Lawsuit Impacts not only Property Owners in the School District of Marshfield but all of Wood County
MARSHFIELD, WI (OnFocus) – At Tuesday’s meeting of the City of Marshfield Common Council, City leadership provided an update on the ongoing legal dispute with Marshfield Clinic Health System (MCHS). The lawsuit could have a substantial impact to the City’s finances and future budgets, depending on the outcome of the case.
Marshfield Clinic has filed a claim for unlawful tax against the City of Marshfield in each of the prior two tax years (2020, 2021 ). These claims are based upon their representation that the facilities located on the parcels in question (East Wing; Main Clinic building) should be exempt from real estate taxes, because they qualify for the State’s hospital exemption. (Read more on the details of the case here.)
“The previous city assessor advised that he did not see adequate evidence to support their assertion, and as a result, the Council acted in both years to deny the requests,” explained City Administrator Steve Barg. “The Clinic followed up by filing formal claims, and the matter is now in litigation. Ultimately, if the case goes to court, either the City or the Clinic may win, or a divided outcome is possible, in which portions of one or both properties are determined to be eligible for the hospital exemption, while other portions are not.”
Bottom Line: The City could have to pay back anywhere from $0 to $1.1 million in tax revenue to MCHS, depending on the case outcome.
In total all tax districts, including the City, County, Marshfield School District, and Mid-State Technical College could have to pay back up to approximately $2.8 million per tax year for a total of $5.6 million dollars. Each tax district would be responsible for establishing their own repayment. The Marshfield School District could see nearly a million dollars per year cut from its operating budget and the County would see a reduction of approximately $600,000. And lastly, Mid-State Technical College is approximately $140,000 annually.
In total, Marshfield tax districts could see up to a $8,400,000 refund to the Marshfield Clinic if the case is closed after the 2022 tax payments are made.
The Impact to the City of Marshfield
The total value of the two parcels involved in the dispute are assessed at $112 million, with roughly 7% of the City’s property values tied to them. The city’s budget for 2022 is about $23.5 million. If the Clinic wins the lawsuit, the City would lose $1.1 million in its budgeting (about 4.7% of the City’s general fund revenue). If the Clinic wins the lawsuit, the money owed would have to be refunded to MCHS by the city. That money would come from the City’s general fund reserves.
“It’s significant, there is no doubt about that,” said Barg. “If we do end up in court, it could be in favor of the Clinic, in favor of the City, or a partial exemption. If it’s determined that owe an amount, we will have to dip into General Fund reserves because we have not budgeted money to cover that cost. That is obviously concerning.”
Barg said that staff is evaluating the 2023 budget to plan for a potential budget challenge and it will likely be addressed by a mix of budget cuts and tax increases (including a potential wheel tax or other tax). Legal costs to date have been covered by insurance, but that will not cover the case indefinitely.
Implication to Citizens
If the City loses the lawsuit, Marshfield citizens can expect tax increases and service reductions. Marshfield School District residents can also expect to be impacted (read more here).
City staff are currently examining the 2023 budget and determining how this lawsuit could impact how the City would operate if they lost.
“[A loss] would mean a mix of budget cuts and tax increases,” said Barg, addressing the Council. “The City may need to consider other revenue sources, like wheel tax, transportation utility, storm water utility tax. I know these are not popular, by many of you.”
Budget cuts to police and fire personnel is also likely as public safety makes up roughly 40% of the City’s overall budget. Nearly $500,000 would need to be cut from staff positions between police and fire personnel if the City was to make equalized cuts without considering other revenue sources.
Alderman Adam Fischer stated at the meeting: “I think the public has a right to know that if we lose in court to MCHS, services or staffing (if you’re going to cut your budget) are two things that are going to have to be looked at and I think the public has a right to know that if that happens, it is a result of us losing in court to the Marshfield Clinic Health System.”
“If we have to cut anything, whether it’s people or money, we’re giving up services to the City of Marshfield and that’s what I’m concerned about and the citizen deserve to know about it,” added Alderman Ed Wagner.
Additionally, if the Clinic were to win the lawsuit, it will also take away the equalized tax value of property in the City, meaning current property owners will need to make up the difference.
“When you subtract $112 million [the assessed value of the MCHS property in question] from our tax roll, that plays into the calculation for our levy limit,” explained Wagner. “Not only does that mean we aren’t going to get that money, it also means that our levy limit is going to be such that we are not going to be allowed to levy as much as we normally would…so we’re going to get it at both ends. This thing is critical. It could be devastating.”
Newly-elected Council Member Tompkins asked, “If we do not receive 1.2 million, then that 1.1 million has to be made up by other landowners in their property taxes?”
Barg responded “that everyone would be responsible for picking up that slice of the pie [share] of the overall budget amount.”
In close, if the City lost the lawsuit, in order to maintain current services there could be a potential tax increase of up to 20% to cover the revenue shortfall and refund to the Marshfield Clinic.
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