Opponents of a new law that effectively shields Pennsylvania's not-for-profit hospitals from local property-tax challenges barely waited for the ink in Gov. Tom Ridge's signature to dry before filing suit to have the law struck down.
Leading the charge is longtime hospital nemesis Ira Weiss, former solicitor for Allegheny County, Pa.
As county attorney, Weiss compelled several prominent Pittsburgh-area hospitals, including Allegheny General Hospital and University of Pittsburgh Medical Center, to make multimillion dollar payments in lieu of taxes to local taxing bodies in the early 1990s.
Weiss filed his latest suit late last month in Commonwealth Court in Harrisburg, Pa., on behalf of the Hazleton School District near Scranton, Pa. The lawsuit seeks a preliminary injunction and a declaratory judgment to prevent the state from implementing the Institutions of Purely Public Charity Act. A court hearing on the injunction motion is scheduled for Jan. 20.
Hospital executives and the keepers of municipal coffers will be watching the case closely. If the law stands, Weiss said, "it will make it impossible to meaningfully challenge these nonprofit entities."
After years of lobbying, Pennsylvania hospitals succeeded last year in persuading legislators to establish uniform legal standards that define their charitable status and thus end the uncertainty of court challenges from municipalities and school boards seeking revenues. If the law fails to pass constitutional muster, Pennsylvania hospitals would return to the legal blizzard that had become another cost of doing business in the state, hospital officials said.
That blizzard started in 1985, when the state Supreme Court created a strict five-point test under which organizations could qualify for property-tax exemptions as "purely public charities." One provision required organizations to operate totally free from a profit motive, a criteria that virtually no not-for-profit organization with any excess revenues could pass.
Since then, cities, counties and school districts statewide have used the test to challenge the exemptions of dozens of the state's more than 200 not-for-profit hospitals.
At deadline, the Hospital and Healthsystem Association of Pennsylvania hadn't released its latest estimate of how many hospitals have agreed to pay taxes or make payments in lieu of taxes.
Signed by Ridge just before Thanksgiving, the law creates a legal safe harbor for not-for-profits by essentially spelling out how they can meet the 1985 state Supreme Court test (Dec. 1, 1997, p. 5).
In his suit, Weiss asserts that the new law violates the state constitution in several ways.
For instance, the law uses numerical formulas -- such as free care as a percentage of revenues -- to determine whether an organization is a true charity. State courts, Weiss said, previously have stated that mathematical formulas aren't valid criteria to establish charity status. Also, the law violates the state constitution's uniformity clause, Weiss said, by establishing standards that depend on whether an organization has more or less than $10 million in annual revenues. Weiss says the constitution requires each taxability question be decided by the courts on a case-by-case basis.
For the past three years, Weiss said, the Hazleton School District has been seeking payments in lieu of taxes from 152-bed Hazleton General Hospital and 122-bed Hazleton-St. Joseph Medical Center. But the cases lodged by the school district and scheduled for trial on Dec. 15 were stayed when the public charity law took effect. A second party to the challenge, the Altoona School District, has since dropped out.
"Ira Weiss has an uphill battle," said Thomas Boyle, a healthcare attorney with Buchanan Ingersoll, Pittsburgh, and an adviser to the state hospital association, which has been lobbying for the passage of such a bill for years.
A constitutional challenge was inevitable, Boyle said, but an encouraging sign for hospitals is that other municipal governments haven't joined the suit, he said.
Morgan Maxwell, a tax attorney with Drinker Biddle & Reath in Philadelphia, said it would be "extraordinary" for the court to strike down the law because the Legislature receives "great deference" from the court in taxation matters.
The Pennsylvania attorney general's office will defend the law in court. In November Attorney General Mike Fisher praised the new bill, saying it would "foster stability in the charitable sector."