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If they’d stay tax-exempt, why sell the hospitals?

Community support for the acquisition of Waterbury Hospital and Eastern Connecticut Health Network’s Manchester Memorial and Rockville General hospitals, all nonprofit hospitals, by Prospect Medical Holdings, a for-profit company, has been based largely on the expectation that the new owner would start paying millions of dollars in municipal property taxes each year. Because of their nonprofit structure the hospitals now are tax-exempt.

But as the Journal Inquirer’s Don Michak reported the other day, Prospect’s applications with state government show that it wants the property tax exemption of the hospitals to continue indefinitely while it tries to repair their finances.

It’s not clear how continuing the tax exemption after the change in ownership could be arranged. Presumably either the municipalities involved would have to grant the exemption by ordinance — in the case of ECHN, joint action by town government in Manchester and Vernon — or the exemption would have to be imposed by new state law. How long would the exemption last and what would be the criteria for ending it? There’s no telling at the moment.

In any case Prospect’s requirement for indefinite property tax exemption has exploded the rationale for the hospitals’ communities to support their sale. That rationale was weak to begin with. For the money that would flow to municipal governments from the hospitals in property tax revenue would come only from higher bills to hospital patients and their insurers, and these higher bills would constitute a hidden tax on the public. (No wonder so many municipal officials and local legislators like the idea.)

The hospitals say they are losing money, so all along the big issue with their sale has been exactly how a new owner would make them profitable, and particularly what a new owner could do to make them profitable that the hospitals couldn’t do on their own. Prospect and the hospitals themselves have been vague about this, thereby indicating, as might be expected, that the only economies likely to save substantial money and produce profit for the new owner would require reducing staff, staff compensation, and medical services, reductions that could not be acknowledged in advance of any hospital sale without generating prohibitive opposition.

So the decisive issue with the hospital sales may be only whether these economies are to be exacted by outside ownership answerable to an out-of-state leveraged-buyout company like Prospect or to ownership by a community foundation answerable to the people being served. 

Of course if the current boards of the hospitals had the necessary courage, they might have made the unpleasant decisions already. Instead, offering the hospitals for sale, their boards have given up, unwilling even to cut executive salaries that, at Waterbury and ECHN, range from $700,000 to more than a million dollars.

But if there’s not enough community engagement and backbone to do what needs to be done to preserve the hospitals, the financial predators will be only too glad to take over. In many respects that’s what’s happening throughout the country.

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The University of Connecticut, which last year paid presidential candidate Hillary Clinton more than $250,000 for a banal chat and this year is paying its president, Susan Herbst, a salary of more than $750,000, plans to raise tuition in stages over four years — by $3,300 for in-state students and $4,400 for out-of-state students.

The university’s chief financial officer, Scott Jordan, says the main cause of the tuition increase is the increase in compensation of the university’s employees, which, like personnel compensation in government throughout the state, keeps rising even as the wages and benefits of most taxpayers are not rising.

They call this public service, wherein the public serves the government.

Chris Powell is managing editor of the Journal Inquirer in Manchester.