Legislative audit places Kansas’ lonely reliance on STAR bonds under harsh spotlight

TOPEKA — The state’s $1.1 billion investment in special economic development bonds supporting museums, racetracks and other attractions produced only three outside of the mega-development at Village West in Wyandotte County that fulfilled the Kansas Department of Commerce’s primary objective of elevating tourism among long-distance and out-of-state visitors.

Analysis by the Kansas Legislature’s auditors, who responded to lawmakers’ skepticism that the STAR bond program didn’t work as advertised, indicated the Kansas Speedway and Topeka Heartland Park track attracted 20% of visitors from outside the state and 30% of visitors from more than 100 miles away in 2018 and 2019. The Hutchinson Underground Salt Mine met both metrics in 2019.

This study looked at 16 business districts from Garden City to Derby and Atchison to Dodge City that host developments launched by sale of STAR bonds and supported by diversion of sales tax revenue to pay off the bond debt.

“Only three of 16 STAR bond attractions that we reviewed met Commerce’s tourism-related program goals,” said Andy Brienzo, a principal auditor with the Legislature’s division of post audit. “We think generating tourism is really the primary purpose of the program. Critically, it’s what sets it apart from other economic development initiatives.”

Sen. Ethan Corson, a Prairie Village Democrat on the joint House and Senate audit committee, said the two tourism goals adopted by the state Department of Commerce sounded like far-fetched measurements of success.

“I love that we’re setting ambitious goals,” he said, “but these just seem to be very, very ambitious to me. I’m worried that we’re setting a standard that we’re not ever realistically going to be able to meet.”

Break-even metrics

In a separate review of STAR bond viability presented Monday to the Legislature’s audit committee, analysts considered how long it might take for the state to recoup sales tax revenue surrendered to support these economic development projects.

Auditors selected the Hutchinson salt mine, the Overland Park Prairie Fire Museum and the Wichita Sports Forum to test how those projects measured up to state’s opportunity cost of investing tax revenue in STAR bonds.

State taxpayers could expect to be made whole on the Hutchinson development at some point between 2057 and 2132, auditors said. The estimate was more promising for Prairie Fire, which could expect tax revenue to be made whole from 2046 to 2104. The sports forum might get there by 2030 or 2076.

“Good report,” said Rep. John Barker, a Republican from Abilene. “I don’t like the contents, but you did a good job.”

“Prairie Fire in 2104? That’s 83 years out. That’s a long way,” said Sen. Mike Thompson, a GOP legislators from Shawnee.

It was assumed by the state auditors that each of these bond issues for economic development would be paid off in the required 20-year period. The break-even estimates in the report reflected how long it could take for the state to recoup sales tax revenue given up to pay off the bonds.

By November 2020, a dozen cities across Kansas had issued $1.1 billion in STAR bonds. Seventy-six percent or $668 million in state tax revenue had been relied upon the pay that debt. The remainder, or $204 million, has come from local sales or transient guest taxes.

Village West excluded

Auditors made the subjective decision to set aside the six attractions in Village West backed by $726 million in STAR bonds. The reasoning was the commercial epicenter operates at a financial level unparalleled in terms of other STAR bond districts.

Officials at the state Department of Commerce objected to carving out Village West from the break-even analysis. Village West has an enviable financial track record and would place the STAR bond experiment in a different light.

David Toland, secretary of the commerce department and the state’s lieutenant governor, said the legislative audit of STAR bonds wasn’t “fair and balanced” because Village West provided more than $40 million in sales tax revenue to the state annually.

These projects have been woven into billions of dollars of private investment and created tens of thousands of jobs, he said.

“Village West’s record of improving both the economy and the general welfare of Wyandotte County and the state as a whole is beyond dispute,” Toland said. “In fact, the Village West project returns more state sales tax to the state general fund than the amount of sales tax ‘foregone’ by the state and applied to debt service for all other STAR bond projects across the state.”

Toland also said evaluation of STAR bonds should have taken into account the program’s “general and economic welfare” to communities.

Bob North, the commerce department’s general counsel, said he questioned the decision by auditors to use tourism statistics provided by the company StreetLight Data. He said counting visitors to tourist attractions might be as simple as tracking purchased tickets or as difficult as determining how many thousands of people visited Village West over a weekend.

“There were assumptions made that we disagree with,” North said. “There are flaws and inadequacies in tracking visitorship.”

A new state law requires the Department of Commerce to take a greater role in creating business feasibility studies for STAR bond projects and to mandate developers prepare a plan for documenting the volume of visitors attracted to that site, he said.

Sen. Caryn Tyson, a Republican from Parker and a candidate for state treasurer, said the audit of STAR bonds affirmed her concern about use of tax dollars for the program. She said Kansas was the only state deploying STAR bonds. Nevada used a similar program once, and the Illinois statute opening the door to STAR bond projects hasn’t been used.

“I don’t see why more states aren’t doing this,” Tyson said. “We’ve had it in place over 30 years now and we’re not seeing results from it.”

The Kansas Legislature authorized use of sales tax revenue for STAR bonds in 1993. In 1997 and 1998, the Legislature amended the statute to allow Wyandotte County to rely on STAR bonds for Village West and the Kansas Speedway. The law has been reauthorized through 2026.

Under Kansas law, revenue from sale of STAR bonds may be used to pay for property acquisition, site preparation and infrastructure costs. Once the bonds are paid off, the full amount of sales taxes from a STAR bond district goes to state and local governments.