Kansas cities and counties are asking Gov. Laura Kelly to veto a bill that would require them to rebate property taxes if they compete against certain businesses such as fitness centers, day care facilities and restaurants.
The League of Kansas Municipalities and the Kansas Association of Counties sent letters to Kelly this week asking her to veto the bill, which includes a child and dependent care tax credit that the governor supports.
The government competition provision, an issue that’s been bubbling in the Legislature for years, also was packaged with an expanded property tax refund for seniors and property tax rebates for veterans with disabilities.
While the league supports those other measures, Executive Director Nathan Eberline said in his letter that the benefits are “overshadowed by the detrimental ‘government competition’ language and its property tax shift.”
“We believe alternative solutions exist to provide the desired tax relief without harming local control and essential city programs,” Eberline wrote.
Eberline said the bill includes a “vague definition” of “government competition” that allows any business to claim competition and receive a tax break.
The league also says that the bill’s language would allow existing businesses before July 1, 2024, to be eligible for rebates based on “perceived” competition.
“This policy discourages cities from investing in essential programs – particularly childcare,” Eberline said in the letter.
“At a time when Kansas families desperately need more access to childcare, (the bill) will make cities hesitant to invest in these vital programs.
“It also continues a troubling trend of shifting tax responsibility away from corporations and onto homeowners.”
The Association of Counties said the provisions providing tax breaks for veterans and seniors are two programs that it supports for tax relief.
“Unfortunately, the inclusion of the government competition language has poisoned the entire bill,” wrote Bruce Chladny, the association’s executive director.
“Counties do not provide services in an effort to compete with private entities,” Chladny added in his letter to the governor.
“Instead, counties provide those services to fill gaps that exist within the community. As an example, there is currently a childcare shortage in Kansas,” he wrote.
The bill, he said, “would require that government owned childcare facilities close, or grant a property tax exemption to other childcare providers, thereby shifting the property tax burden onto the remaining taxpayers.
“This would either prevent government from helping to fill a community need, or
further burden property taxpayers that remain in the tax base.”
A veto could kill a tax bill that would provide veterans with disabilities a 75% rebate on their property taxes, a bill that was almost lost when the Kansas House sent it back to committee because it was packaged with less popular bills.
The bill, supported by Republican state Rep. Pat Proctor, was brought back after there were some compromises made on the government competition legislation.
“While I understand their concerns about the government competition elements of (the bill), the measure was significantly diluted in conference to alleviate these concerns,” Proctor said in a text message.
“Urging the governor to veto this bill threatens real property tax relief for seniors and veterans – provisions that municipalities actively contributed to shaping over the last three years – that will have significant, long-term benefits for cities, counties, and the state.”
The bill calls for local governments – namely cities and counties – to rebate property taxes to fitness centers, day care facilities and restaurants that have to compete against those same type of establishments run by the government.
It’s the latest development in a years-long debate in the Legislature over what should be done to limit local governments from competing against local businesses who are paying taxes that are effectively being used against them.
“The proper role of government should be to partner with private businesses in as many ways as possible to deliver essential services to taxpayers, not to directly compete against them,” said Alan Cobb, president and CEO of the Kansas Chamber of Commerce.
“If tax dollars are being used to open government-owned businesses, perhaps government entities have too much tax revenue and should look to reduce taxes for their residents,” he said.
There have been attempts without success in recent years to address the issue, and it remains to be seen whether the governor will veto this measure since it was packaged with a property tax break for veterans and a child and dependent care tax credit.
The rebates would only be allowed for private businesses that were up and running before a city or county started a similar competing establishment as spelled out in the bill.
The bill passed 23-11 in the Senate and 91-26 in the House.
City officials said the bill is less broad than similar bills that have been considered by the Legislature before, including one vetoed by Kelly last year.
The bill, they said, only applies to cities and counties and would not cover other types of government, including school districts.
The bill would only require the city or county that started a competing business to rebate the property taxes. It would not affect any other taxing district.
The bill also defines what constitutes “competition,” which would be confined only to businesses within a 5-mile radius of the competing establishment.
Competition would be defined to mean offering the “same or substantially the same” goods or services to the public for at least half the tax year for which a rebate is sought.
The bill also clarifies language that if the government’s predominant business is educational, it would not be considered competition.
For instance, if there is a school that has a teaching restaurant it would not be considered government competition under the bill.
Further, the bill is prospective, meaning that tax rebates can only be sought starting in 2025, although city officials say a business could go back years and claim unfair competition for a tax rebate going forward from the start date.
The business competing against the government in previous years could qualify for the property tax refund.
The bill was the latest development in a longstanding debate over whether cities have an unfair advantage and are competing against the private sector when they open community centers by offering similar services as private clubs.
The issue is rooted in a debate over whether local governments are competing against the private sector when they open community centers that offer similar services to private health clubs.
The health clubs, led by frequent campaign contributor Rodney Steven of Wichita, have argued that they are increasingly facing competition from nonprofit and municipally owned gyms that don’t have the burden of paying taxes.
They claimed that local governments had spent more than $100 million in the last 15 years on “gigantic facilities,” causing private competitors to close.
About a decade ago, Steven unsuccessfully pushed legislation to tax nonprofit health clubs like YMCAs in 2013 and 2014.
Three years ago, the Senate rejected a proposal to exempt for-profit health clubs from property taxes that had been sought by the Kansas Health and Fitness Association, whose board members include Genesis Health Clubs.
A state audit from 2022 couldn’t reach any conclusions about whether tax exemptions give governments and nonprofits a competitive edge over for-profit businesses offering similar services in the private sector.
Auditors said their efforts were complicated by a lack of available new research on the issue as well as their inability to look deeper into private sector businesses to determine whether governments and other nonprofits had a competitive advantage.
