Star Bonds

Last week's column expressing satisfaction with the state's approval of Manhattan $41 million STAR bond application generated a considerable amount of feedback. Questions generally focused on what happens if revenue from the project is not sufficient to payoff the bond holders. So I asked the assistant city manager, Jason Hilgers. Here is a summary of how he answered the question.

STAR bonds will be special obligation bonds issued by the city. The bonds will be sold to a bond buyer(s), who will take the risk of the project reaching projections and financing the associated costs of the STAR bond. If sales tax is not sufficient to pay off the STAR bonds - the bond buyer would be in default not the city.

The bond buyer is going to reach a comfort level within the project prior to purchasing the bonds. Lease agreements, a certain % of retailers and restaurants under construction, and other obligations will need to be in place before the bond will be marketable. The bond buyer calculates this risk and ultimately makes the determination to purchase the bond as a viable investment option. The law allows for a maximum repayment schedule of 20 years.

So how is the $41 million expected to be spent?

$11 million - Flint Hills Discovery Center
$12 million - land acquisition
$11 million - infrastructure (roads, water, walkways, etc.)
$4 million - parking garage
$3 million - consulting fees

And as I wrote last week, from this low risk downtown redevelopment we expect to get good jobs, a broader tax base, a place to shop, exercise and relax, plus a bright, new, 21st Century entrance into our city. For those reasons this revenue generating effort is wise; quite different than the proposed $30 million aquatics center, with which I will take issue another time.

First published in the Manhattan Free Press, December 13, 2006.