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Day Kimball Healthcare Voices Opposition at Capitol to Governor's Proposed Steep Tax Hike on Hospitals

April 6, 2017

Staff from Day Kimball Healthcare (DKH) attended the Connecticut Hospital Association’s (CHA) Hospital Day at the Capitol on April 5 to voice opposition to measures in Governor Malloy’s proposed 2018-19 state budget that, if passed, would result in a significant increase to the already exorbitant tax burden on Connecticut hospitals, including DKH.

As it stands, Connecticut hospitals currently pay $556 million in taxes per year, a rate 30 times the state’s corporate tax rate. DKH itself currently pays $6.2 million in taxes per year. If the Governor’s proposed measures are passed by legislators in the final budget, it could add nearly $4 million in additional tax liability to DKH, representing a year-over-year tax hike of approximately 65% for the non-profit community hospital and healthcare system.

There are four measures in the Governor’s proposed budget that contribute to this potential loss.

One is the elimination of the small hospital pool, a mechanism by which the state returns an extra portion of the taxes paid in by hospitals back to small, independent community hospitals; this would cut approximately $2.8 million in funding from DKH. 

A second is a proposal to change the base rate period for determining the hospital tax due from a fixed to a rolling period; this would cost DKH $1.7 million in additional hospital taxes each year.

A third proposal would allow, for the first time in the state’s history, municipalities to levy a property tax on nonprofit hospitals. Currently, the state provides PILOT (Payment In Lieu of Taxes) payments to cities and towns to make up for the loss of property taxes from exempt non-profits like colleges and hospitals. In this proposed budget, the state would cease making those payments and instead municipalities would have the option of charging non-profits a direct property tax to make up the difference. The Town of Putnam’s proposed budget currently includes levying that property tax on Day Kimball Hospital. If it remains in the Town’s final budget that is passed by residents, it will result in another $546,000 in tax liability to DKH.

Finally, the Governor’s proposed budget also includes a move to return hospital funding from its own line item in the state’s budget back into the general Medicaid line item, which would allow it to be cut in its entirety at any time through the Governor’s power of rescission. Legislators including Senator Mae Flexer and Representative Daniel Rovero had successfully worked to break hospital funding out into its own line item just last year in order to limit the power of rescission to just 5% of the total hospital funding. 

The Governor’s proposed budget does include a new pool of funding for hospitals, ostensibly to help offset some of the losses incurred as a result of these proposed measures. But the new funding won’t come close to making hospitals whole. DKH, for example, would still see a nearly $2 million net loss in taxes paid versus the amount returned by the state in the form of hospital funding. 

Hospitals are also extremely hesitant to count on that funding actually coming through, given the state’s previous failures to make good on its promise to return hospital taxes in full in the form of supplemental hospital funding, as well as current uncertainty about healthcare policy and programs at the federal level. 

Hospital Taxes Hurt Access to Healthcare and the Economy

“The measures included in the Governor’s proposed budget won’t just hurt hospitals, they will drive up the cost of health care and will hurt access to health care for all Connecticut residents, but particularly those in rural areas like Northeast Connecticut,” DKH President and CEO Joseph Adiletta said. 

“If these proposals pass they will also have a significant negative effect on our state and local economy. Trying to balance the state budget at the risk of its residents’ health and livelihood is not only morally wrong, it’s clearly counterproductive,” Adiletta continued. 

Day Kimball Healthcare is the major provider of healthcare in Northeast Connecticut and is also the region’s largest employer. DKH employs over 1,100 people, more than 80% of which live in Northeast Connecticut – 13% in Putnam alone. 

According to a recent economic impact report compiled by CHA, Day Kimball Healthcare provides more than $287 million in economic impact to the local economy each year, and dollars spent by DKH employees on groceries, clothing, mortgage payments, rent and at local shops and restaurants generate an additional 1,510 jobs for the local economy.

“We’re fortunate to have the strong support of our local legislators, who recognize and understand the crucial foundational role Day Kimball plays in the fabric of Northeast Connecticut,” Adiletta said. “But we must also make our voices heard by the Governor and the rest of the legislative leadership in Hartford. Cutting and taxing hospitals is simply bad policy and will only serve to negatively impact our state and its residents.”

DKH has set up a web page, daykimball.org/BecauseWeCare, where the public can learn more about the proposed tax increases and funding cuts and can submit a message to key state legislators asking them to remove these measures from the proposed state budget.

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