URBANA — The Carle health system has prevailed in a 13-year-old legal quest to win back its charitable tax exemptions on four Urbana properties, among them Carle Foundation Hospital.
In a lengthy written opinion issued Wednesday, Judge Randy Rosenbaum found that Carle was entitled to partial tax exemptions on the properties for seven out of eight disputed years, 2005-11, and ordered the Champaign County treasurer to issue Carle a tax refund of more than $6.2 million.
The city of Urbana, Cunningham Township, several local taxing authorities and the Illinois Department of Revenue — all defendants in the 2007 suit filed by Carle — were further ordered to pick up the tab for the cost of the litigation, excluding Carle’s attorney fees.
“Obviously, we’re very pleased, and this is the ruling we expected,” said Steven Pflaum, one of Carle’s attorneys.
He said that’s based on the fact that it’s been the law in Illinois for more than a century that nonprofit hospitals that serve everyone, without regard to a patient’s ability to pay, deserve a tax exemption.
Assistant State’s Attorney Joel Fletcher, who represented county officials named as defendants, said he would need to confer with his clients before commenting.
On the line for a refund to Carle are seven local taxing districts, including the city of Urbana, Champaign County, Parkland College, the Champaign-Urbana Mass Transit District, Cunningham Township, the Champaign-Urbana Public Health District and the Champaign County Forest Preserve District.
The lawsuit went to trial in January 2019, and its exemption claims covered a span from 2004-11 — years in which Carle was assessed for and paid taxes on four of its properties, including its main hospital, the Carle power plant, the north tower (now part of the main hospital) and the Caring Place day care center.
While 2004 was one of the contested tax years, Rosenbaum said there was insufficient evidence for him to determine with certainty the amount of Carle’s charitable activity for that year.
The judge further ruled in favor of Urbana and Cunningham Township in dismissing one count of the lawsuit — a breach-of-contract claim in which Carle contended the city and township violated the terms of a 2002 settlement agreement by challenging Carle’s tax exemptions.
Had Rosenbaum ruled against Urbana and the township in that claim, they could have been liable for what was estimated last year by a Carle attorney to be $7.7 million more.
$1.6 million denied
Rosenbaum also denied Carle’s request for prejudgment interest accruing on its property-tax payments during the disputed years. Carle was seeking more than $1.6 million in prejudgment interest through August of last year.
Lawyers defending the lawsuit on behalf of state and local taxing authorities portrayed the Urbana-based health system as a lucrative business rather than a charity, and they argued that Carle’s charity-care program wasn’t charitable enough.
Rosenbaum, however, described Carle’s charity-care program as “impressive” and “generous” in that it applies to people earning well over the federal poverty guidelines, it caps out-of-pocket costs at 40 percent of a patient’s income, it can wipe out past debt and it comes with auto-qualifiers, meaning many patients don’t even have to apply, he said.
“This court is impressed that Carle Foundation spent over 1 percent of its net patient revenue on free or discounted care,” Rosenbaum said. “Although that may not seem like much as a percentage, it exceeds the Illinois Supreme Court’s apparent threshold of 1 percent. But it is also significant in terms of actual dollars spent.”
Two issues drove suit
Rosenbaum also listed numerous contributions Carle has made to the community over the disputed tax years, among them the expansion of Frances Nelson Health Center, support for the Champaign-Urbana Public Health District’s dental and vision programs, the Parish Nurse Program, community prenatal care, the University of Illinois’ breast-cancer research, Cunningham Children’s Home and Parkland College’s nursing program.
Rosenbaum prefaced his opinion by predicting that many people will wonder why it doesn’t address the nation’s health care crisis, and he emphasized this wasn’t about a broken health care system, high health insurance premiums, hospital profits or highly paid doctors.
The lawsuit involved two very specific issues — whether Carle met the terms under state law and state constitutional standards for property-tax exemptions, and whether Cunningham Township and Urbana violated the 2002 settlement agreement with Carle, he said.
Along with other nonprofit hospitals in Illinois, Carle has qualified for charitable tax exemptions since a change in state law in 2012.
Since that change, hospitals seeking charitable exemptions on their properties must show they provide at least as much in the way of charitable assistance in their communities as they’d have to pay in property taxes.
‘Must work together’
Rosenbaum said he found the testimony of recently retired Illinois Department of Revenue employee Lauren Stouffe — who worked exclusively on hospital exemption requests from 2012-18 — compelling.
She believed she could look at the entire hospital system and didn’t need to find charitable use on a particular parcel, Rosenbaum said.
“If she is misapplying the law, then hundreds, perhaps thousands, of properties around the state may have been inappropriately designated either exempt or non-exempt,” he said.
Rosenbaum said he also found it striking that Carle was granted property-tax exemptions prior to 2004 and after 2011, and he said the defendants can’t credibly argue there’s been any change in use of the properties from 2004-12.
“It begs the question: Why should Carle Foundation be exempt in 2003 and not 2004? Why should Carle Foundation be exempt in 2012 and not 2011? If anything, Carle Foundation increased its charity care over the years, advertising it in numerous ways to reach more people,” he said.
This lawsuit has taken a huge financial toll on all parties and local taxpayers, Rosenbaum said, and he urged both Carle and taxing authorities to set aside their differences and think about creating a mutually beneficial future.
“They must work together,” he urged. “If they do not, the court suspects there will be continuing litigation year after year after year.”