By John Celock
Following a debate over whether to give more control to state government, Kansas lawmakers have advanced legislation to renew the STAR Bonds economic development program.
The state House Appropriations Committee focused much of their discussions Wednesday on whether to give the state Department of Commerce increased control over the approval of the projects. The move comes as the STAR Bonds program has become one of the most debated economic development programs in the state with some lawmakers calling for additional oversight while others are saying that local governments need to retain control.
Much of the committee debate focused on unsuccessful amendments from Appropriations Committee Vice Chairwoman Erin Davis (R-Olathe) that would have required that the Department of Commerce had to commission an independent third party feasibility study of any proposed STAR Bonds project before final approval and a requirement that suitable private capital should be included in any STAR Bonds project. Under the STAR Bonds program, tax funds from the project are used to pay back the bonds issued for the project. STAR Bonds became a political hot potato in the state following the use of the program to finance the American Royal project in the Kansas City area.
“What the intent is to take the feasibility study out of the hands of the developer,” Davis said of her amendment “The intent is to have an independent third party study commissioned by the Department of Commerce as a caretaker for our state funds.”
Davis said that she knew that developers would not favor the feasibility study idea, but said that she wanted to see more information conducted about the chances of a proposed project being viable before the commitments are made. Under the current process, local governments approve the feasibility studies of the projects – which are geared for business, tourism and entertainment. The Department of Commerce retains final approval on portions of the projects, based on fixed criteria.
Davis said that she was not taking local government out of the equation but wanted to insert an additional layer of oversight. She noted that both amendments were drafted in consultation with state Commerce Secretary Antonio Suave.
The private capital amendment was described by STAR Bonds advocates as a poison pill amendment that would wreck the STAR Bonds programs. Rep. J.R. Claeys (R-Salina) said that both of Davis’ amendments had been considered by legislative committees last year and had opposition.
“Both of these were presented last session in both tax committees relating to the American Royal and that fiasco,” Claeys said. “There was a mountain of testimony in opposition to both of these items. A mountain of opposition. There should be more discussion and before we make a decision on something of this important. The second one was called a STAR Bonds killer.”
Claeys said that the Davis amendments could potentially kill pending STAR Bonds projects in the state including a downtown development project in Salina and a project in Finney County.
Davis said that her intent was not to harm pending projects and that she worked with legislative attorneys and the Department of Commerce to craft the amendments so as not to harm the pending projects.
“I understand that developers would not like the independent feasibility study but when state dollars are involved we should have that type of study,” Davis said.
Appropriations Committee Ranking Minority Member Kathy Wolfe Moore (D-Kansas City) described STAR Bonds as a “great tool” and noted that the Kansas City Speedway development has been an economic boon for the state, bringing in $42 million a year to the local economy. She said that the state has worked to make changes to the STAR Bonds program for more oversight, including incorporating recommendations from legislative auditors.
Wolfe Moore said that local governments are already conducting independent feasibility studies. She said that Davis’ proposal on private capital will harm the program, noting that in many cases STAR Bonds is funding large scale projects like the Speedway where private capital may not exist.
“The second part if very damaging, we might as well kill STAR Bonds,” Wolfe Moore said. “It would kill any big projects. We want the really big projects.”
Rep. Larry Campbell (R-Olathe) noted that in his background in the banking industry, inserting more requirements will leave bankers skittish about getting involved in the process. He said that the market would prefer the current system remaining in place. Campbell said that if a developer could find a banker to put up the capital then they would not be seeking the STAR Bonds in the first place.
Claeys said that he did not want to see local government taken out of the process and noted that moving the process to the Department of Commerce could politicize the process. He noted the commerce secretary job changes hands every few years and putting more power in the hands of the secretary could cause the criteria being used by the department in feasibility studies to change and create uncertainty for development and communities.
Rep. Sydney Carlin (D-Manhattan) stressed the need for local governments to be involved and the secretary to work with local governments. Rep. Greg Lakin (R-Wichita) said that he supported having the commerce secretary being more involved due to local governments not having the expertise.
“Some of these smaller towns have little sophistication. Some of them can have a dog and pony show and don’t know,” Lakin said. “The hope is that the secretary can bring that expertise.”
Wolfe Moore said that before she saw adoption of Davis’ changes she would want more committee study, noting that there could be “unintended consequences.”
While Davis’ amendments were defeated, the committee did pass the STAR Bonds renewal sending the legislation to the full House. Last year, lawmakers dealt with a budget proviso inserted by Senate Majority Leader Jim Denning (R-Overland Park) that would have halted STAR Bonds projects in Wyandotte County, geared towards stopping the American Royal project. Denning’s original proposal would have halted STAR Bonds projects statewide.
Gov. Sam Brownback (R) had vetoed Denning’s proviso, a move that was sustained by lawmakers amid threats by Brownback to kill pending STAR Bonds projects statewide if lawmakers overrode his veto. STAR Bonds renewal is likely to be contentious as the legislation moves forward and likely to see more calls for increased state oversight.
Claeys told the committee that STAR Bonds have worked.
“STAR Bonds are usually used for their intended purposes, fixing downtowns, upgrading blighted areas,” he said. “Bringing in $42 million in revenue to the state of Kansas in a given year.”