TOPEKA — Kansas fitness club magnate Rodney Steven initiated a campaign to persuade the Kansas Legislature to rid his for-profit industry of property taxes while delinquent on at least $549,000 in pre-coronavirus property taxes owed to Shawnee, Johnson and Douglas counties.
County tax records revealed Steven’s fitness business had yet to pay $160,600 in 2019 property taxes to Shawnee County. His companies owed Johnson County $251,000 in property taxes as of Monday, while the tally in Douglas County topped $137,600.
Shawnee County tax records also indicated Steven’s operation was fined $1,400 for failure to pay $69,600 in property tax due in the first half of 2020. He likewise hasn’t paid the $69,600 second-half property tax obligation for 2020.
“If you owe taxes, why should you get a tax break?” said Topeka Rep. John Alcala, who served more than a decade on the Topeka City Council and is a member of the House Tax Committee.
The Kansas House is being encouraged by Steven’s lobbying contingent and his GOP Statehouse allies to insert a health club exemption into the Kansas Senate’s high-profile property tax transparency bill. If adopted by the Legislature and signed by Gov. Laura Kelly, the amendment would enable Genesis Health Clubs owned by Steven to avoid an estimated $2.5 million annually in property taxes. Genesis Health Clubs’ gain would drop Johnson County property tax revenue $1.1 million per year and clip Shawnee, Sedgwick and Riley counties for amounts ranging from $273,000 to $366,000 annually.
It’s unclear what the statewide financial toll would be on city and county budgets if owners of all health clubs in Kansas were granted permission to quit paying property taxes after Dec. 31. The proposed amendment would apply to health club partnerships, corporations or other business organizations charging a fee for access to weight and strength training related to cardiovascular fitness. The amendment would exclude dance studios, martial arts facilities, swimming pools, golf courses and health spas.
In a peculiar twist, the Kansas Policy Institute, which lobbies regularly at the Capitol on tax issues in search of “efficient, effective government,” flip-flopped on the amendment. Once opposed to the tax break for fitness clubs, KPI now supports it.
Steven, president and owner of Genesis Health Clubs, failed to land this property tax break in 2014 despite donating to political campaigns of more than half of the Legislature’s members. One of Steven’s lobbyists, Greg Ferris, said at that time anyone who presumed Steven was buying votes was “narrow-minded and ignorant.”
Steven returned in 2021 with the star power of former U.S. Rep. Lynn Jenkins, who agreed to represent the Kansas Health and Fitness Association on the tax-break issue. Steven serves as treasurer of the association. Its directors include some of Steven’s business associates.
Incorporation documents filed with the state describe the association’s goal as advocacy for laws and regulations to “maximize profitability” of the private health and fitness industry.
Jenkins didn’t mention any association member’s delinquent property tax obligations during comments last month to the House Tax Committee when she publicly raised the idea of handing a tax break to health clubs. Instead, she outlined why it was unfair for private fitness companies to operate in communities where nonprofits, such as YMCAs and city recreational facilities, weren’t required to pay property taxes.
“So, not only do their competitors pay no taxes, they are funded by taxes paid by KHFA eligible clubs,” said Jenkins, who served in the Kansas House and Senate before elected to Congress.
Topeka Rep. Jim Gartner, ranking Democrat on the House Tax Committee, said the process relied upon by Jenkins to seek passage of the amendment didn’t follow standard procedure. The idea should have been introduced as a standalone bill and subjected to committee hearings with advocates and opponents, he said. Instead, the Senate approved Senate Bill 13 as part of a quest to increase public disclosure of revenue increases tied to property taxes. When that bill was transferred to the House, Jenkins jumped into the mix with Steven’s amendment.
“It’s absolutely ridiculous,” Gartner said. “If he wanted to come in front of the tax committee, pay your 2019 property taxes. Be straight up and file a bill and let it come through the process.”
The House Taxation Committee is expected this week to begin debate on possible alterations to Senate Bill 13. There appears to be bipartisan opposition to the amendment, with the sharpest objections coming from Democrats. Support from House GOP leadership could set up an interesting fight.
KPI’s book on Genesis
The League of Kansas Municipalities, with membership consisting of cities with populations from 20 to over 390,000, suggested local officials join opposition to the add-on property tax exemption pitched by Jenkins.
“Please contact your legislators and tell them to vote against the amendment from Genesis Health Clubs,” said Trey Cocking, deputy director of the League of Kansas Municipalities.
Initially, Kansas Policy Institute also directed House members to reject the exemption aimed at helping for-profit health clubs. Dave Trabert, chief executive officer at KPI, said in an email to legislators his organization would “strongly oppose including the Genesis proposal in SB 13.”
“Some people assume we support the exemption for a variety of reasons, but that’s not correct,” Trabert said. “Kansas Policy Institute opposes the health club exemption, and we would give it a negative score on our Freedom Index.”
One week later, however, KPI executed a political backflip.
In an email to House members that was copied to House GOP leaders and Jenkins, KPI president James Franko announced the organization would lend its influence to passage of the property tax exemption for health clubs. Franko said the amendment was needed to combat government-built and -operated health facilities placing private health club businesses at a “tremendous disadvantage.”
“Tax changes of this nature are exactly what Kansas needs to be enacting tax as families and businesses pull themselves out of the devastation caused by COVID and government shutdowns,” Franko said.
The International Health, Racquet & Sportsclub Association reported in December the number of people in the United States who used a health club in 2019 was 27% greater than the number of users in 2010. IHRSA also reported U.S. residents used a fitness facility more frequently in 2019 than in 2010. During the decade, the number of times Americans turned to a health club climbed 45% from 4.6 billion to 6.7 billion. Health club consumption was growing at a steady rate heading into 2020, the report said, when the COVID-19 pandemic struck.
“Health club membership and usage trends indicate sustainable growth over the long term,” IHRSA’s report said. “While not recession-proof, the health and fitness industry has historically been resilient during downturns. As the economy recovers from the COVID-19 pandemic, it will test the industry’s resiliency.”
Another tax dispute
In all, Genesis Health Clubs operates more than 20 locations in Kansas and about 30 venues in five other states. Over the years, Steven has publicly celebrated aggressive expansion of his empire.
The company ran into problems in St. Joseph, Missouri, while remodeling a small, aging facility and connecting it to a new multimillion-dollar structure. It was finished more than two years after the one-year building permit was issued in 2015. The City of St. Joseph withheld a certificate of occupancy until several promised elements of the fitness club were completed, including an elevator, in 2017.
“Greatest fitness facility ever seen in St. Joseph,” Steven said in a news release. “The St. Joseph community has been begging for something like this for years and we could not be happier to be the ones to bring it here. This was difficult. End of story.”
Genesis Health Clubs, according to reporting by the St. Joseph News-Press, declined to pay $26,500 in fines that accumulated because the company was slow to finish the project. When Steven began preparing for construction of a $1.2 million outdoor aquatic facility in St. Joseph, the city declined to issue a construction permit because of unresolved fines.
Steven asked the city to wipe away the penalties, but the city council voted Dec. 14 against a waiver. In the News-Press, Steven said city officials were hard to work with during the fitness center project. He complained about existence of the city’s recreation center and the YMCA. He said the stalemate over fines meant the swimming project wouldn’t go forward.
St. Joseph Councilman Marty Novak told the News-Press the waiver of fines for Genesis Health Clubs would set the wrong precedent.
“In all fairness, would it be right to write off the $26,000 for this business and not do it for somebody else? I don’t think so,” Novak said. “Sometimes it doesn’t matter what you do, you’re not gonna make people happy.”