New Board Members Take Crash Course in STAR Bonds | Derby News
With a proposal for a new STAR Bonds scheme (with a man-made lagoon and beach activities) still on the table, and three new members joining Derby City Council in early January, City Manager Kiel Mangus gave an overview of the financing the history of the mechanism during the last meeting of the council on January 25.
First, Mangus addressed the purpose of the bonds as a tool for economic development – something that Derby has not traditionally over-distributed (through property tax rebates, business improvement districts, etc. ). He also explained how the bonds are funded.
The state’s STAR Bond Act authorizes the use of incremental sales tax revenue – the difference between base sales taxes before development and increased sales taxes after new construction/redevelopment – d a district specified to fund STAR bond projects. Taxes available to help with this financing are state sales tax, local sales tax, and transient guest tax.
In Derby, Mangus noted that 100% of the state’s 6.5% sales tax revenue collected in the STAR bond district went towards redeeming STAR bonds. Locally, none of the city’s Derby Difference sales tax was allocated to STAR bonds, but the city’s share (0.04%) of the county sales tax was. In addition, the city’s 7.84% transitional tax rate (from the Hampton Inn) also helped fund the STAR bonds.
For the city, Mangus pointed out that this equates to a contribution of about $1 million over the life of the bonds (with projected property tax revenues being nearly equal to that).
“STAR bonds are not additional taxation. Rather, they are the tool that provides additional revenue,” Mangus said. “They’re redirecting future sales tax revenue, so you’re not taking current money. You’re giving up future money to help pay that off.
Some cities – such as Wichita and Goddard – have added special taxes (e.g. Capital Improvement District Tax) to help with STAR bond repayments, but Derby has not used any such tool since enactment of the STAR bond project plan in 2016.
Mangus also outlined the requirements for STAR bonds, including bond maturity no longer than 20 years — something new board member Chris Unkel asked about the latest STAR bond proposal. Unkel wondered if the entirety of the project bonds should be repaid from the time of the initial bond issuance or if it resets each time the plan changes.
City attorney Jacque Butler noted that she couldn’t say for sure but would seek clarification. For the bonds currently issued, however, Mangus said they should both be redeemed well before the 20-year deadline. The 2017 STAR bonds ($20.5 million for Field Station: Dinosaurs and Rock Regional Hospital) are scheduled to be repaid by 2022, while the $14.4 million 2020A bond series for the two project modifications of STAR bonds (Derby Sports Zone and RoKC Derby) is expected to be repaid by 2025.
Other requirements highlighted by Mangus include project cost limits for which STAR bonds can be used – being generally intended for “horizontal construction”. In the case of Field Station: Dinosaurs, Mangus and Deputy City Manager for Development Dan Squires said this included building Destination Drive, the attached parking lot, installing utilities, and more.
“The idea is to put in place the infrastructure for the whole area that is going to support the resale of the bonds. We want this whole area to develop the things that generate additional sales tax which then goes towards paying the bonds,” said said Squires, “It’s about facilitating neighborhood development by paying for the improvements that serve the neighborhood – horizontal building – and paying for the attraction that generates the traffic that makes the neighborhood more desirable.
Additionally, Mangus noted that there is a requirement that state bond financing must not exceed 50% of the total project cost and a minimum capital investment of $75 million is required for a project to be eligible. While the final figure for the latest STAR bond proposal is currently in flux, it was originally presented as a total investment of $166.2 million, including $41.8 million in new STAR bonds and $124.4 millions of dollars in private capital investment – meeting the requirements.
With a master development plan required to move forward with a STAR bond project (currently being set up through Derby Destination Development), Unkel asked if the city was only allowed to work with one developer on the projects. or if other developers could be sought for it. Mangus noted the deal locks in the lead developer for a time, but he said the city could use another developer on a separate STAR bond district in another Derby location. Mangus also confirmed that the unique hotel and restaurant requirements are still part of this agreement.
Given that senior housing is a big part of the latest STAR bond proposal, new council member Rick Coleman asked how this could qualify, as it limits the sales tax collected. Mangus noted that this item is intended to address some recent changes in the STAR Bond Act calling for more mixed-use development. While that would restrict sales tax collection in one direction, Mangus noted that the greater population density would likely help more money be spent in the district.
Not viewing this as positive or negative, Coleman said he views STAR bonds as accelerating growth. While there are still many things for the board to consider, new members were encouraged to seek further input from city staff, if needed, before the final STAR bond proposal comes back to the board for consideration. action later in 2022.