Ruling reduces Providence property tax bill by about one-third

Providence Health Care is shaving $550,000 from its Spokane property tax bill each year as nonprofit hospitals across the state take advantage of a court ruling that extended them new exemptions.

The tax cut for Providence amounts to about a third of its property tax. The hospital system, which runs Sacred Heart Medical Center and Holy Family Hospital, also is owed a $2.2 million property tax refund as a retroactive application of the court ruling.

The refund and lower tax bill awarded to Providence won’t be reflected in the budgets of schools, fire protection, cities and other local government services receiving property tax funds. Instead, the extra money owed in the refund and needed in future collections will be raised by shifting the tax burden and collecting more from the county’s other property taxpayers, said Spokane County Treasurer Rob Chase.

Providence is the region’s largest private employer and will remain among the county’s largest taxpayers.

It will contribute approximately $1.1 million in property taxes in 2012 – down from $1.6 million paid in 2011, according to estimates provided by Mike Volz, Spokane County’s chief deputy treasurer.

The market value of Providence’s Spokane County properties exceeds $260 million.

Providence is quick to point out that its $550,000 property tax cut amounts to a fraction of its overall $88 million tax bill. Last year, Providence’s two hospitals in Spokane paid about $20 million in sales taxes; $2 million in use taxes; $11.3 million in business and occupation taxes; and payroll and provider taxes that totaled another $53 million, according to Helen Andrus, chief financial officer of Sacred Heart.

“We always pay the taxes allowed by law,” said Elaine Couture, the chief executive of Sacred Heart.

Nonprofit hospitals struggle with the misperception that they don’t pay taxes, said spokesman Joe Robb.

“The fact is, (nonprofit hospitals) pay lots of taxes,” he said.

Couture noted that while she believes the hospital pays its fair share of taxes, the true worth of Providence rests with its self-ascribed mission to care for the region’s poorest people.

“Regardless of economic times and turmoil, we’re here to provide care,” she said. “That hasn’t … and won’t change.”

Sacred Heart last year absorbed $18 million in direct costs such as staff hours and supplies to provide charity care for the needy, Couture said.

The hospital also claims to have returned more than $100 million in community benefit, though that number is more difficult to define since it includes myriad factors such as cash, in-kind charitable gifts and the difference between what the hospital charges for treating Medicare and Medicaid patients and what the government health programs actually pay, often referred to as “unreimbursed costs.”

Together, Providence’s two Spokane County hospitals reported an operating profit of $184 million from 2008 through September 2011, the latest figures available. Sacred Heart’s operating profit was $31.9 million for the first nine months of 2011.

The new tax exemption came about after nonprofit Legacy Salmon Creek Medical Center in Vancouver, Wash., challenged its property taxes in 2007.

Nonprofit hospitals had been agitating for property tax revisions for years, arguing that decades-old exemption policies failed to account for changes to hospital operations – notably the integration of outpatient services within hospitals.

The state Board of Tax Appeals agreed with the hospital system’s request for broader exemptions. And later a Thurston County Superior Court judge upheld the board’s ruling against a challenge brought by the state Department of Revenue.

The decision in favor of nonprofit hospitals prompted two of the state’s larger nonprofit hospital systems, MultiCare and Virginia Mason, to seek three years worth of refunds, said Harold Smith, the revenue department’s program manager for property tax exemptions and deferrals.

The state acquiesced, igniting a rush of new exemption and refund requests.

Smith declined to estimate the statewide value of the change in tax status coupled with the refunds. Those numbers will be calculated by county.

A study conducted in 2008, however, projected that exemptions existing before the latest court ruling saved nonprofit hospitals $70 million in property taxes.

Smith said the new exemptions will enable the hospitals to achieve even greater tax savings that will have to be shifted to other taxpayers.

While nonprofit hospitals benefit from the broadened tax exemptions, hospitals run as for-profit businesses are excluded.

That includes Deaconess Hospital and Valley Hospital, which have been merged into the Rockwood Health System under the common ownership of Community Health Systems Inc., a large hospital corporation based in Tennessee.

Deaconess and Valley had been run as nonprofit hospitals until 2008 and paid relatively little in property taxes compared with what is now collected.

For example, in 2007, the last year both hospitals were run by nonprofit Empire Health Services, Deaconess paid $250,087 in property taxes and Valley paid $75,860.

Under the ownership of for-profit Community Health, Deaconess’ property tax bill will be $1.93 million in 2012 and Valley’s property taxes will be $519,341, placing both hospitals among the top 25 property-tax-paying businesses in Spokane County.

Deaconess chief executive Bill Gilbert called the changes a boost for Spokane.

“We’re proud of the taxes we pay and the investments we are making,” he said.

Gilbert said that under Community Health ownership the hospital’s charity care totals have risen and some $70 million has been spent on capital projects, including new equipment and construction.

“We’re in it for the long run,” he said.