Heartland Park investors racing to catch financial bailout
Topeka Capital Journal wrote:
The capital city’s political elite rallied nearly a decade ago to secure public financing for improvements at Heartland Park Topeka’s motor sports facility, and confidently proclaimed the investment key to jump-starting business development near the track.
Democratic Gov. Kathleen Sebelius signed the bill in 2005 authorizing issuance of bonds to pay for upgrades at a track promising to deliver blockbuster events and substantial job creation. A consultants’ study predicted Heartland Park was on the cusp of producing a near-tripling impact on the local economy. The Topeka City Council voted without dissent in 2006 to approve $10.4 million in taxpayer-backed bonds for Heartland Park *— doubling down on a $5 million investment by the Topeka government two years earlier.
Jayhawk Racing owner Raymond Irwin commemorated the windfall for his Heartland Park venture by chauffeuring Greater Topeka Chamber of Commerce members on 100-mph rides in a race car.
“This puts us in the top level of the game of motor sports,” said John Nave, a Topeka City Council member at that time.
Swagger exhibited by so many, so long ago now appears distressingly misplaced.
False start on bonds
The economic development district created to pay off the bonds for Heartland Park produced so little sales tax revenue, the city’s residents have been forced to subsidize debt payments from the start. The city has met the shortfall on these sales tax revenue (STAR) bonds by drawing about $350,000 annually in property tax revenue. The city’s existing bond debt payments are expected to balloon this year to $1 million.
Local, state and federal government operatives poured resources into Heartland Park, but ancillary development adjacent to the track — a reward municipalities routinely covet when throwing money at private businesses — never occurred.
The national recession frequently has been blamed for Heartland Park’s death spiral. Others speculate the track might have been victimized by dwindling consumer demand for dirt, drag or show-car racing. Critics who fault Irwin accuse him of ineffective race marketing, inability to draw enough nonracing events and possession of a difficult personality. As Heartland Park bailout schemes were considered, Irwin has threatened to sue the city more than once.
Dan Stanley, who served as interim Topeka city manager, said he attempted to get to the bottom of Heartland Park’s shortcomings in 2011 by requesting access to Irwin’s track operation records. Stanley said an audit would have helped guide reform of development strategies, but he was surprised when Irwin declined to show his ledgers to the city.
“He created a budget problem, and we couldn’t even look at the books,” Stanley said. “We were threatened with legal action if we tried. Any time I lifted a rug out there, there was something nasty underneath it.”
The city of Topeka remains owner of Heartland Park, but Irwin’s Jayhawk Racing runs the business and has buried the operation in a mountain of debt that could lead to bankruptcy or foreclosure.
“It’s like a house with seven mortgages on it to seven different mortgage companies,” said Chad Sublet, the city's attorney. "On paper, yes, we own it. But it is mortgaged up.”
Irwin has an unusual clause in his contract with the city, allowing him to take possession of the track once STAR bonds were paid. The city plans to buy out Irwin’s so-called reversionary interest for more than $2 million.
Bailout boiling point
Debate about Heartland Park’s future has proved to be polarizing. There are vocal Topekans who would be content if Heartland Park crashed in a spectacular manner. Equally persistent people view the racing complex as a Kansas gem worth preserving at any cost.
Robert Wayman, president of the Kansas City Region’s Porsche Club of America and a Heartland Park racer, said the track was considered one of the most challenging road courses in the Midwest.
“We believe a reinvigorated Heartland Park can once again become the destination of choice,” Wayman said.
“It’s an awful big gamble,” said Don Weick, a Topeka opponent of the bailout. “People are sure against it. I guarantee that. Twice this track went under. Today, is the third time going to be the charm?”
“We need racing in Topeka,” countered Jill Ables, who has volunteered at numerous track events. “I don't want Heartland Park closed. There’s got to be a way.”
Crafting a clever resolution to Heartland Park’s debt burden is overdue, but timing of the decision by Gov. Sam Brownback’s administration to green-light a $17 million contribution to the cure could be considered awkward. On Thursday, the governor must explain to the 2015 Kansas Legislature how the cash-strapped state government should deal with a projected $715 million budget deficit during the next 18 months.
Champions of issuing STAR bonds to pay remnants of the old bonds for the racetrack and to buy out Irwin were surprised by a decision in December by the joint House-Senate auditing committee to examine the legality of the proposed Heartland Park deal.
The pending inquiry rattled advocates to the point Senate Minority Leader Anthony Hensley, D-Topeka, was told through intermediaries that Department of Commerce Secretary Pat George would withdraw the agency’s blessing of the deal if Hensley couldn't persuade the GOP-led committee to abandon its audit of STAR bonds for Heartland Park. On Sunday, Hensley said he was convinced the message was genuine.
“Secretary George’s threat to compel a legislative committee to reverse an action they’ve already taken is egregious and an affront to the legislative process. It begs the question: What will this audit uncover?” Hensley said.
George said the senator’s description of the situation was inaccurate.
“No decision, tentative or otherwise, has been made on the project,” he said. “It is unusual for a legislator to strongly oppose a project requested by the largest community in his district, therefore, it is only appropriate that we fully consider his concerns before proceeding with the deliberation process.”
Meanwhile, Topeka City Councilman Chad Manspeaker said city manager Jim Colson asked him to divert money from the city’s guest tax fund to hire a well-connected Republican lobbyist to usher the STAR bond package through the Brownback administration. Irwin typically has received $350,000 yearly from that fund to market races. Manspeaker said he declined Colson’s request to appropriate guest-tax revenue for lobbying of state government officials.
“The deal has stunk from the beginning,” Manspeaker said.
Colson said David Kensinger, a former Brownback chief of staff and Heartland Park lobbyist who fell under FBI scrutiny last year regarding allegations of influence peddling, was identified by organizers of the STAR bond plan as someone skilled enough to maneuver the deal through the Department of Commerce. Kensinger didn't respond to a request for comment about the city manager’s statement.
CoreFirst sitting pretty
There is no ambiguity about the future of Irwin’s racing business in Topeka. His company is insolvent and his days as a track mogul in Kansas are numbered. CoreFirst Bank and Trust, under pressure to come to terms with a portfolio festering with millions of dollars in bad loans to Irwin, has legal authority to take over Heartland Park in February. CoreFirst will be paid in full via the new STAR bonds or it will seize the track and sell it off. Deeds transferring the property to the bank were signed by the city and Irwin in June. By placing deeds in escrow, the city and Irwin bought time to complete a rescue package.
Topeka government leaders have known for years of Heartland Park’s malnourished condition, but they weren’t eager to accept the reality a rebound might never come. Without financial intervention by the state, the city stands to be stuck paying existing bond debt on the track that would cost local taxpayers $10.8 million to eradicate.
A Topeka property tax hike or equivalent reduction in city services would be required to cover $1 million in annual bond payments. And, somebody else — not the city — likely would own Heartland Park.
The STAR bond strategy has been endorsed by Colson, a majority on the Topeka City Council, CoreFirst, Irwin, the Department of Commerce, local restaurant and hotel business interests, the Greater Topeka Chamber of Commerce’s top executive, and various racing association leaders.
Assuming the plan proceeds in a timely manner, Topeka would issue about $5 million in new STAR bonds. The designated sales tax district in Topeka contributing revenue to payment on bonds would be dramatically expanded to include more businesses. All state and local sales tax revenue in this enlarged area of Topeka would be devoted to paying old and new bond debt. The idea is to score about $17 million — most of it state sales tax revenue — and retire the Heartland Park debt in 12 years. City officials said the proposed revenue stream is solid.
“It’s not built on a hope and a prayer,” Colson said. “It's built on actual historical numbers.”
Irwin would be handed $2.4 million if the STAR bond sale goes through, but he is obligated to cut checks for $300,000 to CoreFirst and $180,000 to the city of Topeka, and to settle with others. CoreFirst would separately pocket $1.9 million in STAR bond cash to clear the remainder of Irwin’s debt to the bank. The federal Small Business Administration and the state Department of Commerce would clear $500,000 each from a bond sale.
‘Reversionary’ interest
Significantly, access to STAR bond cash would put the city in position to purchase Irwin’s contractual right to assume control of Heartland Park — all 700 acres — at the moment bond debt was paid. That clause in Irwin’s contract establishes his reversionary interest in Heartland Park. The arrangement might have been reasonable if Irwin continued to successfully operate the track. It would be galling if the city salvaged Heartland Park and Irwin snatched the jewel back years from now.
Colson said the commerce department declined to authorize more STAR bonds in connection with Heartland Park unless clear title to the property was purchased from Irwin. The city would work to sell the facility to a new owner or operator. Four proposals were submitted to City Hall, but details of those blueprints for success remain confidential. It appears contract talks continue with at least two applicants.
“We want to do what’s best for the city of Topeka,” said Colson, who became Topeka’s city manager in 2012. “Expansion of the STAR bond district allows us to address some debt issues that we didn’t have a reliable source of funds, other than property taxes, to pay. The STAR bond district, as it was formed in 2005 was, I’ll say in retrospect, too small to service the debt of the facility.”
Doug Gerber, the city’s finance director, said resolving the city’s budget hole by plugging in $16.4 million in state sales tax revenue and $1.6 million in local sales tax revenue was a 10-to-1 deal that ought not be dismissed. The arrangement clears the city’s obligations to Heartland Park by 2025.
“That’s a deal any individual and certainly any city should be willing to make,” he said. “We’re asking 3 million Kansans to participate instead of 130,000 Kansans.”
Heartland Park, which opened in 1989 and has received millions of dollars in government aid, features a quarter-mile drag strip, a 2.5-mile road course and a three-eighths-mile dirt oval track. In 2003, Irwin bought into the business and added 33 garages, a technology building and a facility for road course events.
Growth the new mandate
Colson said the new operator of Heartland Park had to bring a fresh business approach to the property. The city manager said he learned the imperative of new commercial development surrounding taxpayer-supported sporting venues while working in municipal government in Glendale, Ariz.
Glendale was staggered by bond debt issued to support the NHL’s Arizona Coyotes and a separate deal to build spring training baseball parks for the Chicago White Sox and Los Angeles Dodgers. Construction of these facilities and ongoing subsidies have cost Glendale taxpayers more than $400 million. In areas around these facilities, development of office space, shopping and housing fell below expectations of consultants offering rosy analyses.
He said the Heartland Park correction would emphasize development of land within the racing property.
“We’re very much focused on someone who will bring a comprehensive approach to this, because we can’t have a facility that is really built around one weekend,” he said, referencing the popular NHRA drag event. “We’re really focused on working with attracting somebody to take over the track who really understands this is a 12-month business — for this to work, to be an economic tool.”
All bidders for the track expressed reservations about the agreement Colson reached with the NHRA to conduct races in May at Heartland Park for the next three years in exchange for an annual guaranteed payment of $1.8 million. Colson believes the deal he unilaterally negotiated with the NHRA would render the track operator liable for the guarantee. Others are convinced the document could make the city responsible for the guarantee.
Colson said if proposals to buy Heartland Park from the city or to enter into a long-term lease didn’t come together, it would serve as a sign the racetrack no longer was economically viable.
“Under no circumstances will the city operate it,” the city manager said. “Our position is very clear. If there is nobody who makes their living running racetracks who is interested in running Heartland Park, we would be silly if we tried to do it. It would be a recipe for disaster.”
In August, the Topeka City Council voted to authorize purchase of Heartland Park and expansion of its redevelopment district in anticipation of STAR bonds being issued.
Petition sparks legal fight
The Heartland Park debate inspired a petition drive designed to compel a public vote on the STAR bond plan. Chris Imming, of Topeka, gathered sufficient signatures to place the question on a citywide ballot, but the city filed suit to spike the vote. A Shawnee County District Court judge ruled the petition flawed.
Imming appealed to the Kansas Court of Appeals, which issued a temporary injunction blocking issuance of STAR bonds for Heartland Park and implementation of payments to Irwin and CoreFirst.
Irwin and the city also attempted to thwart Imming by claiming he should have to buy millions of dollars worth of bonds to cover potential damages resulting from delays in closing the STAR bond deal. The city determined Imming should post a $45 million bond, while Irwin’s Jayhawk Racing requested a $5 million bond.
Imming said Heartland Park’s attorney had let it be known a separate lawsuit would be filed if a public vote was authorized by the Court of Appeals. Colson said he had a “high level of confidence” the city would have been sued by Irwin if it hadn’t opposed the citizen vote.
“The thought of lawsuits doesn’t scare me as much as it seems to scare other people,” Imming said. “I do think we have a responsibility to do the right thing.”
Tuck Duncan, a Topeka attorney representing Imming, said he was frustrated by the unwillingness of City Hall and the Department of Commerce to share documents related to Heartland Park. City officials have dodged questions about what they know of Irwin’s financial status and refused to release information about bids by prospective track operators. Commerce officials have frustrated attempts under the Kansas Open Records Act to obtain a copy of the city’s application for STAR bonds.
“That request has not been fulfilled, and currently the attorney general’s office is following up on it,” Duncan said.
Leo Hafner, a Topekan and opponent of the STAR bond solution, said he was perplexed the NHRA agreement was posted to the city’s website and abruptly taken down. He said city officials were behaving as if they wanted to hide information.
“I just don't think that’s a sense of fair play. The citizenry are starting to get a little suspicious of this government and what’s going on here,” Hafner said.
Outside looking in
Foundation of the deal was put together behind closed doors over many months with contributions from Irwin attorney John Frieden, George and Colson. Frieden didn’t return calls. Colson submitted to an interview. George praised the STAR bond endeavor in a letter affirming state support for the project. Irwin said he didn’t want to comment at this time because the question of a public vote remained before the Court of Appeals. Kurt Kuta, president and CEO of CoreFirst, said he preferred not to discuss the issue.
“At this time,” Kuta said, “the bank is meeting its obligations in the agreement and, as a result, does not have any need to comment.”
George’s letter to the city in 2014 lauded the STAR bond plan as recognition Heartland Park had a “significant economic impact on the state.” He expressed confidence “timing is right to extend the STAR bonds district, increasing economic development around the track and along Topeka Boulevard.”
City Councilwoman Karen Hiller, who has expressed appreciation for the STAR bond solution, said the communications strategy deployed by Colson on the plan fell short. It is more difficult to secure community backing for complex ideas quickly thrust upon taxpayers, she said.
The elixir for Heartland Park surfaced in June, after the city rejected Irwin’s plea for more marketing subsidies and Irwin’s offer to sell out to the city. The manner in which the rescue framework was unveiled by Colson intensified opposition among a cadre of Topekans skeptical the deal does little more than serve favored business interests.
“That, to me, is a government bailout,” said Jack Woelfel, a former Topeka councilman who declared the plan inequitable. “Are you ready, as a council, to do the same thing for a small engine repair shop down the street? A candy store? I sincerely doubt you will do that. In this instance, is Heartland Park racetrack considered too big to fail?”
Topeka Mayor Larry Wolgast offered a more charitable perspective on presentation of the deal to Topekans. Colson had been involved in a Heartland Park fix for two years, but didn’t share the financing arrangement with the public until less than a week before the city council was scheduled to take its first vote on the plan.
“In hindsight,” Wolgast said, “it would have been beneficial to involve the community more so they are in tune with the decisions that were made.”
Wolgast is an unapologetic advocate of the STAR bond plan. It is simple economics, he said. The deal is capable of providing Kansas with the best opportunity to identify a viable owner for Heartland Park and continue to deliver an estimated $100 million or more annually in economic activity to the state.
Questions about the legality of the STAR bond plan and outcome of Imming’s push for a citizen vote remain, but there appears to be sufficient support on the city council to adopt the initiative.
Topeka City Councilman Nathan Schmidt said it would be “grossly irresponsible” for detractors to denounce the 2015 STAR bond plan by comparing it to the unsuccessful 2006 STAR bond issue.
“This is not a high-risk venture,” Schmidt said. “It is the best possible path out of a situation that is not good for anyone.”
Statistics: Posted by Chevy Nick — Mon Jan 12, 2015 7:02 pm