Kansas City News Blog

Courtesy of Populous

​Owners of the Kansas City Wizards now want to build a stadium at Village West in Kansas City, Kansas. In this week's feature, I describe how the decision jolted public officials in Kansas City, Missouri, who thought the Wizards were going to kick soccer balls at the site of the old Bannister Mall.

KCK's capture of the Wizards is being credited to Sales Tax and Revenue (STAR) bonds. A state program, STAR bonds essentially created Kansas Speedway and the Village West shopping district, where the Wizards are heading.

Kansas City, Missouri, Councilwoman Cathy Jolly told me last Friday she was "envious" of the incentives the Unified Government was able to offer. Says longtime Kansas City developer Whitney Kerr Sr.: "The STAR bond deal is pretty hard to beat."

So what is a STAR bond?

The program allows cities in Kansas to issue bonds to finance the development of "major commercial entertainment and tourism areas." The bonds are paid with sales taxes the projects generate once they're operational.

STAR bonds are relatively simple in comparison with tax-increment financing (TIF), the creature of state law that Missouri cities use to foster development.

Like STAR bonds, TIF deals use sales taxes to pay off developers, although not to the level that STAR bonds do. Developers who use TIF receive other enticements, however. For example, property taxes in TIF areas are more or less frozen for up to 23 years.

It's all pretty complicated. But one concept worth grasping is the idea that STAR bonds and TIF create different sets of winners and losers.

STAR bonds pass the "cost" of the subsidy -- that is, the foregone sales tax revenue -- to all residents of Kansas. Say you buy a $400 sofa at Nebraska Furniture Mart. The state sales tax on a $400 item is $21.20. That's $21.20 that Topeka can't use to balance the state's budget; instead, the money is used to pay off the STAR bonds.

It's easy to make the argument that STAR bonds have been good to the residents of Wyandotte County. Village West is an amenity, an employer and a source of property-tax revenue ($15 million in 2008). In a sense, Wyandotte County enjoys the majority of the benefits while Wichita and Leavenworth share the costs.

Of course, urban portions of Kansas City, Kansas, still look pretty sad. But that's the fault of STAR bonds only insofar that Village West presents (unfair) competition for businesses closer to 7th Street.

TIF, meanwhile, keeps the "cost" of its subsidies closer to home.

TIF's ability to redirect property taxes is a source of tension between the city (which administers TIF) and other government entities reliant on property taxes. Representatives of these other "taxing jurisdictions" -- the schools, the county, the library system -- have been clamoring for more say in the decisions to grant these abatements, which is understandable.

TIF gets criticized because the poorly conceived deals interfere with local governments' ability to function. The overly optimistic TIF plan that gave birth to the Power & Light District will require more than $7 million from the city's general fund next year.

The Unified Government's economic-development efforts have received far less criticism. In fact, the STAR bonds that subsidized Kansas Speedway and Village West were on pace to be retired in four or five years, which is earlier than originally anticipated. (The deal with the Wizards, if approved by the state, will push the maturity date back to 2020.)

Of course, officials in Topeka and KCK looking forward to the day when Village West spins off tax receipts free and clear would be wise to remember that shopping centers tend to lose their appeal.

Just look at what happened at Bannister Mall.