Burzichelli, Pintor Marin, Mukherji & Lagana Bill to Promote Fairness with Hospitals with On-Site For-Profit Providers Advanced by Assembly Panel

(TRENTON) – Legislation Assembly Democrats John Burzichelli, Eliana Pintor Marin, Raj Mukherji and Joseph Lagana sponsored to maintain the property tax exempt status of nonprofit hospitals with for-profit medical providers on site but require such nonprofit hospitals to pay an annual community service contribution to host municipalities was advanced Thursday by an Assembly panel.

The bill (A-4903) would clarify that complex, modern nonprofit hospitals, which provide nonprofit medical services while also hosting for-profit medical activities, remain exempt from property taxation for the portions of hospital property used for medical purposes, but are responsible for providing some financial support to their host communities to offset the costs of public safety services, such as police and fire safety services, that benefit these hospitals.

“This bill would establish a clear and predictable system by which all nonprofit hospitals make a reasonable contribution to their host communities,” said Burzichelli (D-Glouceste/Salem/Cumberland). “We want to protect our nonprofit hospitals and the valuable service they provide, while also making sure for-profit providers pay a fair share toward the local government’s costs of their operation.”

The Tax Court recently held that a nonprofit hospital was not entitled to a property tax exemption because profit-making medical services were provided throughout the hospital, and there was no separate accounting of nonprofit and for-profit medical activities to delineate exempt property from non-exempt property.

Since for-profit medical services are commonly provided at nonprofit hospitals, this ruling could potentially be applied to many other nonprofit hospitals throughout the state.

“This bill would eliminate any uncertainty over the property tax exempt status of nonprofit hospitals that lease or share space with for-profit medical providers, but still qualify as nonprofit institutions, while ensuring that a readily calculable fair share contribution is made to the host communities that expend significant sums providing essential services that benefit these hospitals,” said Pintor Marin (D-Essex). ‘It’s a fair and reasonable approach.”

“We need to protect our nonprofit hospitals, but also provide relief to taxpayers when for-profit enterprises are involved,” said Mukherji (D-Hudson). “This accomplishes that goal to the benefit of everyone.”

“This is the right thing to do for both our taxpayers and our hospitals,” said Lagana (D-Bergen/Passaic). “It ends any confusion and sets clear-cut rules going forward.”

Any voluntary payments made by a nonprofit hospital for the same purpose would count towards the obligation to provide a community service contribution.
The bill would require municipalities to provide 5 percent of a nonprofit hospital community service contribution, or voluntary payment that counts against such contribution, to the county in which the municipality is located to offset public safety services expenses borne by the county which benefit the hospital.

In addition, the bill requires that all community service contribution proceeds be used to fund public safety services such as police and fire protection, and emergency medical services, or be used to reduce the property tax levy.

The bill also permits a nonprofit hospital to apply to the New Jersey Health Care Facilities Financing Authority for an exemption from a community service contribution if the hospital had a negative operating margin in the prior tax year or is not in full compliance with the financial terms of any bond covenants to which it is subject, to help ensure that these hospitals may continue to operate and serve the community.

Hospitals owned by the State or any political subdivision thereof would not be subject to the community service contribution required by the bill.

The bill would also establish a commission, known as the Nonprofit Hospital Community Service Contribution Study Commission, to study and issue a report on the community service contribution system created by the bill. The report may include any recommendations on how to improve the administration, fairness, or any other aspect of this system.

Prior to the release of bill, the Assembly Appropriations Committee, chaired by Burzichelli, approved amendments that would make it identical to the Senate legislation (S-3299). Two additional amendments further clarify the legislation by providing that, for tax year 2017 and each year thereafter, the $2.50 per day amount used to calculate a community service contribution for an acute care hospital, and the $250 per day amount used to calculate a community service contribution for a satellite emergency care facility, would increase by 2% over that amount for the prior year in a compounding manner; and delete the specific interest rate that the bill established for delinquent community service contributions. As a result, interest would instead be calculated for these delinquencies at the same rate as that for other municipal liens.

The bill now awaits further consideration by the Assembly Speaker.