Op-Ed: The Powerful Hospital Lobby Is Shafting Newark Taxpayers

Gayle Chaneyfield Jenkins | January 11, 2016 | Opinion
Proposed one-size-fits-all legislation shortchanges New Jersey cities that are home to nonprofit hospitals

Gayle Chaneyfield Jenkins is a councilwoman representing Newark's Central Ward.
Newark is once again getting the shaft. This time it comes in the form of state legislation that was so well lubricated it’s sliding through the lame-duck Legislature like a greased pig at the Cowtown rodeo.

This particular piece of legislation purports to help communities like Newark that have so-called nonprofit hospitals by requiring a “community service contribution.” I say so-called because many of these nonprofit hospitals are anything but.

In Newark, we have two nonprofit hospitals and one owned by the state. University Hospital is excluded from this legislation and one of the nonprofits, Saint Michael’s Medical Center, is awaiting state approval to be converted into a for-profit entity by Prime Healthcare Services. Once the sale is finalized, Saint Michael’s will begin paying property taxes on the entirety of its property.

So in Newark, the legislation only really applies to Newark Beth Israel Medical Center, whose parent company is Barnabas Healthcare. Last year, Barnabas Health racked up $2.6 billion in revenues and paid CEO Barry Ostrowsky $2.838 million. Not too shabby for a nonprofit.

In New Jersey, nonprofit hospitals have been historically exempt from paying any property taxes. But Morristown took issue with that concept and boldly took Morristown Medical Center to tax court. After a long and complex legal battle that focused on how much for-profit activity took place on the campus of Morristown Medical Center, tax court Judge Vito Bianco ruled that the hospital failed to meet the legal test that it operated as a nonprofit, charitable organization.

“Clearly, the operation and function of modern nonprofit hospitals do not meet the current criteria for property tax exemption under … applicable case law,” the judge wrote in his opinion.

Under the judge’s ruling, the hospital would have been responsible for paying up to $2.5 million to $3 million per year. Both sides settled the long-running case when the hospital agreed that 24 percent of its property will be taxed at an assessed value of $40 million, generating an annual tax payment of $1.05 million to Morristown from 2016 through 2025.

Now consider what the proposed legislation would provide Newark from Beth Israel. Under the funding formula, Newark would receive $2.50 per day per licensed bed. Beth Israel has 596 licensed beds, so Newark would receive $516,000, which includes subtracting 5 percent that would go to the county.

Morristown Medical Center has 687 licensed beds. If they were to pay this community service contribution under the funding formula, their annual payments would be about $595,000, about $454,000 less than the tax court settlement.

Conversely, based on the formula in the legislation, Morristown Medical Center’s rate would be about $4.19 per room per day. ($1.05 million divided by 687 rooms divided by 365 days). Applying that rate to Newark Beth Israel, the city would receive approximately $865,000, about $350,000 more than what it would receive under the proposed legislation.

In addition, the statewide legislative approach to solving this complicated problem assumes the cost of providing municipal services is the same in the northern and southern parts of the state, the same in dense urban and unpopulated rural areas. It wouldn’t be difficult to make the argument that cities like Newark, Jersey City, and Paterson should receive more than rural and suburban communities like Salem, Cherry Hill, or Turnersville.

It’s easy to see why the state hospital lobby, the New Jersey Hospital Association, supports this legislation and why the state League of Municipalities opposes it.

I fully support our hospitals in Newark and the jobs and healthcare they provide to our residents. In fact, I, along with my council colleagues and all nine members of the Essex County Board of Chosen Freeholders have been vigorously fighting to keep Saint Michael’s open.

But as an elected representative, I also must do what’s right by our taxpayers. From where I stand, this hastily drafted legislation that was pushed through the lame-duck session shortchanges taxpayers in Newark and other communities around the state that are home to nonprofit hospitals.

I urge our lawmakers on Monday to reject this clear giveaway to the hospital lobby and take a more deliberate approach in the new legislative session to draft a bill that is more equitable for Newark and other cities.