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April 20, 2015 Editorial

Hospital property tax debate requires compromise

The General Assembly and Connecticut hospitals are engaged in a nasty tug-of-war on a myriad of important issues.

Whether its Medicaid reimbursement levels, the provider tax, or other state funding cuts, policymakers and hospital executives don't see eye-to-eye on much these days.

One issue particularly galvanizing both sides is the controversial debate over the tax-exempt status of nonprofit healthcare providers. Gov. Dannel P. Malloy and key legislative leaders want to chip away at the exemption, while hospitals say their ability to skirt property taxes should be sacrosanct. We think there is a reasonable middle ground.

The Finance, Revenue & Bonding Committee recently held a public hearing on a bill that would allow cities and towns to charge property taxes to off-campus properties owned by hospitals. The bill is in response to hospitals aggressively opening new outpatient centers and acquiring private physician practices, which previously paid property taxes but were taken off the tax rolls once owned by nonprofit care providers.

The bill was introduced to safeguard property tax revenues at a time when municipalities and the state are facing major budget constraints. Malloy's budget chief Ben Barnes argues that the property tax exemption and the state's PILOT program, which reimburses municipalities for some tax-exempt property, weren't designed to shield hospitals that continually remove non-emergency care medical properties from local tax rolls, which imposes additional costs on state taxpayers.

Hospitals argue their nonprofit mission would be jeopardized if they had to bear property taxes in addition to funding cuts and other tax increases already being considered by the legislature.

Here's a fair compromise: Allow hospitals to maintain their tax exemption on existing properties and on any new buildings they erect in the future; but force them to continue paying taxes on properties owned by private physician groups they acquire. This won't add substantial costs to hospitals, and will safeguard some property taxes that serve as the financial lifeblood of cities and towns.

Removing the exemption on all properties outside a hospital's main campus is too risky and would demonstrate policymakers' lack of understanding of the changing healthcare landscape. Hospitals are facing pressure to provide care in lower-cost settings, which means moving patients away from the emergency room to outpatient centers. That's why hospitals are investing millions of dollars in ambulatory care facilities. Taxing those properties would provide a major disincentive for hospitals to continue investing in lower-cost centers that could ultimately bend the healthcare cost curve.

At the same time, policymakers must draw a line in the sand somewhere; the state can't continue to allow the largest nonprofit organizations gobble up property and take it off the tax rolls. We've seen firsthand the negative effects significant amounts of tax-exempt property can have on a municipality. More than 50 percent of property in Hartford, for example, is tax exempt, creating significant budget constraints on the Capital City, which is saddled with the highest commercial mill rate in the state.

According to a recent CT Mirror analysis, the statewide tax liability reported by nonprofits is more than $500 million per year. That's a lot of lost tax revenues that must be shouldered by the state.

Hospital's frustrations, however, are understandable. They seem to be under attack by the Malloy administration, which has proposed funding cuts and higher taxes that could cost hospitals more than $750 million in annual revenue, according to the Connecticut Hospital Association. Although hospitals' financials improved last year they still face significant fiscal uncertainty.

Policymakers must refrain from adding too many additional financial burdens on hospitals, which are being asked to cut costs and transform their operations. 

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