For-profit hospitals pay property taxes. Nonprofit hospitals generally don't.
So when the nonprofit Alegent Health system takes over the Creighton University Medical Center property from for-profit Tenet Healthcare, much or all of the approximately $63 million in hospital property at 30th and California Streets will go off the tax rolls.
That concerns some local politicians who, while they support Creighton University's mission and laud Alegent's decision, worry that a shrinking tax base isn't good for budgets.
“It's a positive for Creighton,” said Douglas County Board member P.J. Morgan, a real estate executive and former Omaha mayor. “Hopefully, it's going to be a good thing for the community.
“At the same time, you're never pleased when you're losing property tax values.”
The hospital at 601 N. 30th St. has Douglas County's fourth-highest property valuation, behind First National Bank's headquarters building, Oak View Mall and Westroads Mall. In March, the hospital paid $1.3 million in taxes for 2011.
Of that, about $777,000 went to K-12 schools — the schools in the 11-district Learning Community in Douglas and Sarpy Counties, the Omaha Public Schools and the educational service unit that serves OPS.
About $314,000 went to the City of Omaha and $167,000 went to Douglas County. Other entities got smaller amounts.
Alegent says it will apply for a property tax exemption on the Creighton med center assets that it will acquire. The exemption, officials said, would apply to taxes for 2013 and beyond.
On one hand, the $63 million is a fraction of 1 percent of the county's total taxable property value of $36.5 billion. On the other hand, losing all or part of the tax money generated by the hospital will hit local governments as they try to balance the public's desire for lower tax rates with its demand for services.
And it comes amid the increased use of tax-increment financing, an incentive that allows commercial and redevelopment projects in “blighted areas” to pay project costs with what they would spend on property taxes. Such a project's full valuation typically doesn't go on the tax rolls for 12 to 15 years after the project is built.
It's too early to know what the effect of the loss of the hospital's property tax might be on taxpayers. Changes in other properties' valuations and future budget decisions will have an effect, too. But if all of the money had to be replaced just through higher tax rates, replacing the tax revenue lost from the hospital sale to a nonprofit could cost the owner of a $150,000 house about $6 a year, based on average tax rates for Douglas County residents.
Douglas County Board Chairman Marc Kraft said Alegent will be within its right to apply for an exemption. “In my opinion, it's not an issue except for the fact that it impacts the rest of us as taxpayers.”
In past years, Morgan said, property valuations in the county increased at a healthy clip. In the last couple of years, the valuations have been virtually flat.
“We used to not have to raise the mill levy, because we'd automatically see an increase in values,” he said.
States exempt charitable, educational and religious organizations from property taxes, meaning that others in the community must take on more of the total tax burden. The reasoning behind the exemptions is that such organizations provide benefits to society that offset the amount of money governments don't collect.
At the end of 2011, Creighton University Medical Center reported providing $44.9 million in charity care and $38.9 million in discounts to uninsured patients. Alegent Health reported giving charity care to 39,950 people; serving 22,192 Medicaid recipients at an unreimbursed cost of $21 million; and providing $8.6 million in other areas such as subsidized health services, community health improvement services and education for health professionals.
Nonprofit Alegent pays some property taxes on its hospital properties because of for-profit entities on the properties, such as the fitness centers at Lakeside and Immanuel.
Local governments nationwide increasingly are seeking payments in lieu of taxes, or PILOTs, from hospitals, universities and other nonprofits. In Nebraska, public utilities make such payments.
“It seems as if over the past three to four years that PILOTs have become a bit more common, basically because of fiscal pressures facing local governments,” said Adam Langley, a research analyst in the Lincoln Institute's Department of Valuation and Taxation who co-wrote a report on the topic. “They're still a pretty minor revenue raiser in all but a handful of cities.”
PILOTs have been used in at least 117 municipalities in at least 18 states, Langley reported. Boston, for example, collected $34 million in such payments from universities, hospitals and cultural institutions in 2010. Hospitals alone contributed $7.8 million that year, City of Boston records show.
The payments are voluntary, Langley said. “Local governments can't really require them to make these payments.”
The cities get the money, he said, using a variety of tactics, from “be a good citizen” pleas and gentle arm-twisting to legal challenges.
Freddie Gray, president of the OPS Board of Education, said she hasn't heard any discussions about such fees. Property valuations change, she said, and businesses get tax incentives that can take them off the tax rolls. State aid to schools is adjusted accordingly, she said.
Omaha City Councilman Pete Festersen also said city leaders haven't discussed such fees. As for the Creighton-Alegent deal, he said, it's “a positive for the community that will ensure long-term access to health care and emergency services in north Omaha. That's worth a lot more to the City of Omaha than the tax exemption.”
Morgan and Kraft said the county is looking at what's happening in other states in regard to payments in lieu of taxes. “We are looking for every means we can to take as much of the burden as we can off the taxpayers,” Kraft said.
“Rather than just always looking at raising the mill levy,” Morgan said, “we need to look at those tax-exempt properties.”
World-Herald staff writer Paul Goodsell contributed to this report.
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Top property valuations in Douglas County
Assessed valuations are in millions of dollars
|First National Bank Omaha||1601 Dodge St.||$130.4|
|Oak View Mall LLC||3001 S. 144th St.||$90.0|
|Westroads Mall LLC||10000 California St.||$86.4|
|Creighton Medical Center||601 N. 30th St.||$63.0|
|Quadtech LLC (Blue Cross Blue Shield of Nebraska)||1919 Aksarben Drive||$61.5|
|City of Omaha (Hilton)||1001 Cass St.||$58.2|
|First Data Resources, Inc.||6855 Pacific St.||$56.6|
|United of Omaha Life Insurance||3316 Farnam St.||$50.6|
|Riverfront Campus Developers (Gallup)||1001 Gallup Drive||$47.8|
|Nebraska Furniture Mart||7312 Jones St.||$44.0|
Source: Douglas County Assessor's Office