Public hearing set on hefty tax bill for Bellingham hospital


PeaceHealth St. Joseph Medical Center

PeaceHealth St. Joseph Medical Center is located at 2901 Squalicum Parkway in Bellingham.


BELLINGHAM - The public will get a chance to weigh in Monday on a proposed change in city tax law that would impose $1.2 million in annual business and occupation tax on PeaceHealth St. Joseph Medical Center.

The City Council has scheduled a public hearing on the tax measure as the first item on the agenda of its 7 p.m. Monday, May 19, meeting in council chambers at City Hall, 210 Lottie St.

Hospital officials say a tax increase that large would have an impact on PeaceHealth's programs and payroll at its hospital and other medical facilities.

"One million, two hundred thousand dollars is not a trivial amount that PeaceHealth St. Joseph can simply absorb," PeaceHealth board chairwoman Barbara Lupo and chief of staff Dr. Peter Dillon wrote in an opinion column previously published in The Bellingham Herald. "As much as we would try to mitigate the effect of such a loss, it will be difficult to do so without it impacting jobs and programs. With labor costs representing close to 60 percent of our expenses, a $1.2 million tax hit would reduce our annual payroll by $700,000. As would happen with your own household or business budgets, we would have to take a sharp pencil to our budget and reduce our expenses. That comes at a cost in jobs and services; there's no way around it."

An additional $1.2 million in tax revenue for the city would not be a trivial amount for the city's $70 million annual general fund budget, either.

For decades, Catholic-affiliated PeaceHealth has operated under an exemption from the B&O tax as a "religious-affiliated" non-profit health-care organization. The religious exemption in city tax law has come under scrutiny recently, partly because the city attorney's office questioned the appropriateness of an exemption based on religion.

PeaceHealth officials acknowledge that the religious exemption should be removed, but they argue that other cities provide public support for not-for-profit hospitals, through tax exemptions or taxing districts that provide direct tax revenue payments to hospitals.

But the proposal to impose B&O tax on PeaceHealth involves more than just the hospital. When PeaceHealth acquired privately operated Madrona Medical in 2007 and North Cascade Cardiology in 2011, both of those businesses were taken off B&O tax rolls. That change costs the city an estimated $350,000 per year in tax revenue.

Mayor Kelli Linville and Finance Director Brian Henshaw had proposed a compromise taxation proposal that was worked out during discussions with PeaceHealth officials, but the compromise plan got little support from council members during an April 21 discussion.

Under the compromise proposal, PeaceHealth revenue from both the hospital and the outpatient clinics would be taxed, but the rate would be lowered to ease the tax hit on the hospital while recovering the $350,000 per year in lost city tax revenue resulting from the PeaceHealth takeover of Madrona and North Cascade Cardiology.

Although the council rejected the idea of drawing up that compromise measure as an alternative ordinance for public review, council members said they have not ruled out such an approach, and people are welcome to advocate that approach at Monday's hearing.

Under state law, nonprofit health care organizations pay the B&O tax only on their revenue from private customers and insurers, and not on the payments they get for Medicare or Medicaid patients.

Reach John Stark at 360-715-2274 or . Read the Politics Blog at or get updates on Twitter at @bhampolitics.

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