Hospital sales may cost tax revenue

School districts stand to lose millions through sale to nonprofits

“A potential disaster.” “This could be catastrophic for this community.”

Those were just some of the phrases used Thursday night by members of the Pottstown School Board as they contemplated the loss of nearly $1 million in annual tax revenue should Pottstown Memorial Medical Center go off the tax rolls after being sold to a nonprofit entity.

They aren’t alone in their concerns.

The potential sale of Pottstown and Phoenixville hospitals to a nonprofit company is being viewed with foreboding by business officials in school districts that stand to lose millions in property tax revenues.

Officials at both Pottstown and Phoenxiville school districts said the respective hospitals in each borough are their largest property taxpayer.

And each said that if the sale of the two hospitals — now owned by the Tennessee-based forprofit Community Health Systems — to the nonprofit Reading Health Systems goes through, they stand to lose as much as $900,000 a year or more in tax revenues.

That’s because as a nonprofit business, Reading Health Systems would be eligible to seek an exemption from property taxes — the main local

source of income for Pennsylvania public schools.

Reading Health Service officials have regularly declined to comment on the specifics of the deal now under consideration.

Under a “worst case scenario” in which Phoenixville Hospital’s total property bill is zeroed out, it could mean an increase of $40 to $45 to the average taxpayer if the school board decided to shift the entire burden of the loss to remaining taxpayers, estimated Stanley Johnson, executive director of operations for the school district.

But Phoenixville Superintendent Alan Fegley is hoping for something better.

He said he has been in touch with representatives

of the Wyomissing School District, where Reading Hospital Systems has a substantial presence, and discovered that the company makes a “payment in lieu of taxes” there.

The hospital system also provides health services to the school district under an agrement renewed in September.

“Reading Health Systems seems to be very community-minded,” said Fegley. “We’re hoping if they come here to the Phoenixville community, they would continue to be a good neighbor.”

A similar wait-and-see attitude prevails in the administrative offices of the Pottstown School District, said John Armato, the director of community relations.

The district, and to a lesser extent the borough, received a big boost in tax revenues in 2004, when the

nonprofit Pottstown Memorial Medical Center was sold to CHS.

But despite the boost, Pottstown’s total assessed property valuation has since dropped to less than it was in 2003 before the sale.

Further, the inequity of the state’s mechanism for funding public education — the worst in the nation — means state revenue for Pottstown Schools is $13 million less than it should be, as calculated under the new fair funding formula.

Taking away another million dollars a year “would certainly create a difficulty in going a fourth year without raising property taxes,” said Armato.

Stressing that no one is considering this as a possibility, Armato said even closing down every sport and extracurricular activity in the district — at an annual cost near $600,000 — would not make up for

the revenue loss.

“But in truth, building a school budget in Pennsylvania always involved a number of unknowns, this would just be adding a million-dollar unknown,” he said.

“Ideally, we would like to see the new owners agree to some kind of (payment in lieu of taxes), but it’s too soon to say exactly what will occur,” Armato said. “We’re going to look at every possibility we can think of.”

Thursday night, school board member Thomas Hylton suggested the district begin getting ready for the impact now.

Taking the hospital property off the Pottstown tax rolls “could be catastrophic to this community,” said Hylton.

Board member Ron Williams called the loss of revenue “a potential disaster” that could “be bad for business

and lead to tax increases.”

Board member Kurt Heidel said Pottstown should consider contacting other school districts affected by the sale of the several hospitals that are part of the deal beyond Pottstown and Phoenixville.

“There’s strength in numbers,” he said.

But school board President Amy Francis said the board’s first responsibility is “to look out for the best interests of this school district.”

Hylton advocated, and the board agreed, to have solicitor Stephen Kalis research the legalities of what government approvals are required for the sale to go through.

Waiting until the matter is before the Montgomery County Board of Assessment is too late, he said.

“They want good public relations now and we should try to make the best deal we can now,” Hylton said.