Hospital supporters urge Bellingham council to reduce proposed tax


PeaceHealth St. Joseph Medical Center

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


BELLINGHAM - More than 100 people turned out Monday, May 19 for a public hearing on proposed imposition of a $1.2 million annual city tax on PeaceHealth St. Joseph Medical Center, and most of those who testified urged City Council to reduce the proposed tax to about $350,000 instead.

Many of those who testified were PeaceHealth executives, board members or St. Joseph hospital staffers. They were joined by other medical professionals, representatives of other non-profit social service agencies, and former hospital patients who praised the support that PeaceHealth provides to those who need medical help but can't afford the full cost.

After hearing the two-hour outpouring of support for the hospital, council members quickly agreed to discuss and possibly act on the matter at their June 9 meeting.

"There's a lot here to consider," council member Terry Bornemann said.

Those who testified in favor of the hospital expressed fears that a $1.2 million annual tax hit would mean reduction in services-especially services such as beds for mental health patients, which are generally money-losers for the hospital.

Randy Frank, a psychiatrist at St. Joseph, said Bellingham is comparatively well-stocked with mental health beds in a state with a chronic shortage. In many other cities, Frank said, there is no place to put mental health patients.

For decades, Catholic-affiliated PeaceHealth has operated under an exemption from the city business and occupation 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.

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 in which 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. PeaceHealth officials say they could live with that arrangement.

Larry Thompson, executive director of Whatcom Alliance for Health Advancement, told the council that health care providers are entering a time of major financial uncertainty as they wrestle with the changes mandated by the Affordable Care Act. Now is not the time to add to PeaceHealth's burdens in that regard, he said.

Dale Zender, PeaceHealth's chief administrative officer, acknowledged that the hospital operations return an annual operating margin of about $41 million, but that money is reinvested in many things, including the replacement of aging equipment. One example: The hospital recently replaced two CT scanners at a cost of $2.4 million apiece.

The hospital's revenues have been declining for three years, and the hospital projects a $5 million budget shortfall in the current fiscal year, Zender added.

City resident John Asmundson said many communities in Washington state have created taxing districts that collect property tax levies to support their hospitals. He questioned why Bellingham would want to do the opposite, and pull tax money out of a charity care hospital.

He suggested that if the council chooses to impose the $1.2 million tax, its members should tell hospital executives what services should be cut. The council should also tell Bellingham taxpayers what the new revenue will be used for, he added.

"PeaceHealth and its facilities generate millions every year, and the city wants some of it ... for non-medical purposes," Asmundson said.

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

Reach JOHN STARK at or call 715-2274.

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