To Kansas businesses hurt by COVID-19 orders, here's what compensation might come your way

Titus Wu
Topeka Capital-Journal
Kansas legislators pushed through two methods of compensation for businesses hurt by virus restrictions.

Throughout the course of the COVID-19 pandemic, businesses were financially hurt, with many losing major profit or even permanently closing.

Kansas GOP lawmakers this year have repeatedly vowed to help those business owners, especially with the state facing potential lawsuits. To quite a few, this promise was more than doing right but also laying the blame on COVID-19 orders from the governor and local government for hurting the economy.

Read more: Kansas faces pressure to compensate COVID-hurt businesses — or battle a wave of lawsuits

"The levels of the government that interceded in our economy with marginal to nonexistent scientific data," said Sen. Mark Steffen, R-Hutchinson. "They got to feel pain. They got to feel pushed back on this."

In short, state and local government have to pay up for the harm they caused to businesses, Republicans have said. And they'll have to think twice the next time a governor or county wants to implement any order shutting down or restricting businesses, even if it's to contain a disease.

Kansas legislators passed two methods of compensation for businesses hurt by virus restrictions. Here's what they are, why some oppose them and what details still need to be worked out.

Making up for lost income

Senate Bill 273, named the COVID-19 Small Business Relief Act, is closely tied to a lawsuit put on pause between the state and a Wichita gym. 

The gym had sued the state, saying a provision in emergency management laws allows it to seek financial damages related to the statewide shutdown of nonessential businesses. But how that provision should play out remained unclear.

The act clarifies that provision doesn't apply to intangible losses during the pandemic, such as lost profits. Tangible losses can still be sued over, but businesses can give up that option if they pursue a easier, less costly process outlined by the act.

"A large majority of businesses will use the procedure, and maybe some won’t,” said Sen. Kellie Warren, R-Leawood, but "there will be zero litigation over intangible losses."

Read more: Does Kansas owe businesses for mandating they close? A lawsuit says yes.

Not only would Kansas face fewer lawsuits, but businesses can also get the cash compensation easier and without lawyers. The money would come from all federal COVID-19 relief funds flowing into cities, counties and the state.

Federal rules may mandate certain amounts of that relief money be spent on certain things. But afterward, Kansas and would have to set up to 25% of everything else to pay out claims under this process. Any local government that implemented shutdowns or virus restrictions would have to set aside 35%.

Once all the funds run out, all future claims for compensation become null and void. That percentage was a matter of debate, and some conservatives even wanted it raised to 100%.

"Are we going to force entities to pick and choose who the winners and losers are on whether they get relief or not?" said Sen. Dennis Pyle, R-Hiawatha. "We need to make it big enough that it covers everybody."

Businesses are eligible for this process if they have 50 or fewer full-time employees, were in operation at the start of the pandemic and are for-profit. Virtually any COVID-19 restriction affecting business operations are applicable to apply against, though mask mandates in place before May 31 are exempted as part of a compromise with cities.

Compensation claims must be filed within the last three months of 2021. Businesses would have to provide tax returns, how they were hurt by the order, what other aid they got, how much of the money is to be used for salary compensation and other details in their applications.

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Businesses must give the portion they promised they'd dedicate to employees in the application; otherwise, that money could have to be paid back.

A three-member board appointed by legislative leaders and the governor would preside over the claims, using a variety of factors to determine a proper amount to be awarded. Such meetings wouldn't be open to the public to protect private business interests, which prompted some raised eyebrows.

The board "is making these decisions at the local level, with no opportunity for appeal by the city or the county, with no ability to look at what those claims were," said Amanda Stanley, with the League of Kansas Municipalities. "That's no ability to appeal by the business either. So if the panel tells the business, 'No,' they don't get to appeal that either.

"They don't get to ask why. And all of these claims are confidential."

Some lawmakers also feared politics would get in the way of things, given the board is appointed by political leaders. But Warren pushed back, saying confidentiality and the lack of an appeal process was agreed to get relief money out as fast as possible.

Rep. Fred Patton helped add more oversight mechanisms and an appeals process in negotiations over a bill that would compensate businesses for being affected by COVID-19 orders.

To help address transparency concerns, House lawmakers in negotiations added more oversight over the process from more parties in legislative and executive branches. They also added a reconsideration process to allow for appeal, and results of which businesses got awarded how much would eventually become public information.

If the COVID-19 order was the same for the state and local entity, the source for money owed would be split between the two governmental funds. Otherwise, the government with the more restrictive order will have to pay the entire amount.

Such available COVID-19 relief funds must be used only for this purpose until April 2023, when it can then be freed up for other uses.

Reimbursing property taxes

If a business wasn't able to use its property to conduct business because of virus restrictions, then the property taxes it had to pay shouldn't have been paid. That's the thought process behind parts of the COVID-19 Retail Storefront Property Tax Relief Act.

Spearheaded by Steffen and Sen. Tom Holland, D-Baldwin City, House Bill 2313 would reimburse businesses at least a portion of property taxes starting in 2022 for business restrictions from any future declared emergencies, COVID-19 or not. 

Lawmakers had originally intended to also reimburse property taxes all the way back to 2020, but that was scrapped due to a last-minute time crunch. Some also said SB 273 essentially did the same job.

The reimbursement amount is calculated according to a formula, rather than from a board making closed-door decisions. It takes into account whether it was a business shut down or simply a restriction as well as the number of days the order was in effect.

Eligibility requirements for this program are many, as lawmakers wanted to make sure it was narrowly tailored to target small, mom-and-pop businesses. Businesses must be for-profit and have a majority of its retail sales be on site. 

Sen. Tom Holland, D-Baldwin City, is one the major crafters of a bill that would reimburse property taxes for COVID-hurt businesses.

The act doesn't target federal relief funds like the other bill; instead, it has counties reimburse from its general fund a portion of property taxes for future shutdowns or business restrictions. If the state or city was the one who implemented the order, it would have to reimburse counties for that cost.

But using general funds might mean that local governments may have to raise taxes in other areas to make up for that lost money.

"That can result in a tax shift where residential and agricultural properties and non-qualifying business properties would actually be refunding or rebating that money to the qualifying businesses," said Jay Hall, with the Kansas Association of Counties.

Read more: Kansas businesses affected by COVID-19 restrictions might get property tax reimbursements

And unlike SB 286, there originally was no specific definition of what a restriction is, which could have wide-ranging implications and chill future responses to emergencies.

For example, if a bridge is damaged by a flood and a road has to be closed to fix it, that road's closure could prevent people from going to a business. Under this bill, counties might be incentivized to not repair it and keep the bridge closed, said Hall.

It "will make people hesitate," said Trey Cocking, representing Kansas cities, "and I think you are going to have outcomes to property and life that are not good."

Kansas lawmakers agreed that "restrictions" had to be defined more, and they defined it as business occupancy and operation limitations but excluded mask mandates.

Awaiting Gov. Laura Kelly

Both methods of compensation were sent to Gov. Laura Kelly's desk early Saturday, the final two pieces of legislation passed for this year.

There's still strong concerns from quite a few stakeholders. Some pushed back on the idea that economic damage from the pandemic is necessarily from governmental orders, instead of consumers themselves worrying about safety.

"In some places, we saw increases in sales after face mask ordinances were in place," Cocking said.

Seating is roped off to ensure social distancing. Such orders requiring social distancing could qualify businesses to get compensation from government under a Kansas bill.

There's also the argument that both place a significant burden on local government and infringe on local control, a typical Republican talking point.

"We are also concerned that it infringes on the ability of those local officials to put in place any sort of restrictions, because of the fact that they may be concerned about potential financial liability of which they have no control over," Hall said.

The financial costs from both programs would undoubtedly be big. There is still no clear, firm number on how much aid will even be out there as well, given there is yet to be guidance from the federal government on how federal relief funds can be used.

All those reasons can factor into whether the governor will veto or sign the bills. Kelly said she preferred the same process used to give previous federal relief money – through her SPARK office — for business compensation.

"When we give money out, there ought to be a trail there," Kelly said, "that it's accountable, that those businesses can make their case, rather than just having a three-person board."