The state's law on Sales Tax Revenue financing could change as a result of the city of Topeka's proposed plan to save Heartland Park Topeka.
Although a 29 page Legislative Post Audit report found the city met all eight legal requirements it was tasked to evaluate, staff found several areas of concern and recommended three changes to the STAR Bond Financing Act as a result.
"Overall, we found that each of these areas appeared to meet the requirements of the STAR bond Financing Act, although we also noted several concerns and areas where statutes can be strengthened or clarified," said Kristen Rottinghaus, who works with Legislative Post Audit and presented the report Wednesday.
After a 20 minute hearing about the report, committee members Rep. Peggy Mast, R-Emporia, and Sen. Anthony Hensley, D-Topeka, helped advance a request for post audit staff to draft a bill containing the three recommendations, one of which would require outside parties for economic impact studies.
The legislative post audit committee can't introduce any new bills this session, but certain members also serve on committees that can. Hensley suggested Sen. Laura Kelly, D-Topeka, who serves on the Senate's Ways and Means Committee.
The audit also will be forwarded to multiple committees in both the House and Senate.
Topeka city attorney Chad Sublet said thought the audit was a good report for the project, because it found the city met all eight legal standards of the act.
"I thought it was great that they found that we met the legal standard on all eight issues, their entire scope," he said.
He also pointed out that the audit found the racetrack had an annual economic of at least $50 million -- which is $550 million over the course of the 11 year project -- and that race weekend generates three times the amount of sales tax.
Attorney R.E. "Tuck" Duncan, who represents Topekan Chris Imming on the petition effort, had a different perspective. The report, he said, was consistent with some of his arguments before both the county district and state appeals courts and, despite determining the plan met legal requirements, the report was "not a total endorsement."
"But for our actions, which helped generate this report, we probably wouldn't be seeing these suggestions to legislative amendments to make STAR bond statutes clearer and more enforceable," Duncan said. "That's a good thing."
The audit's first recommended amendment to the state's STAR bond law is to require cities and counties that don't meet the 50 percent requirement at the end of the bond period to repay a portion of the state's sales tax dollars.
The city of Topeka offers two means to ensure the $5 million in state sales tax money won't fund more than half of the project. First, because the new owner would have to invest $7 million toward improvements, and second, because current owner Raymond Irwin relinquish his reversionary interest, which is valued at more than $5 million.
However, the report notes, "there is no guarantee the city will be able to find an operator that is willing to make such an investment," and it isn't clear whether an intangible contribution like reversionary interest "is an appropriate project cost for meeting the 50 percent requirement."
The second recommendation is to require economic impact studies be directed by someone other than the local government or its private partners -- to "ensure state officials have an independent and unbiased economic impact assessment when considering STAR bond proposals."
Both studies submitted by the city meet its legal requirements, said Rottinghaus, audit staff member.
However, she said, "both were commissioned by the current operator of the park, which creates a strong risk of bias."
The Hedges & Co. study from 2012, for example, estimates the racetrack's annual economic impact at $160 million. That "significantly overstates" Heartland Park's economic impact, she said.
The study estimated visitor spending at $18.7 million, according to the audit. That would result in about $1.4 million in local and state sales tax revenue.
A review of Kansas Department of Revenue figures, however, put actual spending at $5.7 million in 2011 -- enough to generate $413,000 in sales tax revenue.
Further, the report doesn't account for the portion of visitor spending that would have occurred in Kansas even without the racetrack. The audit's rough estimates indicate Kansas residents "account for a little more than half of the track's economic impact."
The third recommendation is to make the base year for an expanded district clearer.
