Kansas Legislature questions tax exemption for YMCA

The YMCA boasts a long list of community contributions.

Free or reduced-cost day care, swimming lessons, summer camps and free health screenings.

But some in the Kansas Legislature see something else.

Even while lauding the Y’s charitable work, they see it operating with an unfair edge against the private health club market.

The nonprofit doesn’t pay property taxes in Kansas. It hasn’t since the mid-1980s.

For-profit health clubs, often competing for some of the same gym rats, do.

Something may give: The tax break for the Y may be canceled, or it might be extended to the private clubs at the expense of local governments.

“YMCAs do a lot of good work,” said state Rep. Richard Carlson, a St. Marys Republican and chairman of the House tax committee. “But how much of a tax break do community service organizations need to be an effective entity?”

Lawmakers are considering a bill removing the property tax break for nonprofits that provide “humanitarian services” and get 40 percent of their revenue from memberships.

The bill is believed to principally apply to the Y, although the organization believes it will affect many other nonprofit groups in Kansas.

YMCA leaders say they earn that tax exemption. They point out that they provided Kansans last year with $14.5 million worth of services, either for free or at reduced cost.

They said they want to help a less affluent population that might not otherwise be served without the Y.

“We are more than a health club,” said Mark Hulet, chief strategic officer for the Greater Kansas City YMCA.

YMCA leaders said the bill would devastate their budgets and likely lead to a reduction in services.

The bill would cost the YMCA of Greater Kansas City roughly $300,000, organization officials said. The loss would cost the Greater Wichita YMCA, which has built two multimillion dollar facilities since 2006, an estimated $3.4 million.

“We are on a fine, thin line and every dollar counts,” Hulet said.

YMCA officials believe the bill might also strip away the tax-free status of membership dues.

The controversy over the Y bubbled up from Wichita, where health club owner Rodney Steven has been fighting for six years to get a property tax exemption for fitness centers.

Steven contends private clubs aren’t only competing against the Y, but they are going up against city-run fitness centers offering top-flight amenities subsidized with tax dollars.

He scored a breakthrough last year when the Senate approved a bill giving private health clubs a property tax exemption. The Topeka Capital-Journal reported that Steven contributed $65,000 to lawmakers’ campaigns.

The bill exempting health clubs now sits in the House tax committee, which is also considering another bill that would eliminate the tax break for the YMCAs.

Some leading lawmakers urge caution about exempting a single class of business from property taxes. They said it could open the door for more requests for tax breaks.

“It would set a very dangerous precedent,” said Sen. Les Donovan, a Wichita Republican and chairman of the Senate tax committee.

Other lawmakers see the YMCA bill as an attempt to leverage support for giving the health clubs a break from paying property taxes.

“I don’t think this is about taxing Ys,” said Rep. Kathy Wolfe Moore, a Kansas City, Kan., Democrat. “This is about making a case for exempting private health clubs from the property tax. I can’t understand what value that provides the taxpayer.”

Fitness industry consultant Rick Caro said nonprofit gyms can operate at 30 percent to 35 percent less than a for-profit club. Tax exemptions contribute to those reduced expenses.

Nonprofits “know they don’t have to equal and charge what a for-profit does because they have flexibility not to have to do that,” said Caro, president of Management Vision.

Extending the tax break to the health clubs would cost counties money. In Johnson County, for instance, exempting health clubs from property taxes would cost taxpayers $2.2 million that would have to be picked up by other property owners.

Steven said the Wichita YMCA, which was $8.6 million in the black in 2012, has enough cash to build new facilities and keep pace with private clubs.

“In this industry, the government is almost picking winners and losers,” Steven said. “These guys have to pay property tax, these guys don’t.”

Dennis Schoenebeck, the Wichita YMCA’s executive director, said the revenue numbers are inflated because the organization is in the middle of a capital campaign. He also said the bottom line for 2012 did not reflect about $5.8 million in debt payments.

“We’ve had some good years,” Schoenebeck said. “But we’ve been here almost 130 years and I would guess for more than 100 of those, this Y has been broke.”

The Wichita YMCA built a $17.6 million center serving an area northwest of the city in 2006. The Y expanded the facility for $2.5 million in 2011. It spent $23.5 million on an Andover fitness center in 2009.

Other YMCAs don’t enjoy the same kinds of surpluses and construction budgets.

In Kansas City, the Y is losing money. In Topeka and Garden City, the Y is running surpluses, but nowhere near on the scale as Wichita’s YMCA.

In Kansas City, new construction has been less robust than in Wichita.

The Greater Kansas City YMCA constructed its last building in 2006 at Providence Medical Center in Kansas City, Kan. for $6.5 million. It built another one in Olathe for $6 million in 2001.

“We’re all not like Wichita,” Hulet said. “It’s not the same with the rest of the YMCAs in Kansas.”

But some Kansas City-area gym owners worry about an uneven playing field. They say a tax exemption would give them more money to add more facilities so they can compete.

“It affects my ability to grow,” said Wade Ferguson, owner of Gold’s Gym in Merriam. “You take my property tax, add that to the bottom line and I could go put another facility in.”

This story was originally published February 26, 2014 at 10:48 PM with the headline "Kansas Legislature questions tax exemption for YMCA."