A ruling granting a West Chester Twp. hospital a tax exemption for charitable purposes may mean the loss of millions to Butler County and the Lakota Local School District.
The county received word last week from Ohio tax commissioner Joseph Testa that West Chester Hospital had been granted nonprofit status, meaning they would no longer be obligated to make payments to a Tax Increment Financing (TIF) District established in 2002.
The final ruling was in response to the hospital’s application for tax exemption, which was contested by the county for more than a year.
TIF districts are an economic development tool that many townships, cities and counties use to encourage new investment in an area. A district typically surrounds a parcel or group of parcels and enables the taxpayers within it to make payments into a special fund in an amount equal to their property tax liability for the life of the TIF. These payments in lieu of taxes are used by the local governments to retire debt incurred for the infrastructure improvements — such as roads and water and sewer lines — needed to support current and future development in the area of the TIF.
County Administrator Charles Young said as of the end of 2012, the medical center paid about $4.1 million in service payments to the TIF. The TIF agreement that was initiated by the property owners in 2002, was to continue through 2031.
Lakota Schools’ portion of the TIF payments was $1.9 million last year — with about $700,000 from the hospital’s share, according to Lakota Treasurer Jenni Logan.
In 2013, the county was slated to receive $1.3 million, according to Young.
“It has a huge effect on just maintaining and staying up with the infrastructure in that area,” said County Commissioner Don Dixon. “It means a whole lot to the school district and a whole lot to economic development in that area.”
Hospitals are nonprofit organizations, and West Chester Hospital officials said they applied for a tax exemption before the hospital opened in 2009. The hospital made one TIF payment in 2012 “in protest,” said spokesman Grant Wenzel.
Butler County officials “knew that we disagreed with the payment,” Wenzel said.
Now that the hospital’s tax exemption has been affirmed, West Chester Hospital will ask for the TIF money it paid back, Wenzel said.
“We feel that we were improperly taxed,” Wenzel said.
As a result, plans to expand portions of Tylersville Road in 2014 could be placed on hold, county officials said. The county was also using some of the TIF funds to leverage cash to pay for infrastructure for the proposed $300 million retail, residential and entertainment development known as Liberty Town Square in Liberty Twp.
Young said the county is looking at its options, which could include an appeal to the state tax commission, negotiations or litigation.
County officials say the owners of the land parcels, which now include the hospital, voluntarily agreed to the TIF service payments and no other exemptions should be granted.
The county maintains the hospital is not separate and apart from the signers of the agreement, according to Assistant Prosecutor Roger Gates.
However the hospital says it never agreed to make the tax payments and that the land and hospital’s ownership has changed since the agreements were signed a decade ago.
“It’s a particularly complex relationship between the TIF and all parties involved,” said Joan Powell, Lakota school board president. “We’re hopeful all parties can work together to get it resolved. We’re not a direct party, more of a beneficiary.”
Logan said the school district received word of the tax commissioner’s ruling last week, and the district is currently “learning all about it” and the possible impacts to revenue.
“If revenue for the TIF changes by someone getting a tax exemption that changes the revenue to the school (district),” Logan said.
Logan said the school district receives 35 percent of the revenue generated from this particular TIF, according to the compensation agreement with the county.
“The county tries to hold the school district harmless so it’s not negatively impacted,” Logan said. “It’s so fresh and preliminary; these are all questions we’re analyzing right now.”
The Lakota Local School District receives approximately $10 million to $12 million annually from payments in lieu of taxes from several TIFs and Residential Improvement Districts, according to treasurer reports.
“Our focus remains on our patients and ensuring that the hospital continues to grow its services to meet the needs of our community. West Chester Hospital also agrees with the Ohio Department of Taxation’s ruling that the hospital is exempt from Ohio real estate taxes,” Dr. Kevin Joseph, president and chief executive officer of West Chester Hospital, said in a written statement. “This exemption is shared by other not-for-profit hospitals in Ohio. We believe that West Chester Hospital should not be treated differently under the law, as doing so would limit our ability to serve the community.”
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