Kansas STAR bonds eyed for Mattel-themed amusement park

A small Kansas city took the initial step last week that could lead to the issuance of sales tax and revenue (STAR) bonds for a development featuring a Mattel toy-themed amusement park.

The proposal came before the Bonner Springs City Council in the wake of the first-ever default on STAR bonds in the state and concerns about the value of an economic incentive program that allows incremental increases in sales and hotel stay taxes generated by a development to pay off bonds sold to finance eligible project components, such as infrastructure. 

The council voted to create a STAR bond district for developer Epic Resort Destinations’ 183-acre project, which would include a Mattel Adventure Park with a “larger-than-life Barbie beach house,” as well as rainforest and Christmas-themed attractions, retail, restaurants, hotels, a RV resort, and a conference center. 

 “This is just the very start of this process,” Mayor Tom Stephens said at the April 8 meeting. “All we’ve done tonight is just define an area that STAR bonds can be potentially issued in.” 

A preliminary financing plan for the approximately $490 million project in the Kansas City suburb of 7,666 lists $101.36 million in STAR bond proceeds. The Kansas Department of Commerce in March designated the development as an “eligible area” under the STAR bond statute. 

Stephens raised concerns about his city’s AA rating in the event of a default on STAR bonds, which do not carry additional backing from their governmental issuers or from the state of Kansas. 

“Even though the cities themselves are not responsible for that, it does hurt their bond rating,” Stephens said.

Sufficient funds were not available to pay the entirety of debt service due December 15 on nearly $65 million of STAR bonds Overland Park issued in 2012 for the 61.5-acre Prairiefire development that includes a museum, retail, offices, and housing.

Bond trustee UMB Bank, which declared an event of default, will participate in a May 8 hearing in Minnesota’s Hennepin County District Court, where it filed a petition seeking to clarify how it should allocate available funds under the bond indenture between payments owed for principal and interest. The bank is also asking for guidance on whether bondholders are entitled to interest on overdue interest payments.

The official statement for the tax-exempt, unrated term bonds, which carry Dec. 15 maturities in 2023, 2029, and 2032, warns of “a substantial degree of risk,” including the nonpayment of principal and interest and loss of all or part of the investment. 

Prior to the STAR bond default, UMB Bank in June 2022 reported a default on $14.1 million of taxable and tax-exempt sales tax revenue bonds Overland Park also sold for the project in 2012. The defaulted interest payment was subsequently made in July 2022.

A draw on the debt service reserve fund was announced in December 2022.  The unrated bonds are backed solely by a 1.5% community improvement district sales tax collected within the development. 

The issuance of STAR bonds began in the 1990s as a way to help finance tourist attractions with the debt generally retired in 20 years, after which the additional taxes generated by the development would flow into state and local government coffers.

Washington, D.C.-based Good Jobs First, which tracks economic development incentives, has been critical of their use for retail and entertainment/leisure projects, according to Executive Director Greg LeRoy.

“Entertainment is a discretionary income thing, so it’s pretty much tied to business cycles and income trends,” he said. “You are always going to cannibalize other venues.” 

The conservative group Americans for Prosperity called STAR bonds “an egregious form of income redistribution.” 

“We see far less competition when we allow government to pick winners and losers, encouraging private businesses to focus efforts on lobbying government instead of the consumer,” AFP-KS State Director Liz Patton said in a statement. “The data has proven these projects continue to fail, making it an irresponsible cost on Kansas taxpayers.”

Ganon Evans, a policy analyst with free-market think-tank Kansas Policy Institute, said the program “has continually failed to produce net new economic growth.” 

“The Prairiefire default is fulfilling the writing on the wall that these projects aren’t effective,” he said in an email, adding the program should not be renewed or expanded. 

Kansas Gov. Laura Kelly believes the economic development program is working and wants to see it continue past its July 2026 sunset, according to a state Commerce Department spokesman. 

A 2021 Kansas legislative audit estimated only three of the 16 bond-financed attractions met the state Commerce Department’s tourism-related program goals for long distance and out-of-state visitors.

“Although STAR bond projects likely benefit their local communities (e.g. through job creation and local tourism), most don’t draw a lot of out-of-state tourists to Kansas,” the audit concluded. “That significantly limits their ability to generate new revenues for the state.” 

As for that new revenue, the audit looked at three STAR bond districts, including Prairiefire, and determined it would take decades beyond their bonds’ retirement for the state to recoup tax revenue it gave up. In the case of Prairiefire, the audit pegged the breakeven point between 13 and 71 years after the 2032 final bond maturity.

The phase out of Kansas’ 6.5% sales tax on food to zero as of Jan. 1, 2025, posed a new risk for STAR bonds. In 2023, state lawmakers appropriated general fund dollars for a STAR Bonds Food Sales Tax Revenue Replacement Fund. House Bill 2387, which passed the House last year and is pending in the Senate, would address the problem on an ongoing basis. 

“It was a proviso in the budget bill last year, so (HB 2387) would seek to kind of codify that fix rather than go through an annual process,” Kansas Department of Commerce Chief Counsel Bob North told the Senate Commerce Committee in March, noting revenue from the tax collected in development districts was pledged to pay off their STAR bonds. 

He added, the bill would also codify the use of STAR bonds for amusement parks. 

Nearly $1 billion of STAR bonds have been issued for attractions including the Amelia Earhart Hanger Museum in Atchison, the Kansas Speedway in Kansas City and various sports-related facilities, according to the program’s 2023 annual report.

If the development goes through in Bonner Springs, it would mark the nation’s second Mattel Adventure Park after one set to open later this year in Glendale, Arizona.