Think luring Chiefs to Kansas with STAR bonds is smart? Heed Zona Rosa’s credit debacle | Opinion

Having scored a victory years ago outbidding Missouri in its pursuit of Sporting KC, some in Kansas are chasing the opportunity to bring the Chiefs and Royals to the Sunflower State as well. There are risks.

Hot on the heels of Jackson County voters’ April rejection of a sales tax for improvements at Arrowhead Stadium and a new downtown ballpark, other local and state governments are making headlines with plans to lure the teams away. Jonathan Shorman’s must-read piece in The Star is great for anyone interested in the Chiefs and Royals moving to Kansas, or in Sales Tax and Revenue or STAR bonds more generally.

The bonds are the beating heart of virtually any proposed Kansas deal that receives public funds. Proponents argue that taxpayers aren’t responsible if the projects fail to generate enough money to pay their debts. But others say that claim, “downplays the way a default would make government-issued bonds in Kansas seem less reliable to future investors, which could raise borrowing costs,” Shorman wrote.

We don’t need to go very far to find an example. From 2018 to 2020, Missouri’s Platte County was embroiled in a similar situation when county commissioners refused to cover the debts of the Northland’s Zona Rosa shopping center. The results? Years of legal battles and a dramatically lowered bond rating for the county.

Missouri law forbids jurisdictions from taking on long term debt — defined at anything more than 365 days. Local leaders often try to help the bond get better ratings — meaning a lower interest rate — by offering a “guaranty subject to annual appropriation.” This means that while the jurisdiction is not technically on the hook, it will consider covering payments each year as funds are available. Rating agencies and investors consider this good enough.

The 2007 financial deal for Zona Rosa itself makes this very clear: “The bonds do not constitute a general obligation of the authority, the district of the county and do not constitute an indebtedness of the authority, the districts, the county, the state of Missouri (the ‘state’) of any political subdivision thereof with the meaning of any constitutional, statutory or charter provisions or limitation.”

Yet when a county commissioner floated the idea of not covering the debt payments, rating agencies went haywire. The Bond Buyer, a publication covering municipal finance issues, claimed that the county risks, “catastrophic downgrades for all Platte County securities should the IDA bonds default.”

In other words: Never mind what the deal says. Pay up or there will be consequences.

Platte County didn’t cover the bond payments and the credit rating agency then known as Standard and Poor’s made good on its threat. The Star reported the ratings “cascaded from strong scores to non-investment grade, or what is usually referred to as ‘junk’ status.” Any future county bonds would cost taxpayers much more.

UMB Bank, the trustee for the bonds, argued the county was responsible for making up the shortfall. Platte County asked for a court ruling and won at the circuit court and the Court of Appeals. Both decisions relied on the simple language of the deal — the county was not obligated to pay. UMB appealed to the Missouri Supreme Court, which in December 2020 refused to hear the case, leaving intact the ruling in favor of Platte County.

It’s a victory, but an expensive one. While Platte County was spared having to cover debts it clearly were not obligated to pay — much as is being argued by proponents of using Kansas STAR bonds for the Royals and Chiefs — its credit rating retains a “junk” rating.

There are likely lots of failings in the Zona Rosa saga. Platte County commissioners in 2007 probably didn’t appreciate the risks they were taking. Rating agencies probably overweighed the county’s tenuous commitment to bond buyers and bond buyers themselves probably assumed they were more protected than they were.

But all of this should warn Kansas leaders today: A failed STAR bond to lure sports teams over the border could take the state with it.

Patrick Tuohey is co-founder of Better Cities Project, a 501(c)(3) nonprofit focused on municipal policy solutions, and a senior fellow at the Show-Me Institute, a 501(c)(3) nonprofit dedicated to Missouri state policy work.