City Council asked to consider compromise on PeaceHealth tax issue

PeaceHealth directors, employees and supporters are urging the Bellingham City Council to consider a compromise to a proposed ordinance that would repeal an exemption of local business and occupation taxes for nonprofit health care providers affiliated with religion.

The repeal could cost PeaceHealth’s St. Joseph Medical Center in Bellingham up to $1.2 million in new annual taxes, according to the nonprofit, Catholic-affiliated provider. St. Joseph’s leaders said the financial hit would force cuts to medical services and staff.

It would also disrupt a long-standing relationship between the city and St. Joseph that has supported the hospital’s mission to provide community health care, said Nancy Tieman, regional vice president of strategy, innovation and development at St. Joseph.

“I would ask that you not abandon this vital partnership,” Tieman said to council members.

More than 100 people attended a May 19 public hearing on the matter. Council members voted, 7-0, to schedule a work session on the topic for June 9. Further council action is possible on that date.

In addition to repealing the tax exemption for nonprofit, religious providers, the proposed ordinance would also adopt health care tax deductions and exemptions contained in Washington state’s business and occupation tax code.

If the council approves the ordinance, St. Joseph would have its annual gross business receipts taxed at a rate of 0.44 percent, the same as registered businesses defined as “services and other activities” under the city’s tax code.

St. Joseph is the only hospital in Whatcom County. It is also Bellingham’s major employer, with more than 2,700 employees.

City Council has discussed the tax-exemption repeal and the adoption of state health care deductions during various meetings over the past year.

The policy proposals are designed to bring equity to Bellingham’s nonprofit health care providers, regardless of whether they are affiliated with religion, according to city documents. Nonprofit providers not connected to religion currently pay city business and occupation taxes.

Additionally, the city attorney’s office has raised questions over whether it’s appropriate for a city government to grant a tax exemption based on religion.

After nearly two hours of public comment during the May 19 hearing, Councilman Jack Weiss said he wanted time to reflect on the comments made during the evening’s public hearing. Other council members agreed.

“There’s a lot that we have to consider,” Councilman Terry Bornemann said. “There’s a lot that we have to look at.”

Most who spoke during the public hearing opposed the proposed ordinance. Many favored an alternative taxation plan backed by Bellingham Mayor Kelli Linville and the city’s finance director, Brian Henshaw.

That option would still tax PeaceHealth, but at a lower rate to allow the city to recoup annual tax revenue lost after the provider took over Madrona Medical Group in 2007 and North Cascade Cardiology in 2011, both of which paid city business taxes that officials estimate would today total about $350,000.

PeaceHealth officials said they do not oppose paying money to the city, nor do they oppose striking the tax exemption for nonprofit providers tied to religion.

But taxation should be managed with consideration of St. Joseph’s purpose and the benefits it provides to the community, said Barbara Lupo, who chairs the hospital’s governing board.

“We ask only that the tax is fair,” Lupo said.

With health care providers across the country seeing rising costs and falling revenues, a new annual tax bill of $1.2 million would almost certainly bring cuts to St. Joseph’s programs and services, said Dale Zender, the hospital’s chief administrator and the chief financial officer for PeaceHealth’s Northwest Network.

Zender told City Council that St. Joseph has seen declining revenue for the past three years. He projects that when the hospital’s current fiscal year ends on June 30, it will have a $5 million shortfall, he said.

Despite its nonprofit status, St. Joseph does aim to earn a profit margin of at least 8 percent annually, which for the hospital equals about $41 million, Zender said.

That profit is necessary for the hospital to pay for capital expansions and upgrades, which can be very expensive, Zender said.

For example, St. Joseph recently spent money on new electronic medical record systems and two new CT scanners purchased at $2.4 million each, he said.

“You need to have the margin if you’re going to invest in the organization and have the quality of care,” Zender said.

Larry Thompson, executive director of Whatcom Alliance for Health Advancement, said he would prefer the City Council consider the alternative compromise, rather than the proposed ordinance.

Thompson said he was particularly concerned with how potential cuts to St. Joseph could negatively impact a host of nonprofit health and service organizations that work closely with the hospital.

He also said that putting hospital programs and services in jeopardy during a time of major health care uncertainty could have drastic effects locally.

“I am concerned that the proposal to tax PeaceHealth at the $1.2 million level is not in the community’s best interest,” Thompson said.

Rob Buchinski, executive director of Lighthouse Mission Ministries, said his organization’s ability to provide services is largely dependent on its relationship with St. Joseph, particularly when finding hospital care for people at the mission who deal with mental health issues.

Lighthouse Mission provides food and shelter to people who are homeless or otherwise in need.

Byron Manering, executive director of Brigid Collins Family Support Center, said PeaceHealth grant money is a major source of funding for his organization. Brigid Collins provides health care and case management support for survivors of child abuse, as well as family counseling and other services.

“These core community services would not be possible without their support,” Manering said.

Evan Marczynski, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or

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