Kansas hospitals, corporate HQs may get tourism incentives under STAR bonds proposal
Kansas Secretary of Commerce David Toland wants to save the state’s controversial STAR bonds program, but his proposed legislation to do so is already meeting resistance in the Legislature.
STAR bonds, short for sales tax revenue bonds, are one of the state’s most powerful economic development incentives. But the program has been under fire by lawmakers who say it’s been warped beyond its original aim, which was to spur development of exceptional attractions that draw tourists from far away.
As currently authorized, the STAR bond program will sunset June 30. But the commerce department introduced legislation Tuesday that would reauthorize it for five more years — albeit it with major changes.
Toland wants to tighten some rules on applicants. But he also proposed redefining how the state views tourism and opening STAR bonds up to rural communities.
The department’s legislation would allow corporate headquarters projects and hospitals to benefit from STAR bonds because those sorts of draws bring people to Kansas, too, Toland said. He pointed to the University of Kansas Health System, which draws patients from all 50 states to its Kansas City, Kansas, campus. Those patients and their families spend money on food and lodging — spending that could potentially capture sales tax revenue to help fund a STAR bond project.
“We’re looking broadly at how we define visitors. There’s the traditional definition of people who might go to a sporting event or a museum,” he said in an interview. “But the fact of the matter is we have huge numbers of people that come to the state to different types of attractions.”
Sen. Julia Lynn, an Olathe Republican, said the legislation seems to stretch the mission of STAR bonds well beyond the Legislature’s original intent to encourage major and unique tourism attractions.
“’Major and unique’ is in the statute,” she said. “So I think that broadens that quite a bit.”
Lynn, chairwoman of the senate commerce committee, said she wants to see a thorough study on the effectiveness of STAR bonds before approving any major changes. She said she would rather see the program fade away temporarily than to have legislators rush to reauthorize it during this session.
“My preference would be to let it sunset so we would have time to regroup,” she said. “I know a lot of people are not going to be happy about that.”
Lynn also leads the legislative post audit committee, which she said will soon commission an outside study of the STAR bond program. She wants to know whether it’s really creating economic growth for the state and if that growth is worth the diversion of tax dollars
“The downside of this is that it’s going to take a long time,” she said. “But the key is we’ve got to start doing things according to best practice.”
Here’s how STAR bonds work: Cities sell bonds to provide upfront capital that a developer can pour into a project. The bonds are paid back over 20 years with the sales tax generated by the development.
The commerce department has sole power to authorize STAR bonds, and critics say a lack of oversight has created widespread problems with the program.
A Kansas City Star story in July examined some of those issues. The Star found a history of STAR bonds over-promising and under-delivering, along with a glut of projects that seemed to subvert the bonds’ mission. In their first 10 years, 1999 to 2009, the bonds were used sparingly, for only four projects, including the Kansas Speedway, widely viewed as one of the program’s most successful projects as it helped spur the larger retail development at Village West.
But since 2009, the bonds have funded at least 16 developments, including more routine projects such as new turf for soccer fields in Wichita, a shopping center in Overland Park and an aquatic center planned for Goddard. Critics say the program has morphed into a mechanism to help fund local quality of life projects rather than prime tourism destinations.
Plus, there’s little accountability with the program: bond guidelines stipulate that developments should draw a certain percentage of visitors from out of state. But the state has no mechanism for tracking those numbers, and what data it has is spotty.
“It’s the ultimate pork project,” Kansas Sen. Molly Baumgardner, a Louisburg Republican, said last summer.
Toland maintains that STAR bonds have been effective in boosting growth, but he said his proposed changes are meant to bring greater accountability to the program.
“I think it’s worth keeping because the state has had tremendous success with this tool,” he said. “There are some fixes that we need to make and that’s what this bill is about.”
Under the proposed legislation, developers would have to submit a visitor tracking plan, though Toland said once the bonds are issued, there would be no mechanism to penalize a project that doesn’t meet visitor traffic guidelines.
His bill would also bar developers from selecting and hiring firms to conduct feasibility studies that measure the merits of their proposals — that would become the responsibility of the commerce department, though developers would still cover the cost.
And proposed projects would have to spend at least $75 million — a significant increase over the current threshold of $50 million.
But many more communities may participate in STAR bonds if the bill passes. Toland wants to allow rural communities to qualify for STAR bonds by lowering their minimum project threshold to $3 million. Those communities designated by the U.S. Census Bureau as part of a metropolitan statistical area — which includes much of the Kansas City area, Topeka, Lawrence, Manhattan and Wichita — would not qualify for that lower threshold.
He mentioned Pratt, a community of about 6,600 about 80 miles west of Wichita. Its Main Street has retail and dining options, but no movie theater — a feature STAR bonds could potentially help finance.
Toland said the changes were proposed in response to criticism he’s heard from the public and the Legislature.
“Essentially what we’re trying to do is have the right balance between accountability and transparency, but also having a tool that will be effective in continuing to grow these attractions in both metropolitan and rural areas,” he said.
Greg Kindle, president of the Wyandotte County Economic Development Council, said the legislation targets some of the changes he and others have clamored for.
“I’m actually glad to know that some of the thoughts we’ve been passing around are making some headway,” he said. “This is actually good news.”
Kindle said the state has too narrowly defined tourism with things like sporting events and museums. He said the University of Kansas Health System is a major regional draw, but has not led to enough commercial development in the immediate area that can serve patients and families.
A recent multistory development on Rainbow Boulevard houses restaurants, a hotel and some healthcare services.
“It’s all privately owned and it’s all on the tax rolls, and frankly we just need a lot more of it,” he said. “We need more hotels. We need to have a better patient experience.”
Rep. Stan Frownfelter, a Kansas City, Kansas, Democrat, said he’s open to the idea of including medical facilities in the STAR bonds program. He said the hospital campus, particularly the KU Cancer Center’s National Cancer Center designation, is a major economic asset for the region.
“You’re talking about hotels, restaurants, you’re talking about a lot of entertainment. Plus, people coming in from all over the world,” he said.
Frownfelter said everyone intends to use STAR bonds appropriately, but those selling it “sometimes misrepresent what the program is supposed to do.”
Rep. Jan Kessinger, an Overland Park Republican, said STAR bonds could potentially be expanded. But he wants to see more accountability, saying, “we need to get a better hold on that.”
He added: “It does need tight controls.”
This story was originally published January 29, 2020 at 11:51 AM with the headline "Kansas hospitals, corporate HQs may get tourism incentives under STAR bonds proposal."
