Cleveland nonprofit hospitals get millions in property tax breaks. Many are asking, 'Is it worth it?'
Nora and David Brown live in a two-story single-family home in Cleveland’s Fairfax neighborhood. The modest home on East 100th Street, with a gabled roof and an enclosed porch, is just a block away from the Cleveland Clinic.
Twice a year, like many property owners in Cuyahoga County, the Browns write a check for property taxes to support schools and other services.
In 2018, their property taxes jumped about 50%, Cuyahoga County records show. There wasn’t much they could do about it, David said. Death and taxes, after all.
But their neighbor, the Cleveland Clinic, which owns property worth billions across the county, pays taxes on only a fraction of it.
An Ideastream analysis of Cuyahoga County fiscal records shows that the clinic owned at least $2.4 billion in tax-exempt property countywide as of 2018 assessments. If that property was taxable, it would contribute about $84 million to government coffers annually.
The Cleveland Clinic continues to grow its main campus
“My husband calls it Emerald City because at night it lights up down there with the glass and the structures of the buildings,” said Nora Brown, gesturing toward the Cleveland Clinic’s main campus barely visible beyond the trees that line her street. “As you can see, they're building all around us ... they're making their own world.”
Since 2008, the Clinic has built the 330,000-square-foot Glickman Tower and the 10-story Sydell & Arnold Miller Family Pavilion. The system also expanded its Health Education Campus and earlier this year announced $1.3 billion in capital projects, including two on the main campus.
If those buildings were owned by a for-profit entity, they would generate property taxes used to support local schools, government services and libraries, according to the county fiscal office.
But because it’s nonprofit, the Cleveland Clinic gets to keep that money.
Clinic officials argue, however, that the system contributes a substantial amount of money to the local economy despite its tax-exempt status.
"Any and all surplus funds from operations are invested back into our health system to support patient care, research, education and long-standing charitable efforts,” a spokesperson wrote in an email. "The property taxes we are legally exempt from each year help to fund the equivalent of approximately 1,500 Cleveland Clinic jobs in Cuyahoga County."
And Clinic officials pointed out the health system does pay some property tax.
"In 2019 and 2020, Cleveland Clinic paid more than $5 million each year in property taxes in Cuyahoga County ... for space in our buildings that we rent or lease, including food and retail space," a spokesperson wrote in an email.
There are several other nonprofit hospitals that also receive tax breaks in Cuyahoga County.
University Hospitals owns at least $797 million in property, county records show. Their property taxes could contribute about $28 million to county coffers each year.
Do tax breaks for nonprofit hospitals continue to serve the public good?
The Clinic and other nonprofit hospitals enjoy the benefit of these tax breaks thanks to laws dating back hundreds of years that were set up for nonprofits such as schools, churches and public charities, said Greg LeRoy of Good Jobs First, a nonprofit think tank that tracks government subsidies.
“The idea was that these are institutions that don't make a profit ... They're there for public good and therefore the public supports them to the degree that they don't pay property taxes,” said LeRoy. “The trouble is in today's economy, especially in sectors like health care ... a lot of nonprofit hospitals don't act that differently than for-profit hospitals.”
The difference between small hospitals that fought the Spanish Flu a century ago and today's glittering research juggernauts isn’t lost on the property tax payers in Fairfax.
Nora Brown questioned the fairness of paying more taxes on her $23,000 dollar house than the Clinic might pay for an entire building worth a hundred million dollars.
“I feel it’s unfair,” she said. “It’s wrong. But you know what? The system is just so corrupted and backwards now.”
The Browns aren’t the only ones wondering whether the government is still striking the right deal with giant nonprofits even as they acknowledge the benefits associated with having the research giants in town.
“We are all incredibly fortunate to have institutions like the Clinic and University Hospitals in our midst. They provide incredible services to the people,” said Jim Rokakis, a former Cuyahoga County treasurer. “We're fortunate, but again, that doesn't mean that we should continue to cut these huge tax breaks without expecting something big in return, right?”
What do communities get in exchange for tax breaks? It's complicated.
Clinic officials say the health system has the numbers to show it’s making good on that deal to give back, but industry analysts say hospitals count expenditures that, while acceptable to the IRS, may not actually benefit local communities.
In 2020, the Cleveland Clinic says it spent $1.31 billion for community benefit on subsidized care, community health improvement, unreimbursed care for patients with Medicaid, financial assistance, education and research.
But some industry analysts say hospitals often overvalue the benefits they actually provide their immediate communities.
In 2019, the Cleveland Clinic along with other Northeast Ohio hospitals, received more in tax breaks than they spent on charity care or community investments, according to a recent report by the Lown Institute, a think tank that studies hospital systems.
That year, the Cleveland Clinic had the fourth largest tax-break-to-community-benefit-spending deficit in the country, according to the report. It received $611 million more in tax breaks than it spent on charity care and community investment.
Other area hospitals that also receive tax breaks have deficits, according to figures provided by the Lown Institute.
University Hospitals’ deficit was more than $175 million and the Sisters of Charity Health System, which runs St. Vincent Charity Hospital, received $24 million more in tax breaks than it spent on charity care and community investment, the data showed. MetroHealth, which is a publicly owned health care system, was not included in the data.
The Lown Institute says it compares how much a hospital system spends on charity care and community investment to the value of the tax breaks it receives.
The Clinic, however, has challenged Lown's methodology, calling it flawed and not in line with how the IRS categorizes community benefit, officials said in a statement.
Lown “excluded categories of research, education, and Medicaid shortfall — all have a direct impact on the health of the community,” a spokesperson wrote. “Medicaid is a program which serves low-income patients and provides access to quality care for them.”
There were good reasons to exclude research and training expenditures in the analysis, said Dr. Vikas Saini, president of the Lown Institute.
That's because there is no way to measure whether what a hospital is researching actually benefits a local community. In addition, taxpayers already fund a federal program that pays hospitals to train new doctors, Saini said.
The research group does take into account how much care hospitals provide to Medicaid patients, but unlike the IRS, Lown does not include what's known as the "Medicaid shortfall," the difference between what Medicaid will reimburse for a procedure and what a hospital charges the government for that procedure.
“There's a lot of good that comes out of the hospitals,” Saini said. “But this is very much about trying to understand … what can we see that is directly beneficial to the community?"
This is the first part of a three-part series that examines the impact of nonprofit hospitals in Northeast Ohio and their effects on our community. Part II of the series will be published Wednesday.
METHODOLOGY: Ideastream Public Media used data from the Cuyahoga County Fiscal Officer to calculate the size of nonprofit hospitals’ property holdings in the county.
The dataset is not comprehensive. The numbers presented in this article are estimates based on our analysis of publicly available data.
The data provided to Ideastream Public Media reflects values as of Cuyahoga County’s 2018 assessments. It does not include properties for which nonprofit hospitals are currently seeking exemptions. The data provided by the county does not necessarily list a hospital's current hospital system affiliation. In those cases, hospital properties were identified through Ideastream research.