More than 60 days ago the Connecticut Hospital Association challenged the constitutionality of the hospital tax and asked two state agencies to justify it.
On Friday, the state asked for more time to answer the question.
According to this five-page letter signed by the commissioners of the Departments of Social Services and Revenue Services, the state would like to postpone its answer until at least May and possibly November.
The state wants more time to collect information from the hospitals and review the documentation before making a ruling. One of its proposed schedules has a declaratory ruling being issued before Nov. 30, 2016 and another has it being made before May 28, 2016. Both of those dates are after the General Assembly is scheduled to adjourn and after the state budget has been adjusted.
“We received the response from DSS/DRS and are reviewing it with counsel,” Michele Sharp, vice president of communications for the CHA, said Monday.
The Connecticut Hospital Association filed letters with the Departments of Social Services and Revenue Services asking “whether the General Assembly unconstitutionally delegated the setting of the rate and base year of the Hospital’s Tax to the Department of Social Services in violation of the Connecticut Constitution?” It also asked whether the methodology outlined by DSS is enforceable and whether it violates the constitution’s Equal Protection clause.
The request for a declaratory ruling on the tax is likely the first step toward potential legal action against the state.
In 2012, the first year of the tax, the revenue it generated, after the federal match, was returned to the hospitals. In subsequent years, however, the hospital payments were reduced drastically, while the tax has remained in place.
In 2015, the 24 hospitals paid $556.1 million in taxes and received only $164.3 million. Gov. Dannel P. Malloy attempted to rescind $63 million from the hospitals in September, but half of that was restored by the General Assembly during a special session in December.
Malloy has not minced words when it comes to the hospitals and how they run their organizations. He constantly criticizes the pay of their top executives and believes state taxpayers shouldn’t be subsidizing their operations.
Last year, Malloy’s budget director, Ben Barnes, told lawmakers they were increasing the hospital tax because “It’s like why do you rob banks? … It’s where the money is.”
The hospital association argues that no state agency has the power to set a tax rate. They argue that only the General Assembly can set tax rates. When the General Assembly reinstituted the hospital tax in 2012, the association argues that it failed to define a rate.
The hospital association asked the Departments of Social Services and Revenue Services to define the methodology used in setting their rates as part of their request.
While the Connecticut Hospital Association hopes the dispute doesn’t get to court, they’re optimistic about their chances based on what happened with a similar organization in New Hampshire.
The New Hampshire Hospital Association won its court challenge to that state’s decision to hold back federal Medicaid funds and retain the tax on hospitals. Two judges ruled it was unconstitutional. As a result, New Hampshire is currently struggling to fill a hole in its budget left by its inability to tax the hospitals.