Rudi 'splains it: How Kansas City stadium funding clears state constitutional hurdles
GEHA Field at Arrowhead Stadium, home of the Kansas City Chiefs, is pictured on Feb. 8, 2025 (Anna Spoerre/Missouri Independent).
If Missouri lawmakers would provide the proper incentives, the promoters said, their project would vastly strengthen the economy of the state and enhance its national image as a place to do business.
Without the incentives, they would go to another state.
Those arguments persuaded the General Assembly to authorize $23.7 million of state-backed bonds to build railroads in the 1850s. Local governments also issued bonds to lure railroads to their counties.
The railroads didn't keep their promise to repay the bonds and interest ballooned the debt to $32.3 million by the end of the Civil War. And at the State Convention of 1875, delegates voted to stop lawmakers from ever promising the state treasury as security for private debt.
Over the last two weeks, history didn't repeat, but it did echo.
The Missouri General Assembly listened to a modern group of promoters who convinced lawmakers to promise almost $1.5 billion over 30 years for bonds that will finance new or improved stadiums for the Kansas City Chiefs and Royals.
The local government that wants to host the teams must also offer financial support.
Professional sports are big business, and supporters warned the state would suffer economically if either or both teams move to Kansas. And, they said, the state's image would suffer.
Welcome to the latest installment of Rudi 'splains it for a look at Missouri's history with economic development incentives. The 19th century aid to railroads is connected to the 21st century aid to sports stadiums because both times, lawmakers promised borrowers would be paid from tax revenues.
The bill passed this week is a promise that future taxes will pay the bonds. That wasn't the case for the railroads, which were supposed to repay the debt from business profits but never did.
When a State Convention met at the end of the Civil War, it put a question before voters: 'Shall the Railroad bonds be paid?'
The ballot measure imposed a gross receipts tax on railroads and a statewide property tax. Voters approved it. The railroads never paid, but property owners did.
The bond payments exceeded all other state government expenses.
That's why the next State Convention voted to prevent a repeat of the financial fiasco. Missouri had learned its lesson.
'It was while listening to this delusive talk, to this cuckoo song, that the country was plunged into the enormous railroad debt which has been created for the state, the cities and counties and for individuals all through the land,' said delegate Thomas Gantt of St. Louis. 'People imagined that the benefit that was to come to the state, the city, county and the farm by the construction of those improvements was going to enrich all who were within hearing of the whistle of the locomotive.'
The prohibition on lending state or local credit, or giving state or local public money, to private interests remains a part of the state Constitution.
During debate on the stadium bill, opponents questioned whether the prohibition was being violated.
'The reason why the Constitution forbids that is because the drafters of that language knew that eventually the legislature would appropriate money to the people who we consider our friends, at the expense of everybody else in the state, instead of appropriate money or spend money for the good of all the general welfare of our state,' said state Rep. Bill Hardwick, a Republican from Dixon.
Despite the prohibition, Missouri provides hundreds of millions annually in economic development incentives. In fiscal 2024, the state authorized $403 million in tax credits including $114 million for projects to rehabilitate old buildings, $84 million to build low-income housing and $101 million for new or expanding businesses through the Missouri Works program.
Tax credit holders redeemed $904 million during the fiscal year, cashing in credits issued in past years.
You may ask yourself, what makes one form of incentive legal and another illegal? The answer comes from the Missouri Supreme Court.
When I was just a sprout of a reporter, still in journalism school, St. Louis had two daily newspapers, the Post-Dispatch and the Globe-Democrat. My professor, Phill Brooks, will tell you my reporting in the fall of 1986 is the reason there is only one today.
The Globe-Democrat was a conservative newspaper and backed Republican Gov. John Ashcroft editorially. It was also failing, and businessmen John B. Prentis and William E. Franke, the owners, won approval of a $15 million state-backed loan to purchase a printing plant.
I found, unsurprisingly, that both Prentis and Franke were contributors to Ashcroft's campaign. What was surprising is that only the five Republican members of the Missouri Industrial Development Board, also contributors to Ashcroft, attended the meeting that approved the Globe-Democrat loan.
The loans were backed by a promise that, in the case of default, bondholders would receive tax credits equal to 50% of their loss. Ashcroft became concerned about the optics of the deal, didn't issue the loan and the newspaper folded.
In a test case, involving a loan to a Joplin company, the Missouri Supreme Court ruled the program violated the Constitution.
'This tax credit is as much a grant of public money or property and is as much a drain on the state's coffers as would be an outright payment by the state to the bondholder upon default,' the court ruled in January 1987. 'There is no difference between the state granting a tax credit and foregoing the collection of the tax and the state making an outright payment to the bondholder from revenues already collected.'
More recently, in 2023, lawmakers put $8.5 million into the budget for a no-interest loan to help Magnitude 7 Metals keep its New Madrid smelter open. Then-Gov. Mike Parson vetoed the money, citing the constitutional prohibition.
The reason the current tax credit programs are legal and the one the Globe-Democrat tried to use was not is, the Missouri Supreme Court ruled in 2011, that the U.S. Supreme Court had decided that tax credits are not the same thing as a direct expenditure of public funds.
But the stadium bill does promise a direct appropriation from the treasury.
Neither the Chiefs nor the Royals, however, will issue the stadium bonds or be directly responsible for paying the debt. That will be the job of either the Jackson County Sports Complex Authority, a public entity that owns the stadiums, or a new public entity created for the location where a new stadium is built.
That means the direct payments for the stadium probably don't violate the constitution.
But don't rely on me. I am not a lawyer or a judge.
I just play one in the newspaper.
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