Wed. Aug 21st, 2019

Kansas Daily News

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STAR Bonds Under Public Watch

7 min read
Sales-Tax

How many times have we heard of something that was generated with good intentions but has degenerated into something far from the initial thought?

It seems this could be the unfortunate state that has befallen the high-aiming platform conceived by the State of Kansas government called STAR Bonds. This convenient stellar acronym stands for Sales Tax Anticipation Revenue Bonds that makes it possible for municipalities across Kansas to receive assistance in building big projects that would pay themselves off in time. Undertakings in the areas of entertainment and tourism have the prerogative to apply for this kind of financial support.

The general idea was to attract a hefty number of visitors from out of state to create overnight stays and expand the offer to local natural wealth and cultural inheritance. The latest initiative came from Ron Schmitt, a young councilman from Sparks City, Nevada, after he had met with a group of Cabela’s executives in Kansas City. He proposed to Cabela’s to open a store in his city. That was in April 2003, and in May, Nevada lawmakers introduced a STAR Bonds platform, which was actually modeled after a similar law adopted in Kansas during the late 1990s.

It led Schmitt and Cabela’s decision makers to a deal that flourished into a prosperous business, inviting other companies to open their retail in Northern Nevada and contribute to successful decades that were to follow.

Today, these are the main guidelines for applicants. They can utilize the bonds up to less than 50%, and it is expected that the projects attain the capability of sustainable development in due course. The Department of Commerce, which is responsible for the selection and guidance of the applicants, have appeared to possess a clear vision of how to ensure that public benefits exceed public expenses. The cities that apply for the STAR Bonds program are in a position to sell the bonds in order to obtain capital for the enterprises for which they are applying. Through the projected expectations and interest calculated in, the chosen undertaking is bound to pay back the investment with the local and state sales tax in the course of 20 years.

The first bonds were issued in 2006 for two ventures in the western Wyandotte County, Kansas Speedway and the Village West shopping center in its immediate neighborhood.

Both investments paid off, even much before the mandatory deadline. In Village West, the obligation was fully delivered on December 1, 2016, and it created $12 million windfalls. The profit was put to good use in reducing property tax, which has been perceived as too high for years.

In the Kansas Department of Commerce’s testimony to the Senate Commerce Committee for the year 2007, it is cited that Kansas Speedway and Village West district had over 10 million visitors per year, had produced over 3,500 new jobs generating $55 million in annual payroll, and contained over $810 million in combined public and private investment with annual sales of over $450 million. By unified Government reports, over $29 million in local sales taxes had been dedicated to the payment of bonds, and over $77 million in state sales tax had been generated through this project.

But there are also other projects that seem to be failing. There is another racetrack, the Heartland Motorsports Park in Topeka. It first opened in 1989 and was reopened in 2006 after a refurbishment which was supported through STAR Bonds. With its 650 acres and more than plenty of room for not only the race tracks, tower, and paddock, but a respectable area for car shows and swap meets as well, it has failed to fully meet the projected crowd attendance. The city is obliged to pay the investors back $1 million a year, and the bonds are to be paid off by 2025. Nonetheless, there may still be enough time for the project to succeed. Doug Gerber, the deputy city administrator, says that the track is drawing thousands of fans every year.

Downfalls

In drawing public attention to raising Kansas cities’ finances through STAR Bonds and risks that go with them, several problem areas have emerged in this decade and more, ever since they have been reactivated.

Absence of Standardized Protocols and Procedures for Data Gathering

The STAR Bonds Overview by the Kansas Department of Commerce prescribes requirements for out-of-state contributions to total annual visitation that are obligatory for receiving support in STAR Bonds. The visitation from various states should not take less than 20%, and not fewer than 30% of visitors should come from a distance extending more than 100 miles from the destination.

However, it appears that no tracking protocols have been delineated to establish whether the requirements have been followed through.

In some of the STAR Bonds supported venues, like in the animatronic dinosaur park Field Station: Dinosaurus, the information is gathered through ZIP codes, credit cards, and on-the-spot inquiries, but the data is not to be found in the annual reports by the Department of Commerce. This was confirmed by their chief counsel, Robert North.

No Supervision

A question has been raised of no less than competence in the selection of the projects that get to be supported through STAR Bonds. The critics say the lawmakers should have a say in the process that has so far been led only by the members of the Department of Commerce. Little by little, this lack of legal experts’ insights might have caused the insufficiencies and vagueness in data processing that we face today, followed by the unsatisfactory final results, say the critics.

In 2018, Kansas lawmakers emphasized the need for change, but the developers failed to follow the alert. This year, the legislature has succeeded in passing a requirement for a detailed analysis of the program.

Rival Projects

A lack of supervision may have led to requirements towards the Commerce Department for the STAR Bonds support in two projects with a similar purpose. Only 10 miles apart, there are two hockey venues in the south Overland Park (Bluhawk project) and in Olathe (a project named Mentum). Both of them are counting on the STAR Bonds provision of $60 million.

Kansas Senator, Molly Baumgardner, a Republican from Louisburg, makes a point on this. She added that the goal was to bring opportunities for economic development and guaranteed jobs through a unique venture to that particular region. She also stated she believes that the proximity of the two potential venues defied the notion of uniqueness.

Faris Farassati, the Overland Park City Council member, thinks that neither of the projects deserves the STAR Bonds. He cites another Overland Park STAR Bonds project that seems to be failing — the Prairiefire Museum. The goal was to build a $27 million museum with the perspective of displaying exhibits from the American Museum of Natural History (NY), but unfortunately, the cooperation soon withered. As a result, Prairiefire did not succeed in producing enough sales tax and had to reach for support from the reserve fund.

Farassati points to an additional issue aggravating the Prairiefire situation, namely issuing bonds in tranches. Overland Park assigned $64,990,000 in STAR bonds to the development of retail and entertainment in 2012. The maturity date for the first $15 million tranche is 2023. After seven years, Prairiefire has only paid back $130,000 of the original principal, leaving an outstanding balance of $64,860,000.

’Pork Projects’ Suspicion

The Republican member of the Kansas Senate, Julia Lynn, called attention to what seems to be a growing misuse of STAR Bonds in their assignment to “quality of life” improvement projects for the local community in place of building attractive tourist destinations.

Greg LeRoy, from the Good Jobs First (a website specialized for accountability in economic development), suggests that the central issue in the tax increment financing projects is that “they get deregulated.” Also, he added that in time, if there is no supervision, the project can be easily abused.

Senator Molly Baumgardner certainly does not beat around the bush either, as he stated that this project was the ultimate pork.

The proportion in contribution to payments due to STAR Bonds seems to be another issue. The high Kansas tax rate (6.5%) exceed sales tax rates in the cities. The state does not pay the bonds in a direct way, but lets go of collecting millions of dollars from sales taxation coming from the supported STAR Bonds projects. With this burden on the state, in words by Senator Lynn, Kansas taxpayers subsidize what are increasingly becoming local amenities.

Future Prospects

Glancing Back for Inspiration

The original germinating of STAR Bonds model was incited by the project called Wonderful World of Oz, devised as an interactive theme park by an LA entertainment lawyer, for Wyandotte County and later for the Sunflower Army Ammunition Plant in western Johnson County. It was shut down by the local officials after they suspected that there was no private money involved. The model of issuing STAR Bonds had resurrected to back up a building of a racetrack for NASCAR in Palette County; unfortunately, the opportunity was delivered to another state after the lawmakers from Missouri hesitated to approve the project.

The vigilance of these local officials may lead as an example of how to open a safe route to improvement in the implementation of this platform. After all, it has repeatedly proven itself to be efficient and beneficiary if appropriately guided.

To Start Afresh?

Robert North, chief counsel of the Department of Commerce, pronounced that they weren’t trying to slice the existing pie in a different way, but were attempting to grow it instead. But whether these slices get too big or grow at an odd rate, it seems to be evading the analytical skills of everyone involved.

There are critics that are fearful of prospects of the STAR Bonds model because simply because it has been failing time and time again. According to them, the STAR Bonds model should be left to its destiny, marked by the authorization expiring in July 2020.

Senator Baumgardner, on the other hand, is trying to view the issue with more patience, as does Overland Park’s Farassati. Baumgardner said that vague information was coming from the Department of Commerce and that they were simply waiting for them to provide a real data analysis of the current situation before any more STAR Bonds get awarded.

Finally, Farassati concluded that they weren’t willing to let the project go without giving their best shot at making it work. According to him, there is always a time and place for everything, so he decided to remain optimistic.

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