Lawmakers Propose Changes To Tax-Free Status For Hospitals

December 23, 2015
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TRT-graphic-wBy John Burton

The recent tax court ruling in Morris County and pending legislation in the state Senate have not-for-profit hospitals and municipalities figuring out their future relationship.

Following a judge’s decision regarding Morristown Medical Center’s obligation to provide some financial support to its host community, “The immediate impact was the great uncertainty it placed on New Jersey’s not-for-profit hospitals,” said Kerry McKean Kelly, a spokeswoman for the New Jersey Hospital Association (NJHA).

On Monday, a bill that would require those facilities to pay the host municipalities was approved the Senate Budget and and Appropriations Committee. Those familiar with the situation expect the Hospital Community Service Contribution legislation, S-3299, to be taken up by the full Senate in the lame duck session early next month.

Red Bank, home to Meridian Health System’s Riverview Medical Center, has had a longstanding and supportive relationship. But Red Bank Mayor Pasquale Menna said of these recent developments, “It’s a very important issue. It’s going to be financially impactive on the municipality and the hospital.”

Menna and Red Bank officials have been meeting with Meridian representatives, conducting “intelligent and painstaking discussions” that the mayor suspects are, “going to be a long process.”

Red Bank has had in part a complicated relationship with the numerous not-for-profit organizations that are exempt from paying property taxes. Officials in the past have complained that 16 percent of the borough’s real property is used by tax-exempt organizations. And that, noted Borough Councilman Michael DuPont, chairman of the council’s Finance Committee, amounts to an annual loss of $1.2 million to the municipality. They may not be required to pay taxes, yet they receive municipal services, such as police, fire, EMS and Public Works, burdening the municipalities. “That does cost the taxpayers money,” DuPont noted.

A few years ago, local officials approached the area’s legislative delegation hoping to find support for some sort of relief from Trenton. The discussions never went anywhere.

“The contributions that New Jersey hospitals make to the community are significant,” said Meridian Health spokesman Robert Cavanaugh, in a statement. “In addition to serving our communities 24 hours a day, seven days a week, 365 days a year, the contributions that hospitals make to the community extend well beyond the health care services that are offered.”

In Red Bank, Riverview Medical Center is one a handful of not-for-profits that actually provide an annual payment in lieu of taxes (PILOT). According to Eugenia Poulos, Red Bank chief financial officer, the medical center contributed $166,322.86 for 2015.

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Poulos said there were nine not-for profit organizations that have contributed PILOTs for 2015: Along with Riverview, they are the Monmouth Boat Club paying $2,000; Count Basie Theatre, $11,232.04; HABcore housing assistance program, $11,408.70; Locust Landing residential development, $47,674.95; Red Bank Housing Authority, $10,740; River Street Commons senior housing complex, $46,669.95; Two River Theater, $11,815.14; and Wesleyan Arms senior housing facility, $29,894.25.

Of the 71 acute care facilities in New Jersey (which serve 18 million patients a year), 64 are not-for-profit hospitals. “There are a number of hospitals across the state that pay some kind of voluntary financial support to their communities,” Kelly said. In some cases, it’s in the form of a cash PILOT, or in in-kind contributions, such as running clinics and workshops for community members. That amounts to a $2.4 billion contribution to communities, according to Kelly.

But as state Senator Joseph Vitale (D-19), who represents Middlesex County and is co-sponsor, along with Senate President Steve Sweeney on the legislation, pointed out, “If they have a legitimate non-profit mission they have to demonstrate that to the IRS every year,” and “in part” those services, “that’s what they’re required to do.”

NJ State Tax Court Judge Vito Bianco earlier this year ruled that Morristown Medical Center did not meet its requirements as a duly not-for-profit, charitable organization for at least two years of its operation. The medical center and Morristown reached a settlement that will have the facility pay $15.5 million over the next decade.

In response to that decision lawmakers are proposing legislation that would amend the 100-year standing law exempting not-for-profits from property taxes and require not-for-profit hospitals to make what the bill labels “community service contributions” to their host communities. The payments would be intended for property tax relief and to offset public safety costs, as well as a small portion to be directed to the host county. The amount the hospitals would pay would be calculated based upon the number of licensed beds, ancillary buildings and other facilities the hospitals own and operate, according to Vitale.

“Because of their size,” said Vitale said of the medical centers, “and because of the services provided to the facilities, it does cost the taxpayers money. They’re (communities) looking for relief.”

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“This never would have been contemplated, of course, if not for the Morristown decision,” and the intent is “so that everyone doesn’t litigate every hospital on their own. It would get out of hand,” Vitale said.

Holmdel is host community for Bayshore Community Hospital, which also comes under the Meridian umbrella, and is a not-for-profit, too. Unlike Riverview and Red Bank, Bayshore does not contribute a PILOT to the town, acknowledged Mayor Eric Hinds. Also unlike Red Bank, there hasn’t been any formal discussion between the hospital and the municipality on this matter.

“I can’t say we’ve spent a lot of time or energy on what that could or couldn’t mean for the town,” Hinds offered. But the mayor added, “In my experience Meridian is a class A outfit and I’m sure if the legislation mandates that the hospital has to pay they would be a good partner and that we would be able to work something out amicably.”

The NJHA has not taken a formal position on the legislation, but it will likely be the leading topic of conversation for the association’s board that had been scheduled for earlier this week, according to Kelly.

For now, “We think it’s a good starting point,” Kelly said of the bill, “and we’re looking forward to working with the Senate president to see if we can reach a good resolution on the issue.”

“It is a balancing act,” given the equitable relationship between Riverview and the borough, Menna acknowledged. The medical center is the community’s largest employer, which includes more than 600 residents, and provides traffic for downtown businesses, among other contributions, Menna said.

Meridian’s Cavanaugh noted the health system is the largest employer in Monmouth and Ocean counties, with 14,000 employed at its six hospitals.

“However,” added DuPont, “with this case, both sides have to now use the longstanding relationship to negotiate a resolution that’s fair to both sides.”

But that resolution will take time, as Menna pointed out, the Morristown case took eight years to reach a conclusion.

 

 

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