Rodney Steven’s drive to spare private fitness businesses statewide from property taxes advanced in the Senate on Monday.
The property tax exemption, intended to let private clubs get one of the tax breaks enjoyed by nonprofit YMCAs, is a twist on a familiar debate over tax fairness for private fitness clubs.
The specialized tax break comes a year after lawmakers eliminated taxes on profits for 191,000 businesses, including several of Steven’s Genesis Health Clubs. Republican Gov. Sam Brownback has said he wants to eliminate specialized tax deductions and take the “social engineering" out of the tax code.
But Steven and others argued, successfully so far, that nonprofit clubs have an unfair advantage because of their tax exemptions.
Last year, Steven and other fitness clubs sought to end that by taxing nonprofit clubs. That idea didn’t take hold.
“The mood isn’t to go that way,” said Greg Ferris, a former Wichita City Council member who is a lobbyist with the Kansas Health and Fitness Association working alongside Steven. “Although it may be changing.”
Monday’s debate and voice vote approving the bill showed that some conservative lawmakers feel YMCAs have outgrown their community-based image, and it provoked questions about tax fairness when GOP lawmakers are trying reduce income taxes for a second year in a row while chipping away at tax deductions.
Sen. Jeff Melcher, R-Leawood, said 100 private health clubs in Kansas have gone out of business in the last 15 years. He said that lawmakers should be talking about eliminating exemptions for the YMCA because it is competing with private business without paying taxes.
“It’s not as though they serve some community interest,” Melcher said. “These are big businesses with a protected class of taxation that’s unfair to the private sector.”
Senate Majority Leader Terry Bruce, R-Hutchinson, said private health clubs are being hit from both sides with competition from nonprofits like the YMCA and community centers owned by city governments. He said many nonprofits have strayed from their original community-based intent.
“They are now, for lack of a better term, just a health club,” he said.
The Greater Wichita YMCA said earlier this month that it provided a record $10.2 million in free or assisted services in 2012. The money went to things such as youth sports camps, child care and before-school and after-school programs for 9,500 children.
Democrats decried the bill as a special-interest tax break that could hurt local governments that depend on property tax revenues while reducing the amount of property tax money the state automatically funnels to schools.
Sen. Pat Pettey, D-Kansas City, said eliminating the property tax for fitness clubs would likely lead other businesses, such as private golf courses that compete with municipal ones, to also ask for an exemption.
“This bill really shifts that burden to our homeowners and says if you’re one particular type of business you should not be paying property tax,” she said.
Senate Minority Leader Anthony Hensley, D-Topeka, said the tax break is a bad idea.
“This is just a special industry carve-out of the worst kind,” he said. “This is special-interest legislation.”
Steven, the health club management company he owns and several health clubs in Wichita and across the state got a boost from the state last year when it eliminated nonwage income tax on about 191,000 businesses. Steven also has a corporation unaffected by that exemption.
This year, he sought to also eliminate the property and membership sales taxes at health clubs. He and other club owners said it’s necessary to compete with tax-exempt YMCAs.
Senators rejected the sales tax break, which would have cut $3.4 million in state revenue, but advanced the plan to exempt qualified health clubs from property taxes. Those include most clubs with weight and cardio equipment, but not specialty clubs such as golf courses, spas, dance studios, swimming pools and tennis facilities.
Steven has a complicated history in fighting for tax breaks.
He sought tax-free financing from the city of Wichita for an expansion of his clubs in 2004 only to have the city back out of the deal. Steven filed a lawsuit over the perceived broken promise, but the city won.
Since then, he has sought to force the YMCA to pay tax or some payment in lieu of taxes as the YMCA sought $23 million tax-free financing from the city to build its new downtown facility.
“Continuing to shrink the tax base in the face of severe spending cuts really makes no sense,” he said in 2011.
But, as the state considers budget cuts to afford the tax reductions it approved last year, Steven is seeking approval of Senate Bill 72. The bill faces a final Senate vote Tuesday. If approved, it moves to the House for debate and a vote.
Losing the property tax would reduce state funding for schools by $200,000 and money for the state’s buildings fund by $20,000, budget officials said. The biggest impact would be for local governments and school districts, which collect most property taxes.
Democrats suggested that the advancement of the tax exemption bill this year could be tied to the campaign contributions Steven and Genesis provided during last year’s election cycle.
Sen. David Haley, D-Kansas City, said that contributions tied to such specific legislation add to the perception some have of politicians doing favors in support for re-election money.
“It just gives us a bad name, a bad perception, that we can bend the rules,” he said.
Steven and Genesis Health Clubs donated at least $45,000 to senators during last year’s summer and fall campaigns. That included maximum donations to Senate President Susan Wagle and Senate Majority Leader Terry Bruce.
Steven and the club each gave maximum donations to Wichita Republican Sen. Michael O’Donnell, bolstering his campaign with $4,000 as he sought to unseat incumbent Republican Sen. Jean Schodorf and beat Democrat Timothy Snow in the general election.
Ferris said Steven considers O’Donnell a friend and that O’Donnell asked him for help during the campaign, leading to the maximum donations. But some lawmakers who Steven has helped aren’t supporting the bill, Ferris said.
“A lot of people ask Rodney for campaign contributions,” he said.