The KC(KS) Chiefs
Most people here in Missouri are pretty salty that the Chiefs are moving to Kansas. Our CEO Brent, however, had a variant view: “If Kansas wants to spend almost $2 billion so I can watch the Chiefs play indoors in a state-of-the-art facility and all I have to do is drive 20 more minutes, I’m okay with that.”
Kansas, of course, is saying that it’s not raising taxes or diverting funding.
At issue is something Kansas created called STAR (Sales Tax and Revenue) bonds. The idea is that the state sells debt to finance a major project it expects will generate incremental commerce, and that debt is repaid from the incremental sales tax revenue the project itself creates.
But the devil is in the details – many of which haven’t been disclosed (or maybe even worked out) yet.
For example, on the underwriting side, both the term and the interest rate matter a lot. A shorter-term bond at a higher rate creates a much heavier repayment burden.
Then there’s the repayment side. Kansas still needs to define the size of the sales-tax district as well as set the baseline above which revenue is considered “incremental.” If the district is made conveniently large (i.e., including areas unlikely to benefit from stadium activity) and the baseline set conveniently low (because math can be flexible), then Kansas will absolutely be diverting resources to build the stadium.
There’s also an implicit assumption that growth equals good. Ignoring the fact that not all growth is good, one driver of growth over a static baseline – absent a hurdle rate – is inflation. In other words, sales tax revenue can go up simply because prices do. That nominal growth might then be used to service STAR bonds even as the real cost of providing other municipal services rises as well, creating a real deficit that would need to be addressed elsewhere.
This isn’t a new observation. Publicly funded stadium projects typically turn out to be underwhelming liabilities. But it’s fun for politicians to announce that they lured a championship-caliber (though not this year) football team away from a rival state without raising taxes or diverting resources.
After all, they’ll likely be long out of office before it’s clear if that’s the case.
– Tim
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