Christie Proposes Two-Year Moratorium on Hospital Property Tax Plan

John Reitmeyer | March 21, 2016 | Health Care
After vetoing bipartisan deal, governor calls for maintaining status quo while special panel studies issue

Credit: Governor's Office/Tim Larsen
Nearly two months after he vetoed without explanation a bipartisan solution that lawmakers had come up with, Gov. Chris Christie has now directly weighed into the debate over whether nonprofit hospitals in New Jersey deserve full property tax exemptions.

While lawmakers favored establishing a new fee for the hospitals, Christie’s proposed remedy would sidestep that issue altogether by maintaining the status quo for two more years.

That, he said, would give a special study commission time to take a long look at whether the state’s decades-old property tax exemption law still meshes with the way nonprofit hospitals operate in the 21st century, and hold off lawsuits addressing the same issue.

Lobbying groups for both the hospitals and municipal governments across the state praised Christie’s proposal after it was announced Friday during a news conference held at Trinitas Hospital in Elizabeth.

But reaction from Democratic legislative leaders who worked for months last year with their Republican counterparts on a thorny issue that Christie largely ignored while he was running for president was only lukewarm. It’s unclear whether they will accept his proposal, which would effectively – and conveniently — push off the debate until 2018, when Christie will be getting ready to leave office.

Ruling in Morristown case

The debate over the tax-exempt status of more than 60 nonprofit hospitals in New Jersey stems from a state tax court ruling last year in a case involving Morristown Medical Center. Local officials had questioned whether the nonprofit hospital still deserved its exemption from local property taxes, arguing that some of its operations were actually for-profit.

After the judge sided with the local government, hospital officials struck a deal with the town that resulted in nearly a quarter of the medical center’s property being subject to local property taxes.

The ruling also established a new statewide precedent, setting up the potential for dozens of other lawsuits across the state, particularly for hospitals operating with self-employed for-profit doctors on the premises.

State lawmakers then passed a bipartisan bill in early January that would have preserved the tax exemption, but also required the hospitals to begin paying a $2.50 per-bed daily fee. In addition, the measure would have levied a $250 per-day fee for satellite emergency-care facilities.

A 2 percent annual adjustment would have also been applied to the new fees to account for inflation. And the legislation also proposed creation of a new study commission to look at the issue more closely in the coming years.

Bipartisan deal vetoed

But Christie vetoed the measure in January and the fees favored by lawmakers never went into effect. A spokeswoman for Christie said at the time that he hadn’t enough time to properly review that bill and dozens of other that lawmakers sent to him as a lame duck session came to an end.

Christie, however, was also busy working hard at the time to garner votes in the GOP presidential primary in New Hampshire. Critics said if he had been more engaged in New Jersey issues instead of his quest for the presidency a compromise could have been reached more easily. Due to the tight legislative schedule there was no time for lawmakers to hold a vote to override Christie.

And now, more than a dozen new lawsuits have been filed in tax courts across the state by communities seeking to challenge the property tax exemptions of hospitals operating within their borders.

Christie, during the announcement on Friday, made the case that passing new legislation to put a hold on the lawsuits while the special commission evaluates the property tax exemption law will give the issue the full review that it deserves. The commission would have nine members, including several of the governor’s cabinet members. Others on the commission would be picked by the governor and lawmakers.

“The pause will ensure the commission can conduct its review and its analysis without the threat of litigation, the cost of litigation, and the uncertainty that that will cause for the nonprofits,” Christie said. “Municipalities at the same time would not have to incur those costs as well by participating in litigation and will have a voice for them to be heard in this commission so that we can come up with a determination that’s fair to everyone.”

“It gives us time to come up not just with a solution but with the right solution,” he added.

Support for Christie’s plan

The New Jersey Hospital Association, the lobbying group that advocates for the nonprofit hospitals, agrees with that approach.

“This bill allows our state to take a deep breath and work carefully and collaboratively to address the uncertainty created by the tax court decision on nonprofit hospitals’ tax exemptions,” said Betsy Ryan, the president and chief executive of the organization, which had also endorsed the legislative remedy Christie nixed in January.

“We also look forward to working with both the Senate and the Assembly to move this bill through the legislative process and provide the certainty that hospitals, and municipalities, seek,” Ryan said.

The New Jersey League of Municipalities, which lobbies on behalf of the state’s 565 towns and cities, also praised the governor’s proposal on Friday. The group did not support the bipartisan bill lawmakers passed in January and had called for a closer review of the entire issue.

“Times have changed. It’s an antiquated law,” Michael Cerra, the organization’s assistant executive director, said about the state property tax exemption law in question. “Is it a perfect solution? It could be a pathway to get there.”

Meanwhile, in the Legislature, one of the bill’s bipartisan sponsors, Sen. Robert Singer (R-Ocean) welcomed Christie’s proposal. He said it would “afford us the time we need to conduct a proper review of the tax exemption law to find a solution that is fair to host municipalities without crippling the hospitals that serve them.”

Another sponsor, Senate President Stephen Sweeney (D-Gloucester) said he preferred the original fix passed in the Legislature, but wouldn’t stand in the way of Christie’s proposal.

“This is a looming crisis that can’t be ignored and should not be dismissed just because it requires difficult decisions,” Sweeney said.

But Assembly Speaker Vincent Prieto (D-Hudson) suggested the governor’s plan could have problems in his chamber. Legislation will need to be passed both to set up the task force and to institute the two-year freeze on litigation.

“The Assembly will continue working with all parties on an immediate solution,” Prieto said. “Municipalities, hospitals and taxpayers deserve clarity sooner rather than later.”