November 27, 2015; WNYC-FM

The recent settlement on property taxes reached between Morristown, New Jersey, and the Morristown Medical Center in the wake of a court ruling that called nonprofit hospitals largely a “legal fiction” has the state legislature and other localities in the state eying the possible ripple effects on other communities and hospitals.

The hospitals and the legislators who support them want statewide legislation that would standardize an approach, but some municipal advocates believe that a locality-based approach would be more lucrative for them. In Newark, for instance, City Councilwoman Gayle Chaneyfield-Jenkins called for assessing property taxes on nonprofit Newark Beth Israel Medical Center, but Mayor Ras Baraka said this is unnecessary in light of his talks with other mayors about nonprofit hospitals statewide.

Senate President Stephen M. Sweeney (D-Cumberland, Gloucester, and Salem) and Sen. Robert W. Singer (R-Monmouth and Ocean) have been hard at work on legislation that would set statewide rules for payments from nonprofit hospitals that would not be property tax payments per se.

Judge Vito Bianco, in his 88-page opinion in the Morristown case, wrote that, “If the property-tax exemption for modern nonprofit hospitals is to exist at all in New Jersey going forward, then it is a function of the Legislature and not the courts to promulgate what the terms and conditions will be.”

Bianco wrote, “Clearly, the operation and function of modern nonprofit hospitals do not meet the current criteria.”

But in 2010 in Illinois, a judge made a similar ruling, and state legislators went on to protect the hospitals from taxation by linking exemption to minimal community benefits standards.

Senator Singer says he is worried that without legislative action, every governing body with the authority to tax will attempt to crowd in and seek tax revenue from their hospitals. He said they could just legislate to effectively reverse the court decision, but he wants a more balanced approach.

Mike Cerra, the assistant executive director for the New Jersey State League of Municipalities, naturally, comes down on the other side. “I think any legislation probably would need to give both parties—both the municipality and the hospital—the greatest amount of flexibility to negotiate on their own, based on the local circumstances,” Cerra said. “The problem with a statewide solution is that we want to avoid a one-size-fits-all approach.”

On the other hand, New Jersey Hospital Association President and CEO Betsy Ryan said hospitals are looking for a sense of certainty regarding local taxes. “We want to be a part of constructive dialogue with legislators,” Ryan said, with a goal of a state law “that municipalities and hospitals believe is fair—and viable.”

Of course, the question is not just valid for nonprofit hospitals in New Jersey. The same judge who made the Morristown decision has ruled that Princeton University has the burden of proof in a suit brought regarding its property tax exemption, and the question emerges regularly elsewhere where large nonprofits dominate.—Ruth McCambridge