Bellingham may end tax exemption for religious health-care providers


BELLINGHAM - PeaceHealth St. Joseph Medical Center will have to pay $1.2 million more a year in taxes if the Bellingham City Council requires nonprofit religious health-care providers to pay the city's business and occupation tax.

That's what PeaceHealth representative Chris Phillips said Monday, Nov. 4, before the City Council voted 5-0 to have staff prepare an ordinance that would lift the exemption that's been on the city's books since 1955 for such health-care providers.

The state doesn't exempt religious health-care providers from paying a B&O tax.

Currently, PeaceHealth is the only health-care provider in Bellingham to receive the exemption.

"We will need to find those dollars somewhere. We cannot just absorb it," Phillips said as he read a statement to the council from Nancy Steiger, CEO for PeaceHealth's Northwest Network. "The room for further cuts without impacting services and caregivers is slim at best."

That's a reference to PeaceHealth's announcement this summer that it needed to cut 500 jobs in Washington state, Oregon and Alaska to help close a $130 million gap in its budget systemwide.

The local share of those cuts have occurred mainly through attrition, compared to the layoffs experienced in the other parts of the system, according to Steiger.

Lifting the tax exemption would affect PeaceHealth and that likely would affect the community, its representatives said.

PeaceHealth provides most of the health care in Whatcom County and operates the only hospital here, in Bellingham.

If the City Council approves it, the city's B&O tax rate of 0.44 percent would be applied to taxable revenue and would be aligned with the state B&O tax structure.

"At the very minimum we need to remove the current exemption based on a religious preference and make it not based on that criteria," said Brian Henshaw, interim finance director for the city of Bellingham, of one of the council's considerations.

Council members also said the option they're looking at would be the most equitable for all health-care providers, adding that they wanted to recoup lost revenue when PeaceHealth expanded and acquired for-profit practices such as Madrona Medical Group and North Cascade Cardiology in Bellingham.

"This is something that we have been discussing, not just recently, but for a few years," City Councilman Terry Bornemann said.

If the City Council lifts the tax exemption, it would be just the second city in the state to do so behind Tacoma. (Ilwaco has done so as well, but it continues to provide support with funds from a public hospital district, Phillips said.)

Washington state communities and cities have a long tradition of supporting nonprofit hospitals, Phillips said in an interview, and they either do it through hospital district revenues or through B&O tax exemptions.

If nonprofit hospitals weren't providing care, particularly for lower income and indigent people, then it would fall to government to do so, Phillips said.

"And that's the basis for the exemption," he added.

Meanwhile, PeaceHealth is asking the council to consider a separate proposal that would restore Madrona and North Cascade Cardiology tax revenue to the city. Phillips said in an interview he didn't know how much that would total.

The City Council seemed open to the idea.

A public hearing still must be scheduled on the issue.


See the proposals the Bellingham City Council considered, before directing staff to work on "option 2," by going online to, then clicking on "Council Meeting Materials" and then the agenda for Nov. 4.

Reach Kie Relyea at 360-715-2234 or

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