Downtown Wichita's Arkansas River isn't much of a tourist attraction, but wait three or four years. If all goes as planned, the blighted waterfront will become 30 acres of mixed-use development called WaterWalk — a $138 million bet that urban Wichita can be reborn as a destination.
Funding the project hasn't been easy, but WaterWalk may get help from an innovative Kansas program that allows participants to use sales-tax revenue to cover the cost of site improvements. The STAR bonds program — for “sales tax and revenue” — gives projects in designated development areas a big break when it comes to paying for the streets, parking, sewers and other infrastructure they need. The goal is to create destination development, or project that draws spending from outside the immediate area.
So far, Kansas and Nevada are the only states with such programs. But both Washington state and Alabama are eyeing STAR bonds, and it seems inevitable that others will follow as officials search for new tools to attract retail and commercial development.
“They'd be crazy not to,” says Dan Lowe, a partner in Kansas City-based RED Development who specializes in project planning and finance. “We consider them a super sales tax TIF. They are ten-fold better.”
RED is building The Legends, an 804,000-square-foot lifestyle center that is part of the state's first STAR bond project — the Kansas Speedway in rural Wyandotte County and the adjacent Village West center. The popularity of the NASCAR track, coupled with the opening in the past year of a 190,000-square-foot Cabela's outdoor store and a Nebraska Furniture Mart, has made the project the biggest tourist draw in Kansas.
By helping pay for parking, streets and other basics — costs that often represent a third of development costs — STAR bonds cut a retailer's upfront capital requirement and improve the return on investment, notes Steve Graham, RED's vice president for destination development. The subsidy also allows enhanced design that draws more shoppers, he says.
Lawmakers broadened the program last spring by taking control of it away from the legislature and giving it to local governments and the Kansas Department of Commerce, although a moratorium on new projects was imposed while clearer rules were written.
With those rules now in place, it appears STAR bonds will be sought for a 650-acre mixed-use development in Edwardsville, not far from the speedway, that would include 800,000 square feet of retail, as well as for a development in nearby Olathe that would be anchored by Bass Pro Shops. (Tom Johnson, president of WaterWalk, says his group also is negotiating with Bass Pro as a potential anchor.)
The Nevada legislature approved its STAR bond program early last year. Armed with it, economic development officials in Washoe County hope to draw the West's first Cabela's to an 1,800-acre outdoor-adventures mall near Sparks.
Some fear that the spread of STAR bonds could help developers at the expense of taxpayers, since they remove sales-tax revenue from a state's general fund. But RED's Graham notes that Village West, once completed, will produce $1 billion in sales in a region where once there was little economic life. “If it wasn't for STAR bonds we wouldn't have been able to do this,” he says. “It shows the power of a great economic incentive.”
In Wichita, Johnson hopes to see that power firsthand. He's confident WaterWalk will be approved for the program early in 2004 — a move he says would help reverse downtown's long slide. “Downtown has seen a steady out-migration of retail. There's been no big private investment in Wichita in 20 years,” he says. “This is a great economic tool.”