Tax exemptions in Ill. may have impact elsewhere
Illinois hospitals negotiating for better criteria for property tax exemptions are wary of their state becoming a national role model after the state’s governor gave officials permission to resume pulling exemptions from not-forprofit providers judged not sufficiently charitable.
“If we do not have a successful resolution to this case, certainly we don’t want Illinois to be the first state in the country to require all hospitals liable for property taxes,” said Maryjane Wurth, president and CEO of the Illinois Hospital Association.
Wurth and the IHA continue to work with state lawmakers in hopes of introducing legislation that would clarify the stipulations. They missed a March 1 deadline to reach an agreement after months of talks triggered by the Illinois Revenue Department revoking exemptions for three hospitals, leading Quinn to suspend the department’s rulings.
Last week, a bipartisan group of 18 Illinois congressmen sent a letter to Quinn on the behalf of the IHA warning that revoking tax exemptions would have a negative impact on hospitals and their patients. “Nonprofit hospitals provide an absolutely vital service to residents all across the state of Illinois, and taxing them threatens the care of low-income, underserved and uninsured Illinoisans,” Rep. Jesse Jackson Jr. said in a news release.
States, cities and counties across the U.S. may see taxes from hospitals as a way to fill their budgetary holes. The Ohio Hospital Association, for example, has a close eye on Illinois, as the Buckeye State is seeing developments on the property tax front within its own borders.
The Ohio Department of Taxation has a backlog of more than 100 applications from hospitals seeking exemptions. For comparison, the Illinois Revenue Department has a log of 16 hospitals, plus appeals by the three hospitals denied exemptions last year: 171-bed Decatur (Ill.) Memorial Hospital, 330-bed Edward Hospital in Naperville and Prentice Women’s Hospital at Northwestern Memori- al Hospital in Chicago. Status hearings on the appeals are scheduled for later this month.
Ohio officials stopped processing taxexemption applications in 2008 and recently resumed. Revised criteria better reflect that hospitals don’t turn away patients who may not be able to pay their bill, according to the OHA. “We’re just pleased the process has started back up,” said John Palmer, spokesman for the OHA.
However, the definition of charity care remains vague, said Matt Chafin, lead counsel for the Ohio Department of Taxation. Ohio’s definition of charity stems from a 1966 court decision involving the Planned Parenthood Association of Columbus. The Ohio Supreme Court overturned two lower court rulings finding that Planned Parenthood was not a charitable organization.
The opinion defines charity as “the attempt in good faith, spiritually, physically, intellectually, socially and economically to advance and benefit mankind in general, or those in need of advancement and benefit in particular, without regard to their ability to supply that need from other sources and without hope or expectation, if not with positive abnegation, of gain or profit by the donor or by the instrumentality of the charity.”
That murky 46-year-old definition of charity is a little obsolete, Chafin said. “It’s almost impossible to follow because we obviously have such a flowery definition of charity,” he said. “And the General Assembly has not worked to redefine that.”
The Ohio Supreme Court bypassed an opportunity to clarify the tax exemption in 2010, Chafin said, when the court ruled that a West Chester dialysis clinic didn’t qualify. That was the same year the Illinois Supreme Court set the stage for the current turmoil there, ruling that Provena Covenant Medical Center, Urbana, provided too little free care to merit an exemption. The opinion did not suggest a threshold for what amount of charity care is enough (April 12, 2010, p. 17).
Some governments and providers have instead turned to approaches in which providers make voluntary payments in lieu of taxes, often referred to as PILOT. Not-for-profit organizations pay an annual fee to help counteract the lack of property tax payments.
Boston’s PILOT seeks payments from not-for-profits holding more than $15 million worth of property in the city. The city recently reported improved results after revising it last year with a rebate of up to half of the volunteered contribution to reflect community benefits. In fiscal 2011, six participating medical institutions paid $6.1 million. According to the newly released figures, 13 institutions paid $4.2 million in the first half of fiscal 2012. The city could have netted $188 million, meanwhile, if the institutions were taxed in fiscal 2011.
Other cities that have PILOT programs include Baltimore, New Haven, Conn., and Philadelphia. All those cities have academic institutions owning large amounts of land, noted Anthony Flint, director of public affairs for the Lincoln Institute of Land Policy. Lincoln, based in Cambridge, Mass., in 2010 released a policy focus report on PILOT programs.
Flint said governments and hospitals should work together to ensure any volunteered contributions don’t place a burden on operations, and must be on the same page when acknowledging what a not-for-profit provides to the community. Hospitals provide community services that they often feel are “counted” as part of their contribution, Flint said.
Prentice Women’s Hospital in Chicago had its property tax exemption revoked by the Illinois Revenue Department.