One of Wichita’s favorite incentives programs could expire this year
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.
In Wichita, STAR bonds have been used to fund projects ranging from a new minor league baseball stadium to soccer fields at K-96 and Greenwich. It also paid for upgrades to the Keeper of the Plains, fountains at the WaterWalk and landscaping for River Vista Apartments.
As currently authorized, the STAR bond program will sunset June 30. The commerce department introduced legislation Tuesday that would reauthorize it for five more years — albeit it with major changes.
If allowed to sunset, the law could complicate funding for the Riverfront Legacy Master Plan, a massive redevelopment plan for the east bank of the Arkansas River in downtown Wichita. Planners have said diverted state sales taxes could be one funding source, along with an added sales tax, that pays for new performing arts and convention center buildings.
City Council has taken no action on the Riverfront Legacy Master Plan, and a STAR bond feasibility study and other approvals take several months to complete.
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 developments draw 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.”
The idea behind shifting state sales tax dollars to tourism attractions is that those dollars otherwise wouldn’t have been spent in the state, meaning the state wouldn’t have those tax dollars without the attraction. But if the projects draw visitors who would have spent their money in the state anyways, Kansas could be losing out on money for schools, health care, prisons and higher education.
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.
The proposed rules would fundamentally change the way Wichita has been getting approval for its STAR bond projects. Right now, cities and developers are allowed to choose their own consultant to run the numbers on the project. That has led to big promises with little oversight.
For example, to justify STAR bonds for the chronically under-performing WaterWalk in downtown Wichita, a city-hired consultant estimated the project would draw 3 million visitors — many from out of town — each year and spur $87 million in private investment. But state law doesn’t require STAR bonds projects to live up to expectations or cities to track those numbers.
“It’s the ultimate pork project,” Kansas Sen. Molly Baumgardner, a Louisburg Republican, said last summer.
Under the new legislation, the Commerce Department would select and approve consultants for the project, allowing the secretary to control the scope and methodology of the study, instead of the developers or cities that stand to benefit from overselling a project. It would also require project plans to describe how the number of visitors will be tracked and reported to the state on a yearly basis.
But once the bonds are issued, Toland said, there would be no mechanism to penalize a project that doesn’t meet visitor traffic guidelines.
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.”
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.
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.”
