A Bad Deal: No to STAR Bonds for Stadium Subsidies

If we could fund stadiums by simply building special tax districts for free then we should fund schools like that, we should fund roads like that, we should fund everything like that. And the reason we don’t is that there’s no such thing as a free lunch. Giving public money to one place necessarily means taking it from somewhere else. So there is a cost here. It may not be obvious but you’re going to end up paying for this and it’s not going to pay for itself.

J.C. Bradbury, a professor at Kennesaw State University in Georgia who has studied sports economics to the Kansas City Star (May 9, 2024)

STAR Bonds are a Failed Government Program

STAR Bonds is a program that allows private development projects to be financed by your sales taxes. Sales taxes related to the development repay the bonds instead of paying for roads or public safety. In other words, your hard-working tax dollars are stuffing the coffers of politically connected businesses instead of guaranteeing quality government services. Kansas is one of only three states that runs a STAR Bonds program and appears to be the only state actively using it.

Giving the Commerce Department more authority to expand a failed program to subsidize professional sports stadiums, which economists universally agree are poor public investments, is a recipe for disaster. There is little evidence that STAR Bonds are effective at accomplishing their stated objectives, such as increasing tourism to the state.

In January, the Prairiefire project in Overland Park defaulted on its STAR bond debt, even as officials said the area “would have developed on their own without the help of the tax breaks.” A 2021 audit by the Kansas Legislative Division of Post Audit raised serious concerns about the projects funded by STAR Bonds and potential harm to taxpayers. The audit found that only three of the sixteen STAR bond projects it reviewed met the tourism metrics specified for the program. An independent study from the Kansas Policy Institute found the program didn’t create new jobs in Wichita and simply shifted existing money around the city.

3 Ways STAR Bonds Cost Taxpayer Money

Using the sales tax as a vehicle for these billion-dollar capital projects, it’s super risky. In this case, it’s primarily going to be Kansas State taxpayers.

Dr. Geoffrey Propheter, associate professor of public affairs for the University of Colorado-Denver to KMBC News (May 1, 2024)

Direct

If this were a free lunch with no risk to taxpayers, it would be unlikely to attract any investors for such a large and speculative investment. If major investors do plan to invest here, it’s likely because they expect that taxpayers will backstop their investment. As the Kansas City Star explains:

Kansas’ involvement comes with an implicit understanding – Marlowe called it a “wink and a nod” – among investors that even though the bonds are speculative, the state would intervene if necessary to prevent a project from failing and investors not getting paid. That belief among investors stands in sharp contrast to the rhetoric of lawmakers, who dismiss the possibility of risk to taxpayers.

Indirect

If taxpayers don’t cover a default, it would harm the credit rating of whichever government issued the bonds and therefore raise future borrowing costs at taxpayer expense. Siphoning sales taxes also creates another indirect taxpayer cost: paying for the government services those sales taxes would have paid to provide.

Legal

A legal battle over a bond default could cost taxpayers hundreds of thousands, if not millions, of dollars.

Unanswered Questions That Will Impact State and Local Taxpayers

• Who will pay for the required infrastructure additions?
• Who will pay for cost overruns?
• Will the stadium district qualify for any other state or local subsidy or incentive programs?
• Who will pay for the increase in police services for games?
• Who will pay for future stadium renovations?
• Will the Chiefs be required to pay any property taxes if they own the stadium or pay rent if it’s municipally owned?
• Will eminent domain be used to force homeowners and businesses to sell their property for the stadium?

The STAR Bond Program Lacks Transparency and Accountability

Americans for Prosperity Foundation-Kansas’ investigation of the STAR Bond program found that the Department of Commerce failed to provide any substantive oversight over the STAR Bond program and served as a rubber stamp on approving projects. Americans for Prosperity Foundation-Kansas obtained records through a Kansas Open Record Act (“KORA”) revealing that on more than one occasion, Commerce accepted draft approval documents from the law firms requesting STAR Bond approvals for their clients.

There is also a glaring lack of transparency by the department running the STAR Bond program. Americans for Prosperity Foundation-Kansas submitted a KORA request for STAR Bond records in November 2021.The Department of Commerce took nearly a year to provide most of the requested documents. Nearly three years later, Commerce continues to stonewall our requests for emails about STAR Bonds from Lt. Gov. and Commerce Secretary David Toland, even after we filed a complaint with the Attorney General.

Fact Checking Pro-STAR Bonds for Stadium Claims

CLAIM: “The Professional Sports Franchise STAR Bond Legislation DOES NOT impose ANY new OR higher sales taxes on Kansans.”

FACTS: The “proposal to allow for bonding up to 100% set off alarm bells among some lawmakers and stadium finance experts, who warn no stadium project could generate enough revenue to pay for an entirely bonded project.” (Kansas City Star, 6/4/2024) That shortfall has to come from somewhere.

And while it does not necessarily IMPOSE higher taxes, it SIPHONS OFF taxes that would be used to pay for services like police, fire departments, and roads. That money has to come from somewhere. And stadium districts require an increase in all of those services as admitted on the stadium booster website that it would increase traffic: “Adding another professional sports franchise would only enhance public traffic to this area.”

CLAIM: “NOTHING in the bill requires Kansas taxpayers to fund the entire project.”

FACTS: No proposal disallows funding 100% of the stadium by taxpayers. Current law for STAR Bonds caps projects at 50% of the project’s cost.

CLAIM: “Any stadium built under the Professional Sports Franchise STAR Bond Legislation will be a public/private partnership with the franchise owner contributing hundreds of millions of dollars to the project.”

FACTS: The project is estimated to cost $2-$3 billion. This quote gives away the game by implying taxpayers will be funding the majority of the cost if the franchise owner is only committed to contributing “hundreds of millions” to a multi-billion dollar project. 

The STAR Bond Program Includes the Power to Abuse Eminent Domain

The STAR Bond statute states that all STAR Bond projects are considered a “public purpose” for eminent domain. This means that if your house, land, or business lies within a STAR Bond district, the government can force you to sell, even if you don’t want to, and give it to a private party for their private profits.

It is further found and declared that the powers conferred by this act are for a public purpose and public use for which public money may be expended and the power of eminent domain may be exercised. The necessity in the public interest for the provisions of this act is hereby declared as a matter of legislative determination.

K.S.A. 12-17,160

Missouri Voters Rejected Stadium Subsidies

In April, 58% of voters in Jackson County voted down a proposal to replace an existing three-eights of a cent sales tax with a new one to last 40 years and pay for stadium renovations and a ballpark district. When voters are informed of the true cost of stadium subsidies, rather than given push polls by stadium boosters, they reject bad deals. If stadiums were really “economic drivers” as claimed, voters would not have overwhelming voted against the proposal.