Harris Regional asks county to slash the hospital’s tax value
When Jackson County sent out bucketloads of mail this spring announcing new values for every property in its borders, Harris Regional Hospital got a piece of paper declaring that its campus was worth a little over $42.3 million — the tally rises to $48.9 million with all the auxiliary holdings included.
That’s way too high, decided the corporate offices of Duke LifePoint, which owns Harris. LifePoint sent in an appeal declaring that its properties in Jackson County were worth an even $13 million.
“Typically when you get a big business like that you will be challenged, so I wasn’t surprised to get a challenge,” said Bobby McMahan, tax assessor for Jackson County. “But I was a little surprised that their opinion of value was as low as it is, that it was $13 million.”
Impact on Sylva
It’s a revaluation year, the time when — after years of work — the tax office sends out updated market values to all properties in the county. Appeals pour in by the hundreds once those new values go out, but Harris’ appeal has sparked the loudest conversation of any of them.
For one thing, the hospital has one of the highest property values in the county. For another, the gap between appraised and appealed value is huge, and the appeal has had a substantial impact on Sylva’s budget. In the 2015-16 fiscal year, the hospital’s assessed value accounted for 10 percent of Sylva’s tax base, and town leaders were expecting the same would be true this year.
So, when Sylva’s commissioners first heard that the hospital was trying to get its value approved at $13 million, rather than $42.3 million, they were upset at the hit their already tight budget would take. And when they discovered that Harris would not be paying anything at all until after the appeal was settled — something that will almost certainly happen after the new fiscal year begins and the budget is approved — some of them were downright angry.
At a $42.3 million value, the hospital would have to pay $178,500 in taxes to the town, equal to about 5 cents on the 42.5-cent tax rate. If the hospital were valued at $13 million, its tax bill to the town would drop to $55,250.
“It’s sad what this hospital is doing to the community,” said Commissioner David Nestler.
“It’s not a policy that comes out of any sort of commitment to the community,” he added. “It’s the antithesis of that.”
“I hate to make them look like bad guys, but that’s not being a community partner,” agreed Commissioner Barbara Hamilton.
Until 2014, the hospital had operated as a nonprofit community hospital, so it wasn’t taxable until Duke LifePoint bought it in August 2014. In a package deal, LifePoint purchased Harris and Swain Community Hospital for $25 million, also pledging $43 million in capital investments as part of the terms.
Those numbers gave Sylva Commissioner Greg McPherson a moment of pause.
“And they’re saying it’s worth $13 million?” he said. “Who are these people?”
The reaction from the Jackson County commissioners was much less fiery. While the hospital value has sparked roundtable discussions among the Sylva commissioners multiple times during the budget season, the subject has been all but absent where Jackson is concerned.
That could be partly because the hospital makes up a much less significant part of the county budget than the town budget. In 2015-16, Sylva collected $1.27 million in property taxes, while Jackson County collected $30.5 million.
In contrast to the Sylva folks, County Commission Chairman Brian McMahan doesn’t see anything underhanded in the hospital’s bid for a lower value. In his view, it’s just business as usual.
“Anybody whose business is to make money, they always try to closely examine and audit their books and make sure the numbers are what the numbers are supposed to be,” Brian McMahan said. “I think that’s why we see those appeals come in from people like Duke LifePoint, because they pay people to constantly monitor what’s going on and how it affects the bottom line.”
Maybe, Nestler said, but a quick Google search is all you need to reveal that LifePoint has done this same thing in other towns, other states — buy a hospital, appeal the value to be something far below the tax appraisal, and leave the local government hanging while the process plays out.
“It’s a strategy they have. It’s an economic strategy,” Nestler said. “They pay these attorneys to fight these fights to save them money.”
It’s not quite fair to say that the appeal is a reflection on Harris’ willingness to be a community partner, Brian McMahan said, because the appeal came from corporate headquarters — the hospital leaders who live and work in Western North Carolina had nothing to do with the decision.
“I don’t think it’s a reflection on the company itself or how they feel toward the community,” he said. “I think it’s just part of doing business.”
Indeed, the county assumes that a certain amount of the assessed value will erode as appeals play out with each revaluation. The proposed budget that commissioners will vote on June 16 assumes that the assessed value will decrease by about $70 million.
“This has been a process that’s been going on for decades, and after doing it enough you sort of get a feel for how things will turn out,” McMahan said.
Sylva has no such cushion. The town has a perennially tight budget — this year’s proposed tax hike from 30 to 42.5 cents per $100 of property value represents the first tax rate increase in 12 years — and this year it faced an onslaught of budget challenges in addition to the hospital. Health insurance costs went way up, the reevaluation caused a 6 percent decrease in property tax base and the town is still missing revenue from business license fees, which the N.C. General Assembly stopped towns from collecting as of July 2015.
The appeals process
The appeals process is still playing out. It could wrap up in a matter of weeks, or of months, or — in rare cases — years.
LifePoint started out by filing an informal appeal with the Jackson County tax office, along with about 2,800 other property owners. Bobby McMahan rejected the appeal.
“I would rather have seen an individual fee appraisal, and that would have been performed at or before their original purchase, and that’s not what this is,” Bobby McMahan said of the 1.5-inch-thick document LifePoint sent in to prove the value should be lowered to $13 million.
Bobby McMahan struggled to say exactly what he’d call the document, but he was adamant about one thing — it’s not an appraisal.
“I can’t even tell you what all’s on there and sensibly talk about it,” he said. “Every page is something different. It’s not rhythmically put together.”
The document, which is not public record, contains information such as statistical information about the dollar-per-room value of hospitals in the Southeast and historical purchase information, Bobby McMahan said.
Bobby McMahan is also shaking his head about the fact that LifePoint’s $13 million “opinion of value” isn’t broken down among its various properties in Jackson County — it simply says that its collections of holdings should be worth an even $13 million, not one penny more or less.
“That’s part of the reason we’re taking the position we are, like ‘Are you serious?’” he said.
However, there’s no way to say for sure what the Board of Equalization and Review or the Property Tax Commission will make of LifePoint’s case. After those boards make a decision, there is still another opportunity for recourse with the N.C. Court of Appeals.
“I think there’s going to be some give and some take, and maybe more take than give,” said Brian McMahan. “But that’s yet to be determined.”
Harris Regional declined to comment on this story, and Duke LifePoint’s corporate headquarters did not reply to requests for comment.
Harris Regional’s property holding*
• $45.9 million: value according to the county
• $13 million: value according to Duke LifePoint
• $170,000: yearly property tax bill based on the county’s pegged value and the proposed county tax rate
• $48,100: yearly property tax bill based on Duke LifePoint’s purported value and the proposed county tax rate.
*The real estate property value includes all land and buildings owned by the hospital, including the main hospital and 76.8-acre hospital campus (valued at $42.3 million by the county), Mountain Trace Nursing Home, the hospital thrift store and various offices.
Bills for equipment values won’t be sent out until August and go through an appeals process separate from real property.