Kansas offers bond plan to lure Missouri pro football, baseball teams

Kansas will greatly expand its sales and tax revenue bond program in an effort to entice the NFL's Kansas City Chiefs and the Kansas City Royals of Major League Baseball to move across the border from Missouri, under legislation Gov. Laura Kelly signed into law on Friday.

During a special legislative session just three days earlier, lawmakers overwhelmingly approved House Bill 2001, which permits STAR bonds to cover 70% of the cost of two professional sports facility projects that carry a price tag of $1 billion or more. 

"We know that modernizing our economic development tools provides the opportunity to increase private investment into the state," the Democratic governor said in a statement. "By modifying the STAR bonds program, one of our strongest economic development mechanisms, lawmakers crafted a viable option for attracting professional sports teams to Kansas."

MANICA

That STAR bond program has been stung by a recent bond default and a poor track record of projects meeting tourism-related goals — concerns that were raised ahead of the bill vote. 

Kansas politicians jumped in after Jackson County, Missouri, voters in an April 2 special election rejected a tax to fund a new ballpark for the Royals and renovate Arrowhead Stadium, the home of the Chiefs.

The professional sports facilities STAR bonds, which could be issued by a city, county, or the Kansas Development Finance Authority, will be backed by the incremental increase in sales taxes collected in a district created for the project and up to 100% of liquor sales within that district, according to a bill summary. The law also includes potential slices of sports betting and state lottery revenue.

Besides expanding STAR bond-financed project costs to 70% from the current 50%, the law extends the maturity of the debt to as much as 30 years, up from 20 years. It also contemplates the possibility of a stadium project being located in an existing STAR bond district by mandating priority repayment for outstanding bonds. 

The clock is ticking as the law expires June 30, 2025 — a deadline that could be extended a year by the Legislative Coordinating Council, which is empowered to approve or reject sports team projects. 

Proponents pointed to the need to keep the NFL's Chiefs and MLB's Royals from relocating to a far-off state when their current leases in Kansas City, Missouri, end in six years, while touting huge economic benefits that could come Kansas' way without putting taxpayers at risk.

"There are provisions in the bill that no entity may pledge their full faith and credit to the STAR bonds," Republican State Rep. Sean Tarwater said ahead of the June 18 House vote. "And so no one is on the hook except for the people that buy the bonds."

"The bondholder is the one who is taking the risk," Republican State Sen. J.R. Claeys said before the Senate vote. "There is a risk premium built into these in the interest rate." 

Some STAR bonds, as well as other debt issued for eligible attractions, have proven to be risky.

The STAR bond program began in the 1990s as a way to help finance tourist attractions with the debt generally retired in 20 years, after which the additional sales and hotel room taxes generated by the development and pledged to pay off the bonds would flow into state and local government coffers.

Almost $1 billion of STAR bonds have been issued to help finance attractions, according to the program's 2023 annual report. A 2021 legislative audit found only three of the 16 bond-financed projects met state Commerce Department tourism-related goals.

Nearly $65 million of unrated tax-exempt STAR bonds Overland Park issued in 2012 for the 61.5-acre Prairiefire development that includes a museum, retail, offices, and housing, defaulted in December when sufficient funds were not available to pay the entirety of debt service. With only $8.13 million available to cover nearly $18.39 million in debt service, bond trustee UMB Bank last week distributed $1.54 million to bondholders for accrued interest and $6.59 million for principal.

Those bonds, which were priced with a top yield of 6% for the 2032 maturity, were flagged in the official statement as having "a high degree of risk" with potential buyers limited to qualified institutional or accredited investors.

The 2021 legislative audit looked at when the state would recoup tax revenue it gave up for STAR bonds. In the case of Prairiefire, the audit determined the breakeven point might be between 13 and 71 years after the bonds' 2032 final maturity.

Overland Park's $14.1 million of unrated taxable and tax-exempt community improvement district revenue bonds that were also issued for the project in 2012 defaulted in 2022 on an interest payment that was subsequently made. Last week, UMB Bank announced it had to dip into the debt service reserve fund for a June interest payment.

Debt issued by the Wyandotte County/Kansas City Unified Government for the first STAR bond project — the Kansas Speedway NASCAR venue, which the 2021 audit found did meet tourism goals — has also been shaky. 

Bloomberg News

Bonds in a 2014 issue that refunded a portion of a 1999, $24.3 million STAR bond deal to initially finance the project were downgraded by S&P Global Ratings to BBB-plus from A in 2022 due to slump in pledged sales and hotel room tax revenue within the speedway development that was exacerbated by the COVID-19 pandemic.

More STAR bond issuance could be coming with the city council in Bonner Springs, Kansas, creating a district for a proposed Mattel Adventure Park in April.

The expanded STAR bond plan surfaced during the waning days of the Republican-controlled legislature's 2024 session after the April 2 defeat of a stadium tax across the border in Jackson County, which includes Kansas City, Missouri.

The sales tax hike would have raised more than $50 million annually to subsidize venues for the two franchises.

Representatives for the teams expressed interest in the Kansas bill at a joint legislative committee hearing last week.

David Frantze, a partner at Stinson law firm who spoke on behalf of the Royals, said the failed sales tax vote in Missouri has forced the team to look at alternatives.

"This STAR bond legislation you are considering offers a very good opportunity for us to explore an option in the state of Kansas," he said. 

A joint letter from Missouri's Show-Me Institute and the Kansas Policy Institute last week urged the governors of the two states to not violate an economic development truce that has been in place, warning that a bidding war over stadiums will likely lead to a costlier deal. The free-market advocacy groups also pointed to research that found government subsidies for sports teams typically outweigh economic benefits.

"These subsidies never live up to their economic promises; they only divert funds away from important city and state services," the letter stated.  

While tax-exempt bond issuance for professional sports stadiums could face congressional scrutiny next year, states and local governments continue to take up projects.

Utah's governor in March signed into law bills authorizing bond financing for ballpark and arena construction. In April, the National Hockey League approved the sale and relocation of the Arizona Coyotes to Salt Lake City.