“We try to be as accurate as we can be and as fair as we can be, and after all this adjustment and change we feel like we’re there,” said Bobby McMahan, Jackson’s tax administrator.
The hospital now has two choices — it can accept the revised value and begin paying taxes based on that value, or it can appeal to the N.C. Property Tax Commission in hopes of getting the tax value down closer to its desired $13 million.
“We are appreciative that the county has worked with Harris Regional Hospital and Duke LifePoint Healthcare to assure that our property valuation is fair and consistent with true market value,” said a press statement the hospital issued. “We are awaiting the adjusted valuation recommendation from the County and will evaluate it as soon as possible.”
LifePoint has 30 days from the Aug. 24 board vote to decide which route to take. If it decides to accept the value, then it will have to start paying town and county taxes based on that value. If it opts to appeal, the hospital will likely put off payment until the Property Tax Commission settles the question, which could take months or even, at the outside, years. Afterward, the hospital would be required to pay any back taxes with interest.
“I hope Duke LifePoint will accept this value and not appeal it to the state level,” said Sylva Town Manager Paige Dowling. “They’re a huge part of our tax base.”
The original $42.3 million valuation had meant the hospital comprised 8 percent of Sylva’s total property value, and the value appeal left town commissioners worried about how to make up the difference in the town budget. While 2015 was the first year that the hospital was a tax-generating property — previously it had run as a nonprofit — the new tax revenues Sylva received from the hospital that year mainly served to replace other revenue streams Sylva had lost recently. When the town was allowed to receive revenue from video sweepstakes and business license fees, those two categories had brought in around $100,000, Dowling said.
“Where we didn’t receive the money from the hospital directly, the expenditures were always in our budget,” she said.
Looking inside the hospital
McMahan’s office has been working around the clock over the past year or so to finalize new tax values for every property in Jackson County, the first time the job’s been done since 2008. It was also the first time the hospital was being evaluated as a taxpaying property. Before its sale to Duke LifePoint in 2014, Harris had operated as a nonprofit hospital, meaning it was tax-exempt. In evaluating the property for 2016, the tax office concluded that LifePoint’s 76.8-acre main hospital campus was worth $42.3 million.
LifePoint was quick to send in an appeal, declaring that the property was worth only $13 million.
McMahan shook his head at the $13 million figure when it was first floated, and that’s still his reaction. Just a quick drive-by should be enough for anyone to see the hospital is worth more than that, he said, and the paperwork the hospital sent in to back up the opinion did little to prove otherwise.
“We’d read all their stuff and got nothing out of it,” McMahan said. “It was just a smokescreen and hodgepodge of information.”
The Board of Equalization and Review said as much to the LifePoint representative who attended an earlier meeting in July, when the appeal was first discussed.
“The board members asked him time and time again, ‘Do you have any comparable sales? Do you have a fee appraisal?’ and his answer was always no,” McMahan said.
But one part of that meeting did pique the board members’ interest. Duke LifePoint’s representative Will Clark had brought along Harris’ facilities manager Dennis Olsen, who spent 10 to 15 minutes discussing the building’s many deficiencies and inadequacies that should contribute to a lowered tax value. The written report that LifePoint had submitted originally didn’t include that kind of information, McMahan said, and the board asked him to make a visit to witness these shortcomings firsthand.
The upshot was what McMahan called a “thorough and extensive” tour of the hospital that lasted three-and-a-half hours.
“The visit helped a lot,” McMahan said. “We saw things that really should have been worked on and repaired years ago. Not necessarily the last four or five but the last 14 or 15.”
For instance, the heating, ventilation and air conditioning systems are aged, with one of the units going out days before the tour.
“He (Olsen) took us up there and showed us, said, ‘There it is. Do you hear it running?’” McMahan said. “They don’t even make that unit anymore.”
There are places where the wall configuration doesn’t allow installation of the kind of technology you’d want in a modern hospital. There’s the hallway configuration on the third floor that prevents an elevator stopped there from being smokeproof in case of fire.
When deciding a building’s value, the tax office uses what’s called an effective year built, or an EYB. To arrive at the figure, they consider the actual year the building was constructed and what kind of work has been done since then to extend its life. For example, if a homeowner were to replace all his doors and windows, that would move the effective year built up, while something like painting walls or mowing the grass would not.
When completing the initial appraisal, the tax office employees had stayed on the outside of the hospital building, arriving at their figures based on what they could see from that vantage point. The evaluation led them to assign the 1952 building an EYB of 1992.
“We felt like the original EYB was too high, that the life of that building had not been extended that much by some of the things that happened,” McMahan said.
The revised valuation uses an EYB of 1982 instead.
Thus, the new value of $27.2 million.
It’s hard to say what LifePoint will do with the county’s decision, whether it will accept the new value or appeal to the Property Tax Commission.
LifePoint itself says it’s still evaluating its options.
“We will continue working through this process with the County in hopes to reach a resolution soon,” LifePoint’s statement reads.
“I have no clue what they’ll do. I have no gut feeling, I have no instinct,” McMahan said. “This has been so odd, the whole Duke LifePoint appeal thing.”
Duke LifePoint will be required to pay on a property value much lower than the $42.3 million that Jackson County originally estimated the hospital was worth, but the revised value is still far north of the number that LifePoint had argued for. Here’s a look at the different values and how they would affect town and county tax revenues.
Total value Annual town taxes Annual county taxes
Original $42.3 million $179,600 $156,400
Adjusted $27.2 million $115,600 $100,600
Appealed $13 million $55,300 $48,100