Thurston County cities struggle to balance budgets and maintain existing levels of service every year, even after the official end of the Great Recession. A slow recovery has squeezed consumer spending and pinched the sales tax revenue on which the cities heavily rely.
Other state of Washington cities, facing the same financial problems, have shored up city coffers by closing a Business and Occupation tax exemption for large not-for-profit medical systems. This strategy has raised millions of dollars of new revenue for Bellingham and Tacoma.
The City of Olympia is considering a similar measure to eliminate all or some portion of Providence St. Peter Hospital’s B&O tax exemption. It will be a topic of discussion at next week’s city finance committee meeting.
Other cities have found that it makes sense to remove the exemption for a variety of reasons. One of the most compelling justifications is that the not-for-profit medical systems have been slowly eliminating previous sources of municipal B&O tax revenue.
Medical systems such as Providence have acquired formerly private health care clinics and other facilities that paid B&O tax, bringing them under their non-taxable shield. As a result, the city has lost significant tax revenue without diminishing the demand for municipal services.
In Bellingham, the city lost $350,000 a year when Peace Health St. Hospital Medical Center took over Madrona Medical in 2007 and North Cascade Cardiology in 2011. By applying the city’s 0.44 percent B&O tax rate to Peace Heath starting next January, Bellingham will raise about $1.2 million annually.
Tacoma expects to receive about $5.5 million this year by removing the exemption for the MultiCare and Franciscan health systems and applying its full 0.4 percent rate.
Olympia’s B&O tax rate of 0.2 percent for medical businesses is lower than those cities. Bellingham and Tacoma have higher rates because they were imposed before the state recently capped local B&O taxes.
Removing St. Peter’s tax exemption would level the playing field, so that all of the city’s health care providers provide the same support to local government. Capital Medical Center, a for-profit hospital on the west side, has paid B&O tax since it opened in January of 1985.
It’s expected that hospital supporters will argue that St. Peter provides a high level of the community’s charity care. In 2013, it offered $23.3 million in free and discounted care to uninsured and underinsured people. But those expenses will decline as the federal Affordable Care Act extends coverage to more lower-income people.
If the City Council removes the hospital’s tax exemption, we hope they don’t sweep all of it into the city’s general fund. We’d prefer they allocate a majority of the revenue to funding new permanent supportive housing projects that can help people who are homeless get off the streets and out of the woods, and provide them with physical and mental health care, and recovery from addiction. That would also do alot to reduce St. Peter’s emergency room charity care burden.