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How to fix this trade-off of Illinois hospitals’ property tax breaks in return for charity care

Chicago Tribune

Monday, December 2, 2019  |  Editorial  |  Editorial Board

Taxes, property (87)

Want to ruin someone’s day? Send her a property tax bill. It’s a mood killer because its big, and the next one promises to be even bigger.


Nonprofit hospitals, however, don’t have to worry about that. Illinois law allows a nonprofit hospital to get a break from property taxes, as long as the value of its charitable services is equal to or greater than its hypothetical tax liability.


Illinois has more than 200 hospitals. More than 150 are nonprofits, such as the biggest players in health care in the Chicago region — Northwestern Memorial Hospital, Rush University Medical Center and Advocate Health Care.


The trade-off here — a property tax break in return for charity care — sounds straightforward. But there’s a catch. To determine the amount of charity care a hospital must provide in order to get the exemption, it’s important to know how much that hospital would have to pay in property taxes if the exemption didn’t exist.


An easy and transparent way to determine a hospital’s hypothetical tax bill is hiding in plain sight. It’s the same way other types of property are valued as part of the property tax calculation process: The local county assessor sizes up the assessed value of those other properties, and those valuations help determine the tax bills.


Illinois law, however, allows nonprofit hospitals to take a different approach. As Crain’s Chicago Business columnist Joe Cahill recently wrote, “The statute leaves it to hospitals to estimate the value of their real estate and the tax liability it would generate.” That is, hospitals are permitted to come up with the number themselves. And they’re not required to publicly release their estimated tax liability, so most don’t.


The upshot: Lower tax liability estimates mean lower requirements for providing charity care to the poor and underinsured. According to the Illinois Health Facilities and Services

Review Board, hospitals in Chicago and the rest of Cook County that brought in the most revenue in 2018 spent less than 2% of that revenue on charity care. The lone exception was Stroger Hospital, a public hospital, which spent more than half of its net revenue on charity care.


Last year, the Illinois Supreme Court rejected a challenge to the Illinois law that exempts nonprofit hospitals from property taxes. But across the state, perennial public policy debates about the exemption continue.


Recently there’s been renewed pressure to have nonprofit hospitals pay a share of local services they receive. Earlier this fall, Ald. Jeanette Taylor, 20th, proposed that Chicago’s City Hall sit down with nonprofit hospitals and work out a payment program to offset the cost of those services.


We’ve argued that there’s merit to the exemption, as long as the rules are clear on how much charity care nonprofit hospitals must provide. But the terms of the offset aren’t clear, largely because the public doesn’t necessarily get an accurate valuation of a hospital’s real estate and its hypothetical tax liability. Heck, whatever estimated tax liability a hospital determines for itself generally doesn’t even get publicly disclosed.


Lawmakers can fix this by amending the law to require independent calculations of nonprofit hospitals’ property values and hypothetical taxes. We aren’t big on unfunded mandates, but this task logically would fall to local assessors. Maybe the hospitals could pay a fee for the work, given that they’d no longer have to do the job themselves.


That would produce a much more transparent, and perhaps accurate, application of the exemption law. That, in turn, would benefit hospitals that get tax breaks, patients who receive charity care, and taxpayers who are asked to subsidize the taxes and sometimes the care.