Baltimore's not-for-profit hospitals and nursing homes are on the verge of becoming taxpayers. To avoid a budget shortfall, the city has given preliminary approval to an 8% energy tax on not-for-profits that will cost the charitable organizations millions and revives the attack on their tax-exempt status.
The city council will vote this week on whether to carry through with plans to place a tax worth an estimated $4.5 million annually on the city's 19 not-for-profit, nongovernment hospitals. The tax will also cover not-for-profit colleges and universities. Churches would be exempt.
The energy tax, which would go into effect in July, is one part of a proposed tax package designed to help Mayor Martin O'Malley save the jobs of 150 city workers. The tax would be levied on organizations' spending for electricity, oil and natural gas.
Johns Hopkins University, which stands to pay an energy tax of $2.6 million next year, has proposed that the city's not-for-profits voluntarily pay $16 million in the next three years to avoid implementing the tax. The tax as proposed has no termination date. Johns Hopkins Health System, part of the university, owns two hospitals in the city.
The city has threatened an energy tax on not-for-profits during times of financial need in the past, according to Nancy Fiedler, spokeswoman for the Maryland Hospital Association. O'Malley said Detroit, New Orleans, St. Louis and Oakland, Calif., tax not-for-profits on energy use.
"Utility taxes in big cities are common, and we have had a utility tax in Detroit, at least for natural gas, for about 20 years," said Donald Potter, president of the Southeast Michigan Health and Hospital Council.
Every time a municipality imposes such a tax it "certainly opens the door for us to see significant changes" to organizations' tax-exempt status, said Audrey Alvarado, executive director of the National Council of Nonprofit Organizations. Alvarado said she didn't know how many states and cities tax nonprofits in some way.
"The danger there is that one tax leads to another tax," Fiedler said.
Baltimore hospitals aren't sure if they will have to cut services to deal with the unanticipated expense. Because the state sets the rates that Maryland hospitals charge, raising prices is not an option.
"I don't think we are at the point of `if this is enacted, this is what response we are going to take,"' said Dennis O'Shea, Johns Hopkins' spokesman. "Clearly the money is going to have to be found somewhere."
Johns Hopkins' Baltimore hospitals, 844-bed Johns Hopkins Hospital and 658-bed Johns Hopkins Bayview Medical Center, had a combined profit of $21 million on $907.7 million in revenue in fiscal year 1999 (the most recent financial data Hopkins would provide) and recorded $93.5 million in uncompensated care.
Johns Hopkins also said it spent about $15 million in fiscal 2001 on security services and an unspecified amount on more than 200 "community programs," which it did not identify. That is spending the city doesn't have to incur.
"The concern is that you are taking money away from the very services you are depending on at the city level," Fiedler said. "Every dollar paid in taxes is a dollar less in services and benefits that can be provided."
Maryland hospitals are struggling financially. Total profit margins for the state's 52 hospitals have fallen 37% in the past two years and averaged 2.4% in 2000. Forty percent of Maryland hospitals had operating losses last year.
University of Maryland Medical Center, which has five hospitals in the city, estimates its first-year energy tax bill will be $800,000, according to Joan Shnipper, UMMC's corporate vice president of communications.
"It is unfortunate that not-for-profit nursing homes that are trying to meet the growing needs of the elderly with a workforce crisis and insufficient funding are now faced with this additional tax burden," said Bruce Rosenthal, spokesman for the American Association of Homes and Services for the Aging.