New Tools for the Developer's Tool Box
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We often debate the benefits and burdens of the metro area being bisected by the state line. From a developer's perspective, however, state governments on both sides of the line enacted legislation this spring which could provide significant state revenues for the benefit of local development projects.
Missouri Downtown Economic Stimulus Act (MODESA)
On May 21, 2003, the General Assembly delivered to Governor Holden House Bill No. 289, the Missouri Downtown Economic Stimulus Act, which is also known as MODESA. MODESA will establish a sweeping and powerful new tool for economic development across Missouri downtowns. It is widely expected that Governor Holden will sign MODESA into law. In his parting remarks at the end of the current legislative session, Governor Holden stated that MODESA will help Missouri create jobs and help focus on building the infrastructure and quality of life our communities need to compete and attract world class businesses. MODESA will provide the mechanism to finance the critical investments that will achieve sustained economic growth and help revitalize downtown areas. Lastly, this bill includes provisions that will immediately benefit areas rebuilding their downtown due to natural disasters, such as the recent tornadoes that severely damaged numerous communities.
Along with existing development incentive tools, MODESA will seek to encourage and stimulate economic growth by providing a new mechanism to revive downtown areas throughout Missouri, clear blight and provide for needed public infrastructure.
When MODESA is implemented, it will resemble the way TIF programs divert local taxes for redevelopment projects. TIF has historically been the public financing tool of choice in Kansas City, and has been instrumental in virtually all significant construction in our central business district since the enactment of the TIF legislation.
MODESA, however, will permit cities throughout Missouri to capture incremental states sale and income taxes (as opposed to local tax revenues) to pay for infrastructure improvements of large development projects. It is the goal of MODESA, through appropriation of state sales tax and state income tax revenues, to provide funding from incremental state revenues generated by new projects, to create jobs and investment, and promote tourism, cultural activities, public purpose facilities and other important downtown activities.
One of the few development areas exempted from the bill are stadium projects. However, sports arenas, convention facilities, libraries, mass transit and other projects are included.
The use of project finance with MODESA will be governed by a "Downtown Economic Stimulus Authority" which will have certain enumerated powers under the new legislation: including the power of eminent domain, which will be critical when land assembly activities are required in connection with a redevelopment project.In Kansas City, the Greater Downtown Development Authority (GDDA) will be the designated Authority in charge of implementing MODESA.
Kansas-Sales Tax and Revenue Bonds (Star Bonds)
On April 18, 2003 Kansas adopted legislation providing state-wide authority for the issuance of Star Bonds for what are called "special bond projects". Star Bonds permit a defined geographic area to pay off development bonds from the revenues generated by state and local retail and use taxes and transient guest taxes collected from businesses operating within the redevelopment project area. Previously Star Bonds were limited in use to the Kansas International Speedway Project.
In order to qualify for the use of Star Bonds, a project must have a minimum of $50,000,000 of capital investment and must generate projected annual sales revenues of at least $50,000,000.
The governing body of a city may establish one or more special projects which would be eligible for Star Bond financing. The Secretary of Commerce and Housing also has approval rights over these projects by determining what constitutes major commercial entertainment and tourism areas that would be eligible. A special bond project could not be approved if studies indicate a substantial negative impact on existing businesses in the market area or if granting it might cause a default in the payment of any existing and outstanding Star Bonds. This ensures that a new project does not pirate customers or revenues from an existing Star Bond project.
If a City established a special bond project for Star Bond financing, all of the local sales taxes in the district would have to be dedicated to paying off the Star Bonds, not just the state sales taxes. An exception to this would be if the voters had approved a dedicated sales tax prior to the issuance of the Star Bonds. As an example, Overland Park currently has a sales tax for road improvements that was just extended by the voters through March 31, 2007. That tax would not be available to pay for the Star Bonds but the remaining one cent City tax would be available. The intent of the legislation is to ensure that the local community is as committed to the project as the State, by forcing cities to also pledge their sales tax revenues.
The maximum maturity of the bonds is twenty years and the project must be started within two years from the adoption of the project plan or funding ceases, with the right of appeal to the Secretary of Commerce.
As always, the true benefits of these laws will be shown (or disproved) in their execution and implementation. Jefferson City and Topeka have provided some significant new tools. The true effectiveness of these tools will be reflected in the finished product they create.
Daniel Murphy chairs the Real Estate practice of Shughart Thomson & Kilroy. He may be reached at 816.374.0550 or by e-mail at dmurphy@stklaw.com.