By Kevin Coughlin
In a move that may have profound implications for hospitals and nonprofits across New Jersey and beyond, the Atlantic Health System has agreed to pay local property taxes for Morristown Medical Center.
The town of Morristown will receive $10 million up front, and another $5.5 million in penalties and interest in annual installments over the next 10 years. These payments will settle hospital tax appeals spanning the years 2006-2015.
Going forward through 2025, approximately one-quarter of the property will be taxed, at an assessed value of $40 million. This is expected to yield another $1.05 million per year in tax payments, to be roughly split with the town and the Morris School District.
The town council approved the deal unanimously on Tuesday.
“I’m glad it’s over and we have a settlement. It’s a fair settlement,” said Mayor Tim Dougherty, citing a nine-year legal battle pressed by two administrations.
Morristown will benefit greatly, he said, as the hospital shoulders more of the costs of municipal services. The hospital’s 10-year commitment ensures “a guaranteed revenue stream” to help elected officials plan for the town’s future.
Brian Gragnolati, who became Atlantic’s CEO earlier this year, said the agreement “provides clarity around financial obligations.”
In a statement, he added that the hospital “plans to have a greater presence in the lives of our community members by offering enhanced health and wellness programs that are reflective of their needs.
“We both gain,” he said, asserting that the pact “reinforces our vision as a trusted network of caring.”
“It’s a very fair settlement and it will make a meaningful difference in the life of every resident,” Morristown council President Rebecca Feldman said after the vote.
Betsy Ryan, president and CEO of the New Jersey Hospital Association, issued this statement:
“We’re pleased that an agreement has been reached on this important issue. We do expect this issue to now move on to the legislative arena, and we look forward to being part of that dialogue with lawmakers.”
In June, a state tax judge sent shock waves through the medical industry when he ruled in Morristown’s favor, declaring that the hospital should pay local property taxes on virtually all of its 40-acre property for the years 2006-2008.
Hospital lawyers estimated that could have amounted to as much as $3 million annually. Separately, Morristown also sought taxes for the years 2009-2015.
Dougherty said both sides wanted to avoid further litigation, which has cost Morristown about $1 million, by the estimate of town Attorney Vij Pawar.
The Mayor praised Gragnolati for “bringing a fresh perspective” that will benefit the community.
“It was this spirit of collaboration that not only helped the two sides reach an equitable solution, it helped us cultivate a deeper relationship,” said the Mayor, adding he felt the prior CEO, Joseph Trunfio, “was not very interested in the community of Morristown.”
Under terms of the deal, Morristown wont be affected if the state enacts laws mandating lower payments from hospitals, Dougherty said.
“No matter what, we keep the higher end,” he said.
And if the hospital adds facilities on the property, it is subject to reassessment that may bring higher taxes, according to the Mayor.
THE FINE PRINT:
Judge Vito Bianco had found that for-profit and nonprofit activities are so intermingled at the hospital that it no longer meets the legal definition for a nonprofit entity. He exempted only the auditorium, parking garage and fitness center from tax liability.
In his 88-page decision, Bianco said the medical center in many ways functions just like for-profit hospitals, with “labyrinthine corporate structures, intertwined with both non-profit and for-profit subsidiaries and unaffiliated corporate entities.”
The judge said his concerns about tax exemptions encompassed nonprofit hospitals statewide. Top executives at Morristown Medical Center were paid like private-sector counterparts, Bianco noted, pointing to $5 million that former CEO Joseph Trunfio made in 2005.
Morristown Medical Center is the town’s largest employer, with about 5,500 employees.
The case dates to the prior administration of Mayor Donald Cresitello. Former Town Administrator Michael Rogers, who was there at the time, and was involved in nearly all subsequent negotiations, told MorristownGreen.com that red flags were raised when private medical practices started appearing inside new buildings at the hospital.
When the town attempted to tax the hospital in 2008, the hospital appealed, setting in motion litigation that culminated in Bianco’s ruling.
Atlantic Health rebuffed numerous settlement overtures from Morristown over the years, according to Rogers.
The Mayor has credited Bianco’s decision, and the change of leadership at Atlantic Health, with bringing the hospital to the bargaining table.
Dougherty told council members that this new revenue stream will be their legacy. He also cited the hospital’s medical excellence, and praised the care his mother received there recently.
“It’s phenomenal what that hospital does,” the Mayor said at the council meeting. “We’re happy to have them in our backyard.”