Audit: Projects using hotly debated Kansas economic development tool not hitting key benchmarks

Andrew Bahl
Topeka Capital-Journal
Andy Brienzo, principal auditor for the Kansas Legislative Division of Post Audit presents a report on the state's STAR bond program during a meeting of the Legislative Post Audit Committee on Monday.

Few projects financed using STAR bonds met benchmarks for bringing visitors and spending to the state, a new report from the Legislature's non-partisan auditing arm revealed Monday.

Moreover, a sampling of three projects using the tool found it will take decades, even upward of a century, for revenues from out-of-state visitors to reach the point where the state had made back the tax revenue it gave up for those enterprises.

STAR bonds, short for Sales Tax and Revenue Bonds, are an economic development tool designed to boost tourism and business activity in Kansas.  They have existed in the state for decades. They allow municipalities to issue bonds to finance major commercial, entertainment and tourism developments and are paid off through sales tax revenue generated by the project.

The most notable example is the Kansas Speedway in Kansas City, Kan., as well as the soccer stadium, strip mall, water park and business complex that surrounds it.

But more than a dozen STAR bond districts have cropped up in recent years across the state, with projects ranging from museums to sporting complexes to Heartland Motorsports Park in Topeka.

Only 3 projects reviewed hit tourism goals, audit says

Of the 16 attractions reviewed by the Division of Legislative Post Audit, only three met the Department of Commerce's stated tourism goals by pulling in a significant percentage of their visitors from out-of-state.

This is important, proponents argue, because it ensures the projects are generating new economic activity, not just shifting around dollars from Kansas residents that would have been spent elsewhere in the state.

It is no accident, auditor Andy Brienzo said, that the three businesses, which met the goals — Heartland Motorsports Park, Kansas Speedway and the Hutchinson Underground Salt Museum — were unique and could pull in visitors from farther away.

"These are things people have to travel for," Brienzo said. "That’s why we think they’re doing a bit better hitting those goals."

The Kansas Speedway is considered one of the foremost instances of a project financed using STAR bonds, a controversial economic development tool that has existed in Kansas since 1993.

The report drilled down further in the second part of the audit, focusing just on projects in Hutchinson, Wichita and Overland Park. 

It found that the Hutchinson project could take until 2132 to recoup sales tax revenue diverted to support its development. The other two projects could make back lost tax revenues sooner, but the report notes it could still take decades for that to happen.

The Department of Commerce questioned the data used in the report, however, saying it was not an effective way of measuring how many visitors came to a given facility. They also maintained there were broader positive impacts gleaned from STAR bond projects on economic and community development.

Bob North, the agency's chief counsel, said they were particularly useful for attracting younger residents to Kansas.

"We want to keep the young people that graduate from our universities, we want to keep people in the state, we want more people to come to the state so we can fill our jobs," North said. "And quality of life and these kind of attractions are important for young people."

Lawmakers divided on merits of STAR bonds going forward

But some legislators disagree with that assessment. The STAR bonds program was reauthorized earlier this year by state lawmakers, albeit with significant divisions over the merits of the program and whether it was having the desired impact.

"STAR Bonds initially started with the racetrack, that was the intent of it," said Sen. Caryn Tyson, R-Parker. "And we have gone way afar. We're looking at theaters. We're looking at furniture stores. We're looking at car dealerships. Those are not the items that bring tourism in. It is way past the scope of the legislation."

As part of the bill extending STAR bonds, legislators pushed for greater transparency and oversight — both elements the audit agreed would be useful.

An outside feasibility study must now be used for projects seeking STAR bond funding. Local governments must submit a report outlining community support for the project, as well as its potential return-on-investment. And developers are now required to outline for state officials how they will track and report visitors. 

Sen. Ethan Corson, D-Prairie Village, asks a question regarding a report on the state's STAR bond program during a meeting of the Legislative Post Audit Committee on Monday.

Sen. Ethan Corson, D-Prairie Village, said the goals themselves should be evaluated, arguing the benchmarks were effectively unattainable for all but a few projects. 

"Those just seem very, very ambitious to me," Corson said. "And I’m worried that we’re setting a standard that we’re not ever going to realistically be able to meet."

Other members criticized the program for making it harder for small businesses to compete with projects that earn STAR bond approval. Tyson said it was an indictment of the program that only two other states have economic development programs that are structured in a similar way.

But Sen. Rob Olson, R-Olathe, defended STAR bonds, noting that other neighboring states do make use of tax abatements which require Kansas to keep pace. 

"I think each one of these projects does help prop up the local economy," Olson said. "It is hard to see how much."