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Hospitals could be facing huge property tax bills

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Illinois

* Hospitals freaked out when towns like Urbana tried to make them pay their full share of property taxes, so they turned to the state. The attorney general helped negotiate a compromise. But an appellate court has ruled that law unconstitutional…

The state’s 2012 charity care law has been declared unconstitutional by the Fourth District Appellate Court in a ruling that also scored a major victory for the city of Urbana and local taxing districts in a long-standing legal battle with the Carle health system.

A jubilant Urbana Mayor Laurel Prussing said Wednesday the decision vindicated the city’s position to fight Carle and the state law after Carle properties became tax-exempt, taking $60 million of assessed value with them.

It also vindicated the city’s decision to turn down Carle’s offer to pay Urbana for some city services to make up for some lost tax revenue, she said.

“People kept saying you should take the money and run,” Prussing said.

The ruling is here.

* More…

“The Legislature could wait (until the Supreme Court rules), but issues will continue to mount,” Msall said. “The Illinois Department of Revenue needs some direction from both the Legislature and the (Rauner) administration on how to handle pending applications.”

I fully expect the Illinois Hospital Association will start a major legislative push this spring.

* More…

A lower court sided with the hospital, but the appeals court reversed that decision, saying the Illinois Constitution allows lawmakers to exempt only property “used exclusively” for “charitable purposes.”

“An unconstitutional statute is unenforceable from the moment of its enactment,” the ruling states. […]

Since 2012, Prussing said, the city has lost 11 percent of its assessed tax value since Carle was relieved of paying $6.5 million a year in property taxes — the vast majority of which went to Urbana and its school district.

* From the Illinois Constitution…

SECTION 6. EXEMPTIONS FROM PROPERTY TAXATION

The General Assembly by law may exempt from taxation only the property of the State, units of local government and school districts and property used exclusively for agricultural and horticultural societies, and for school, religious, cemetery and charitable purposes.

I suppose a main argument will rest on whether the word “exclusively” in that sentence also applies to “charitable purposes,” even though there is quite a separation. The appellate court used the 1870 Constitution’s language to claim that it does…

The property of the state, counties, and other municipal corporations, both real and personal, and such other property as may be used exclusively for agricultural and horticultural societies, for school, religious, cemetery and charitable purposes, may be exempted from taxation; but such exemption shall be only by general law.

Maybe.

Also, “exclusively” doesn’t have to be 100 percent. It has to be “primarily,” according to previous court rulings.

posted by Rich Miller
Friday, Jan 8, 16 @ 11:00 am

Comments

Great, another thing that makes health care more expensive.

Comment by plutocrat03 Friday, Jan 8, 16 @ 11:18 am
It sounds like healthcare will become more expensive, and more people will lose their jobs.

Comment by Mama Friday, Jan 8, 16 @ 11:32 am
Is this all hospitals, or just those owned by for-profit organizations? I’d have thought the latter, since ‘charitable’ often seems just to mean non-profit. (E.g. in settling what’s deductible against Federal Income tax, donations to non-profits seem to count without too much quibble as to exactly what the organization does.) If that’s right, this would give non-profit hospitals a big advantage over the for-profits, perhaps putting the latter out of business, but that doesn’t sound like such a disaster.

Comment by UIC Guy Friday, Jan 8, 16 @ 11:37 am
A simply solution is to offer property tax rebates to hospitals based on the amount of “charity” care they provide as a percentage of total revenue.

Comment by Juvenal Friday, Jan 8, 16 @ 11:42 am
Not sure if that is truly a simple solution, Juvenal. I don’t entirely understand it, but I believe that agreeing on what equals “charity” can be problematic and quite complicated.

Comment by Betsy Friday, Jan 8, 16 @ 11:48 am
Here’s something from the other side: Carle Hospital benefits people in a multi-county area, but the property tax that was lost mainly affected the residents of Urbana. Our bill jumped by more than $1000/year.

Comment by The Old Professor Friday, Jan 8, 16 @ 11:48 am
Great, possibly some relief from a law, promoted by lobbyists for a big-money special interest group, that underfunds local school districts and sent property taxes to the moon.

Carle was a highly profitable business before and after 2012 when their lobby group negotiated this means to completely shirk their tax obligations. All the 2012 law did is allow them to keep more profits by shifting their tax burden to residents and other local businesses and by further stressing underfunded schools. If anyone has data to show that Carle passed this tax windfall on to consumers in the form of lower medical costs, let’s see it.

Comment by X-prof Friday, Jan 8, 16 @ 11:51 am
X-prof nails it. Well done.

Comment by JS Mill Friday, Jan 8, 16 @ 11:54 am
http://www.law360.com/articles/675747/3-takeaways-from-hospital-tax-exemption-ruling

Comment by Anon221 Friday, Jan 8, 16 @ 11:54 am
X-Prof is the hammer!

Run for office Ex-prof

Comment by jerry in chicago Friday, Jan 8, 16 @ 11:58 am
Juvenal – If the ISC upholds the appellate court’s interpretation of the constitution, the remedy you propose would still be unconstitutional (although reasonable if applicable to all businesses IMO). I’m not a tax expert, but I would guess that hospitals are already able to deduct charitable contributions and services for income tax purposes.

Comment by X-prof Friday, Jan 8, 16 @ 12:02 pm
Hospitals, especially “non-profits” are raking in the dough. Don’t believe me, take a look at your local hospital. It either has a new wing, a new parking deck, or a crane hovering above it in one shape or another.

Comment by Colin O'Scopey Friday, Jan 8, 16 @ 12:03 pm
What X-prof said.

Millions of dollars are earned at these “non-profit” hospitals: http://www.nytimes.com/2014/05/18/sunday-review/doctors-salaries-are-not-the-big-cost.html

Comment by Kasparov Friday, Jan 8, 16 @ 12:10 pm
Our hospital in Streator, St. Mary’s, closed this week. Now we are a service area of over 20,000 people who don’t have a hospital. The closest one is in Ottawa, 19 miles away. We now have a 24/7 “urgent care” clinic–with no inpatient beds.

While I agree with Colin O’Scopey, if the State does something to drive more marginal hospitals out of business, we’re going to have many more towns in the shape Streator is in. It’s scary.

Comment by Streator Curmudgeon Friday, Jan 8, 16 @ 12:12 pm
Exclusively charitable hospitals?
Sounds like Carle should have people lined up out the door for some free services!

Comment by cdog Friday, Jan 8, 16 @ 12:15 pm
I find it hard to interpret that language so that “exclusively” does NOT modify “charitable.” To say it doesn’t would mean that even the most de minimus such use would qualify, and that is absurd.

Comment by Anonymous Friday, Jan 8, 16 @ 12:20 pm
Just looked up Memorial Medical Center on the Sangamon Co property tax website.

The entire four square block complex between 1st and Rutledge, is tax exempt. I am sure they do a lot of kind and charitable work, but exclusively?

Maybe Springfield should take a look at this …

(St. John’s entire complex is tax exempt too.)

Comment by cdog Friday, Jan 8, 16 @ 12:21 pm
Can I get my home declared a church?

Comment by Dr X Friday, Jan 8, 16 @ 12:25 pm
Carle 990 2013 link- http://990s.foundationcenter.org/990_pdf_archive/371/371119538/371119538_201312_990.pdf?_ga=1.87441624.1782558277.1452277448

p 13- Charity care : The Foundation is committed to providing quality health care to all, regardless of their ability to pay.
The Foundation provides care to patients who meet certain criteria under its Community Care Discount Program
(charity care policy) without charge or at amounts significantly less than its established rates. Since the Foundation
does not pursue collection of these amounts, they are not included in net patient service revenue.

But, then go to p. 26- Note 8 . Community Benefit and Charity Care
The Foundation is committed to providing quality health care to all, regardless of their ability to pay. Under the
Foundation’s charity care policy, patients meeting certain criteria receive care without charge or with a significant
reduction in charges. Because the Foundation does not pursue collection of amounts identified as charity care, they
are not reported in net patient service revenue. The uncompensated cost of charity care is estimated by applying an
overall cost to charge ratio to the charges associated with patients who qualify for charity care. Uncompensated costs
of charity care totaled $44,306 and $35,184 for the years ended December 31, 2013 and 2012, respectively.

There’s a lot more. Peruse at your leisure.

Comment by Anon221 Friday, Jan 8, 16 @ 12:37 pm
Interesting Carle policies.

Any bankruptcy attorneys out there that have ever discharged debt for clients of Carle, MMC, StJohns?

Policies are great but never guaranteed practice. It can be important to audit and reconcile policies to actual operational actions.

Comment by cdog Friday, Jan 8, 16 @ 12:46 pm
Sorry, but “non-profit hospital” is an oxymoron.

X-Prof and Colin are exactly right!

Comment by illini Friday, Jan 8, 16 @ 1:03 pm
All not for profit means is the books zero out at the end of the day. As long as the profits are siphoned off to new construction, salaries, bonuses etc. and enough charity to put a smiley face on it they meet their goal. Some compromise needs to happen to put some of that cash back into charity or at least lighten the municipal load.

Comment by relocated Friday, Jan 8, 16 @ 1:06 pm
Dr. X-Can I get my home declared a church?

Some one on the North Shore tried it so he wouldn’t have to pay his $80,000 bill
more here about it .chicagotribune.com/…/0907210505_1_tax-exe…

Comment by Cable Line Beer Gardener Friday, Jan 8, 16 @ 1:10 pm
If I paid money to Carle hospital can I deduct it as a charitable contribution?

Comment by Casual observer Friday, Jan 8, 16 @ 1:18 pm
“not for profit” is a misnomer and does not mean charity only. All the term means legally is that there are no shareholders receiving distributions as would be the case for a for-profit corporation such as Deere that generates a profit after expenses.

A “not for profit” corporation such as a hospital can generate a profit or net income after expenses. It just can’t distribute that profit to any shareholders because there are no shareholders. The profit can be carried over into subsequent fiscal years.

And, hospital executives can receive “reasonable compensation” which is a tax-driven issue. In the health care arena, “reasonable compensation” for a CEO can mean $1 million.

Comment by Betsy Friday, Jan 8, 16 @ 1:21 pm
Please everybody, in your haste to excoriate some of the larger, well-known institutions (which may well be deserved) understand this: if upheld this ruling is going to have a devastating impact on some incredible (and incredibly underfunded) institutions on Chicago’s South and West-Side. They will be no more able to meet the Constitution’s literal “exclusive” requirement than Northwestern.

Righteous indignation is everyone’s favorite guilty pleasure, but be careful what you wish for.

Comment by Sam Weinberg Friday, Jan 8, 16 @ 1:26 pm
=Righteous indignation is everyone’s favorite guilty pleasure, but be careful what you wish for.=

“Righteous Indignation”…heh, I should have chosen that for my blog name.

However, indignant as I may be, I’d be paying less in property taxes if the “non-profits” paid their fair share. And when I say “fair share” I mean pay something for cripes sake.

Comment by Colin O'Scopey Friday, Jan 8, 16 @ 1:35 pm
But Sam, if those south side institutions have cash flow problems because of the “charity,” or lack of income, due to their location and type of client, wouldn’t they stand a chance of prevailing as “primarily charitable?”

Comment by cdog Friday, Jan 8, 16 @ 1:38 pm
A lot of these hospitals count the provision of Medicare and Medicaid services in their “charitable” dollars that they tout. Which is illegal when filing your 990 with the IRS BECAUSE THEY GOT PAID FOR IT IT ISN’T CHARITY but which they do when telling the state how much charity care they provide.

Most hospitals also count billboards they put up that say, “Exercise more for better heart health! And come to Community Hospital, rated #1 in the Midwest for Heart Care by Random Magazine!” as charity, under the heading of “community education.”

And yes, a shocking amount of what they claim as “charitable care” that isn’t Medicare/aid is actually bankruptcy write-offs.

Comment by Educ Friday, Jan 8, 16 @ 2:34 pm
“Uncompensated costs of charity care totaled $44,306 ……”

That amount is buried in the total expenses. Looks they made about $180 million in 2013 but because they don’t pay the profits as dividends to stockholders the State allows them to call themselves a non-profit. (see-Betsy- @ 1:21) The designation has nothing to do with profitability. Carle plows profits into physical assets. Their latest gimmick is a $23 million sport medicine clinic going up in the UI Research Park. Providing charity care for a hospital is a cost of doing business not unlike retailers absorbing shoplifting costs.

Comment by CapnCrunch Friday, Jan 8, 16 @ 2:37 pm
The legal point in question does not hinge on the for-profit status of the owner; it rests solely on the actual use of the real estate. As Rich points out (see his quote from SECTION 6), the ISC has softened “exclusively” to mean “primarily”, but primarily is also interpreted to have a different meaning than what you’ll find in the dictionary. If you are interested and have the time, read the ruling starting on p 31. I agree with the ruling that the 2012 law and Carle’s use do not conform with the constitution. I don’t know much about the institutions that Sam refers to.

Comment by X-prof Friday, Jan 8, 16 @ 2:48 pm
My point is simply that if “exclusively” means “exclusively” than nobody will meet it.

And that includes an awful lot of hospitals who I suspect everyone would agree are doing God’s work and who could be forced to close if required to pay property tax.

Comment by Sam Weinberg Friday, Jan 8, 16 @ 3:47 pm
=Uncompensated costs
of charity care totaled $44,306 and $35,184 for the years ended December 31, 2013 and 2012, respectively.=

Those totals wouldn’t cover the cost of single surgery. IN the context of all that they do that number is a laughable .0003%

Comment by JS Mill Friday, Jan 8, 16 @ 3:54 pm
This is just like the Provena decision a couple of years ago, which triggered the legislation for this exemption. The Supreme Court’s decisions on the meaning of the constitutional provisions are uniform and very clear, but no one believes the courts will follow them again until they actually do.

Comment by Anon. Friday, Jan 8, 16 @ 4:04 pm
Huh? “Exclusively” is not 100%? You have got to be kidding. By what gyration and squirming did some diddle head judge come up with that? Is your home for your exclusive use? Yes? When do I move in?

Comment by ottawa otter Friday, Jan 8, 16 @ 4:21 pm
In states like Illinois that adopted ACA Medicaid expansion there is very little uncompensated charity care left. The point of the law was to get everyone covered either via their employer, purchase via an exchange or Medicaid. Some hospitals that served mostly low income areas are seeing increased Medicaid payments. But some of the managed care plans won’t use those hospitals due to their lower care standards.

Comment by LTSW Friday, Jan 8, 16 @ 4:30 pm