June 21, 2018
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Mercy sale could mean close to $1 million in taxes per year for Portland

Troy R. Bennett | BDN
Troy R. Bennett | BDN
Mercy Health System of Maine on Monday said its board of directors has agreed to negotiate its sale to Steward Health Care System LLC, a for-profit health care company based in Boston.
By Seth Koenig, BDN Staff

PORTLAND, Maine — Portland city officials said Tuesday that, while many question marks still hover around the potential sale of Mercy Health Systems to a for-profit entity, shifting the previously nontaxable hospital network onto the tax rolls could generate $865,000 or more in new annual property taxes for the city.

That figure is an early estimate, cautioned city spokeswoman Nicole Clegg, who stressed that it is only based on applying the property tax rate to the land and buildings belonging to Mercy in Portland, which are valued at a total of about $46 million.

Clegg noted that city assessors don’t know if some of the organization’s property will be sold or changed as part of Mercy’s proposed sale to the Boston-based Steward Health Care System LLC; nor do they have an inventory of what hospital equipment the organization owns, which would add personal property tax value to the assessment.

“We don’t know any of the details of the transaction, and we just don’t know what that could mean,” Clegg told the Bangor Daily News. “This is the first time a hospital of this size is going from not-for-profit status to for-profit status in the state, so this could be complicated. We’ll need to see the details of the transaction, we’ll need to understand what equipment is owned and leased by the business before we can really have a true handle on what the financial impact will be.”

Clegg said that while Mercy currently does not pay the city an annual sum in lieu of property taxes, as some nonprofits in Maine do, the organization offers multiple in-kind services, such as free use of the hospital’s X-ray to the city’s health care department potentially worth “hundreds of thousands” of dollars each year.

“Mercy has been a great partner with the city,” she said. “They’ve provided support for our community and minority health outreach programs. They have provided ancillary services for our clinics, and we’ve enjoyed a shared commitment to the poor and vulnerable populations. They’ve provided significant charitable care for these segments of the population, and certainly we hope that as they go through this transition, we’d continue to work together on those shared priorities.”

Clegg also said city officials do not yet know if Mercy’s possible new owners would seek tax breaks.

Chris Murphy of Steward Health said his organization does not request tax breaks on its properties, which include 10 hospitals in Massachusetts.

“Except for our two hospitals in Boston, in fact, we are either the largest or the second-largest taxpayer in each of those communities [where Steward affiliated hospitals are] now,” Murphy said.

Steven Scharf, a vocal taxpayers’ advocate in the city, said Tuesday he hopes that remains the case when Steward expands into Maine.

“This could lower the property taxes for everybody else in the city,” Scharf said. “My concern is that the mayor will say, ‘Oh we’ve got another $1 million,’ and use it to justify a huge budget increase. My concern is that the city will turn around and try to spend it immediately, instead of trying to balance out the tax base.”

Scharf said Steward could seek a tax increment financing arrangement with the city, which would return to the company additional taxes generated by new investment into the health care organization’s properties. The only other tax reduction programs available to Portland property owners apply to farm land and tree growth, he said.

In Monday’s announcement of the potential sale, Mercy officials said they believe Steward, which has made $600 million in capital investments into its 10 Massachusetts hospitals, will indeed make “significant investments” in the Mercy properties.

“I wouldn’t support a TIF, and that’s the only tax break they could qualify for,” Scharf said.

Bangor Daily News Health Editor Jackie Farwell contributed to this report.

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