, the Authority, the DRA, the various governmental agencies, WKU, Medical Center, Graves-Gilbert Clinic, private developers and so many others who devoted countless hours to make our TIF district the most challenging, but highly successful, TIF district in the commonwealth.

When Auditor Edelen announced plans for a Special Examination of the Block 6 project, Kelley anticipated he would be interviewed because of his general knowledge.  When asked to be interviewed, he gladly accepted.  His interview was one of the last conducted by the Auditor’s staff which meant they had already interviewed a lot of people, digested a lot of documents and had a pretty good feel for a complex TIF district.  Kelley expected that the meeting could be lengthy but was surprised when it lasted only 45 minutes and never really went into much depth.

Upon reading the report, Kelley is disappointed that the Auditor’s staff obviously had information gathered from earlier interviews with project stakeholders but failed to ask for Kelley’s input during his interview.  Instead, the staff chose to publish only one side of a story and/or leave out relevant information.

Among the instances cited are:

•The report suggests that the City, County and Authority were not aware that tenant improvement allowances could be used for working capital.  However, the auditors knew that the City Attorney amended that document in May 2013 and also that the Mills sent a letter in May 2014 to all parties with a verbatim quote of the paragraph that allowed for such use.  No one raised an objection and the Mills continued to use the allowances for another 6 months when over $1.2 million was spent.

•The report suggests Kelley had a conflict of interest with his various businesses but the findings are written poorly and could have been clarified if the staff had asked Kelley to explain those relationships during their meeting.  To clarify the issue about Kelley’s businesses:

      •Circus Square Development – Formed in 2008 but had no involvement in this project and should not have been mentioned in the report.

  1. DERC – Company formed by Kelley, operated by Kelley and hired by Alliance to assist with master developer duties.  Kelley was involved in almost every project in the TIF district and responsible for bringing developers to the table and generating as much capital investment and TIF revenue as possible.  All parties knew that Kelley worked for Alliance.
  2. Mariah’s – Downtown restaurant in business for 35 years, one of the highest volume restaurants with $3.3 million in annual sales, with a loyal customer base.  Restaurants can be a great resource for TIF revenue because they generate large amounts of sales tax and the county needed TIF revenue to meet the debt service payments on the block 6 parking garage.  The Mills wanted to meet the county’s need and felt Mariah’s would be a great anchor tenant.  That turned out to be very true.  The purchase price for Mariah’s was a meager $50,000.  Kelley’s involvement with restaurants and the Mills was openly discussed at Authority board meetings which are governed by two representative from the City, three representatives from the County and regularly attended by the City Attorney.
  3. CCC Hospitality – Company formed by Kelley, operated by Kelley and hired by the Mills to provide consulting services for developing the other restaurants.  Though Kelley brought in well-known consultants in the industry to advise on the project, the fast casual concepts were a failure and resulted in the root of the Mills’ financial problems.  The Mills’ risk to develop the restaurants ultimately cost them the opportunity to own the building and ultimately cost Kelley a business he owned his entire adult life. 

The report suggests that DERC used its influence to make the Mills hire CCC which made no sense.  However, if the report had said that Kelley would not have sold Mariah’s to the Mills unless they hired CCC, that would have made sense.  However, as shown below, these transactions were certainly not a windfall for Kelley and he would have been much better off to leave Mariah’s where it was.

•The reports suggests that Kelley earned over $325,000 from consulting fees for services performed for the Mills and $1.7 million in master developer fees for his role as the driving force behind the TIF district but left out key elements that could have been obtained if they had asked for Kelley’s side of the story. 

Consulting Fees - The report fails to mention that $90,000 of the money classified as consulting fees was actually a repayment of funds that Kelley advanced to the Mills so he was actually paid $235,000 for 2 ½ years of consulting services.  It also doesn’t mention that when Kelley sold Mariah’s to the Mills, the purchase price was a meager $50,000 for a business that was one of the highest volume restaurants in Bowling Green at $3.3M per year.  

 Master Developer Fees - The report fails to mention that Kelley has not been paid what is owed since the Authority has not had funds to meet their obligation.  Additionally, it fails to mention that Kelley had approximately $1 million in out-of-pocket expenses related to the TIF nor that Kelley has personally guaranteed for the Authority over $9 million in New Markets Tax Credits to US Bank and a $2 million loan that the Authority has with PBI Bank, both of which are still outstanding obligations.

When the Mills decided to abandon the project, Kelley had the option to keep the Mariah’s name, logo and recipes which would have caused Jerry Katzoff to walk away from the project.  The domino effect would have disastrous for the taxpayers of Bowling Green since the City of Bowling Green is the backstop for any shortfall in debt service payments for the $25.5 million industrial revenue bonds used for the project. 

Though Mayor Wilkerson is good at diverting attention away from City flaws, he should be thankful that the report only gave the City a slap on the wrist.  The City put $25.5 million of taxpayer money at risk on this project but asked for absolutely no safeguards to protect the taxpayer.   No financial statement from the Mills, no construction budget, no approvals for bond draws, no construction updates, no construction site visits, no balancing of the construction budget to insure money was available to complete the project.  The prudent and responsible thing would have been for the City to require those safeguards before agreeing to put the taxpayer at risk for $25.5 million.  The Mayor keeps using the word “trust”—how about the words “common sense”?  Had they done so, this project would not have failed and taxpayers would not have been at risk.  While the report mentions that the City was responsible for debt service shortfalls, it doesn’t mention the lack of protections the City failed to put in place to protect taxpayers. 

In summary, the report is disappointing from Kelley’s perspective because it left out important information that would have painted a much different picture of his involvement in the project.  While Mr. Edelen may be offended that Kelley is critical of the report, he must also recognize that Kelley had no other means to tell his side of the story.

This community should be proud of its TIF district as they are 1 of only 2 signature TIF districts to have met their capital investment threshold and receiving state TIF revenues.  To date, that amount totals $7.2 million and there are still 23 years remaining to reap those benefits. TIF legislation that was written for large cities, with one developer and one project in mind, was crafted by those in Bowling Green to turn a decaying and blighted downtown into a $275 million shining star for Bowling Green.

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