TOPEKA — Former Kansas congresswoman Lynn Jenkins implored state legislators to deliver a property tax exemption to owners of private fitness clubs frustrated with the presence of city-owned or nonprofit organizations providing recreational services to communities.
Jenkins’ lobbying firm LJ Strategies is working on a plan to help for-profit exercise businesses avoid property taxes in Kansas. It’s inequitable, she said, for government to compel commercial fitness businesses to indirectly subsidize with property taxes the operation of Wichita YMCAs, Lawrence’s Sports Pavilion and comparable tax-free facilities across the state.
“The irony is that, through mill levies flowing to recreation commissions, school districts and other government entities, struggling tax-paying clubs are forced to pay to build and fund their competition,” she said. “If there are shortfalls in those operations, additional tax money flows to fund the ongoing operation of government facilities.”
“This is the only industry in Kansas, that I am aware of, where a significant component of their competition pays absolutely no sales tax, no income tax and no property tax,” said Jenkins, who left Congress in 2019 after deciding not to seek re-election.
Jenkins was hired by the Kansas Health and Fitness Association to convince the Kansas House to insert the property tax amendment into a tax transparency bill adopted overwhelmingly by the Senate. The House Tax Committee conducted a hearing on Senate Bill 13 that highlighted the business community’s support for the bill and local government’s ideas for altering the measure. The committee didn’t debate the amendment offered by Jenkins.
At the Tuesday hearing, she didn’t have an estimate of financial implications for cities and counties if the proposed property tax exemption was signed into law. However, local units of government could lose millions of dollars annually through shrinkage of the property tax base.
The association employing Jenkins counts among its officers Rodney Steven, owner of the rapidly expanding Genesis Health Club empire. His company operates at least 55 clubs in Kansas, Iowa, Nebraska, Missouri, Colorado and Oklahoma. Genesis has 22 facilities scattered among 13 cities in Kansas. Many of these locations were added to the Genesis portfolio in the past five years.
Steven championed a bill in 2013 and 2014 designed to grant for-profit fitness club owners such as himself a property tax exemption. The bill passed the Senate, but spectacularly failed 16-108 in the House when a Republican representative read off the list of senators who accepted campaign contributions from Steven. In conjunction with that lobbying effort, records show, Steven donated $67,000 to 70 members of the Legislature.
Specifically, the amendment sought by Jenkins would apply to real property owned and operated by a “health club” in Kansas after Dec. 31, 2021. The health club could be a corporation, partnership or other business enterprise with the primary purpose of charging a fee for access to cardiovascular fitness, weight training and strength conditioning services. A draft of the proposed amendment indicated dance studios, martial arts facilities, swimming pools, golf clubs and health spas in Kansas wouldn’t be eligible for the tax break.
Jenkins said COVID-19 exacerbated economic disparities in the fitness industry when recreational and exercise facilities of all kinds were temporarily closed last year at outset of the pandemic. The nonprofits and government funded facilities incurred “minimal” ongoing expenses, she said, while private-sector clubs took losses and still had to deal with property tax obligations.
In March, Steven objected to government mandates prompting him to temporarily close fitness centers in six states and cast 4,000 employees out of work. He issued an appeal directly to President Donald Trump, via Facebook, for relief. His video plea exhibited an incomplete grasp of carnage the coronavirus was prepared to deliver. More than 25,000 people have died of COVID-19 in the six states where Steven operates fitness clubs.
“I’m asking you to do one of two things,” Steven asked Trump at outset of the pandemic. “One, close the country down so we can achieve your 15-day timeline to beat this virus. Shut it down, but shut it down now. Or, let us open and get back to work. I’m sorry to ask. We just need to do one or the other.”
Sen. Caryn Tyson, a Parker Republican and chairwoman of the Senate Assessment and Taxation Committee, said the central objective of Senate Bill 13 was to prevent automatic increases in property taxes tied to hard-to-notice valuation increases rather than prominent mill levy adjustments.
“Kansas has self-generated tax increases with no transparency,” Tyson said. “This is the transparency portion of the bill with notices being sent if more money is to be collected than the year before.”
Dave Trabert, of the Kansas Policy Institute, said the bill would require city and county officials to “be honest about the entire property tax increase they impose.” He said the need for reform was demonstrated by Douglas County, which touted a flat mill levy and adopted a budget with a 4.8% property tax boosts. Johnson County noted a reduction in its mill rate, he said, but buried a 4.3% property tax hike in its 445-page budget document.
The version of the property tax bill approved by the Senate would require all government entities — except state government and public school districts — to approve a resolution or ordinance before raising additional revenue from property tax. Prior to a public hearing on a budgeted property tax hike, counties would have to send each taxpayer with property a consolidated statement listing adjustments contributing to a property tax increase.
Under the bill, county governments would have to implement the transparency overhaul this year. In exchange, an unpopular property tax lid imposed by the state on cities and counties would be repealed. County treasurers would be authorized to set up payment plans for property taxes. The bill would prohibit increases in appraised values resulting from maintenance of existing property.
Jay Hall, general counsel to the Kansas Association of Counties, urged the House committee to move the implementation date to Jan. 1, 2022, so it would apply to development of the 2023 budget. In exchange, he said, the Legislature could retain the property tax lid until 2022.
“Given that 2021 budgets are already set, county governments may not be in a position to work with software providers to adapt software as necessary to perform the requirements in this bill. A later implementation date would be prudent to allow for whatever software upgrades and changes may be necessary,” he said.
James Howell, a member of the Sedgwick County Commission, endorsed a one-year delay in implementation and requested the bill be tweaked to allow taxpayers to access an online portal for information on proposed property tax changes. It’s an alternative to mailing a letter to every property owner at a cost to the county about $150,000, he said.