The SouthEast Alaska Regional Health Consortium and the borough are negotiating another year of voluntary payment in lieu of taxes on the nonprofit’s property in town.
SEARHC paid property taxes when the clinic and hospital were under construction, Finance Director Mason Villarma said March 2, even though those tribal-owned parcels are exempt from property taxes.
Construction on the $30 million hospital started in 2019; the facility opened in February 2021. SEARHC paid $331,000 for the 2021 tax year.
Payments in lieu of taxes, or PILTs, “are really common with nonprofits and tribal entities, any sovereign government,” Villarma said. The U.S. Forest Service, for example, makes payments to boroughs in the Tongass National Forest to compensate for a lack of property tax revenues from the federally owned lands.
A negotiated, voluntary payment “is a good deal for SEARHC, because they don’t want to set that precedent” of paying property taxes set by the borough, Villarma said.
A negotiated payment agreement can include terms governing the use of the money, though borough assembly approval is required for municipal spending decisions.
The property tax rate in Wrangell is set by the borough assembly each year. Last year’s rate was 12.75 mills, or $12.75 per $1,000 of assessed valuation. That would generate a property tax bill of $2,550 on a home assessed at $200,000, or about $380,000 on a $30 million property.
Leatha Merculieff, SEARHC’s chief operating officer, and the borough administration have been in negotiations on a PILT agreement for all SEARHC properties, according to Villarma’s report to the assembly Feb. 22. The latest proposal is a $225,000 payment increasing 2% a year. It would cover all existing SEARHC properties in town.
The structured arrangement began with the new hospital construction. Before that, SEARHC paid taxes on its other, smaller properties in town, Borough Manager Jeff Good said Monday. “I’m not sure if they were actually required to, they just did.”
It’s certainly preferable that SEARHC contribute a payment in lieu of taxes toward the cost of borough services, Villarma said, noting that could include housing solutions. SEARHC is the largest employer in town, and the additional revenues from a payment in lieu of taxes could go toward the borough being able to survey and get the former Wrangell Institute property developed. “They’ve been pretty agreeable,” the finance director said.
SEARHC’s voluntary payment in Wrangell may be unique in Southeast, where the tribal nonprofit operates in almost 20 communities, with its largest operations in Juneau and Sitka.
The health care provider does not make a payment in lieu of taxes in Juneau, Jeff Rogers, the city’s finance director, said on Friday.
Of the 10 SEARHC-owned properties in Juneau, some are fully exempt, but not all, Juneau’s assessor Mary Hammond said Friday. “They pay taxes for portions of buildings that are being rented to third-party tenants and they pay taxes on vacant land that is not being used for parking,” she said.
State law provides that while a nonprofit’s properties used for charitable purposes are exempt from property taxes, land or buildings or offices rented out or used for commercial operations can be subject to taxes.
SEARHC did not reply to the Sentinel’s requests for comment.
“If we can get a percentage, even 75% of (the mill rate) that would be a win for us,” Villarma said. “Because technically they don’t have to pay. Hopefully we can get the majority of what would be assessed, if the mill rate would apply.”
Negotiations are still underway, Good said. “The goal is once that is done, we’ll present it to the assembly if there is an agreement and what that is. At this point, it’s considered tribal land, which we can’t tax. So I don’t think it really matters what the assessment is.”
Good said he hopes to hear back in the next couple of weeks.
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