Why should Jefferson’s cancer center get property-tax exemption? asks suburban school district

Another Philadelphia-area school district has joined an emerging trend of cash-strapped schools questioning why some highly profitable organizations should be let off the hook when it comes to paying property taxes.

The Upper Moreland School District is challenging the property-tax exemption of Jefferson Health’s new Asplundh Cancer Center, arguing that the facility does not meet the Pennsylvania Supreme Court’s standard for exemption.

The appeal in Montgomery County’s Court of Common Pleas is no guarantee of victory, but it challenges the long-standing tradition of exempting large, profitable health systems from the property-tax net. The legal challenge comes at a time when school districts are desperate for more property-tax collections as state funding covers only a fraction of their expenses.

When Tower Health bought five hospitals from the for-profit Community Health Systems Inc. in 2017 for $418 million, school districts in Pottstown, Phoenixville, and elsewhere were not ready to grant property-tax exemptions on the facilities just because their new owner qualified as a nonprofit under the federal law. Those cases are still in court.

Philadelphia, on the other hand, gave Tower a tax exemption for Chestnut Hill Hospital, even as the city and the school district have been taking a harder look at exemptions for some smaller nonprofits.

In the Asplundh case, the Montgomery County Board of Assessment Appeals granted an exemption on the cancer center, which is assessed at $14.9 million, effective Jan. 1. Jefferson, through Abington Hospital, which is the direct owner of the cancer center at 3941 Commerce Ave., appealed on Nov. 2, asking the Court of Common Pleas to make the exemption effective earlier, on June 1.

If the property were not exempt, the 3,000-student school district would collect nearly $460,000 annually at the current tax rate.

The school district followed with its appeal on Nov. 12, arguing that the cancer center did not meet a five-prong test established by a 1985 state Supreme Court decision and affirmed as the standard for property-tax exemption in 2012.

The Supreme Court’s vague test demands that a nonprofit advance a charitable purpose, provide a substantial portion of its service for free, benefit people who are “legitimate subjects of charity,” relieve the government of a burden, and operate free from “private profit motive.”

Attorneys who represent nonprofits in property-tax cases have long criticized that test as overly subjective.

In the year ended June 30, 2018, the cost of charity care provided by Jefferson overall was $36.9 million, or 0.91 percent of $4.05 billion in net patient revenue. That is higher than the $19.2 million in charity care provided by the University of Pennsylvania Health System. For Penn, charity care amounted to 0.31 percent of $6.25 billion in patient revenue.

Aaron J. Freiwald, an attorney for the Upper Moreland School District, hired after the appeal was filed, said Tuesday that the 2012 Supreme Court decision involving a camp in the Poconos, a landmark New Jersey Tax Court decision in 2015 denying tax exemption for a Morristown hospital, consolidation of hospitals into ever-larger health systems, and a decline in charity care because of the Affordable Care Act have made the time ripe for challenges to exemptions for 501(c)(3)s.

Jefferson did not comment on the case involving the Asplundh center, which opened July 2.

Freiwald and two Bethlehem attorneys, Martin Cohen and Mark Altemose of Cohen, Feeley, Altemose & Rambo, are also seeking to overturn tax exemptions for Lehigh Valley Hospital, on behalf of Salisbury Township School District, and St. Luke’s Hospital-Monroe Campus, on behalf of the Stroudsburg Area School District.

Spokespersons for both health systems emphasized that county taxing authorities had approved the exemptions and expressed confidence that they would prevail in court.