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Lawmakers question $557M spent on sales tax districts

Nick Jordan, interim secretary of the Kansas Department of Commerce, testifies Dec. 5, 2017, before an interim committee about Sales Tax and Revenue, or STAR, bonds, an economic development tool used to finance development of retail districts like the Village West shopping and sports complex in Wyandotte County.

— The state of Kansas has spent more than $557 million of taxpayer money over the last 16 years financing the development of retail shopping districts and tourism projects, and now some lawmakers are beginning to question how much benefit the state is getting back.

That's the amount of state sales tax revenue that has gone to repay what are known as "Sales Tax and Revenue," or STAR bonds, a tax increment financing mechanism in which municipalities issue bonds to pay the cost of roads and other infrastructure in a designated district, and those bonds are repaid with the new sales tax revenues that are generated by the project.

The first, and perhaps most visible example of that in Kansas is the Village West shopping area in Wyandotte County, which includes the Kansas Speedway, a soccer stadium for Sporting KC and the Legends retail shopping area.



Nick Jordan, interim secretary of the Kansas Department of Commerce, testifies Dec. 5, 2017, before ...

Other STAR bond projects, however, have been less successful, most notably the troubled Heartland Park Topeka, a motorsports complex south of the capital city that was foreclosed on in 2015 but that is now reportedly back in regular business.

"The sad reality is that, obviously there's been very few if any dollars generated back to the state beyond the dollars going to paying off the bonds," said Sen. Tom Holland, D-Baldwin City, a member of the Legislature's interim Commerce Committee. "Which is all right, but at some point we'd like to see a return back to the state."

During the 2017 legislative session, Kansas lawmakers passed a three-year extension of the statute that authorizes STAR bonds, but it imposed a one-year moratorium on the creation of any new STAR bond districts, allowing a special interim committee time to review the program and make recommendations for changes or reforms to the 2018 Legislature.

During the first meeting of that panel Tuesday, Holland noted that the Kansas Speedway and Legends shopping district have been so successful that the bonds for that project were paid off early.

But instead of the state and local governments now starting to reap the benefits of that project, the STAR bond district there has recently been expanded, with new bonds being issued to finance development of a soccer training complex that will be used by U.S. Olympic teams, as well as by Sporting KC.

"What I don't understand is, if the state has made an initial investment, at what point does that thing carry itself and go forward, versus looking for continued subsidies from the state?" Holland asked during the meeting, directing his question to interim Commerce Secretary Nick Jordan.

Jordan, who took over as interim secretary shortly after Gov. Sam Brownback fired the previous secretary, Antonio Soave, replied that the Legislature has since tightened up the STAR bond statute to prohibit what he called "overlaying" districts. But he also said there is room for further tightening.

"I'll just be honest with you. There is a lot of — I don't know how to say it — a lot of political pressure sometimes for all kinds of development projects, and I think that our incentive programs need to have the best fences built to try to help that in whatever way we can," Jordan said.

Holland noted that the state currently has no way of monitoring how successful a STAR bond district is after the bonds are paid off because at that point the state stops tracking how much sales tax comes out of the district.

Sen. Julia Lynn, R-Olathe, said she thinks the state needs to do a better job of measuring the return it gets on its economic development investments, not just in STAR bonds, but other business incentives as well.

"It's a pretty heavy lift, but the STAR bonds are probably the biggest piece of it, at least for local economic development," she said.

The committee will continue meeting Wednesday when it will hear from an official with the Pew Charitable Trusts about how other states monitor the effectiveness of the business incentives they offer.

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