Borough of Paramus v. County of Bergen, No. 011397-2008; Tax Court; opinion by Nugent, J.T.C.; decided February 22, 2013; approved for publication July 8, 2013. DDS No. 35-5-0598 [27 pp.]

The property at issue is the site of a public hospital formerly known as Bergen Pines, constructed by Bergen County in or around the early to mid 1900s. Historically, the property was not subject to local property taxes based on N.J.S.A. 54:4-3.3, which provides an exemption for county-owned property put to public use. In 1997, the county elected to transition the public hospital to provide management, maintenance and operation of the facility by a for-profit, third-party health-care management firm. The hospital was renamed Bergen Regional Medical Center.

The property continued to be designated as exempt on the tax rolls. Beginning in or around 2001, the manager entered into contracts to lease space within the hospital buildings to the Ho-Ho-Kus School of Secretarial and Medical Services, physicians and other service providers. The assessor for Paramus placed a partial assessment on the property in 2005 meant to tax those spaces within the hospital buildings leased by the manager to for-profit service providers. Paramus filed a tax appeal in 2008, and for later years, challenging the exempt status of the hospital and seeking to increase both the nontaxed assessment on the exempt portion of the property and the taxed assessment on the hospital's leased spaces. All defendants filed counterclaims seeking judgment that the property is wholly exempt pursuant to N.J.S.A. 54:4-3.3.

This matter is before the court on the parties' cross-motions for summary judgment on the exemption claim. The motions present two issues: (1) whether operation of the county-owned hospital by a for-profit manager invalidates the exemption, and (2) if it does not, whether the hospital spaces leased to third-party service providers constitute a private use in violation of N.J.S.A. 54:4-3.3.

Held: Operation of a county-owned hospital by a third-party for-profit manager does not negate the property tax exemption applicable to county-owned property used for a public purpose under N.J.S.A. 54:4-3.3. Left unresolved are two issues, both of which require further fact-finding: (1) whether space leased to third-party providers vitiates the exemption as a private purpose; and (2) whether use of the space could constitute a de minimus use.

The public hospital was established by Bergen County to provide care for the sick, mentally ill and aged population otherwise unable to afford the cost of hospitalization. Based on the undisputed facts, the for-profit manager operates the hospital within the public purpose set forth in the statutes. The management of the hospital for-profit does not of itself impair the public purpose. An enterprise organized for profit hired to manage a property expects to render a profit. The facts establish that the arrangement between the county and the manager has not resulted in a diminished degree of care to the public. Rather it assisted the county in providing a higher quality of essential health-care services to a population in need of care.

Notably, the provision of high quality public health care is a priority of the Legislature as declared in N.J.S.A. 26:2H-1. The Legislature's concern was incorporated in the statute regarding administrative oversight of health-care service providers, including the requirement for a certificate of need.

For these reasons, the court finds that the act of leasing the property to a third party to manage, administer, operate and maintain the hospital on a day-to-day basis on a for-profit basis does not affect the exempt status of the property since the hospital continues to serve the public purpose set forth by the statute.

However, the use of the hospital is limited by the scope of the county hospital statutes if the exemption is to apply. The facts fail to define the nature of the services provided in the leased spaces and the connection between those services and the hospital population. The hospital manager engaged in leases and/or time-share agreements for space in the hospital. Those uses must also fit within the scope of and the purpose served by a county hospital for the county property statutory exemption to apply.

Further, despite arguments raised by both parties, the court finds that the assessment may not be apportioned between the publicly and privately used portions of a county-owned building under N.J.S.A. 54:4-3.3, and, as well, that the Leasehold Taxing Act, N.J.S.A. 54:4-2.3, has no application to these facts. Finally, the position adopted by defendants that the exemption remains unaffected whether or not the leased spaces constitute private uses since the percentage of space occupied is de minimus in nature must await further fact-finding. The nature and use of the leased spaces remain to be determined at trial, the outcome of which will either render the property wholly exempt or wholly taxable.

Defendants' motion for summary judgment and plaintiff's cross-motion for summary judgment are denied.

For plaintiff Borough of Paramus — William F. Rupp (Ferrara, Turitz, Harraka & Goldberg). For defendants: County of Bergen et al. — Joseph A. Rizzi (Beattie Padavano); Solomon Health Group et al. — Steven P. Sukel (Sukel & Associates).