Update: The following editorial has been updated to correct a mathematical error in the percent drop in charity care experienced by Olympia’s two hospitals.
The Olympia City Council is expected to introduce an ordinance at its Oct. 14 meeting to eliminate the municipal Business and Occupation tax exemption for St. Peter Hospital. It’s a courageous and justifiable change in city tax policy.
Large medical systems like Providence, which owns St. Peter Hospital, have been acquiring private health care clinics and individual practices and sheltering them under their nonprofit, tax exempt status. That trend is likely to continue, and cities like Olympia will lose those sources of municipal B&O tax revenue.
When the City of Bellingham lost $350,000 per year due to a merger of Peace Health and Madrona Medical in 2007, it responded by eliminating the hospital’s local B&O tax exemption. Tacoma has also removed exemptions for the MultiCare and Franciscan health systems.
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Olympia may be just the third Washington city to consider taxing the large nonprofit medical systems, but it won’t be the last. The tax exempt status of nonprofit hospitals has come under scrutiny on both the national and state levels.
That scrutiny has intensified since the Affordable Care Act went into effect in January. Extending Medicaid health insurance to thousands of low-income people has meant that hospitals nationwide have seen, for now at least, dramatic reductions in charity care.
St. Peter Hospital has reduced its total charity care by 62 percent through August, and reports a 67 percent decline in free services to low-income people. The for-profit Capital Medical Center reported a 57 percent drop.
Some elected officials have also questioned high executive compensation at hospitals enjoying a nonprofit, tax exempt benefit. According to the Department of Health, seven top Providence executives earn more than $1 million per year in total compensation, including the CEO of St. Peter Hopsital.
Removing St. Peter’s tax exemption would level the playing field, so that all of the city’s health-care providers give the same level of support to local government. Capital Medical Center has paid B&O tax since it opened in January of 1985.
The Olympia City Council should also reject St. Peter’s proposal to voluntarily give the city a comparable amount of cash, in lieu of losing the exemption.
There are several reasons to reject the proposal. First, St. Peter’s offer is only for four to five years. A tax is more permanent.
Another objection to St. Peter’s proposal is that the hospital wants to dictate how Olympia would spend its temporary, voluntary contribution to city funding. The hospital has specified the money must be spent on three specific projects, which are all worthy of consideration.
But no other taxpayers can, or should, dictate how government spends their individual tax money.
Imagine a homeowner agreeing to pay property tax only if their street is repaved, or a downtown retailer demanding that its tax dollars be spent on better lighting for its front door? Or, how about the reverse: a taxpayer demanding that none of its money be spent on the military? Or national parks? It’s absurd.
But the fear-mongering has begun. One group suggested that removing St. Peter’s municipal B&O exemption is a “slippery slope” to taxing all of the city’s nonprofits “regardless of size or mission.” The city intends nothing of the sort.
The Olympia City Council should not hesitate to pass this ordinance.