Brief⁽¹⁾

H.B. 2166 would amend legislation enacted in 1998, which established a mechanism for creating a redevelopment district within federal enclaves. In those enclaves (Johnson County and Labette County), tax increment financing may be used to finance "projects of statewide as well as local importance." A specific type of tax increment financing is statutorily authorized for such projects; local transient guest tax, local sales tax, and state sales and compensating use tax revenues from the redevelopment district may be used to repay any bonds (sales tax and revenue, a.k.a. STAR Bonds) that finance such projects. The intended "project of statewide as well as local importance" in H.B. 2166 is the proposed Oz Theme Park and Resort to be developed on the Sunflower Ammunition site in Johnson County, although most of the same provisions in this bill would apply to any future project developed on a federal enclave in Labette County that meets certain capital improvement and employment commitments. As authorized in the 1998 legislation, STAR Bonds may be issued by the Kansas Development Finance Authority (KDFA) for the Oz project. Another project that is statutorily eligible for STAR Bond financing is the NASCAR race track facility. Legislation enacted in 1998 provides tax incentives for an area designated as a "major tourism area" in which the race track will be located. H.B. 2166 would amend that legislation to increase county tax incentives in a section of that designated area.

H.B. 2166 would do the following:

• �extend the maximum maturity of bonds associated with projects of statewide as well as local importance (hereafter referred to as the Oz project) from 20 to 30 years from the issuance of the first series of bonds to finance the project (Section 7). Under existing law, the duration of the bonds is tied to the establishment of the redevelopment district.



• �Exclude the proceeds from the mandatory school finance tax levy as a revenue source to repay the bonds to be issued by the KDFA (Section 11).

• �Increase the state sales and compensating use tax rate within a redevelopment district containing the Oz project from the currently authorized rate of 5.9 percent to 6.9 percent. The term of the additional tax would be limited until the earlier of two dates - when the bonds have been fully paid or the date of scheduled maturity of the first series of bonds issued for the project (Sections 14 and 15). The same limitation would be applied to the 5.0 percent transient guest tax authorized in the 1998 legislation as one of the revenue sources to repay the bonds (Section 16). (See the tax table in background section for more information.)



• �Authorize KDFA to form one or more subsidiary corporations for the purpose of acquiring or conveying property, issuing bonds, or otherwise financing the Oz project on behalf of the state (Section 6).



• �Condition establishment of the redevelopment district in which the Oz project would be located upon approval by the Johnson County Board of Commissioners of the implementation agreement between the Oz Entertainment Company and the KDFA (Section 7).



• �Require any party, other than the state or instrumentality of the state, as a precondition for taking legal title to the land for the development of the Oz project, to be responsible for the remediation of all environmental contamination on the land. However, an agreement between the developer and federal government may specify that the federal government retain responsibility for an identified portion of the remediation above a level of remediation approved by the state. The agreement also must include prepaid third-party financial guarantees to the state that such party will complete the remediation. As a precondition for taking title to the land, KDFA would be required to obtain the written opinion of a competent attorney specializing in environmental law regarding the state's potential liability resulting from taking title, possession, or otherwise exercising control of the land (Section 8). The 1998 legislation already expressly precludes the state, any of its political subdivisions, KDFA, or any local governmental unit from assuming responsibility for any environmental remediation to be performed within the redevelopment district in which the Oz project would be located.



• �Require that any redevelopment plan for the Oz project must be adopted prior to July 1, 2001(Section 8).



• �Limit the use of bond proceeds for payment or reimbursement of project costs, if bonds have been paid before completion of the project , to any purpose identified in the redevelopment implementation agreement between the Oz Entertainment Company and KDFA (Section 11).



• �Provide that any revenues not needed or committed for the payment of bonds or other project costs, as authorized by the redevelopment plan implementation agreement, must be remitted by the State Treasurer to the appropriate taxing authorities. KDFA must approve those remittances (Section 9 and 12).



• �Authorize, but not require, the Kansas Water Office, on behalf of the state, to enter into negotiations, agreements, and contracts with the federal government pertaining to groundwater and surface water rights belonging to property on the Sunflower Ammunition site in Johnson County if the Water Office determines such action to be necessary to return the water rights to the public. Such an agreement or contract will only be binding upon adoption by the Legislature of a concurrent resolution adopting the agreement or contract. (Section 4).



• �Authorize the use of an additional 1.0 percent county sales tax to be levied in the 400 acres adjacent to the NASCAR race track (Section 3). Tax proceeds may be used to repay any STAR Bonds issued by the Unified Government of Wyandotte County to finance projects that may enhance this tourism area. The additional acres also would be used to capture local property tax increments (Section 2(l)). (Authorization for 400 additional acres to be included in the major tourism area eligible for STAR Bond financing was granted in 1998 H.B. 2631--the enabling legislation for the NASCAR project. However, that legislation did not authorize the additional acres to capture an additional 1.0 percent in county sales tax and expressly prohibited the capture of incremental property tax proceeds.)



• �Make various technical and conforming amendments.

Background

The House Committee on Economic Development held a public hearing on H.B. 2166. Proponents of the bill included representatives of the Oz Entertainment Company, Kansas Technology Enterprise Corporation, Solomon Smith Barney, Gilmore & Bell, the City of DeSoto, the Olathe Area Chamber of Commerce, Kansas AFL-CIO, and the Kansas City Area Economic Development Council.

The House Committee amended the bill to clarify that the increased state sales tax rate totaling 6.9 percent would be levied only within the redevelopment district. The Committee also extended the maximum maturity of the bonds from 20 years to 30 years. (The bill, as introduced, had allowed for the maximum maturity of the bonds to be extended from 20 to 32 years or such time as the Secretary of Commerce determines necessary for the economic feasibility of the project.)

The House Committee of the Whole amended H.B. 2166 to: require any party, as a precondition for taking legal title to the land for the development of the Oz project, to be responsible for the remediation of all environmental contamination on the federal enclave; impose a July 1, 2001 deadline for approval of the redevelopment plan for the Oz project; authorize KDFA to form a subsidiary or subsidiaries for the purpose of financing the Oz project; limit the maturity of the bonds to 30 years; and remove proceeds from the school finance tax levy as a revenue source of repaying the bonds to finance the Oz project.

The Senate Committee on Commerce heard testimony from virtually the same group of proponents as the House Committee. In addition, the Committee received testimony from a partner in the firm of Buttenwood Capital, Inc., which worked with the Oz Entertainment Company in its efforts to determine capital structure for the proposed project and raise a large portion of its most recent venture equity of $12 million. (A total of $16.4 million has been raised by the Oz Entertainment Company to date.)

Conferees who testified in opposition to the bill included: two residents of Overland Park; the president of an environmental consulting firm in Kansas City, Kansas; a resident of Mission Hills; and the Chief Financial Officer of Sampler Stores, Inc. The President of the League of Women Voters of Johnson County, who did not testify in support of or in opposition to the bill, raised several concerns and questions about the bill.

The Senate Committee on Commerce amended the bill to: condition establishment of the redevelopment district in which the Oz project would be located upon approval by the Johnson County Board of Commissioners of the implementation agreement between the Oz Entertainment Company and KDFA (amendment requested by Johnson County); limit the use of bond proceeds for payment or reimbursement of project costs, if bonds have been paid before completion of the project, to those purposes identified in the redevelopment implementation agreement between the Oz Entertainment Company and KDFA; provide that any revenues not needed or committed for the payment of bonds or other project costs, as authorized by the redevelopment plan implementation agreement, must be remitted by the State Treasurer to the appropriate taxing authorities (amendments requested by Johnson County); require the Kansas Water Office, on behalf of the state, to accept and hold in trust any water rights acquired from the federal government pertaining to the Sunflower Ammunition site in Johnson County until the Legislature determines the appropriate state agency and procedures for disposition of the water rights (same provision as is included in the Senate Committee version of 1999 H.B. 2404); authorize the use of a 1.0 percent county sales tax to be levied in the 400 acres adjacent to the NASCAR race track, proceeds of which may be used to repay any STAR Bonds issued by the Unified Government of Wyandotte County for development of projects to enhance the "major tourism area" and authorize the capture of local property tax increments for such development (an amendment which was requested to bring greater parity to incentives authorized for the NASCAR project in Wyandotte County); and make several conforming and technical amendments to the bill.

The Senate Committee of the Whole amended the bill to modify the procedure to be used by the Kansas Water Office in any negotiations or agreements pertaining to surface and groundwater rights belonging to the property on the Sunflower Ammunition site. Such negotiations or agreements would not be required but would be permissive. Other amendments relate to the preconditions to be satisfied before an entity can take title to the property.

The Division of the Budget reports that because the proposed redevelopment district currently generates no sales tax revenues, any fiscal impact from this bill would be in the form of opportunity costs associated with not collecting taxes on sales that would be generated in the district until the bonds are retired. The Department of Revenue anticipates that passage of this bill would result in an administrative impact of $10,416 in one-time expenditures for changes to both the new and existing tax systems, and $700 for printing and postage for information related to the bill.

Below is a table of the taxing sources and tax rates that would be levied within a redevelopment district within a federal enclave, if the Oz project is developed and generates revenue in Johnson County:

1) 1998 Sub. for S.B. 675 authorized both state sales and use tax of 5.9 percent within the redevelopment district intended for the Oz project. An additional percent is applied in H.B. 2166, to total 6.9 percent.

2) The county sales tax of 1.0 percent includes a countywide sales tax at the rate of 0.5 percent and an additional county sales tax at a rate of 0.5 percent to be levied only within the redevelopment district. Johnson County also assesses 0.475 percent in county sales tax that may not be committed by the redevelopment district to the Oz project because that portion is dedicated: 0.25 percent for public safety and construction of the jail; 0.125 percent for the Bi-State Culture District; and 0.10 percent for storm water management projects.

3) A transient guest tax of 5.0 percent was authorized in 1998 S.B. 675.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html.