Should Nonprofit Hospitals Pay Property Taxes?

Their names are among the biggest and finest hospitals in the state—including Aurora St. Luke’s Medical Center, Wheaton Franciscan Healthcare, Children’s Hospital of Wisconsin and Columbia St. Mary’s— and their television commercials play almost constantly as they compete for patients.

Although they are technically nonprofit enterprises, these hospitals have revenues in the tens and hundreds of millions of dollars each year. As a whole, Wisconsin’s nonprofit hospitals earned a total income (revenue minus expenses) of almost $1 billion in 2006, and salaries for CEOs often top $1 million. According to the Wall Street Journal, Ascension Health (which Columbia St. Mary's is a part of) had a net income of $1.2 billion last year. They also have $7.4 billion in cash and investments—an amount higher than that held by Walt Disney Co.

So why are these nonprofit hospitals exempt from paying property taxes? Jack Norman, Ph.D., research director at the Institute for Wisconsin’s Future (IWF), found that Wisconsin’s 124 nonprofit hospitals own at least $6 billion worth of property—all which is exempted from property taxes. If taxed, that property would generate at least $117 million for local governments each year.

“This is a conservative estimate,” Norman said. “We have no real way of knowing the value of the property, because the city doesn’t send in an assessor when a new wing is built or new equipment is being used.” Norman said that 92% of Wisconsin’s hospitals are nonprofits, higher than the national average of 78%, and that their combined annual revenue is more than $11.5 billion.

He said that the $117 million these hospitals could pay property taxes is equivalent to about $22 per Wisconsin resident. “The biggest nonprofit hospitals are getting away free on their property taxes and everyone else is chipping in,” Norman said.

Nonprofit hospitals are also exempted from paying income and sales taxes in Wisconsin. Using data collected by the Wisconsin Hospital Association (WHA), the IWF found that in 2006:

• Aurora St. Luke’s Medical Center’s property tax bill could have been $9.1 million
• Columbia St. Mary’s Milwaukee Campus’ property tax bill could have been $2.6 million
  
• Children’s Hospital of Wisconsin’s property tax bill could have been $5.1 million
  
• Froedtert Memorial Lutheran Hospital’s property tax bill could have been $4.9 million

Norman said that communities with multiple nonprofit hospitals are hit especially hard. Wauwatosa could have had more than $10 million added to its property tax rolls if its nonprofit hospitals had paid their share. Milwaukee would have seen an estimated $20 million added to its property tax rolls 2006, according to the IWF report.

Norman added that while nonprofit hospitals don’t pay property taxes, they are “major beneficiaries” of services provided by local governments, such as street plowing, police protection, court services and sewers.

He said that efforts by local leaders to encourage nonprofhospitals to compensate local governments—payments in lieu of taxes—have failed. “If nothing is compelling them to pay, they won’t do it,”

Community Contributions
George Quinn, senior vice president of WHA, said that IWF’s report took a “very narrow focus” on nonprofit hospitals’ contributions to their communities. He said that nonprofit hospitals provided $182 million of charity care for patients who couldn’t afford to pay for their medical services last year, and that nonprofit hospitals absorbed half a billion dollars of Medicaid payment shortfalls. Quinn said that total community benefits from nonprofit hospitals are estimated to be $1 billion a year.

A bipartisan effort to implement a hospital assessment fee to compensate hospitals that take Medicaid patients was squashed by Assembly Republicans this spring. Supporters of that proposal had ranged from Gov. Jim Doyle and legislative Democrats to the ultraconservative business group Wisconsin Manufacturers & Commerce, as well as the WHA.

Norman acknowledged that nonprofit hospitals do make charitable contributions, but said that the property tax exemption isn’t an appropriate or fair way to account for them. He said that individuals and corporations that donate money or services are able to make deductions from their income taxes, not from their property taxes, which would burden local governments. Since nonprofit hospitals don’t pay income taxes in the state, deductions are impossible right now.

"When nonprofit hospitals act just like for-profit corporations, then they forgo any legitimate claim to be excluded from property taxes. It's time for the Legislature to require hospitals to either fulfill their charitable missions or lose their property tax exemption," said Robert Kraig, program director for Citizen Action of Wisconsin.

Norman said the issue should be discussed as part of a larger reform of the tax and health care systems in Wisconsin, to ensure that payments are fair and appropriate. “There ought to be a public re-examination of how to count charitable work, how to assess the value of that against the value of their property taxes and the subsidies they’re taking from every taxpayer in the community,” Norman said.

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Correction: In last week’s article, “Guns in the Wrong Hands,” we incorrectly stated that Steven Brandl was the chair of the city of Milwaukee’s Homicide Review Commission. He sits on the commission. He is chair of the Department of Criminal Justice at UW-Milwaukee.