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For-Profit Club Gets Help from the City

WICHITA, KS — One club in Wichita, KS has found a way to get city support for expansion. And at least one other club is following suit.

In July, Genesis Health Club's application for $11.85 million in industrial revenue bonds (IRB) was approved by the city with a 50 percent tax exemption for 10 years. Wichita's business incentive policy allows bond financing for service industries if the financing spurs investment and new employment. If a business also sells services outside the state, it can get a 100 percent tax exemption.

With the success of Genesis' application, Fitness 2000, another health club in the city, is planning to apply for $5 million and a 100 percent exemption on property and state tax for 10 years to expand to a second location. Fitness 2000 is in the application phase and doesn't expect city council action until the end of the year, said Mohsen Etezazi, owner of the club.

Genesis, which currently has four clubs in the city, plans to build two new clubs and expand a third. The new clubs will create 100 new full-time equivalent jobs during the term of the IRBs with a $30,000 average salary, and Genesis will invest more than $9 million in construction, which will either maintain or create local construction jobs, said Genesis President Rodney L. Steven II.

Genesis began studying the industrial revenue bond option three months prior to the approval. After submitting an application to the city for the bonds, the city required an independent cost/benefit study, which was reviewed by the city's Finance Department and then turned into a staff report that was submitted to the council, who then voted on the issue.

These bonds meet the Genesis' short-term and long-term needs at this time, Steven said. Besides, “industrial revenue bonds only make sense if a minimum investment of $1.5 million to $2 million is planned so we will only consider IRBs in the future if we find ourselves in that position,” he said.

The IRBs aren't without their costs. Once approved, the club pays the city about $50,000 for a monitor fee, city lawyer fees and other costs, not to mention the cost the club pays to its own lawyers to pursue the IRBs, says Etezazi.

More clubs should be looking at local laws to see what kinds of abatements are available to them, said Kevin Buckley, deputy director of government relations at the International Health and Racquet Sportsclub Association.

“This is money that is typically set aside for this specific reason,” said Buckley. “So it's not like it is taking away from the local schools. It's not like the fire department won't be able to get needed equipment. These are looked at as a return on investment.”

The city, however, is not giving the clubs money, said Etezazi.

“We have to finance the money through our own institution,” he said. “The incentive with the IRB is the tax breaks that you get. You can use the tax break incentive to go to the institution to borrow the money. The money you save on the taxes, you can use to pay the bank back.”

The city owns the building that the club builds and leases it back to the club in order to give the club owner the 50 percent break. At the end of the 10 years, the city turns around and sells the building to the club for $1,000, said Etezazi. At that point, the club goes back to paying 100 percent taxes on the property.

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