Urbana forced to pay charity care for huge service region
By Laurel Prussing
Carle Foundation Hospital is a regional medical center that serves 1.2 million people in 25 counties in East Central Illinois and parts of Indiana. The taxpayers of Urbana, a city of 41,250 people — only 3 percent of the region's population — are being forced to pay for much of the charity care for Carle's huge service region.
Senate Bill 2194, passed last year as part of Medicaid reform, allows not-for-profit hospitals to qualify for near total property tax exemption. Most of Carle's property is in the city of Urbana and had been taxable. The loss of Carle's $61 million in assessed value lowers Urbana's total assessed valuation almost 11 percent and shifts Carle's tax burden to every other business and resident of Urbana. It will increase property tax rates in Urbana by almost 11 percent — not only for the city but also for the school district and the park district. (Any taxing district that includes Urbana properties will also see an increase in its tax rate, but at a lower percentage, depending on Urbana's share of its tax base.)
This puts an unsustainable economic burden on the city. Significantly higher tax rates will force Urbana onto a downward spiral, unable to compete for businesses and residents.
Since 2005 Carle has been paying some property taxes. In 2007, Carle sued the Illinois Department of Revenue, Champaign County and the Cunningham Township Assessor over this issue. In 2010, the Illinois Supreme Court ruled that another Urbana hospital, Provena Covenant, did not qualify as a charity because most of its income was from fees for service. Therefore, it was not entitled to a property tax exemption. (A charity is an entity that gets its revenue primarily from donations and gives its services to those in need.)
The Provena case had clear implications for Carle and other Illinois hospitals. In 2012, the Illinois Hospital Association, perhaps the most powerful lobby in Springfield, set about to undo the Supreme Court ruling by changing the definition of charity in state law and giving hospitals a property tax exemption for charity care. The new provision — buried in a gigantic bill to help solve the state's Medicaid finances — greatly expanded the definition of hospital charity. It shifted much of the burden to local governments, who were not given a chance to participate in the drafting of the legislation or to comment on it before its passage. Legislators never heard about the devastating impact on a small city such as Urbana, which hosts two regional hospitals.
Is Carle a not-for-profit charity? According to the "Annual Non Profit Hospital Community Benefits Plan Report" filed with the Illinois attorney general for 2011, Carle claims it provided nearly $16 million in charity care. Carle also paid $10 million in real estate and other taxes. Carle is exempt from both federal and state income tax because it is classed as not for profit. Such tax breaks require providing care for the poor.
Charity care and property taxes have hardly crippled Carle's bottom line. Carle's hefty markups on its services more than cover the costs for health care for the poor and the taxes it paid to Urbana. The hospital's total revenues exceeded expenses by $107 million. For every dollar spent, Carle took in $1.31. Relieving them of $6 million in property taxes would boost their net income to $113 million ($1.34 for every dollar spent — based on 2011 figures.)
Carle's profits far exceed those of most businesses. Does any other business in Urbana get $1.34 for every dollar it spends? Accumulated profits now total $764 million in unrestricted net assets. Its chief executive officer is paid $1.2 million a year. Yet Carle continues to contentiously litigate with local taxing bodies to increase its already incredibly large profit margin.
Carle Hospital can easily afford to pay its fair share of taxes. With three-quarters of a billion dollars in unrestricted investments and a spectacular bottom line, there is no excuse for Carle to undermine and destabilize the city that has provided the foundation of its business for nearly 100 years.
Carle was founded with a $40,000 bequest in 1918 from Margaret Burt Carle Morris to the City of Urbana for the purpose of starting a hospital. Since then Urbana has provided Carle untold millions of dollars for streets, police, fire protection and all other city services. Urbana schools and parks benefit Carle as well. Urbana taxpayers deserve better from the business they helped build.
Laurel Prussing is mayor of Urbana.