I'll start this column with an admission: It's going to spend 800 words discussing a complex, finance-related ballot issue that's not nearly as controversial (or interesting) as the other issues on which you'll be voting in November: taxes for highways, casinos, and medical marijuana.
I’ll start this column with an admission: It’s going to spend 800 words discussing a complex, finance-related ballot issue that’s not nearly as controversial (or interesting) as the other issues on which you’ll be voting in November: taxes for highways, casinos, and medical marijuana.
But someone needs to write about Proposed Constitutional Amendment No. 2, and if you’ll stick with this column, you’ll have a good start in making an informed decision on the issue.
Sponsored by state Sen. Jake Files, R-Fort Smith, the amendment would allow cities and counties to improve a blighted or undeveloped district using sales tax anticipation revenue (STAR) bonds.
Let’s pause here and define a couple of terms. A bond is that commonly used mechanism where a government entity raises a pile of money at once from investors who are paid back over time using other funds. A STAR bond pays back those bondholders by using the sales taxes generated by retail businesses in the specific area being improved.
So the idea is to build something where there’s nothing.
Here’s an example of how it would work. In Files’ hometown, there is a long, undeveloped stretch along the Arkansas River that really ought to be put to good use.
If voters approve this amendment, Fort Smith could decide to improve that specific part of town and find some big project, public or private, to anchor it – say an arena or a Bass Pro Shop. Then the city would issue STAR bonds to bondholders in order to pay for infrastructure – roads, bridges, etc. – throughout that district. Ideally, the infrastructure and the big project would attract other businesses, and the sales taxes from all of that activity would pay back, with interest, the bondholders who funded the infrastructure.
Part of the idea behind STAR bonds is that they transfer risk from taxpayers to investors. Typically, taxpayers would pay to build the roads along the Arkansas River, and if nothing happens, well, too bad for the taxpayers. Using STAR bonds, if the district flops, the bondholders supposedly would be the ones losing money. If the district were to succeed, then the bondholders would make money, and jobs would be created where, right now, there’s just mud and grass.
Good idea? Files told me it’s just one more tool for economic developers. It’s been tried elsewhere, starting with Kansas, which means other states are offering something Arkansas does not. Kansas used STAR bonds to develop the Kansas Speedway, which now hosts NASCAR races, and the LIVESTRONG Sporting Park soccer stadium. Earlier this year, the Kansas Legislature decided it liked the bond program enough that it extended it through June 2017.
Like any issue, there are two perspectives. The amendment very broadly makes STAR bonds legal, but a lot of the details must be worked out later by legislators. Like this one: What if a retail business in one part of the city moves to a newer facility in the area utilizing the STAR bonds funding? In its original location, all of the local sales taxes it was generating went into a big pot used for fire and police protection and other services. Once the business moves into the STAR bond project area, those local sales tax dollars generated would then, instead, go to paying off the bondholders. That happened in Sparks, Nev., where a Target and a Lowe’s decided to move from other locations to a STAR bond district.
Other arguments against the idea? In an up-and-down economy, maybe local governments shouldn’t try to make big things happen, lest the idea fail and the city is left with a whole lot of half-finished nothing. Kansas legislators who voted against the STAR bonds extension said it’s government picking winners and losers and siding with big business. Also, while the idea is to ensure that investors face all the risk, there’s always the fear that, you know, sometimes things need to be bailed out.
I asked Files if he thought this could be an example of “crony capitalism,” where the well-connected make money off the backs of taxpayers.
“You could look at it and say that,” he said. “You could also look at it and say, if some of these things don’t get done and some of these areas don’t get some sort of opportunity given to them, there’s not anything ever going to happen there.”
The amendment has two other sections. It would allow municipalities to issue bonds to pay off police and fire pension plans that aren’t accepting new members. Also, it would allow cities and counties to pay short-term debts using special revenues such as a targeted sales tax. Currently, they have to use their big pot of general fund money.
What’s all that about? You’ll have to look elsewhere. I’m past 800 words, and a deal’s a deal.
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Steve Brawner is an independent journalist in Arkansas. His blog — Independent Arkansas — is linked at Arkansasnews.com. His e-mail address is email@example.com