Six-state fitness club kingpin aims tax-inequity allegations at Kansas nonprofits

Unpaid taxes, lawsuit, illegal gambling taint quest for property tax break

By: - April 4, 2021 8:08 am

The Sports Pavilion Lawrence built by the city is among fitness-related facilities blamed by Genesis Fitness Clubs owner Rodney Steven for making it harder for for-profit fitness businesses to operate in Kansas without a property tax exemption. (Tim Carpenter/Kansas Reflector)

TOPEKA — Topeka YMCA president Glenn Haley has trouble accepting Wichita businessman Rodney Steven’s demonization of nonprofit YMCAs founded and operated on principles of caring, honesty, respect, inclusion and responsibility.

He’s read about how former U.S. Rep. Lynn Jenkins and other lobbyists speaking on behalf of Steven, owner of more than 50 Genesis Health Clubs facilities in six states, have sought to convince the Legislature that for-profit clubs were struggling to keep their doors open because nonprofits such as YMCA and YWCA as well as government-financed recreational centers were cutting into their business model.

They argue the for-profit industry in Kansas just can’t get by without a statewide property tax exemption. And, when pushed on the subject, they say these same businesses also deserve an exemption from sales tax.

Haley said the Topeka YMCA provided opportunities to engage in sports activities, but also offered day care to about 85 children so their parents could hold down jobs. He said at least 60 elderly people come to the YMCA daily in Topeka to exercise and socialize, an essential component of well-being during the COVID-19 pandemic.

Pat Leopold, left, and Greg Ferris are working with former U.S. Rep. Lynn Jenkins to push through a property tax exemption for the state's for-profit fitness clubs, a tax break sought for years by owners of Genesis Fitness Clubs. (Sherman Smith/Kansas Reflector)
Pat Leopold, left, and Greg Ferris work with former U.S. Rep. Lynn Jenkins to push through a property tax exemption for the state’s for-profit fitness clubs, a tax break sought for years by owners of Genesis Fitness Clubs. (Sherman Smith/Kansas Reflector)

“I find it fascinating that we’re considered the ones who are running people out of business,” Haley said. “We’re not here for the money. We’re here for the people. We make sure everyone has access through scholarships and subsidies.”

There is irony in Steven’s enlistment of Jenkins. The former Republican congresswoman was once a board member of the Topeka YMCA.

Jenkins and Greg Ferris, a lobbyist with the Kansas Health and Fitness Association, are jointly pressing the Kansas House to reward Steven’s substantial investment in creation of tax breaks beneficial to his bottom line. The House Tax Committee conducted a hearing on a property tax bill for fitness clubs, but didn’t take action on it.

It’s possible House and Senate leaders could drop Steven’s property tax exemption into a separate bill despite it never gaining support this year from a legislative committee or either chamber of the Legislature. The state doesn’t stand to lose much on a property tax exemption for fitness centers. Cities and counties would absorb most of the hit. Of course, any bill would be subject to veto by Gov. Laura Kelly.

Ferris, who helped with Steven’s failed effort to push through fitness-club tax advantages in 2013 and 2014, said the goal was to help Genesis and other companies lining up against city- or county-funded recreational facilities and the nonprofit organizations without property, sales or income tax obligations.

“In a time when government-funded entities are spending hundreds of millions of Kansas taxpayer dollars to build their own health clubs and driving private-sector competition out of business, the Kansas Health and Fitness Association is fighting to keep private-sector clubs open,” Ferris said.

 

Casino bid, snooping around

Steven, who is part of a vast business empire of fitness clubs, car dealerships and sports team holdings, fell short in 2014 even though he donated to about 70 members of the Legislature. He gave cash to 20 of 24 senators who voted back then for the property tax break. In the House, at least 45 representatives in both political parties were sent checks from Steven.

“He’s done his best to buy the Kansas Legislature,” said Wichita Rep. John Carmichael, who recalled how a House member drove a stake through the heart of a property tax break in 2014 by reading aloud names of senators who took Steven’s money. “After we heard that speech, it fell flat on the floor of the House.”

Rep. John Carmichael, D-Wichita, said Rodney Steven’s bid in 2014 and 2021 to secure a property tax exemption for Genesis Health Clubs and Kansas’ other for-profit fitness clubs was bracketed by a series of unusual events linked to the Wichita businessman. (Tim Carpenter/Kansas Reflector)

“Why should we be surprised that he’s around the statehouse again with his hand out expecting favors from Republican leadership?” Carmichael said.

When the House rejected the measure seven years ago, Steven focused energy on growing Genesis Fitness Clubs. He also was part of a $144 million bid to build and manage a state-owned casino in southeast Kansas. In 2015, one week before state officials were due to decide which of several casino proposals to accept, Steven was discovered rifling through the business office of a competitor’s gym in Emporia.

Security cameras caught Steven snooping through materials on a desk and fingering a computer keyboard before leaving. The operator of the club called the Emporia Police Department and spoke with the Kansas Racing and Gaming Commission. In defense, Steven said he didn’t enter any locked doors nor break into desk drawers.

On the casino front, the Castle Rock consortium involving Rodney and Brandon Steven and more than a dozen other Wichita area investors had their mind set on opening a Las Vegas-style, 20-story casino. State regulators, however, selected an investment group that went on to build a casino in Pittsburg.

Stevens and his associates with Castle Rock were angry enough to file a lawsuit challenging the decision, but lost the court case. The suit delayed for a year opening of the Kansas Crossing Casino and Resort. In an average year, the Kansas Crossing generates more than $4 million for the state treasury.

 

Illegal poker, phone taps

By then, the FBI was making waves in Wichita investigating illegal high-stakes poker games. The complex probe included surveillance, including telephone taps, of Steven family members and some of their associates alleged to be involved in the private gambling operation.

In 2019, professional poker player and car dealer Brandon Steven surrendered $1.1 million in illegal poker winnings to the U.S. Marshal’s Office. He also was sentenced to 200 hours of community service and three years of probation. Rodney Steven wasn’t implicated in the poker gambit.

From left: Former Sedgwick County Commissioner Michael O'Donnell, soon-to-be replaced Kansas House Rep. Michael Capps and ouster-target Wichita City Councilman James Clendenin are part of a bizarre conspiracy to derail Wichita Mayor Brandon Whipple that blew up in their faces. (Sherman Smith/Kansas Reflector)
From left: Former Sedgwick County Commissioner Michael O’Donnell, former Rep. Michael Capps and former Wichita City Councilman James Clendenin were mired in an attempt to falsely disparage Wichita’s mayor. (Sherman Smith/Kansas Reflector)

Another brother, Wichita businessman Johnny Steven, entered a plea of guilty for his role in illegal gambling operations. He forfeited $97,000 and scored 12 months of probation. Johnny and Brandon Steven admitted working with Daven Flax, who was held responsible for conducting the poker games in Wichita. Flax paid $117,000 for his role and netted 24 months of probation.

Authorities said Flax took a cut from the money wagered in the games and paid dealers, waitresses, caterers and property owners serving as hosts.

When the U.S. Department of Justice was tapping telephones in 2015, then-Sen. Michael O’Donnell, Sen. Susan Wagle as well as Gov. Sam Brownback were caught on tape. For example, Brandon Steven was recorded speaking with O’Donnell on wiretapped calls.

O’Donnell’s profile was subsequently elevated while a member of the Sedgwick County Commission. He invited scorn after attempting to conceal orchestration with two other politicians in a bogus smear campaign against the Democratic mayor of Wichita. In 2020, O’Donnell resigned from the county commission as law enforcement intensified its examination of his role in the coverup.

During the pandemic, Brandon Steven asked a federal judge for early release from probation to allow him to qualify for Paycheck Protection Program loans through the U.S. Small Business Administration. The judge said no. The SBA subsequently relaxed rules for people convicted of crimes and he was able to apply.

SBA records show Genesis Fitness Clubs received $3.5 million to $8.3 million in PPP loans, which don’t have to be repaid if used in accordance with federal pandemic rules.

 

Stolen car, drugs, lawsuit

Meanwhile, Brandon and Rodney Steven were added in 2019 as defendants to a lawsuit filed by Wichita police officer Claudale Arterburn. She’s the wife of former officer Brian Arterburn, who was run over and seriously injured by a drug dealer driving a Chevy Tahoe.

TOwners of Genesis Health Clubs, including this facility in Lawrence, are urging the GOP-led Legislature to approve a property tax exemption for the state's for-profit health clubs. (Tim Carpenter/Kansas Reflector)
Owners of Genesis Health Clubs, including this facility in Lawrence, are urging the GOP-led Legislature to approve a property tax exemption for the state’s for-profit health clubs. (Tim Carpenter/Kansas Reflector)

The Tahoe had been missing for weeks but not reported stolen from Eddy’s Chevrolet Cadillac, a dealership owned by the Steven brothers. It wasn’t registered with police as stolen until Arterburn was injured during a high-speed chase.

In weeks leading to the 2017 Wichita police chase of drug dealer Justin Terrazas, the Tahoe’s “infotainment” system logged calls placed to and from upper-level sales managers at the Eddy’s dealership.

Terrazas, who had a large quantity of methamphetamine in the Tahoe, struck Arterburn while the officer was placing stop sticks in the road to bring the chase to an end. Arterburn sustained brain damage requiring around-the-clock care. Terrazas pleaded guilty to a series of charges and was sentenced to 28 years in prison.

The civil suit involving the Steven brothers is expected to go to trial during August. Arterburn’s family is seeking $75 million in addition to punitive damages from Eddy’s Chevrolet Cadillac and the incarcerated Terrazas.

 

Not buying it

Rep. Steven Johnson, an Assaria Republican and former chairman of the House Tax Committee, said the Legislature ought to consider whether nonprofit organizations providing services also offered by for-profit companies ought to be on more equal footing in terms of the sales tax.

“I can maybe get that,” said Johnson, who wasn’t convinced the theory held up in terms of property taxes. “Now, they’re saying we never got our sales tax exemption so let’s try for something else.”

Assaria Rep. Steven Johnson, right, said he might agreed to equalize application of sales tax to nonprofit and for-profit fitness clubs. He opposes a property tax exemption to the state’s for-profit fitness facilities. (Tim Carpenter/Kansas Reflector)

Bob Beatty, a political science professor at Washburn University in Topeka, said thick pro-business sentiment of the GOP-led Legislature could help Rodney Steven with his quest.

“I’m not saying that’s right or wrong,” Beatty said. “I’m just saying that’s the atmosphere of Kansas right now. That idea is very, very strong in Kansas right now that anybody who owns a business is just generically deserving.”

Michael Smith, an Emporia State University political science professor, said political investments and the connections of the Steven family could finally pay off.

Jenkins, the former 2nd District congressman, can’t hurt his cause. She’s on a first-name basis with legislators, which might come in handy after it was revealed Genesis Fitness Clubs had neglected to pay at least $549,000 in pre-pandemic property taxes in Johnson, Shawnee and Douglas counties.

Genesis Health Clubs is very well connected politically,” Smith said. “This is an example of a business whose whole business model seems to thrive on its political connections.”

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Tim Carpenter
Tim Carpenter

Tim Carpenter has reported on Kansas for 35 years. He covered the Capitol for 16 years at the Topeka Capital-Journal and previously worked for the Lawrence Journal-World and United Press International. He has been recognized for investigative reporting on Kansas government and politics. He won the Kansas Press Association's Victor Murdock Award six times. The William Allen White Foundation honored him four times with its Burton Marvin News Enterprise Award. The Kansas City Press Club twice presented him its Journalist of the Year Award and more recently its Lifetime Achievement Award. He earned an agriculture degree at Kansas State University and grew up on a small dairy and beef cattle farm in Missouri. He is an amateur woodworker and drives Studebaker cars.

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