Another Legislative Audit Shows Failure of STAR Bond Program

The Kansas Legislative Division of Post Audit released a follow up to its 2021 audit of the STAR Bond program, and the findings reveal that even allowing the Department of Commerce to pick and choose its favored metrics—improving local quality of life—doesn’t show a program that benefits taxpayers. The problem with their favored metric is that “Commerce officials expect STAR bond districts to improve local quality of life, but they haven’t defined or measured this.” The findings add more evidence that the STAR Bond program should be allowed to sunset in July 2026.

STAR Bonds are a corporate welfare program that allows private development projects to be financed by government bonds backed by taxpayers. Sales taxes generated by the development are supposed to be used to repay the bonds, but these sorts of programs often fail to achieve their stated goals.

For example, the 2021 audit found that only three of the sixteen STAR bond projects it reviewed met the tourism metrics for the program. In response, the Department of Commerce argued that while tourism was an important metric, even if they didn’t track it, the more important goal was improving local quality of life and attracting young, college-educated adults. The audit found that not only was Commerce failing to define or measure “local quality of life,” but it was also not even a top priority among its target demographic of college-educated adults:

• “Commerce officials expect STAR bond districts to improve local quality of life, but they haven’t defined or measured this.”
• “Commerce officials told us they want districts to improve their local areas’ quality of life and encourage people to live in Kansas. They said they care about all demographic groups but focus especially on attracting younger, college-educated adults because they’re important for the state’s economic future. However, Commerce officials haven’t defined what “quality of life” means or how to measure it.”
• “However, graduates that responded to our surveys indicated social and economic factors other than amenities were most important to them when deciding where to live. For example, job prospects and proximity to family were rated as more important factors in influencing whether they stayed in or left Kansas.”

It’s not surprising that STAR Bonds only exist in Kansas and two other states. There is no evidence that the program can achieve any of its stated goals.

Would STAR Bond districts have developed without STAR Bonds? Commerce Secretary Toland Flip Flops on Impact of Program

The most common justification for development subsidies is the claim that certain areas would not be developed, or at least to the liking of central planners, without them. This is what is called the “but for” test. In response to the 2021 audit, Lt. Governor and Secretary of Commerce David Toland argued that STAR Bond developments “would not have occurred but for STAR Bonds” and “[e]ach and every STAR Bond project, including Overland Park, Wichita Sports Forum and the Hutchinson Salt Museum, would not have happened without STAR Bonds.” (emphasis added) In other words, he argues that the program meets the “but for” test.

The recent audit blows up Toland’s “but for” argument by noting “[c]ity officials from 4 of the 6 districts said the districts likely would’ve developed even without using STAR bonds.” Secretary Toland fails to acknowledge his previous errors in his written reply to the audit: “It is important to note that some areas included in STAR Bond districts may have developed anyway, as stated by city officials during their interviews… The STAR Bond program should not be viewed through any type of ‘but for’ analysis. Whether a district would or would not have been developed is not part of the Act.” (emphasis added)

Kansas taxpayers should not be expected to fund a program without any hard evidence that it’s worth the cost, achieves any of its stated goals. A program the Department of Commerce now admits doesn’t spur economic development that wouldn’t have happened otherwise.

There are better and cheaper ways to promote business creation and innovation in Kansas, like right-sizing regulations, pro-growth tax reform, budget stability, ending government putting thumbs on scales, and regulatory sandboxes that lower regulatory and licensing burdens to test new products or start new businesses.