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Veto Prompts Scramble to Guard Nonprofit Hospitals’ Tax-Exempt Status

After Christie action, bipartisan advocates renew push for bill that would let nonprofit hospitals pay flat fees to host communities

morristown medical center
Morristown Medical Center

Sponsors and advocates of a bill requiring nonprofit hospitals to start paying fees to their host communities say they’ll waste no time getting back to work -- now that the measure has fallen victim to Gov. Chris Christie’s pocket veto. Time is of the essence, they say, because dates for municipal property-tax assessments and appeals are looming.

Among those that agree the matter is urgent are the New Jersey Hospital Association and the New Jersey State League of Municipalities. The former favors the bill that was sent to the governor, while the latter has some problems with the one-size-fits-all formula used to reimburse host communities.

Moving forward, the goal for all involved is to head off potentially costly lawsuits in communities throughout the state, much like the one that successfully challenged Morristown Medical Center’s tax-exempt status.

In that case, Morristown officials argued in state tax court that the hospital should lose its tax-exempt status because some for-profit services -- including those offered by self-employed doctors operating at the facility -- had become too entangled with the hospital’s overall operations.

After the judge ruled against the hospital, medical center officials struck a deal with Morristown that resulted in nearly a quarter of the medical center’s property now being subject to local property taxes.

More than 60 nonprofit hospitals enjoy property tax-exempt status in New Jersey under tax law that dates all the way back to 1913.

In the wake of the ruling, lawmakers sought to establish a statewide solution that would head off lengthy litigation in several other communities where a hospital’s nonprofit status is ripe for a challenge. Their goal was to balance the needs of host municipalities that provide services to the nonprofit hospitals located within their borders with those of the hospitals, which have become major employers in many regions of the state.

The legislation would have preserved the property-tax exemption for nonprofit hospitals, but also required them to begin paying a $2.50 per-bed daily fee, with a 2 percent annual adjustment to account for inflation, to their host municipalities. In addition, a $250 per-day fee would be levied for satellite emergency-care facilities.

The bill also would have created a special study commission to look at the issue more closely in the coming years.

But Christie, a second-term Republican, last week rejected the bill and dozens of others that lawmakers sent to him in the very final hours of the last two-year legislative session. In many cases, Christie utilized the pocket veto to issue his rejection without explanation, a power that is only available to him at the end of a legislative session.

So it’s not exactly clear why Christie rejected the nonprofit hospital-fee bill -- or even if he had a problem with it. Under normal circumstances, the governor has to explain a veto in an official message to lawmakers or offer up changes in a conditional veto.

When asked about the pocket veto last week, Christie spokeswoman Joelle Farrell offered a general comment on the Legislature’s efforts at the end of the last session.

“Having the Legislature pass more than 100 bills in such a hasty and scrambled way, praying for them to be rubber stamped, is never a good formula for effectively doing public business,” Farrell said.

With a new session now underway, Sen. Robert Singer (R-Ocean) said he’s committed to working with the Christie administration, hospital representatives, and others to ensure a legislative solution can still be reached.

“We need to diligently work together to find a uniform and equitable way forward that works for both hospitals and municipalities,” said Singer, who was a primary sponsor of the original legislation.

Senate President Stephen Sweeney, another primary sponsor, also pledged to “continue to work with everyone involved to develop a workable solution.”

“The needs of New Jersey residents won’t go away with this veto,” said Sweeney (D-Gloucester).

The final version of the bill that made it out of the Legislature on January 11 had the blessing of the Hospital Association. Betsy Ryan, its president and chief executive, said organization officials are now reaching out to the Christie administration to see what, if any, problems it had with the bill before taking any other steps forward.

“I think we need to understand any concerns the governor’s office may have,” Ryan said.

She also raised concerns about “critical deadlines” that are coming up that should create some urgency. They include a February 1 date for municipal officials to notify property owners of their property-tax assessments, and an April 1 deadline for property owners to appeal those assessments.

Michael Darcy, executive director of the League of Municipalities, agreed with Ryan on the sense of urgency, though his organization still harbors some problems with the bill that Christie ultimately rejected.

Darcy said he isn’t sure there was enough of an explanation provided from the bill sponsors for why the $2.50 fee that was agreed to is appropriate. For some communities that may be the right fee, but for others maybe it may be too low or even too high, he said.

“We just don’t know,” he said.

Issues of constitutionality were also raised as the bill went through committee hearings, including whether a property-tax exemption in any form is still appropriate for properties that house for-profit activities even if the main mission is still a nonprofit one.

But Darcy, Ryan and the sponsors are all in agreement when it comes to the question of whether the matter should be decided by lawmakers or in the state tax-court system on a case-by-case basis. The tax-court decision that was issued last year in the Morristown Medical Center case stemmed from a tax assessment that was first issued back in 2008, and it took several years to resolve through the court system.

“It’s just a not a good use of either party’s time or resources,” Ryan said.

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