Politics & Government

Wauwatosa Schools on the Hook for Part of City's Loss in Tax Case

County, MMSD and MATC also may have to refund the portion of property taxes collected by the city on their behalf.

The city's loss of a over the taxable status of a medical facility will cost taxpayers directly, but could also hit the budgets of every entity for which property taxes are collected, including the Wauwatosa School District.

The district, already hurting from state aid cuts, can be required by state law to repay to the city the portion of property taxes it received over eight years from taxes collected from Wheaton Franciscan Healthcare, formerly Covenant.

A memo to Common Council members and the media released this afternoon by City Attorney Alan Kesner makes it clear that the city has no option but to repay $8.5 million in taxes, interest and legal fees amassed since the clinic was built in 2003.

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Kesner said, though, the state can demand that the city be repaid the principal amount of taxes paid from the school district, Milwaukee County, the Milwaukee Metropolitan Sewerage District and Milwaukee Area Technical College, the other entities receiving property tax revenue from Wheaton's clinic.

That does not mean that city taxpayers are off the hook. Kesner pointed out in his memo that refunding interest and legal fees to Wheaton is solely the city's responsibility, and that taxpayers alone will be required to bear those costs. The city also will have to repay its share of property tax revenue collected from Wheaton, which amounts to something over 30 percent, Kesner said.

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Kesner's memo did not state how much each of the other taxing districts would have to repay. The cost of such refunds is exempt from the property tax levy limits otherwise imposed by the Legislature, Kesner wrote, meaning that property taxes can and will be raised to pay for the court loss.

Reached later Tuesday, Kesner said, "The general process is the city will pay back the entire amount, and then submit that to the Department of Revenue, and they will charge back to the other entities."

Kesner said that he was scheduling meetings with the tax revenue recipients, including the Tosa schools, next week when he would have a clearer picture of what the repayments might be.

Asked whether the city could have escrowed the tax payments from Covenant and then Wheaton against the possibility of losing in court, Kesner said, "That was considered by the city finance director and the city administrator at the time and was not considered an appropriate strategy."

The city, had it set aside the revenue collected from Covenant/Wheaton, would have still had to pay its taxing entities the full amount of taxes they were owed, meaning the city would be paying out funds against its own budget.

In essense, the city had to either hold on to money and pay others out of pocket, or gamble its own money and hope it won it court. The city chose the second option and lost.

Schools Superintendent Phil Ertl said that he had been informed last week that the decision was coming down and that if the city lost, the schools could be liable to repay their portion of the taxes.

"We have charge-backs every year, but this isn't a charge-back," Ertl said. "I don't know yet how much it's going to be. We should know something next week.

"Hopefully, it's not going to hurt the district."

In its opinion issued Tuesday in Covenant Healthcare v. City of Wauwatosa, the Wisconsin Supreme Court determined that significant portions of the Wheaton Francsican outpatient center at 201 N. Mayfair Road are exempt from property taxes because it is used primarily for the purpose of supporting the tax-exempt St. Joseph’s Hospital in Milwaukee.

The Court of Appeals had previously decided in favor of the city, finding that the property was taxable.

Wheaton Franciscan has paid property taxes on the facility every year since the beginning of its construction in 2003.

The case decided Tuesday involves the tax years 2003 through 2006, but Wheaton has filed additional cases in Milwaukee County Circuit Court over subsequent years. Now that the precedent has been set by the state's highest court, the city will not dispute those claims.


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