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Two months later, still no action on Illinois hospital tax

Following through on a promise, Gov. Pat Quinn announced more than two months ago that the state would resume denying tax exemptions to hospitals that operate more like businesses than charities. His action meant hospitals could lose millions of dollars each year.

But the state has taken no action on 17 pending tax exemption applications, despite calls from advocates to make hospitals live up to their missions and the demands of municipal officials who believe they are losing valuable revenues from hospitals that don’t deserve tax breaks.

“At the end of the day, it’s costing the taxpayers millions and millions of dollars for the Department of Revenue to delay these decisions,” said Cook County assessor’s office spokeswoman Kelley Quinn, adding that further delay could mean a lost year of revenues for some taxing districts.

The governor’s office denies a holdup, saying the decisions are complicated and take time. But the silence from the Department of Revenue raises concerns that the decisions are embroiled in wider negotiations in Springfield between the state and hospitals, and that the Democratic governor may be feeling pressure from the state’s influential hospital industry, a top contributor to political campaigns.

The hospital industry unleashed a crusade of letter-writing over the past few months. Last fall, around the time of Quinn’s decision to temporarily hold new decisions on hospital taxation, it sent numerous emails and letters, according to documents obtained through a Freedom of Information Act request by The Associated Press. That campaign has not slowed this spring.

Simultaneously, lawmakers are grappling with a budget crisis and contemplating cutting payments to hospitals in Medicaid, the health program for the poor and disabled. Some predict the two issues — Medicaid and hospital tax exemptions — may collide at the end of the current legislative session.

“I think they’re going to try to bring all that into the discussion at the end,” said Republican state Rep. Patti Bellock, a member of a bipartisan committee charged with cutting the state’s Medicaid budget. “They may try to use it in the discussion when they work with the hospitals ... I really think (the two issues) should be kept separate.”

All sides, including Quinn, agree legislation on hospital taxation is needed. So far, attempts to find a legislative standard have failed, but Illinois Hospital Association spokesman Danny Chun said he remains hopeful something will be approved before the legislature’s expected adjournment later this month.

“We’re still talking. There have been constant meetings among the various players,” Chun said. “You know how it is in Springfield. It probably will go down to the wire.”

The current faceoff has been brewing for years.

Most Illinois hospitals are nonprofit institutions. But a 2010 Illinois Supreme Court ruling suggested they behave more like businesses. Citing that court decision, the Department of Revenue denied tax exemptions to three hospitals in August — Northwestern Memorial’s Prentice Women’s Hospital in Chicago, Edward Hospital in Naperville and Decatur Memorial Hospital in Decatur.

Before more decisions could be issued, Quinn called a timeout. His moratorium was meant to give breathing room during negotiations.

He allowed the three denials to go forward, however, despite pleas from the hospital industry. He also rejected the hospitals’ calls to maintain the moratorium. Since then, however, the administration has gone silent.

“The Department of Revenue is still reviewing these cases and will release decisions when they are complete,” said Quinn spokeswoman Brie Callahan.

The court’s ruling cited the Illinois constitution, which allows tax exemptions only for property used “exclusively” for “charitable purposes.” There’s broad disagreement on a standard for charity in the modern hospital world.

Advocates for the poor want a standard that will force wealthier hospitals to provide more free care to ease the burden on hospitals in low-income neighborhoods. Hospital leaders want to get credit for treating Medicaid patients, prevention efforts and other benefits.

Lawmakers pay attention to the hospital industry, said Kent Redfield of the Illinois Campaign for Political Reform.

“They are a significant contributor. The fact that they give a large amount of money gives them access,” Redfield said. “Hospitals are also major employers within communities, and often a central part of the identity of communities. All of that means that legislators do pay attention and they take concerns expressed by the hospital association and individual members very seriously.”

The Illinois Hospital Association has been among the top 10 contributors to political campaigns in Illinois in most recent years, donating to Republicans and Democrats alike.

In the 2009-2010 election cycle, the group gave $1.3 million, including $279,000 to Quinn’s campaign. So far in the current election cycle, the association has given $397,000 and should be up to its normal level by the end of the year, Redfield said.

Since August, the governor’s office has been barraged with letters supporting the hospitals’ position. Support has come from members of Congress, nonprofit organizations and local leaders. More than 100 Chicago-area faith leaders signed a letter stating, “If hospitals were to lose their tax exempt status, the result would be catastrophic for our communities.”

Some emails suggested legal and political grounds for Quinn to use to justify withdrawing the Department of Revenue’s decisions.

He didn’t withdraw the decisions, calling the moratorium instead.

“We were so excited when the governor lifted the moratorium,” said Diane Limas of the Chicago-based Fair Care Coalition, a group pushing for wealthier hospitals to provide more free care. “Now it just seems like he’s backing down. This is the time he needs to be strong.”

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