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

Titus Wu
Topeka Capital-Journal
Kansas businesses hurt by COVID-19 restrictions want state lawmakers to pass a process for getting compensated, or else they're going to sue.

The March 31 deadline for most Kansas legislation to be considered is ticking closer and closer, and so is the urgency to address COVID-19-related compensation for businesses.

"My fear, quite frankly, is we're kind of running out of time. We need to get moving on this and the right people need to be at the table," said state Sen. Molly Baumgardner, R-Louisburg, on the fact that this was beginning to be examined as late as a few weeks ago.

As of Friday, lawmakers have yet to get any compensation legislation out of the Kansas House or Senate, but they have seemingly decided on a final, working solution to compensate businesses for damages from virus restrictions.

Wichita gym Omega Bootcamps' lawsuit

All this is a result of a Wichita gym's lawsuit in December against the state, claiming the state’s emergency management laws allow it to seek financial damages related to the COVID-19 shutdown imposed by Gov. Laura Kelly.

Read moreDoes Kansas owe businesses for mandating they close? A lawsuit says yes.

Right before January, state Attorney General Derek Schmidt announced he and the gym agreed to pause the lawsuit in the hopes lawmakers could figure something out during the session.

"I agree with the basic principle, reflected in current law, that at least some of those whose property is significantly damaged by government actions undertaken for the public good during a state of emergency should be compensated for their loss," Schmidt said. "However, current law was not designed to address these sorts of business shutdown orders."

Businesses statewide are now watching and seeing what the Legislature does, said Ryan Kriegshauser, an attorney in the Wichita gym case. If lawmakers can't get anything passed, the state and local governments might need to brace themselves for more lawsuits.

"There's a significant amount of risk for local units of government, many of whom I think ... probably didn't realize there was this provision and statute available to businesses that were shut down during an emergency," said Eric Stafford, who is with the Kansas Chamber.

It's not like businesses want to sue governments, though. If there could be an easier process set up by lawmakers to get compensation, that would help the state and businesses.

"There needs to be a more manageable way to settle these claims efficiently, hopefully without the deep involvement of attorneys, which just burn up money to settle these claims," Kriegshauser said. In return, "the purpose of the bill is to absolve the state and county of this liability for KEMA compensation claims that currently exists."

Some Democratic legislators earlier in the year questioned why federal Paycheck Protection Program loans weren't enough to help businesses hurt by COVID-19 restrictions.

"It's not like it was free money. ... It's money to help keep people on staff, so they're not laid off," Stafford said. "It's not like it went toward the profit or income of the business necessarily. So I think that's a key distinction."

Taking advantage of federal COVID-19 relief

Originally, a bill dubbed the COVID-19 Governmental Use of Business Compensation Act included multiple avenues for businesses to seek COVID-19 compensation.

Among them were income tax credits for impacted businesses, reimbursement of property taxes from the county and a business loan forgiveness program created by the state commerce department. Some of these provisions ― particularly the property tax one ― drew opposition.

That provision would force counties out of their general revenue to reimburse property taxes of businesses hurt by county-imposed virus restrictions. Some noted, however, that action could raise taxes in other areas to make up for the lost revenue.

"Local officials are tasked with acting as the board of public health. This bill would penalize local officials for taking action consistent with those responsibilities," said Jay Hall, who is with the Kansas Association of Counties. 

Read moreKansas businesses affected by COVID-19 restrictions might get property tax reimbursements

But the more than $2.1 billion in federal funding coming to the state and counties from Congress' latest COVID-19 relief package has changed the calculus of things. Businesses are instead hoping to get a share of that as compensation, and thus, lawmakers plan to strip all tax-related sections of the bill.

That move removed nearly all opposition to the act, if not added support. 

To replace those avenues, the new proposed solution would establish the same compensation process for state, counties and cities that imposed COVID-19 restrictions on businesses.

All such governments would need to establish a claims fund dedicated to compensating businesses, which would be filled by 25% of all "unencumbered" federal relief money the entity receives.

To be clear, federal rules may mandate certain amounts of money be spent on certain things. After that is addressed, a quarter of what's left would go into the fund.

Kansas Attorney General Derek Schmidt asked the Legislature to address COVID-19 compensation for businesses hurt by virus-related restrictions from the government.

That money must be reserved for compensation until 2024, after which the money would be freed up for other uses. At the end of 2024, the claims fund would be gone and all remaining money would go into the general budget to match with the federal deadline of spending the relief money.

Businesses can file a claim for that money by end of 2022. The claimant would submit an affidavit and some tax documents, and he or she would have to identify the order that caused the harm and the amount of harm claimed. The state attorney general would determine the validity of the claim and then issue a certificate allowing the business to get the money.

This will "hopefully get some of that federal money to businesses that desperately need it," Kriegshauser said. 

Details remain to be cleared up, including mask mandates

What kind of COVID-19 restrictions hurt businesses and allow for this compensation could still change.

As of now, the proposed legislative solution includes orders that restrict occupancy, periods of operation, business resources and business functionality. Mask mandates are considered a restriction, too.

The League of Kansas Municipalities, representing cities, wants to change that last part. It wants a mask mandate liable for compensation only if the mandate requires the business to enforce it.

"I am not aware of any city that had a restriction in place, other than a face mask ordinance," said LKM's Trey Cocking. "Most businesses will tell us ... that they had a tick-up in business once face mask ordinances were in place, because people felt safe, and they were going out."

That request was fine with the Kansas Chamber, the main pusher of the bill. But it riled up some conservative lawmakers.

"A mask mandate does cause restrictions. It causes restrictions economically, in certain areas," said Sen. Dennis Pyle, R-Hiawatha, saying how there are folks, particularly in rural areas, who won't shop in areas with a mask mandate.

Cocking pushed back, saying issue cuts both ways, including people who won't patronize businesses that don't have a face-covering requirement. 

Signs for representatives and visitors into the Kansas House floor ask that visitors wear a mask and social distance. Whether mask mandates are liable for compensation remains to be seen.

Pyle was curious why only 25% of federal coronavirus relief funding is set aside for business compensation. He said he thinks it should be more. Others didn't like that it's a proportion instead of a specific, set amount.

"That statement bothers me. You're not looking at the actual damages, you're looking at how much money's available," said Sen. Caryn Tyson, R-Parker. 

The debate over that amount is a result of the uncertainty surrounding the federal rules surrounding spending of the relief money. How much money for compensation would be left, and whether that would be enough to even cover all the businesses who will make claims, are still unclear.

The U.S. "Treasury hasn't even issued full guidance on how (relief funds) are supposed to be spent. But we do know, it's for recovery," Kriegshauser said. "We know the intent of the federal government is to allow units of government to have more discretion than under" previous relief aid.

Ultimately, lawmakers will have to make decisions by Wednesday.

While some questioned whether a government's restrictions or just people's fear of COVID-19 played more of a part in economic harm, most in the Legislature see this bill as something that has to be passed.

For some Republicans, it isn't enough.

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

Update: After this story was published, lawmakers ran out of time to work the compensation legislation this week. However, lawmakers will continue working on it later in session before the summer, potentially when they reconvene for veto session.