In Kansas, STAR bonds vote uplifted cronyism over capitalism

Recently both chambers of the Kansas Legislature passed similar bills authorizing a five year extension of the Kansas STAR bonds program. In the House the bill passed 92 to 31. In the Senate the vote was 27 to 13.

The STAR bonds program provides a way to redirect sales taxes to project developers instead of the state treasury, which is where most people think taxes go — or should go.

Not so with STAR bonds. In the words of the Kansas Department of Commerce, the program offers “municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.” This description, while generally true, is not accurate. A proposed STAR bond district in Wichita includes much area beyond the borders of the proposed development, including a Super Target store, a new Cabela’s store, and much vacant ground that will probably be developed as retail. The increment in sales taxes from these stores — present and future — goes to the STAR bond developer.

I asked a number of members of the Kansas House and Senate to explain their votes in favor of extending the STAR bonds program. It was difficult to extract answers, but I finally a received a few.

One member explained to me that some votes are “ugly.” Yes, indeed I would say, including this member’s. But that’s no reason not to vote correctly in favor of limited government, capitalism, and free markets. Sometimes members have to vote according to their campaign promises.

One member explained to me that the bonds that will be sold are bought by private investors, and there’s nothing wrong with that. That’s true, but stopping the thought process there is naive. How are payments on these bonds to be made, we have to ask. The answer is payments are made, at least partially, from the captured sales tax revenue. That’s revenue not earned by the developers. Instead, it is revenue collected by government in the form of taxes that consumers have no choice but to pay. From the developers’ viewpoint (and pocketbook) it is a gift from government that others in similar situations are not able to receive. These gifts of money from government to business are known as cronyism. It is Kansas being business-friendly, which is not the same as capitalism-friendly, and it makes our state poorer and less able to compete.

Some made the argument that STAR bond proceeds can be used only for certain allowable expenses such as “horizontal” expenses. Arguments such as these are commonly made to support government subsidy programs. Supporters argue that since the use of the funds is restricted, this somehow makes it allowable, even benign. But this is nonsense. If I gave you $100 with the stipulation that you could spend it only on Mondays, would anyone deny that you are wealthier by $100? That is, of course, if you were planning to spend money on Mondays. And if you weren’t, couldn’t you shift some of your spending to Mondays?

This is the nonsensical nature of these arguments. Still, many purportedly fiscal conservatives are persuaded.

Simply put, the STAR bonds program turns over taxation to private parties for their own benefit. When we are willing to turn over taxation to the benefit of private interests, we have to wonder a few things:

First, why do we need taxation at all, if we can simply excuse some from participating in the system?

Second: Can something be moral if it is not applied equally to everyone?

Third: Sometimes it is claimed that without the government subsidy, a project is not economically feasible. Developers have lots of ways to make a project appears that it needs government help, and they have multimillion dollar motives to do so. But when something is truly not economically feasible, that means that the judgment of the marketplace is that the product or service is not desired — at least not at a price necessary to make the project profitable. But not to worry — our fearless government leaders will override the judgment of free people trading freely in markets. They will enact a forced transfer of wealth from taxpayers to the developers whose ideas can’t make it in the market. These leaders include Kansas Governor Sam Brownback, Secretary of Commerce Pat George, the Speaker of the House and President of the Senate, and chairs of key committees, except (surprisingly) Les Donovan, chair of the senate tax committee.

For more on the harm to capitalism of the STAR bonds program, see Kansas STAR bonds vote a test for capitalism.

In the House of Representatives, there were two explanations as to why some members voted no. The first one reads: “I vote NO on HB 2561. Star Bonds are a form of failed economic policy that Kansas should distance itself from. It is time for government to stop picking winners and losers and instead promote economic policies and a lower tax structure that all Kansans can benefit from. Star bonds are a form of centralized planning that favors a few at the expense of other taxpayers and businesses. These bonds divert needed money from police, fire, roads, and other core functions of government for 10, 20, and even 30 years. Mr. Speaker, I vote NO, choosing to support the taxpayers who voted me in office.” This was in the names of Pete DeGraaf, Virgil Peck, Jr, Randy Garber, Charlotte O’Hara, Owen Donohoe, and Connie O’Brien.

A second statement read: “HB 2561 goes against my principles of free enterprise and limited government. By redirecting tax revenue to a particular business, STAR bonds create an unequal playing field. STAR bonds favor a few at the expense of other taxpayers and businesses. These bonds divert money needed for core functions of government for decades into the future. It is time for government to stop picking winners and losers and instead promote economic policies and a lower tax structure from which all Kansans can benefit. Mr. Speaker, I stand with the voters that elected me. I vote NO on HB2561.” This was in the names of Jim Howell, Dennis Hedke, TerriLois Gregory, Brett Hildabrand, Greg Smith, Kelly Meigs, Amanda Grosserode, Jana Goodman, Lance Y. Kinzer, Mitch Holmes, Marc Rhoades, Kasha Kelley, Dan Collins, and Tom Arpke.

In the House, there were a number of members who voted in favor of the STAR bonds program in spite of proclamations of fiscal conservatism. Many of these members are looking for ways to reduce the growth of Kansas government and taxes. Some are in high leadership positions. Yet, somehow they didn’t see the harm in voting for the STAR bonds program. This list includes Steve Brunk of Wichita; Richard Carlson of St. Marys and Chair of the House Taxation Committee; Mario Goico of Wichita; Phil Hermanson of Wichita; Kyle Hoffman of Coldwater; Steve Huebert of Valley Center; Dan Kerschen of Garden Plain; Mike Kiegerl of Olathe; Marvin Kleeb of Overland Park and vice-chair of House Taxation Committee; Brenda Landwehr of Wichita; Peggy Mast of Emporia, who is Assistant Majority Leader; Mike O’Neal of Hutchinson, who is Speaker of the House; Les Osterman of Wichita; Joe Patton of Topeka; Scott Schwab of Olathe; Arlen Siegfreid of Olathe, who is Majority Leader; Gene Suellentrop of Wichita; and Brian Weber of Dodge City.

In the Senate, these votes came from Terry Bruce of Hutchinson; Dick Kelsey of Goddard, Jeff King of Independence; Garrett Love of Montezuma; and Susan Wagle of Wichita.


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