New Proposed Legislation Seeks To Restore Tax Exempt Status to Non-Profit Acute Care Hospitals In New Jersey and Implement Instead a Community Service Contribution Payment

by John W. Kaveney

In the wake of the 2015 court case challenging the tax exempt status of a nonprofit hospital here in New Jersey, the fight continues over this issue with many of the non-profit hospitals in New Jersey currently engaged in litigation before the Tax Courts and various bills having been proposed and debated in the Legislature. This past week a bill (A4985) was introduced in the Assembly of the New Jersey Legislature that seeks to restore the property tax exemption for nonprofit hospitals that operate with on-site for-profit providers. The bill was sponsored by Assemblyman Troy Singleton. The Statement to the bill makes clear that the bill “would establish a clear and predictable system in which nonprofit hospitals make a reasonable contribution to their host communities.”

In addition to restoring the tax exempt status, the proposed bill requires these hospitals to pay community service contributions to host municipalities and it establishes a Nonprofit Hospital Community Service Contribution Study Commission.

With regard to the contribution, the community service contribution would be equal to $2.50 a day for each licensed bed at the exempt acute care hospital property except in the case of a satellite emergency care facility in which case the contribution would be equal to $250 a day. Following 2018, and for each subsequent tax year, the per day amount utilized for the calculation will be increased by two percent over the prior tax year.

Up to 75% of that annual community service contribution can be reduced by the amount of payments remitted to the municipality in which the acute care hospital or satellite emergency care facility is located pursuant to a voluntary agreement operative in the prior tax year to compensate for public safety services.  Similarly, up to 25% of the annual community service contribution can be reduced pursuant to any agreement to provide compensation for the provision of affordable housing in the municipality.

The municipalities will be required to utilize a portion of these contribution funds for police or fire protection; first aid, emergency, rescue, or ambulance services; any other public safety purpose; or to reduce the property tax levy and the remainder for affordable housing.

Acute care hospitals are permitted to apply to the New Jersey Health Care Facilities Financing Authority in the Department of Health for a certificate of exemption for a given tax year in the event the hospital is either in financial distress or at risk of being in financial distress. Such an application would require significant information including audited financial records. A response from the government will be promptly required within 60 days of receipt of the records.

Beyond the financial requirement, the bill also proposes the creation of the Nonprofit Hospital Community Service Contribution Study Commission. The Commission would consist of nine members made up of agency heads, members of the Senate and Assembly, mayors of municipalities and chief executive officers of nonprofit hospitals. The Commission will be tasked with studying the implementation of this bill and reporting on its financial impact on both nonprofit hospitals and the municipalities receiving the contributions. The report shall also include any recommendations to improve the administration, equity or other aspect of the nonprofit community service contribution system including the adequacy of the amount of the contribution.

Finally, the bill contemplates having exemptions for a large number of properties including buildings used for colleges, schools, academies, public libraries, asylums or schools for those with developmental disabilities, religious sites and many others.

While this bill will not eliminate the financial obligation nonprofit acute care hospitals are now faced with following the 2015 ruling, this legislation appears to at least help to alleviate the amount that will need to be remitted by these hospitals and provides oversight on how the money will be utilized by the municipalities. Time will tell whether this newest legislative effort will have more success than its predecessors and whether the Tax Courts will act prior to it having a chance to work its way through the Legislature.