Township joins fight against nonprofit tax exemptions

Alexander Sinn • May 4, 2019 at 10:30 AM

GRAND HAVEN TWP. — Grand Haven Township has entered the fold to prevent nonprofit businesses from receiving tax exemptions for providing minimal charity.

The township has joined a common interest agreement with other West Michigan municipalities and school districts to take on Spectrum Health facilities and other nonprofits, which officials say are draining revenues from local taxing units.

Algoma, Plainfield and Sparta townships in Kent County, the City of Kentwood, Rockford Public Schools, Kent Intermediate School District, and Grand Rapids Community College are also part of the agreement.

Grand Haven Township got involved over a dispute with the local Spectrum Health facility called Health Pointe.

Health Pointe is estimated to cost Ottawa County $729,000 in 2019 for providing few charitable services, according to township officials. In January, the township denied Health Pointe a tax exemption of $1.3 million to investigate its operation further, but then opted not to take up a legal case.

Joining with other governmental units was determined the “fiscally responsible” way to explore legal action, Township Manager Bill Cargo said. He said the issue has been avoided by the state Legislature, and is beginning to “snowball” to organizations such as health clubs.

Tax tribunal cases in Michigan have historically sided with nonprofits that, by providing any level of “charitable services,” can receive total tax-exempt status under Michigan law.

Health Pointe accepts Medicaid and Medicare health insurance, and does not limit the number of patients it accepts. It provided $35,000 in charitable services in 2018.

However, the Spectrum Health facility does not have an emergency room, and the township’s fire department made numerous emergency runs to Health Pointe last year to provide emergency medical attention to patients.

The township sought to join other units further along in the legal process, Cargo said. The township could chip in to potentially carry the case to the Michigan Supreme Court, he added. The Township Board will decide whether to cost share in this scenario.

Township Supervisor Mark Reenders said the township and surrounding taxing units would have a lot to gain if the Health Pointe exemption is denied.

“I think the township could spend a bit of money, because if we were to win we’d get a lot back,” he said.

Cargo said the township has allied with other units in other legal battles, such as with “dark stores” that sought to exploit a tax loophole. According to the Michigan Municipal League, the “dark stores” theory is used by large retailers — popularly known as “Big Box” stores —  to lower the amount they pay in property taxes.

“Whether for legislation or litigation with impact beyond the boundaries of a single community, it’s not uncommon for municipalities to come together and share the burden of litigation,” the township manager said. “This is an initial step. We want to band together.”

A problem for school funding

The Kent ISD is the largest tax beneficiary in the agreement. The district has been involved in two cases involving Spectrum Health: a Grand Rapids Township case that ruled in favor of the health system at the tax tribunal level, and an ongoing case in Algoma Township.

The Kent ISD received nearly $125.5 million during the 2017-18 school year from property taxes from 50 local taxing units. More than $20 million is related to enhancement millage funds distributed directly to local schools, according to Kent ISD Assistant Superintendent Ron Koehler. He said Michigan’s schools are “already severely underfunded,” currently operating at 82 percent of the revenues the state’s schools collected in 1995.

Koehler said there are tens of millions of dollars at stake in lost tax revenue due to nonprofit health care facilities consolidating into large complexes and being taken off the tax rolls. He said there is greater pressure put on local units to increase taxes, “as the state has underfunded Michigan’s revenue-sharing formula for decades.”

The ISD has the most to lose among school districts, Koehler said, because it receives little funding outside of local taxes. But enhancement dollars and about $80 million in special-education revenue flow directly to local schools, he said.

“Further erosion of the tax base would limit the opportunities we can provide for students, and the services we can provide the schools and districts they attend,” Koehler said. “We also have great concern for the region as a whole, as these types of tax avoidance efforts can erode our county’s fiscal health and quality of life for residents.”

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