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Hundreds of Millions in Property Tax Breaks for Nonprofit Hospitals Are at Stake

By Gary Smith
12/12/2019
Hundreds of Millions in Property Tax Breaks for Nonprofit Hospitals Are at Stake

In a case in front of the Illinois Supreme Court, groups are challenging the state’s law that provides property tax exemptions to area not-for-profit hospitals in return for them providing free or discounted services to poor and underinsured people.

However, the groups suing charge that hospitals aren’t providing enough free care to warrant the tax break.

What’s at Stake?

There is a lot of money at stake in the progress of this case because 156 of Chicago’s 200 hospitals are not-for-profit, including the larger healthcare systems Advocate Health Care, Northwestern Memorial Hospital, and Rush University Medical Center.

It’s hard to pinpoint how much Illinois hospitals might have to pay in property taxes should the court rule the law unconstitutional. Hospitals won’t provide information on how much they save from not paying property taxes, and estimates are computed by the hospital themselves, using a statutory formula, so it’s hard to calculate. However, a 2009 report by the Center for Tax and Budget Accountability pegged the value of 47 Chicago-area not-for-profit hospitals’ property tax exemptions at $279 million.

Northwestern Memorial’s Streeterville campus, for instance, occupies a lot of acres on Chicago’s Magnificent Mile, where property values are high.

An Illinois not-for-profit hospital can be considered tax-exempt if the value of its charitable services is equal or greater than its estimated tax liability. The case in front of the Illinois Supreme Court argues that the Illinois Constitution allows exemptions only for property used exclusively for charitable purposes.

Opponents argue that since many not-for-profit hospitals actually make money, they should have to pay property taxes to help pay for services for police, roads, schools, etc. The fact that these are now exempt from paying taxes impacts the entire community.

According to the Illinois Health Facilities & Services Review Board, all but one Cook County hospital with more than $500 million in net revenue spent less than 2% of that net revenue providing free care to low-income patients last year. Meanwhile, Cook County Health’s flagship hospital, Stroger Hospital, spent 54% of its revenue, or $324.6 million, on charity care.

Cook County aldermen are working on an ordinance called PILOT, for payment in lieu of taxes. Under a similar program in Boston, nonprofit institutions contribute money to services like police and fire protection and snow removal in lieu of paying the property taxes

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