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Property Tax Update for Wisconsin Senior Housing

The 2009-2011 Wisconsin budget (Act 28) incorporates a specific change to how the state defines property tax exemption for non-profit senior housing projects.  Up to this point, the existing statutory law was vague and providers were left to contend with a precedent set by an even more vague Supreme Court decision (Columbus Park) and patchwork legislation authored to counteract or more appropriately, counter-balance the Columbus Park decision.  Below is a brief summary of the recent history of non-profit senior housing and property tax issues.

  • Prior to Columbus Park: Wisconsin Statutes 70.11 created a category of exemption for benevolent homes for aged.  The exemption category as poorly defined as it was, fundamentally allowed 501(c)3 providers to argue that their federal exemption and the use of the property for “benevolent” purposes met the definition, provided that the exemption was sought for 10 acres or less.  Limited challenges were made by Assessors to this definition or to the broad interpretation used by non-profit senior housing providers.  Perhaps the statutory challenges most noted up and until Columbus Park occurred in the City of Milwaukee. 
    • In the City of Milwaukee v. The Milwaukee Protestant Home, the City argued that a planned expansion of the Protestant Home funded entirely by new, non-refundable endowments from residents who would still be required to pay monthly rental fees and required to financially qualify, was not justifiably exempt. The basis of the City’s argument was that the new facility was too luxurious, catered only to the wealthy, pre-screened residents to limit the needy, did not provide medical care on-site, and used a health screening to eliminate residency to anyone in need of care.  The Court decided in favor of Milwaukee Protestant Home stating, among other things less relevant to the core exemption issue, that Benevolent does not mean “charity” and as such, a Home can be benevolent and charge fees.  Effectively, the Court said that benevolence can and does in this case mean, allowing people of moderate means to live out their final years, even if the same is not considered charitable.  The Court also said that a new, free-standing housing project must be viewed along-side or as an integral part of the entire sponsoring organization, not in a “vacuum”.
    • In the City of Milwaukee v. Friendship Village of Milwaukee, the city argued that a planned expansion called Freedom Village, built with “refundable” resident endowments and where residents would continue to pay a monthly rental charge, was not justifiably tax-exempt.  As in the case of Milwaukee Protestant Home, Freedom residents were pre-screened as to ability to pay, one resident in a couple needed to be 55 or older, and each resident had to able to live independently (a medical screen).  Residents were provided with a $50 per day credit if skilled care was later required and, as part of their contracts, could opt to convert at a later date, to residency at Friendship Village thereby waiving their refund from Freedom in exchange for residency and care provided at Friendship.  As in the Protestant Home case, the City offered all of the same arguments (too exclusive, no on-site medical care, excluded the needy, etc.) and the facility did not permit residents to live-out the remainder of their years as was the case with the Protestant Home.  The Court reaffirmed the Protestant Home decision stating that benevolent did not mean free and that the Freedom contract provision allowing residents to convert to occupancy at Friendship Village with no additional charge when care was needed, provided the means for residents to “live out their years”.
  • Columbus Park and After: With the Columbus Park decision, the courts began to slowly redefine the interpretation of Wisconsin Statute Chapter 70 as well as to abandon the basis used to uphold the exemptions found in the Protestant Home and Friendship Village cases.
    • In the Columbus Park Housing Association v. City of Kenosha, the Wisconsin Supreme Court ruled that non-profit associations renting housing units to low-income elderly were not exempt from property tax as specified in Chapter 70 (WI State Statutes) unless the tenants themselves could or would be exempt from taxes had they owned the units.  Essentially, the Court said that the only way a non-profit that was renting units to low-income seniors could be exempt was if the seniors themselves were exempt non-profits.  This decision became widely known as creating or establishing the “rent use clause”.  In effect, the Court decided that the only permitted use for rent proceeds derived from low-income projects was property maintenance and debt retirement.  Prior to this point, it was widely accepted and essentially reaffirmed by the Protestant Home and Friendship Village cases that a benevolent association could use rent proceeds for any purpose that furthered or was in concert with, the reason or justification for federal tax exemption and the mission of the benevolent association (e.g., subsidizing other programs within the association).  In 2004, Governor Doyle signed Wisconsin Act 195 which was created to reverse the Columbus Park decision.  This Act prohibited local assessors from collecting property taxes from non-profit providers of low-income housing.  The Act however, did not address with clarity, the “rent-use” dilemma.
    • In Attic Angel Prairie Point v. City of Madison,  a Dane County judge ruled that senior housing was not necessarily a benevolent activity unto itself.  The entrance fees at the time ranged from $230K to $450K and were structured on a life-lease arrangement.  Under this arrangement, residents received 90% of the fee as a refund when they left or vacated their unit.  The contract also provided for a “priority” admission to other Attic Angel care facilities but no guarantee of admission.  While Attic Angel argued the fundamentals found in the Protestant Home and Friendship Village cases (benevolent association status, life lease arrangements, etc.), the Court found that the only use or purpose for Prairie Point was to provide housing to middle and upper income individuals, absent any health care guarantees or provision on-site and in a manner highly similar to other taxable housing developments. Because the case was decided within a Circuit Court, no value of precedent could be used in other cases, a basic ruling on the exemption issue had occurred sufficient enough to garner attention within the non-profit community and across state-wide municipalities, namely with assessors.

With the passage of Wisconsin Act 28 (the Budget bill), new provisions are now in-place beginning January 0f 2010 that establish the basis for property tax exemption for benevolent homes for the aged.  The law clarifies the exemption test and creates presumed categories of exemption for CBRFs, SNFs, Hospice (those that operate places of residence) and RCACs as defined under Chapter 50 of the Statutes.  The Act also expanded the number of acres that could be exempt from property tax from 10 to 30.

With respect to residential units or senior housing units, the Act provides that a benevolent association may exempt those units with fair market values less than or equal to, 130% of the average equalized value of residential units in the county where the project is located.  The Act also provides specific exemptions for low-income senior housing provided by non-profit, benevolent associations and removes the requirement that the rent be used specifically for debt repayment or property maintenance.  This same provision regarding “rent use” applies to other categories of senior housing as well.

Where I expect the issues to arise with respect to the new provisions in Act 28 are around the determination of fair-market value and the potential carve-out of certain units in a project having values in excess of 130% of the equalized value while others do not.  In effect, some units may be determined as taxable while others qualify for tax-exemption.  How an allocation of property tax to the taxable portions is determined will no doubt raise a series of court challenges.  Similarly, as the units themselves are typically within a larger complex, often with extensive and at times, quite opulent common space, determining fair market value of the unit will be an interesting exercise.  Truth be told, fair market value for the unit is not by assessment definition, the price charged for the unit.  Fair market value would require a determination of value based on an assessment and/or appraisal methodology and I anticipate wide interpretations coming forth across the various county assessors throughout the State. 

In summary, while Wisconsin Act 28 goes quite a ways in clarifying the issue of property tax exemption for benevolent homes for the aging and senior housing projects, the “waters” remain somewhat murky.  It will be interesting to watch how the process unfolds and where the lines are drawn (likely via the courts) on the open issues of fair-market values and how taxes end up allocated on units within a project that don’t meet the 130% equalized value threshold.

February 20, 2010 Posted by | Policy and Politics - Wisconsin, Senior Housing | , , , , , , | Leave a comment

Health Care Reform: Back to the Senate and All that Jazz

Watching this reform process, at least for me, is now like watching a Ping Pong match or a Nascar race (sorry Nascar fans); back and forth and round and round.  Even for someone who watches and interprets health policy for a living, this stuff is getting boring, monotonous and frankly, now somewhat nauseating, content wise.  Maybe the intent is to literally “mind numb” all the people like me who analyze, consult and write about health policy with the goal of shutting us up or in my case, the goal of disconnecting my brain from my fingers so that I can no longer write about the insanity that is “health care reform” in Washington.

Getting to the meat: The Senate, namely Harry Reid, is working feverishly to buy votes, cajole fellow Democrats and to obfuscate the details in his (the Senate’s) 2,000 plus page, Nancy Pelosi light, reform bill.  I say “Nancy Pelosi light” because the Senate remains, even though Democratically controlled, moderate enough not to blindly drink the policy Kool-Aid produced in the House.  This past Saturday, via a host of back room deals and pay-offs to fence-sitting Democrats, Reid cajoled a cloture avoidance vote, sending the reform bill to the floor for debate.  This mid-level stall tactic buys Reid additional time to arm twist colleagues and to literally, buy votes.  Without this Chicago-style tactic, Reid knows the votes for passage are non-existent in the Senate.  In reality, the votes for passage in its current form may still be non-existent regardless of the price offered due to the taxation issues within the legislation, the abortion issue and the government option issue.

Looking at the Bill in detail (I’ll admit that I haven’t read the whole thing as of yet and frankly, I may not as I have now mastered the trick of speed reading these monstrosities, getting to the heart and soul and avoiding the painful tedium that is the politically and socially engineered garbage which consumes hundreds of pages), one quickly sees that key similarities with the House version are imbedded albeit with a more moderate twist in order to appeal to the more moderate Senate membership (if that’s possible).  For example, the government option is actually a state option, triggered only by the states that desire to introduce a government option (however that should work).  The payment methodology incorporates greater taxation options and fees (such as a 5% tax on cosmetic surgery) including on benefit plans – absent in the House bill.  The Senate bill still does not require all employers to offer health insurance while the House bill does although it does require all Americans to purchase insurance or face fines and penalties. Both the House and the Senate bills call for wholesale expansions of Medicaid as a means of providing coverage to lower-income individuals.  The House bill prices in at $1.2 trillion (not including the costs of the recently passed Doc Fix legislation) while the Senate bill weighs in at just under $900 billion and is mute about the doc-fix issue.

Before the fog of cynicism creeps fully into my brain and dulls all of my senses, I’ll finish this post with a few succinct and brutally honest comments on the Reform process.

  • I can’t say it any more plainly or write it any more plainly, what is happening now is not Reform.  Neither the House bill or the Senate bill does anything to reform how health care is delivered in this country or to frankly, improve it.  The incredibly antiquated, bureaucratic and inefficient programs of Medicare and Medicaid remain essentially untouched save for their funding mechanisms.  Medicaid, a horribly structured program rife with individual state bureaucracies and excessively varied benefit plans is being expanded but not reformed – a recipe for wholesale disaster for the millions of new beneficiaries who will enter a system incapable of providing adequate and decent care for the current beneficiaries.
  • The economics of all numbers attached to the reform discussions is literal, laughable dog “doo doo” (substitute if desired, B.S., crap, garbage, cow chips, etc.).  No person who can do simple math and apply any basic economic principles should buy for a moment that either plan (House or Senate) is capable of reducing the deficit, being deficit neutral or not ultimately deleterious to the U.S. economy.  The smoke and mirrors financing techniques applied in both bills (start with the revenue for a few years then gradually add the expenses) is alchemy of the poorest kind; a brew that no sane human should swallow.  Both bills will add billions to the deficit, increase taxes across the board and become an entitlement and bureaucratic monster unlike any that has ever been seen before in the lifetime of mankind.  If this sounds harsh, consider the following.  The Constitution of the United States, the seminal document of U.S. governance is sixteen pages in actual content, inclusive of all amendments and the Bill of Rights.  The House bill and the Senate bill are 2,000 plus pages in length, each costing the U.S. taxpayers over $1 trillion ($1,000,000,000,000), and neither substantively reforms Medicare or Medicaid or assures that any citizen will receive better health care despite the enormous price tag.  If that isn’t bureaucracy “Washington” style, I don’t know what is.
  • In spite of polls that show less than half of all citizens are in favor of the present course of reform (and a trend that continues to move lower), the elected officials in D.C. plow on their present course.  Someone once told me that the definition of insanity is when, in spite of not getting something correct, you continue to do the same thing over and over again, hoping to get a different result.
  • The U.S. debt load (deficit) now totals $12 trillion and change and the total GDP of the U.S. economy is $14 trillion.  Adding more debt, which both bills will certainly do, is preposterous and economically incomprehensible.  Granted, the economy will return to a growth pattern but no reasonable economist will assume that future GDP growth could possibly outstrip the present growth of Washington deficit spending or for that matter, be aided during recovery by additional deficit spending to the tune of $1 trillion or more.
  • In spite of the rhetoric and the foolish fodder from Washington, Medicaid and Medicare will geometrically expand and their growth will be unconstrained by either bill.  Medicare will be cut in the short run by $500 billion damaging providers and beneficiaries temporarily but Congress will come to the rescue, abandoning most of the painful cuts, restoring funding and adding more to the deficit, all in the shadows of their post-reform victory dance.  Trust me on this one as I have been involved in healthcare and health policy now for almost three decades and it is a cycle that constantly repeats.  For those that are even skeptical, look at the House’s bill for the physician payment fix.  In Washington, the squeaky wheel gets the grease and when the election cycle heats up, seniors, hospitals, doctors and any other interest group with voting blocks will be pounding the corridors in search of “Benjamins for votes”.
  • There are no winners in this process save a handful of special interests and the usual D.C. elitists and certain political classes.  The losers are too many to count but at the top of the list are individual tax payers, individuals with current health insurance, the poor without insurance (they ain’t seen nothing yet until they take their new Medicaid insurance in a state like Mississippi and try to get decent healthcare), companies that presently provide benefits, anyone with a HSA, and of course, anyone who owns or thinks about starting, a small business.  Again, if you think I’m full of you know what, read the gosh darn bills.

I try to avoid ranting in this Blog because I do find it somewhat counter-productive and often, overdone.  Personally, I am not really a ranter anyway as I rely generally on intellectual discourse and analysis to pose my point and to beg the questions.  In the end, I suppose I have found my breaking point for the moment courtesy of Harry Reid, Nancy Pelosi and President Obama, all I have never met and if I did, I would probably enjoy chatting with – maybe even over a cold beer.  Just not today.

November 24, 2009 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

Wisconsin’s Newest Triple Tax

Yesterday, Governor Jim Doyle signed AB 75 (now Act 28) otherwise known as the Wisconsin Budget Bill, inclusive of 81 vetoes unlikely to be overridden in the Assembly.  Amid fanfare and small accolades for passing “on time” (today is the deadline) a new budget, is the harsh reality that this budget kicks off a new era in Wisconsin tax policy.  For the first time in Wisconsin’s history, residents will experience a triple taxation in the form of  their healthcare and of course, the inevitable result of higher healthcare costs.  Wisconsin to date was not widely known as a “low cost” healthcare state and thanks to this budget, will keep that “booby” prize designation for some time to come.

If per chance, you have read my other posts regarding the Medicaid shell game that is perpetrated during budget preparations, you will have an inkling as to how Wisconsin tax payers and healthcare consumers just got triple shafted by this budget.  In the final analysis and “budget”, the gouging occurred in plain sight and to my dismay, without too much opposition from consumers, providers, or politicians.  In plain language, here is what just occurred.

  • Under the guise of capturing additional Federal matching dollars, the budget jacks-up the nursing home bed tax from $75 to $150 immediately (tomorrow) and then again, by another $20 next year.   Unless you believe in Peter Pan, the Tooth Fairy and the Easter Bunny (Santa Claus is off limits of course), you know that this tax will be passed on to residents capable of paying privately for their room and board.  As the tax occurs on every licensed bed, providers with the greatest census comprised of private paying residents will feel a disproportionate share of this tax “pain” as they are forced to pass it along to their residents and the resulting Medicaid rate increase of 2% will fall woefully short of making up the “paid in” difference versus the “receipt” difference via the rate increase.  Conclusion: Nursing home residents see their costs go up and providers see their costs go up – strike one.
  • Nursing homes in this budget are not alone as hospitals now fall under the spell of the “shell game”.  With this budget, hospitals now will pay a “revenue” based tax, again under the guise of attracting Federal matching dollars to bolster Medicaid reimbursement.  Similar to the repeat dilemma that nursing homes experience, hospitals will quickly realize that the tax that they pay in plus the added Federal match doesn’t quite translate dollar for dollar into reimbursement improvement.  In actuality, the sleight of hand legislature and the Governor will “sift” a few million here and there from this new “pot”, moving it hither and yonder to balance other “bloated and unfunded” elements of the State budget.  And of course, like in the nursing home scenario, hospitals will pass this tax on to their paying customers thereby inflating the costs of hospital based healthcare for each and every resident in Wisconsin that carries insurance or pays for their care privately. Conclusion: Hospital care just got more expensive and that expense will be passed on via insurance rates and costs of care to anyone who can afford to pay – strike two.
  • The final leg of the tripartite tax stool is perhaps the toughest to understand for most people and the least direct.  This leg is the Federal stimulus and matching funds leg that is referenced as the source to be tapped via raising the nursing home bed tax and creating the new hospital tax.  Simply stated, to understand this leg is to understand that Washington and the Feds have no money that did not already come in the form of taxes paid.  In other words, the money being used to match the nursing home and hospital taxes is taxes already paid by individuals and business in Wisconsin.  The cruel irony is that we will be paying new taxes for nursing home beds and hospital care that will be used to return taxes already paid and in exchange, receive the reward of higher cost healthcare.  Even more bizarre is the fact that the taxes once paid to the Feds and theoretically returned via a match with the new healthcare taxes, will be skimmed by the Legislature and Governor for uses other than for which they were taken in the first place; clearly not for lowering the cost of healthcare.  Conclusion: The Feds never had any new source of money and never will save the taxes already paid by taxpayers – strike three.

I leave you with a simple economic lesson tied directly to this subject – Governments are not sources of money, people and businesses are sources of money and ultimately, people are truly the only source.  In a climate where healthcare is already too expensive and the economy is lack-luster at best, raising taxes via healthcare in any fashion to theoretically redistribute dollars from another source is simply bad economic policy.  There is absolutely no chance in this scheme for the healthcare consumer or for providers for that matter, to come out ahead and sadly, their loss will come at the expense of all tax paying citizens and businesses in the State.

June 30, 2009 Posted by | Policy and Politics - Wisconsin | , , , , , | Leave a comment