A Kansas Department of Commerce official told lawmakers Monday that expanding the scope of STAR bonds would allow the agency to approve public funding for a development project around the University of Kansas Medical Center.
Skeptical House Republicans questioned David Soffer, policy director for the commerce department, on legislation that would overhaul and extend the use of Sales Tax Revenue Bonds, a 20-year-old state program aimed at developing tourist attractions. The program is set to expire this year.
Soffer defended the agency’s proposal to add “significant” medical facility and business offices to the list of projects eligible for taxpayer-supported investments. These developments would attract visitors who spend money just like traditional tourist attractions, Soffer said.
Rep. Kyle Hoffman, R-Coldwater, questioned why the state should expand, rather than tighten, the use of STAR bonds. The proposed legislation doesn’t define the type of investments that would be eligible.
" ’Significant’ — I don't know what that means,“ Hoffman said. ”It could mean anything."
Soffer said the intent is to draw development districts around existing medical facilities that attract thousands of visitors from across the country.
When pressed for an example, Soffer said the request came from KU Med. Visitors to the Kansas City, Kan., facility don’t stay near the hospital, Soffer said, because of a lack of options.
"If demand is there, why would an investor not go ahead and build those hotels?“ said Rep. Sean Tarwater, R-Stilwell. ”Are they just waiting on us to make a move on this?"
Soffer said “this is an important debate to have.”
"We were brought a couple of ideas, were intrigued by them, so we decided to propose it,“ Soffer said.
Other proposed changes to the STAR bonds program include raising the minimum investment and anticipated gross annual sales for a project from $50 million to $75 million. Rural development projects that improve quality of life and cost no more than $4 million also would be added to the mix.
To remove the influence of local developers, the commerce secretary would select consultants for feasibility studies. These studies would reflect the project’s economic impact on the region and state, and would have to include a summary of community engagement. Visitor tracking would become mandatory.
Lawmakers expressed concerns about the use of STAR bonds to slice up a community’s existing economic pie, rather than grow the pie as envisioned.
"I think the major concern for most of us is the past abuse of STAR bonds,“ said Rep. Kristey Williams, R-Augusta.
Business officials from across the state pointed to successful uses of STAR bond incentives and urged lawmakers to keep the program alive.
The program has funded museums, parks and multi-sport facilities across the state. In Kansas City, Kan., STAR bonds helped finance the Kansas Speedway racetrack and lure the Sporting KC soccer team across state lines.
Cliff Illig — co-founder of Cerner, the health systems giant whose headquarters is nestled into development for the soccer complex — said STAR bonds are responsible for the “incredible resurgence” of western Wyandotte County.
"Public-private partnerships that leverage proper, prudent STAR bond investments with significant capital invested alongside private interest are key to continue to advance our state's long-term economic development goals,“ Illig said.
Korb Maxwell, of the Polsinelli law firm, which has been involved with many of the STAR bond projects in Kansas, raised concerns with a proposed new restriction on the transfer of property within a project.
The commerce department installed the restriction in response to developers who use STAR bond funding to buy more land than they need for the main attraction. After the project is in place, they then sell off the excess land at a profit.
Under the proposed legislation, the commerce secretary would have to approve any transfers. The setup would allow the state to seek a portion of the profits to apply toward the bonds.
“Hard-wiring a restriction on transfer into the statute would have a chilling effect on the ability to raise private capital and pursue the creative financing structures, including debt and joint ventures, that it takes to get these projects done,” Maxwell said.