Issue October 16, 2012

Lost Kingdom

Ed Hart wants to save Kentucky Kingdom. Why is the state refusing to let him try?

In the Strike & Spare bowling alley parking lot, with Kentucky Kingdom’s deserted roller coasters looming in the background, former employees of the amusement park plead with government officials to bring the abandoned Louisville attraction back to life.

Though this Friday is the deadline for prospective new operators to submit official proposals to take over the theme park, Jon Mulcahy of the Kentucky Kingdom Alumni group — whose Facebook group has more than 4,100 members — warns the crowd of roughly 100 on Saturday that the park’s immediate future may very well include a wrecking ball.

“When we heard (Gov. Steve Beshear) say during the state fair that we really need to ask ourselves whether an amusement park even makes sense anymore, that concerns us,” Mulcahy says.

Since Kentucky Kingdom closed three years ago, negotiations to reopen the park have failed on more than one occasion: Former operator Ed Hart’s 18-month-long effort fell apart last fall, and the owners of Holiday World suddenly abandoned plans to re-open the park as Bluegrass Boardwalk this June.

Beshear has strongly hinted that if none of the new submissions to the request for proposals (RFP) are to the state’s liking, Kentucky will get out of the amusement park business and use the property for another purpose.

Adding to the pessimism for a revival of the park is Beshear’s public skepticism of the plan offered by the only potential operator to publicly express interest in responding to the RFP.

Ed Hart, who turned the park into the state’s largest tourist draw in the 1990s, announced his new plan in August to reopen the park with a $40 million investment that is 100 percent privately funded by his Kentucky Kingdom Redevelopment Co.

But Beshear stated flatly that Hart’s request for the state to guarantee his $30 million bank loan in case of default is not in the best interest of taxpayers. The state’s request for proposals inserted a rare “dealbreakers” section that specifically excluded any proposal with this feature.

While the governor finds this guarantee daunting, park supporters point to an economic impact study commissioned by the state in 2010 that found a fully reopened Kentucky Kingdom would bring a flood of new revenue to state and local government — including the deficit-plagued Kentucky State Fair Board — and create more than 1,000 jobs.

Some have begun to speculate whether the Fair Board and the Beshear administration have stiff-armed Hart in order to doggedly protect taxpayers, or if something else is at play.

Metro Councilman Dan Johnson, D-21 — who spoke at the rally Saturday — tells LEO that the state has not given Hart a fair shake, and he believes the man responsible is Steve Beshear.

“Let’s hope the Fair Board gets their act together and lets the man who built it, who’s made the only public bid for it, have it back to get it open now,” Johnson says to the crowd. “Ed Hart is that man … I think Gov. Beshear has played politics enough with this park. It needs to be started and it needs to be finished, now.”

While the difficulties between Hart and the Fair Board in coming to an agreement on a long-term lease were public when negotiations ended last fall, less has been revealed about how Hart’s efforts to receive tax incentives through the Tourism Arts and Heritage Cabinet last year prevented this agreement from happening.

More details of this impasse are apparent through an examination of hundreds of pages of correspondence between Hart and the Tourism Cabinet — information obtained by LEO Weekly through an open records request — as well as the statements of Tourism Cabinet officials deposed in Hart’s current lawsuit against the Fair Board to collect $1.4 million he claims is owed to him due to a breach of contract.

While Tourism officials blame Hart for not meeting state requirements to become eligible for these incentives, this correspondence and testimony reveal questions about the handling of Kentucky Kingdom’s application, as well as the appearance of disparity in how Hart and his Kentucky Kingdom Redevelopment Co. were treated compared to other projects that were green-lighted with relative ease in recent years, such as Bluegrass Boardwalk and the proposed Noah’s Ark theme park Ark Encounter.

Ed Hart first took over the struggling Kentucky Kingdom in 1989, just two years after it opened on the grounds of the Fair and Expo Center. He successfully operated the park until 1997, at which time it was sold to theme park giant Six Flags.

Hart’s attempt to make a second revival of Kentucky Kingdom began shortly after the bankrupt Six Flags abandoned their lease in 2010, at which time he made an agreement to loan $3 million to the Fair Board to purchase Six Flags’ property, in return for being named the state agency’s preferred park operator.

The original plan of Kentucky Kingdom Redevelopment Co. (KKRC) called on the state to issue $50 million in bonds to fund the refurbishment of the property with new rides, but neither Gov. Beshear nor the General Assembly followed through with this bonding request in the 2011 session. Negotiations with Mayor Greg Fischer for a plan to have Metro Government issue bonds broke down later that spring.

With the prospect of government bonds looking bleak, KKRC took a new approach: seek bank loans to privately fund a large portion of the park’s redevelopment and apply for tax incentives with the Tourism Cabinet.

Under the Kentucky Tourism Development Act, businesses can apply for a rebate of sales taxes for up to 25 percent of development costs for their tourist attraction. Assuming requirements are met, the Tourism Cabinet sends the application to the Kentucky Tourism Development Finance Authority for preliminary approval. Pending an independent consultant’s report, the authority can give final approval if it believes the attraction will bring in 25 percent of its visitors from out of state and meet projected goals.

KKRC’s application was first submitted on May 5, 2011, and resubmitted several more times over the next four months. However, officials at the Tourism Cabinet never sent KKRC’s application to the Finance Authority for preliminary approval. Throughout that summer, Hart and tourism officials wrangled over the application, which in turn hampered KKRC’s ability to come to a long-term lease agreement with the Fair Board.

What resulted was a Catch-22: a finalized lease agreement with the Fair Board depended on the approval of tourism tax incentives, but their ability to be approved for the tax incentives depended on a completed lease.

Despite the Fair Board falling under the umbrella of the Tourism Cabinet — whose secretary, Marcheta Sparrow, is also a board member of the Fair Board — the squaring of these two requirements never occurred.

When KKRC submitted its first application to the Tourism Cabinet that May, Hart requested the proposal be heard at the meeting of the Kentucky Tourism Development Finance Authority scheduled in two weeks.

Tourism Secretary Sparrow informed Hart it would be best if they waited until a later date to present their proposal, as Ark Encounter was scheduled to present that day and there wouldn’t be enough time for both. She assured Hart that they could reconvene at a later date.

Two months later, The Courier-Journal reported that a spokesman for the Tourism Cabinet said the state agency still had not received an application from KKRC. A baffled Hart contacted the Tourism Cabinet and was told the state assumed KKRC was no longer interested and that his application had been discarded.

After KKRC resubmitted the application, the executive director of Tourism’s Office of Financial Incentives, Todd Cassidy — point man for businesses applying for tourism tax incentives — wrote a series of emails to KKRC guiding them through what revisions their application needed in order to meet regulatory requirements and be sent to the Finance Authority for approval.

On Aug. 7, Cassidy emailed KKRC what appeared to be his final advice, closing with, “Beyond this recommendation, and those made on Friday, it appears we are ready to move forward.”

Hart subsequently submitted his fourth revised application, with his new plan to use a $23 million bank loan guaranteed by the Al J. Schneider Cos., as well as $5.6 million of Hart’s own equity. They stuck by their original plan for a nearly $50 million investment in the park, hoping the Beshear administration and state legislators would come through on approving bonds that would now be lowered to around $20 million.

In late August, another Courier-Journal article quoted the Tourism Cabinet spokesman saying KKRC had yet to turn in an application for tax incentives. When KKRC leadership met with Cassidy to assess the situation, they were told they needed a letter from the bank making the loan in order to finalize the application.

In depositions given this year in Hart’s litigation with the Fair Board, both Sparrow and Cassidy admit the state does not mandate such a requirement by law.

KKRC President Dan Aylward and Hart emailed Tourism Cabinet officials, dismayed by the delay in sending their application to the Finance Authority for preliminary approval. Hart warned that further delay would either jeopardize a 2012 opening or mean KKRC would not seek to renew their interim lease expiring at the end of September, which would mean the Fair Board owed Hart $4.4 million.

Cassidy subsequently emailed fellow Tourism officials, contending Hart was “threatening.” In response, Sparrow wrote to Hart suggesting a meeting, but said she would not have time do so for another week.

Two days later, on Sept. 2, KKRC sent letters to Gov. Beshear, Mayor Fischer, and leadership in both parties of the General Assembly, expressing the need for those in power to commit to the reopening of Kentucky Kingdom. Upon seeing the letters, Sparrow forwarded them to Cassidy, writing, “This will make your day.”

Facing a roadblock in lease negotiations with the Fair Board, his application with the Tourism Cabinet, and lack of action from elected officials, Hart held a press conference on Sept. 13 across the road from the vacant park. He said KKRC was close to finalizing its $29 million in private investment, but pleaded for state officials to expedite the process so they could begin spending that money and have the park open by next spring.

Sparrow — who admitted in her deposition to being “frustrated” and “disappointed” by Hart’s press conference — emailed Hart the next day, saying his application would not be final until he included his “complete financial package” and a lease agreement for the property.

In response, KKRC indicated these two requirements had not previously been expressed, which a review of the written correspondence with the Tourism Cabinet reveals to be true.

Sparrow replied by forwarding the state’s statutes and regulations for the tourism tax rebate program, highlighting two she claimed prevented the application from going forward. One required the company to own the property or have a lease in place, and the other stated, “Any other information as required by the cabinet” — which one might interpret as anything they say.

Sparrow forwarded that response to Fair Board officials, including general counsel Ellen Benzing, who replied “great response.”

Uncertain whether they would be eligible to earn up to $715,000 in sales tax rebates each year without the approval of their application, KKRC’s negotiations with the Fair Board for a long-term lease broke down completely.

The Fair Board admitted owing Hart $4.4 million but only paid $3 million due to allegedly not receiving proper paperwork on KKRC’s expenses, after which Hart sued.

Though KKRC’s interaction with the Tourism Cabinet was contentious and frustrating, not every business applying for tourism sales tax rebates has a similar experience.

Open records requests of correspondence between Ark Encounter and the Tourism Cabinet reveal an application process that proceeded with remarkable speed, little scrutiny, and standards that appear different from that of KKRC.

Tourism’s first contact with representatives of Ark Encounter was a phone call to Cassidy in the Office of Financial Incentives announcing the project on Oct. 14, 2010. From that day, through Ark Encounter’s application submission on Nov. 15, to the application landing at the Finance Authority for preliminary approval on Dec. 6, there is no written record of any discussion of specifics within the application.

Gov. Beshear held a press conference on Dec. 1 proudly announcing the project to the public with Ark Encounter officials by his side. He touted incredible numbers for the tourist attraction — including 1.6 million visitors and 14,000 jobs for the area in its first year, and $4.3 billion in economic impact for the state over 10 years — that were cited from a feasibility study authored by Britt Beemer.

Beemer also happens to be the co-author of a book written by Ken Ham, CEO of the Answers in Genesis ministry, who owns 20 percent of Ark Encounter and will operate the park. Later that month, Beshear revealed no one in his administration had even read the study.

While Tourism refused to send Kentucky Kingdom Redevelopment Co.’s application for preliminary approval based on the lack of a finalized lease or ownership, Ark Encounter only had an option to purchase the land on which they hoped to develop.

Additionally, though Tourism took issue with KKRC not providing a “complete financial package,” Ark Encounter only had an intention to raise funds from public donations in the future, which required well over $100 million.

To this date, Ark Encounter is struggling with anemic fundraising and continued delays in the groundbreaking for its construction, which is now projected to be several years behind schedule. Even though Ark Encounter has dramatically scaled back its project, they are still approximately $44 million away from their fundraising goal to complete the first phase of construction.

While a positive feature of the tourism sales tax program is that the maximum rebate from the state is not awarded if the attraction doesn’t meet its goals, the state has already allocated $2 million to infrastructure improvements for the Ark Encounter property, with $9 million allocated for future years in the transportation budget to handle “millions” of tourists from around the world.

Though the Finance Authority never gave KKRC preliminary approval, which triggers an independent consultant study to see if the project meets projected attendance goals under the program, the state did commission an economic impact study in the fall of 2010 conducted by AECOM — an economic consulting firm that specializes in theme parks — to guide legislators weighing whether to approve bonds for the park.

While the original draft of AECOM’s report showed a huge economic impact of $3.5 billion for the state over 20 years — including $10 million each year toward state revenues and more than $1 million for Metro Government — Cassidy insisted to AECOM that they dramatically lower their estimates over a four month period.

Emails show that Cassidy — who admits he does not have a background in statistics — took issue with the methodology of AECOM professionals producing the study. In his deposition, he admitted to preferring a conservative estimate instead of a moderate one, answering in the affirmative when asked if he “insisted that everything be dialed down, down, down, down.”

Cassidy also suggested in his testimony that he received advice to push AECOM into a more conservative estimate from the Finance Cabinet, the Office of State Budget Director, and a contractor hired by Tourism.

The final report AECOM released in December showed the economic impact and revenue projected to be less than half of what was predicted in their first draft in August.

Emails between Cassidy and the economic consultants hired to evaluate Ark Encounter and Bluegrass Boardwalk reveal nothing even close to this behavior.

In fact, it appears a large portion of the attendance estimates in the report for Ark Encounter rely on the initial feasibility study’s surveys showing astronomical numbers. And while Cassidy insisted that a detailed study on overnight visits to Louisville be taken out of KKRC’s study by AECOM, he answered in the affirmative in his deposition when asked if Bluegrass Boardwalk’s consultant study estimated those visitors by projecting “what they hoped would happen based on what their marketing plan was going to be.”

Cassidy also said in his deposition that KKRC’s experience of not having their application sent to the Finance Authority for preliminary approval is extremely rare. Other than one case where an application fraudulently claimed a bank was loaning it money, KKRC is the only applicant in Cassidy’s decade at the Tourism Cabinet to not reach this step.

All of this leads one to wonder why the state has seemingly stonewalled Ed Hart and the Kentucky Kingdom Redevelopment Co. at every turn, preventing them from pursuing the amusement park’s reopening. Throughout the course of reporting this story, the governor’s office has been tight-lipped regarding their dealings with Hart.

For example, when asked whether Beshear thinks Hart and associates are “trying to rip off taxpayers with their proposed deal,” the governor’s spokeswoman simply said this:

“Because of current litigation initiated by Mr. Hart, as well as the ongoing confidential RFP process, it’s inappropriate to comment.”

When all is said and done, Hart just wants the process to be carried out fairly and to see Kentucky Kingdom reopen.

“If somebody comes along and offers a larger financial investment, wants to reopen Kentucky Kingdom as a full-fledged regional theme park, and has the necessary experience to do so,” he says, “I’d be fine with that, and I’d support it.”