People are talking about the hospital tax, and the mechanics can be confusing. We ask those readers who know this topic as well as or better than we do to bear with us (or skip this top section). Other readers may not have had the time yet, but it’s important that everyone does become familiar with the various elements now, since the time is upon us to vote on one of them: Measure B.
Two different types of taxes are being discussed. One is a called a “parcel tax,” paid by property owners at a fixed amount per year, regardless of the property’s value. Small rental house or large country estate – both owners both pay the same. Measure B is a parcel tax, and the money collected goes right to the Sonoma Valley Hospital as operating funds.
While a parcel tax can be used to fund ongoing operations, a “property tax” cannot. It is used to fund new building projects. Known as an “ad valorem” tax, it also is collected from property owners, but in higher amounts for properties with higher assessed values. Measure C last year was a property tax, running for 30 years in order to pay off the principal and interest on the money that was to be borrowed up front to build the new facility. [More details about this kind of tax are given on page 28.]
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Measure B is a parcel tax, at $195 per year for five years. We’re just reaching the end now of the parcel tax that the community approved in 2002, at $130 per year. The money is needed simply keep the doors open at Sonoma Valley Hospital while decisions are made about site, operations, and funding for a new hospital. If the cash is not there to make payroll or to pay utilities, insurance, and other bills, our hospital will close before we can get a new one going. And if that happens, more doctors will move their practices out of town, worsening the likelihood of ever getting the hospital going again.
That’s the pitch for Measure B, and we buy it. In fact, our Editorial Board bought it last spring when that was the pitch for Measure C: ‘If you don’t vote Yes, the hospital will close in six months.’
Was that prediction wrong then, and therefore maybe wrong now? We don’t think so. Thank the generosity of Mr. Ollie Fink, who happened to die last year with a $1.2-million bequest in his will. In October last year, the hospital’s financials showed $1,030,000 in the bank – less than the Fink donation – so the hospital would, in fact, have been bankrupt then. Now, according to Jim McSweeney, the hospital CFO, it’ll be out of money by June. Yes, the Measure B pitch sounds like a threat, but that doesn’t change the facts.
Finally, let’s be clear that Measure B has nothing directly to do with a new hospital. After the voting concludes on March 6, less than a month away, the health care coalition will release its recommendations. The Cirrus UGB amendment will be ready for consideration. And an interim CEO will be helping the hospital board determine its plans, which may include asking the voters to approve a property tax. So we voters will have plenty of chances to voice our opinions on those issues. But first, we have to get ourselves and our hospital to that point: vote Yes on B.
Additional information from “Our View” editorial
Typically the rate for a property tax is expressed in dollars per hundred thousand of assessed value. Measure C last year was nominally a $34 property tax, so a house valued at $265,000 (the typical value in Sonoma Valley at that time) would be taxed about $90 per year, while a $500,000 property would be taxed $170 each year and a million-dollar property, $340.
This actually was the average annual tax over the 30 years or so it would run. Because not much money is needed for the first year or two of a construction project, while it’s in the planning phases, taxes will be lower than the stated average to start. The beginning tax for Measure C would have been $14.81, or $39.25 per year for the typical house. Then as the active construction starts, the taxes would have to be higher than the average – much higher, in fact.
To lessen that impact on property owners, a bond is typically sold; that is, the hospital district would borrow the money (“issue a bond”) needed to complete the construction, then use the yearly tax collections to pay off the bond over a long period of time. The highest taxes for that $148 million project would have come in year 4, at $77.54 per thousand, or $205 that year for the typical house.
Both principal and interest are paid to the banks and others who loaned the money (that is, those who “buy the bonds”). Depending on prevailing rates, interest totals about the same amount as the principal, for a total project cost approaching $300 million. The property tax rates in the example above do include this interest cost.
