As Lawrence city commissioners prepare to vote on a massive tax incentive package for KU’s Gateway Project, residents near the site said a required community input process was not completed, and an expert said STAR bonds can be a gamble for municipalities.
Still, KU is continuing work on the project and is seeking $86 million in public funding. The city commission at its meeting Tuesday will discuss and vote on the incentives package. Approval of the plan will require at least a 4-1 supermajority vote.
The Gateway Project’s first phase included renovating much of the KU football stadium and construction of a conference center. That’s on track to be completed this month and cost about $448 million.
Phase 2 of the Gateway Project is proposed to finish the south and east sides of the football stadium, plus develop a large mixed-use district next to the stadium, including an outdoor plaza, hotel, student housing facility, parking, retail and more. The second phase has an estimated cost of $346 million, according to the meeting agenda, which is about $35 million more than was estimated when commissioners approved the boundaries in May. The entire Gateway Project has an estimated price tag of $794 million.
The total incentives package is for $86 million. Revenues above the $86 million mark will be split between the city and development. A maximum of $94.6 million in public incentives can go to the development, according to the project plan.
Most of the project is funded with private investments and funding from donors. Earlier this week, KU alumni Paul DeBruce and Linda DeBruce provided a $25 million donation to support the Gateway District.
Don’t miss a beat … Click here to sign up for our email newsletters
Click here to learn more about our newsletters first
What are the incentives?
KU is requesting the $86 million in incentives via a combination of STAR bonds, tax increment financing and the creation of a community improvement district.
STAR bonds, which stands for Sales Tax and Revenue bonds, make up the majority of the incentive package.
These incentives would use additional sales tax revenue in the STAR bond district (which includes almost the entirety of KU’s Lawrence campus) to repay bonds over 20 years. STAR bond funding will be capped at just over $67 million and fund the construction of the stadium and parking.
StarBondDistrictGatewayThe project plan says about $7 of every $9 in additional sales tax collected in the area will be directed to the project. Plus, most of the 6% transient guest tax on hotels and short-term rentals will go to the development. Most of that sales tax is usually sent to the state.
The sales taxes currently collected in the district can not be used to repay the bonds — only newly generated taxes above the current amount. Proceeds will go into a project fund, with disbursements requiring approval from both KU and the city.
STAR bonds were initially created to help fund large attractions to draw tourists to Kansas from outside the state. The Kansas Legislative Division of Post Audit evaluated the STAR bond program in 2021 and found that most projects that used STAR bonds failed to reach the program’s goal of drawing more than 20% of visitors from outside Kansas.
Robert North, chief counsel for the Kansas Department of Commerce, said despite the findings, most of these projects have been successful in bringing new visitors and sales tax dollars to the state.
He also said they evaluate new measures of success for the program such as quality of life for nearby residents.
The Gateway Project plan estimates 33% of visitors to the development will come from outside Kansas and 36.5% will come from outside 100 miles of the project.
Two other types of public incentives will provide the rest of the funds for the stadium:
The tax increment financing, or TIF, district will capture new property tax revenue from increased property values to help fund eligible project costs. Existing property tax rates remain unchanged, and only the incremental increase is diverted to the project.
The community improvement district, or CID, will add a 2% sales tax within a set boundary, with revenue dedicated to project expenses. These funds are collected in addition to existing sales taxes and expire when project costs are repaid or the term ends.
Neighborhood input not completed
A decades-old agreement between KU and the City of Lawrence requires campus developments near neighborhoods to involve community input via a committee.
Despite construction already underway and the incentive package up for a vote, that community input process has still not been completed, according to two members of the committee.
Katy Nitcher and Pat Peery both live near the proposed project site and are neighborhood representatives on the Gateway District Community Advisory Committee.
The agreement requires the neighborhood committee, which includes representatives from KU and the city, to reach an agreement. If they cannot, the committee must prepare a report of dissenting views to be presented to KU.
But Peery and Nitcher said this process was not completed, yet KU has decided to continue to pursue the project and subsequent public incentives.
Nitcher called the public engagement performative.
“As KU has been building the stadium and trying to figure out the traffic problems and the parking problems, those problems still aren’t solved, but the building continues and the plans for opening up the stadium and the conference center continue,” Nitcher said.
Peery criticized the project plan for failing to protect surrounding neighborhoods adequately. He said the biggest concern is KU’s refusal to agree to a limitation on using the stadium for large outdoor concerts.
The plan before commissioners Tuesday says KU will limit the number of major concerts each year to eight, but Nitcher said there are not enough protections against late night traffic and noise, and there is no limit in place for smaller concerts.
A spokesperson for the city said the committee was facilitated by the University of Kansas, so insight should come from KU. A representative from KU did not respond to questions about the neighborhood committee’s requests.
Expert: STAR bonds are risky
Geoffrey Propheter, an assistant professor at the University of Colorado who wrote a book on public financing for sports stadiums, said STAR bonds can be a risky investment for municipalities and developers.
STAR bonds are often promoted as a risk-free way to produce capital for major investments. A video on the Kansas Department of Commerce website touts that “taxpayers do not pay for STAR bonds.” North said virtually every STAR Bond project in Kansas has provided sufficient additional sales tax revenue to pay off its bonds.
Propheter argues it isn’t that simple.
If sales tax revenues fall short, developers have no legal obligation to pay off the bonds, which is why it is marketed as a risk-free option. But Propheter said leaders typically still want to repay the bonds to protect their status on the bond market. This means the money to repay the bonds would have to come from other funds.
“There are still going to be repercussions,” Propheter said. “If you walk away, those repercussions are in the bond market. Your debt now is much riskier, because now you look like, and are, in fact, someone who won’t pay back money.”
Rachelle Mathews, director of finance for the City of Lawrence, said the STAR bonds are not issued as a credit obligation for the city and the bond purchasers ultimately carry the risk for the performance of the district. Mathews said the development agreement includes protections after bonds are issued, including money set aside in a reserve account to make debt payments.
A representative from KU did not respond to questions about whether KU would need to or choose to pay off the bonds if revenues were short.
STAR bonds can also be a risk if sales tax revenues generated by the district meet or exceed estimates.
Propheter said the program risks cannibalizing other business revenue.
For example, the new Dillons under construction in the Crossing development on KU’s west campus is likely to pull customers from other grocery stores in town. This means, despite claims that STAR bonds only take revenue from excess tax collections, it could draw consumers to spend more of their money inside the STAR bond district, leaving overall city sales tax collections lower.
Propheter said research suggests up to 50% of new sales tax collections in tax districts are revenues that would have already been collected in other areas of town before the development.
Mathews said the city will protect its baseline sales tax revenue, using only the amount above that baseline to repay bonds, with adjustments to include sales taxes from the relocated Dillons. The 43,000-square-foot district is expected to draw more visitors than it can accommodate, generating additional sales and hotel tax revenue outside the district that will go directly to the city.
A representative from KU did not respond to questions about the possibility of taking sales tax dollars from outside the district.
Because of this, Propheter said, municipalities should seek to gain something in addition to the development when considering STAR bonds.
For this project, KU has pledged $14.5 million worth of bond proceeds to support the Jayhawk Watershed project and a $4 million contribution for affordable housing, plus the creation of an off-campus housing office to assist with relations between off-campus students and residents.
Propheter said the city should run a financial analysis to ensure what they are getting is worth the lost sales tax revenues.
“My gut tells me that it’s gonna be more expensive for the city to go with the university’s proposal than if the city just bought these things from the university outright,” he said.
Mathews said three separate studies — by KU, the city, and the state of Kansas — have confirmed the project will generate new economic activity. The city’s share of STAR bond funding is relatively small, as the state is expected to cover 75–80% of repayment.
North said boundaries for STAR bond projects often extend beyond the development itself in order to encompass other streams of sales tax revenue.
Public hearings set
The Lawrence City Commission meeting will meet at 5:45 p.m. Tuesday, Aug. 12 at City Hall, 6 E. Sixth St.
Commissioners will hold public hearings on the STAR bond project plan, the TIF project plan and the community improvement district as part of their meeting. Commissioners will then vote on whether to adopt the ordinances that would put the incentives into motion, and whether to authorize the city manager’s office to execute the agreement with KU.
The commission accepts written public comment emailed to ccagendas@lawrenceks.org until noon the day of meetings. The commission also hears live public comment during meetings, both in person and virtually.
City commission meetings are no longer livestreamed on YouTube. In order to watch the meeting online remotely, attendees must join via Zoom at this link, which also allows participants to provide public comment. Meeting recordings are uploaded to the city’s YouTube channel the next day.
See the commission’s complete meeting agenda at this link.
If local news matters to you, please help us keep doing this work.
Don’t miss a beat — get the latest news from the Times delivered to your inbox:
Click here to learn more about our newsletters first
Cuyler Dunn (he/him), a contributor to The Lawrence Times since April 2022, is a student at the University of Kansas School of Journalism. He is a graduate of Lawrence High School where he was the editor-in-chief of the school’s newspaper, The Budget, and was named the 2022 Kansas High School Journalist of the Year. Read his complete bio here. Read more of his work for the Times here.
More about the KU football stadium project:
Latest Lawrence news:
Contributed photo
Chloe Anderson/Lawrence Times
