Gov. Dannel P. Malloy is proposing that cities and towns be allowed to levy a property tax on nonprofit hospitals, and would offset their liabilities with new state and federal funding. But hospitals blasted the concept, calling it “a dangerous precedent.”
The governor’s plan also would cut an $11.8 million fund that has provided money to small, independent hospitals. And it would restore the administration’s ability to unilaterally cut more than $120 million in funding to hospitals if the state faces a budget shortfall.
The Yale New Haven Health System, which includes four nonprofit hospitals in Connecticut, cited “grave concerns” about the property tax proposal, while the Connecticut Hospital Association called it “a direct attack on the fabric of our communities.” Hartford HealthCare, the parent company of five nonprofit hospitals, said the property-tax proposal could cost it $52 million per year.
“In addition to being patently unfair, this will raise the cost of health care for all our state’s residents and businesses,” CEO Elliot Joseph said in a statement.
Malloy’s budget plan aims to close a nearly $1.7 billion deficit in the upcoming fiscal year while also providing assistance to struggling cities.
His proposal would allow cities and towns to levy property taxes on real estate owned by nonprofit hospitals. All but four of Connecticut’s hospitals are nonprofit, although one, UConn’s John Dempsey Hospital in Farmington, would not be subject to local property taxes because it is state-owned.
The change would apply to acute care hospitals, as well as psychiatric hospitals such as Natchaug Hospital in Mansfield and Silver Hill Hospital in New Canaan, and chronic disease hospitals such as the Hospital for Special Care in New Britain, Gaylord Hospital in Wallingford, and Connecticut Children’s Medical Center in Hartford.
To offset the hospitals’ new costs, the state would give hospitals $250 million in the form of supplemental Medicaid payments – a method that allows the state to generate federal matching dollars. As a result, the state would effectively pay just under $88 million toward the hospitals, while the other $162 million would be covered by federal funding.
The Malloy administration estimates that hospitals would pay approximately $212.2 million if they were subject to local property taxes.
Ben Barnes, Malloy’s budget director, said he believes the financial picture could improve for hospitals under the plan, since the industry would receive more in payments than they would have to pay in local property taxes. In addition, he said, some municipalities might opt not to tax hospitals, and hospitals that are taxed could appeal their assessments, resulting in lower bills.
But Barnes acknowledged that the new proposal is likely to generate concern from hospitals.
“There is a well-earned mutual mistrust between the Malloy administration and the hospital industry,” he said during a briefing with reporters. But he added that the administration is prepared to work through it.
Barnes also acknowledged uncertainty about what will happen at the federal level. Republicans in Congress and President Trump have sought to change how Medicaid is funded in ways that are expected to reduce overall payments, which could affect the ability of the state to generate additional dollars through the hospital tax.
Vin Petrini, senior vice president of public affairs for Yale New Haven Health, said the organization is willing to explore creative solutions to the state’s financial issues, but has “very grave concerns” about the property tax proposal.
“The Yale New Haven Health System already pays more than $200 million in taxes to the State of Connecticut, making us the state’s single largest taxpayer – and we are a nonprofit health care provider,” Petrini said. “Levying property taxes on non-profit hospitals is a dangerous precedent that we cannot support.”
The Yale New Haven system includes Bridgeport, Greenwich, Lawrence + Memorial and Yale-New Haven hospitals.
Hospitals have blamed the Malloy administration for job and program cuts they have made in recent years, pointing to both Medicaid payment rates they say are inadequate and the tax on hospitals that Malloy proposed during his first year in office.
The state instituted the tax as a way to bring in federal dollars by collecting money from the industry and then redistributing it to hospitals. But since then, the state has raised what it collects from hospitals while reducing the portion of the tax it returns to the hospitals, which in turn reduces the amount of federal funds the maneuver brings in.
During the current fiscal year, hospitals are expected to pay the state approximately $556 million in taxes, while they will receive approximately $117 million back. (The original amount to be returned to hospitals was $165 million when the budget was adopted last year, but it was subsequently reduced.)
Connecticut Hospital Association CEO Jennifer Jackson said the organization would “vigorously fight” any new attempt to tax hospitals.
“We’ve been down this road before, with a budget gimmick that already resulted in more than $2 billion taxed and cut from hospitals,” she said. “The hospital tax has increased costs for patients, caused the loss of thousands of health care jobs, extended wait times, and reduced access to care for those who need it most.”
“Twice before, the state has promised us adequate funding for Medicaid services through the federal hospital tax program. Both times, that promise was broken,” Joseph, from Hartford HealthCare, said.
The association has challenged the hospital tax in court, and has also asked the federal government to declare that the state tax and Medicaid rates violate federal law.
There have been other proposals in recent years to require nonprofit hospitals to pay property taxes. Hospitals have objected, citing the burdens they already face from Medicaid rates and the state tax. They also say they provide significant benefit to their home communities, where they are among the largest employers.
Malloy’s proposal also would cut a pool of money that has provided funds to small independent hospitals. The cut would eliminate more than $11 million for hospitals, most of which comes from the federal government. It would save the state $3.9 million.
Separately, the administration proposed a change to the way hospital payments are recorded in the budget that could have implications for funding if the state faces shortfalls.
The governor has the authority to unilaterally cut certain line items by up to 5 percent. Until this year, the supplemental payments to hospitals were included in the $2.4 billion Medicaid account. Because that line item was so large, Malloy had authority to cut close to $120 million without legislative approval – and used it to cut funding to hospitals to address midyear shortfalls. The budget adopted last year changed that by creating a separate line item for the hospital supplemental funds, limiting how much the governor could cut on his own.
Malloy’s proposal calls for going back to the previous system, in which the supplemental funds would be included in the larger Medicaid account. In explaining the proposal, the administration wrote that having a separate line item required the state Department of Social Services to set up a new account, requiring “an additional layer of administrative complexity” to a process that is already difficult to operate with limited staff.