Hospital operators are urging lawmakers to reject a bill that would make some hospital-owned property subject to state property taxes, saying the cost burden likely would result in staff and service reductions.
The bill proposed by Gov. Dannel P. Malloy seeks to change the state statute that contains the long-standing property tax exemption for hospitals. As it stands now, the law states any “nonprofit general hospital facility” is exempt from property taxes.
The bill aims to change the wording so only hospital facilities in the same location as an emergency department or federally qualified health center would be exempt. That means satellite locations that don’t meet those criteria, as well as physician practices that hospitals acquire, would be taxable.
Two hospital representatives spoke against the bill at a public hearing before the Finance, Revenue and Bonding Committee this week.
Hospital leaders throughout the state “oppose any attempt to eliminate or modify Connecticut hospitals’ tax-exempt status,” Brian Cournoyer, director of government relations at the Connecticut Hospital Association, said.
Making them pay taxes, he said, “is something that would set hospitals apart from all other not-for-profit organizations and is something that is not done in any other state in the country,” he said. “Connecticut hospitals epitomize the reason that the property tax exemption was created as they play a unique and critically important role in their communities.”
Currently, municipalities that house hospitals receive state grants in lieu of taxes.
Having to pay taxes on certain properties — coupled with the state’s hospital tax and cuts in state and federal Medicaid and Medicare reimbursements — “threatens the ability of hospitals to maintain community benefits at their current levels and will affect access and the cost of services for all patients,” he said.
Hospitals play an essential role in communities, Cournoyer said. In 2013, they collectively spent $1.5 billion in community benefit initiatives and provided nearly $218 million in free services to low-income individuals, while at the same time incurring $1.1 billion in financial losses due to Medicaid and Medicare underfunding, he said.
If forced to pay property taxes, he said, “hospitals would have to divert resources” that could be better spent elsewhere.
Rep. Jonathan Steinberg, D-Westport, and Rep. Prasad Srinivasan, R-Glastonbury, asked Cournoyer whether a previously taxable physicians’ practice becomes tax-exempt when a hospital buys it.
Cournoyer said it depends on the circumstance and the decision is up to individual hospitals; sometimes the practice’s building and real estate stays on local tax rolls and other times it becomes exempt. He was unable to provide further specifics or examples.
Rep. Terrie Wood, R-Darien, said it is important for Connecticut to have a tax and regulatory environment in which hospitals can survive.
While other businesses can choose to leave the state if they don’t like the tax structure, hospitals must stay in the communities they serve, she said. Her district includes the Darien Medical Center, which is part of Stamford Hospital and Norwalk Hospital.
“The solution to the revenue problems of the state isn’t to shift the cost burden on to the hospitals,” testified David Bittner, senior vice president and chief financial officer at St. Francis Hospital and Medical Center in Hartford.
There is a misconception that all hospitals never pay taxes, he said, when in the 2014 fiscal year St. Francis paid more than $1.6 million in taxes on property it owns in various municipalities.
During that same year, he said, the hospital provided more than $78 million in community benefit services and served more than 147,000 patients.
Hospital staff are working against a backdrop in which state and federal funding is declining. Between 2012 and 2015, St. Francis has seen government reimbursement for Medicaid and Medicare cut by $82.4 million, he said.
“Because of that, our hospital has had to make a lot of very difficult decisions,” he said. “People have been laid off, services have been reduced and we look for cost containment whenever we can.”
All this is happening, he added, at a time when the hospital should be putting more resources toward infrastructure improvements and other needs to meet projected future demands.
Cournoyer urged committee members not to alter hospitals’ tax-exempt status until the state’s tax review panel has had an opportunity to complete its study of Connecticut’s tax code and issue its recommendations.
House Speaker Brendan Sharkey proposed similar legislation, which allows municipalities to continue to tax any new property acquired by hospitals and colleges. The Senate blocked the bill last year under its previous leader.
Sharkey has said he likes the bill’s chances to pass this year.