Hackensack University Medical Center's tax exemption appealed by City Council

HACKENSACK — The City Council is attempting to recuperate millions of dollars from tax-exempt property owned by the Hackensack University Medical Center. 

The city has filed an omitted assessment appeal for the nonprofit hospital and its properties. By filing the appeal, the city wants to prompt negotiations with Hackensack Meridian Health, which owns the hospital. City officials want to have the company pay some of the estimated $19 million in tax dollars it would owe the city if its land was not exempt from property taxes.

"There's a lot of pressure on these hospitals at this time to make some payment of taxes to the host communities," said Art Carlson, the city's tax assessor. "We realize that the hospital is a great asset to the city, but that doesn’t preclude it from some kind of payments in lieu of taxes being assessed."

Mayor John Labrosse declined to comment on the city's appeal, citing his employment as a safety specialist at the hospital. Nancy Radwin, a Hackensack Meridian Health spokeswoman, declined to comment.

The appeal comes in the wake of a landmark tax court decision against the Morristown Medical Center in 2015. In a years-long case, the Morristown Town Council sought payments from tax appeals it filed against the hospital as far back as 2006. The hospital's designation as a tax-exempt, charitable institution had shielded it from paying taxes on the properties it owned in town.

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Ultimately, Judge Vito Bianco ruled that the medical center ran more like a for-profit corporation than a nonprofit, charitable institution.

In a 2016 settlement, the hospital agreed to pay Morristown $15.5 million for 10 years of taxes and interest. The hospital also agreed to pay additional taxes for 10 years on spaces leased to restaurants, shops and private doctors.

"It wasn’t a precedent-setting case," said Kerry McKean-Kelly, spokesperson for the New Jersey Hospital Association. "It didn’t automatically become the law of land. But really what it did is created this Wild Wild West among municipalities of tax challenges."

Since Bianco's decision, there have been 41 tax challenges filed between hospitals and their host towns, McKean-Kelly said. Some of these challenges were filed by a municipality against a hospital. Some challenges were filed by the hospital in response.

Gone are the days of smaller, "mom and pop" hospitals that could be considered nonprofit entities, Carlson said. The state statutes that waived hospitals from paying taxes were written in 1917 and needed an update, he said.

"We just want them to know they’re on notice," Carlson said. "We appreciate what they’ve done for the city. But we feel we’re entitled to some commensurate payment.
You're sitting on 17 acres of prime real estate. Just on the land alone, we need some type of agreement."

Hackensack University Medical Center pays between $7 million to $8 million on some of its properties that are not on the main campus on Essex Street, Carlson said. These properties include the parking garage on Atlantic Street. 

The hospital does not, however, pay any taxes on its 17-acre main complex, Carlson said.

In a 2015 settlement, the hospital agreed to pay Hackensack $4.5 million over three years. The settlement was meant to resolve several issues between the city and hospital, including tax appeals on four hospital properties, said James Mangin, the city's Chief Financial Officer.  

Hackensack is just one of the latest municipalities to take legal action seeking tax payments from hospitals in its borders. In 2016, North Bergen filed a lawsuit challenging Palisades Medical Center's tax-exempt status. That same year, Englewood and Teaneck filed tax appeals against Englewood Hospital and Medical Center and Holy Name Medical Center, respectively.

Much like Hackensack, most of the towns that have filed challenges hoped that they would reach a compromise with the hospitals before reaching any lengthy litigation.

"We would just say that nobody wants to be in that place," said McKean-Kelly. "No municipality wants to be in a legal fight with their local nonprofit hospital. And certainly no hospital wants to be in a battle with their host municipality."

McKean-Kelly repeated her calls for a "statewide solution" to the problem. The hospital association had supported a bill that would have maintained hospitals' nonprofit status, but required hospitals to pay $2.50 a day for each licensed bed.  But in 2015, former Gov. Chris Christie vetoed the bill. 

Since Hackensack filed the appeal last month, there have been three meetings with stakeholders to negotiate an agreement and avoid litigation, said Carlson. The next meeting is scheduled for the end of the month.

"Top officials from the city and Hackensack Meridian have met on several occasions in recent months and talks are progressing well," said Deputy Mayor Kathleen Canestrino, in a prepared statement. "We remain optimistic that an agreement can be reached that satisfies the hospital's needs and protects city taxpayers."

Email: torrejon@northjersey.com