Gov. Laura Kelly on Thursday vetoed a bill requiring cities and counties to rebate property taxes if they compete against certain businesses such as fitness centers, day care facilities and restaurants.
Kelly vetoed a bill that was packaged with a child and dependent care tax credit that the governor supports along with an expanded property tax refund for seniors and property tax rebates for veterans with disabilities.
But Kelly took aim at the government competition provision, which has been sought for years by fitness club owner and frequent campaign contributor Rodney Steven of Wichita.
“To favor a specific business, a tax abatement scheme was floated to put taxpayer dollars into that business’ pocket at the expense of local government service. That’s wrong,” Kelly said in a statement she issued when vetoing the overall tax bill.
“Taxpayer dollars should not be diverted to political donors under the guise of tax cuts.”
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 that are paying taxes that critics say are effectively being used against them.
The bill called 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.
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 had 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.
Kansas cities and counties had asked Kelly to veto the bill, saying that while it had good elements such as the tax cuts for veterans, seniors and families, it was poisoned by the government competition part of the bill.
“We accept the veto with the mixed emotions that come when the legislature creates these harmfully bundled packages,” said Spencer Duncan, lobbyist for the League of Kansas Municipalities.
“The government competition language was detrimental to taxpayers, shifting more property tax burden to homeowners,” Duncan said. “However, we support all the other property tax provisions, especially veterans’ relief.
“We hope during the special session they pass the veterans’ provisions on its own, then finally invite cities to the table between now and 2025 to discuss responsible competition language,” he said.
The cities had said the bill includes a “vague definition” of “government competition” that allowed any business to claim competition and receive a tax break.
The league also says that the bill’s language would have allowed existing businesses before July 1, 2024, to be eligible for rebates based on “perceived” competition.
Republican state Rep. Pat Proctor of Leavenworth had been pushing hard to pass the bill giving veterans with disabilities a 75% rebate on their property taxes.
“I am incredibly disappointed that Gov. Kelly chose to put political games ahead of taking care of Kansas seniors and veterans,” Proctor said.
“I am also incredibly disappointed that Kansas counties and municipalities put questionable, short-term revenue concerns ahead of the long-term health of our state and our communities,” he said.
“I hope that these groups will now come to the table, support the veterans’ caucus, and help us get enacted into law the measures in HB2096 that they claimed to support before they derailed our bill,” he said.
The government competition 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 have long said 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 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.
