DALLAS — Topeka, Kansas, is considering issuing $5 million of sales tax and revenue bonds to buy an auto racing track that is generating insufficient revenue to support a previous $10.46 million bond issue.
The city issued $10.46 million in so-called STAR bonds in 2006 based on assumption that sales tax from the surrounding district would provide nearly $1 million per year in debt service. However, the tax increment finance district generated only about $200,000 in annual sales tax revenue, requiring the city to make up the difference through property taxes, according to Doug Gerber, director of administrative and financial services for the city.
Now, the city wants to buy the track from its private owner and expand the tax increment district, Gerber told the Topeka Independent Business Association on Sept. 9.
The city would lose about $1.6 million in sales tax revenue and the state would give up $16 million if the Kansas Department of Commerce approves the plan. Businesses in the area wouldn't pay more in sales tax, according to the Topeka Capital-Journal.
STAR bonds are a tax-increment financing system that applies the 6.3% state sales tax to debt service.
Kansas regulations limit STAR bond financing to major developments designed to attract tourists and visitors. At least 20% of the projected visitors must be from outside the state and 30% must travel beyond 100 miles. The development must generate $50 million of annual revenue, and project sponsors have to provide at least $50 million of private financing.
A petition that would force a public vote on the proposed bond issue is circulating in Topeka. Organizer Chris Imming told the Capital-Journal that he had more than 600 of the 2,132 signatures needed to get the question on the ballot.
Gerber said he viewed the plan as a bail-out for the city rather than Heartland Park owner Raymond Irwin and his creditors. Gerber said the city does not plan to use taxpayer funds to maintain the track.
"We're bailing out the city. That's the only person we're really bailing out," Gerber said, per the Capital-Journal. "We have to pay off that debt."
With $164 million of outstanding general obligation debt, Topeka saw its credit rating downgraded to Aa3 from Aa2 by Moody's Investors Service on May 6, 2013. Standard & Poor's rates the city AA with a stable outlook.
The city refunded $9.86 million of the bonds in 2011, with Columbia Capital Management acting as financial advisor.
