Today was part two of the Kansas Senate’s STAR bond challenge.
Wednesday, the Senate passed a 10-point STAR bond reform provision. STAR bonds are sales tax revenue bonds, where the sales taxes at a new development are allowed to pay for the costs of building the new development, instead of going to the local and state governments. A voice vote approved the reform amendment.
The day before, the Senate overrode the governor’s veto of a line item that would prevent Wyandotte County from using STAR bonds on future projects. Some observers thought the override of the line item veto was a reaction to the American Royal’s potential location in Wyandotte County that the governor supported. Some legislators wanted development funds to go toward the state’s impoverished general fund instead of to economic development.
During discussion on the issue, Senate President Susan Wagle said the STAR bond reforms were the idea of the new Kansas commerce secretary, Antonio Soave, who was bringing business practices to the commerce department. She said it was important that the state add “best practices” to the STAR bond statute.
Also, she had expected this bill to come over from the House originally, but since it didn’t, it was brought up as an amendment in the Senate. It would be expected to go to a conference committee eventually.
The 10-point reforms also originated from an old 2005 legislative post-audit report, done more than 10 years ago.
The amendment had bipartisan support, with Senate Minority Leader Anthony Hensley of Topeka and Sen. Tom Holland of Baldwin City speaking in favor of it.
Sen. Pat Pettey, D-6th Dist., clarified points with the amendment’s sponsors. She asked if it would apply to current STAR bond projects, and she was told by the amendment’s sponsors that it would apply only to future projects.
In the past there have been feasibility studies or economic impact studies done of STAR bond projects. But one change in this amendment would require an economic impact study to go through the state’s commerce department, with the commerce department designating an independent consultant to make the study, and the city or county paying for the study.
Other points in the reform package include the capping of soft costs at 3 percent. These include construction, design, legal and accounting costs, according to the amendment’s sponsors. Some projects go up to 20 percent, according to sponsors of the amendment.
The reforms also would require requests for proposals and sealed bids for construction. Self-dealing to pay one’s own company above-market rates would be prohibited, according to the sponsors.
The developer would have to put funds into escrow in advance, and an amount of it could be forfeited if the requirements were not met, according to sponsors of the amendment.
If the state pays 49 percent of the project, then it would expect to retain 49 percent equity in the project to reflect its investment. At some point the developer could purchase this equity, or the state could sell it to another investor, according to sponsors of the amendment.
The reforms also include a provision for expansion in distressed areas and rural areas.
The commerce secretary would have to approve the project, and there would be written deadlines for it. The state would have a reversionary interest in any real estate and improvements acquired with STAR bond funds if the projects are not completed on time, applying to projects starting after July 1, 2017. STAR bond districts could not transfer to another geographic area.
The measure that passed today was expected by some observers to end the Senate’s prohibition of any STAR bond projects in Wyandotte County that was passed the day before, if it becomes law.
Earlier in the discussion, another amendment was defeated after questioning by Sen. Pettey. That amendment would have allowed the state to go after the T-Rex restaurant and Cabelas at Village West in Wyandotte County to recover STAR bond money that had been used in building a mechanical dinosaur and in purchasing and displaying taxidermy deer heads and other items on display. It failed on a vote of 10 in favor and 18 against.