New Jersey hospitals fear that Gov. Chris Christie's veto of a bill mandating not-for-profit hospitals contribute to local municipalities instead of paying property taxes could lead to years of costly litigation.
They hope to create new legislation that will have a better chance of passing in coming months, in hopes of avoiding more lawsuits between municipalities looking to pursue property taxes from local hospitals.
Betsy Ryan, New Jersey Hospital Association CEO, said if everyone can't come together on new legislation, “We'll see ... years and years of costly litigation."
The bill's rejection represented yet another setback for not-for-profit hospitals, which are finding themselves under increased scrutiny for their property tax exemptions across the country. The Illinois Department of Revenue also confirmed Wednesday that it has temporarily stopped reviewing hospitals' applications for property tax exemptions following a court decision (PDF) striking down Illinois' law on the issue.
The New Jersey bill was drafted after a state tax court in June pulled Morristown (N.J.) Medical Center's property tax exemption, saying it operated, in many ways, like a for-profit business. The hospital, owned by Atlantic Health System, ended up settling with the city for $26 million, but the judge's decision worried other not-for-profit hospitals in the state.
The bill Christie vetoed allowed hospitals' to keep their tax exemptions so long as they paid their municipalities $2.50 a day for each hospital bed and $250 a day for satellite emergency-care facilities. Christie had until Tuesday to sign the bill, but took no action, causing a so-called “pocket veto.” That means lawmakers will have to introduce it again in the next session.
Christie spokeswoman Joelle Farrell said Wednesday the governor's office is not commenting on specific bills, but in a statement on the lame-duck session in which the bill was passed she said the Legislature's vote was "hasty" and that lawmakers had hoped for a "rubber stamp."
Some have speculated that Christie didn't sign the bill because it could be construed by some—amid his bid for the presidency—as a tax increase.
But Michael Darcy, executive director of the New Jersey State League of Municipalities, which opposed the bill, agreed the legislation was rushed.
Darcy said stakeholders need to now work on a “rational approach” to dealing with the issue. He said any fees paid by hospitals to municipalities should be “substantiated.” The league felt the fees in the previous bill were arbitrarily set. Contributions made by the state's 60 not-for-profit hospitals were estimated at $21 million to $25 million.
“From the municipal perspective, I don't think anyone wants this to wind up again in the tax courts because this takes years to wind through tax courts,” Darcy said.
The veto came just one day before the Illinois Department of Revenue confirmed that it has temporarily stopped reviewing hospitals' applications for property tax exemptions. That move follows an Illinois appeals court ruling earlier this month that the state's law defining what not-for-profit hospitals have to do to get their exemptions is unconstitutional.
The Department of Revenue is likely waiting to see whether the hospital involved in the case appeals the decision to the Illinois Supreme Court, said John Durso, a partner at Nixon Peabody who works on real estate tax-exemption issues.
Five Illinois hospitals—two campuses of Peoria-based Methodist Services; NorthShore University HealthSystem in Lake Forest; and Mercy Hospital and Medical Center and Swedish Covenant Hospital, both in Chicago—have applications pending before the department.
Whether those hospitals must pay property taxes while their applications are pending depends on their individual circumstances, Durso said. Some of those hospitals, for example, may have been granted exemptions from county boards of review and may not have to pay taxes while their applications are reviewed. But others may be applying for exemptions on newly purchased properties, he said.
Hospitals that pay taxes now but are later found to be exempt may be entitled to refunds, said Mark Deaton, general counsel for the Illinois Health and Hospital Association. Deaton said the situation will likely become clearer in coming weeks, when the hospital involved in the Illinois case, Carle Foundation Hospital in Urbana, decides whether to appeal to the Illinois Supreme Court.
“The issue of property tax exemption is an enormous issue for nonprofit hospitals but it's just a little bit too early to know how this is going to play out,” Deaton said.