PATERSON, NJ – In the midst of a $250 million development plan, the owners of St. Joseph’s Regional Medical Center are considering entering a partnership with a for-profit corporation, a move that would put the hospital back on the municipal tax rolls, city officials said.
The prospective new partner, a Missouri-based company named Ascension Health Care Network, met in private on Monday afternoon at City Hall with four members of Paterson’s City Council, the municipal law and finance director, officials said. Also at the meeting were representatives of Oak Hill Partners, an equity investment company, that's also involved in the deal.
The transaction, which city officials said could happen as soon as April, also would involve St. Mary’s Hospital in Passaic. Ascension and Oak Hill provide a $500 million infusion of capital to St. Joseph's, which would retain the same top executives and board of directors, officials said.
Three council members who attended the meeting said the sale would be a boon for city finances by converting the massive complex off Main Street from tax exempt status to the tax rolls. But as part of the sale, Ascension is seeking a short-term tax break, which some council members referred to as an “incentive’’ and others called a "concession.''
Mayor Jeffrey Jones questioned the legitimacy of Monday’s meeting, saying the city council had made an “end run” by conducting negotiations on an economic development issue like the potential sale of the hospital, which he said was his administration’s role. “The council is forbidden from entering any negotiations,’’ Jones said. “Only the administration can negotiate.’’
Moreover, the mayor said he believed City Councilman Kenneth Morris, who works for St. Joseph’s as director of government relations, was involved in a conflict of interests by arranging the meeting of the city council’s finance committee, of which he is chairman, to discuss the possible sale with the prospective buyers.
“The conflict was inherent as I understand it,’’ said Jones, saying it was improper for Morris to arrange the meeting involving his employers and to participate in it.
The mayor said he has been concerned about Morris’ ongoing activities involving St. Joseph’s and city government. Jones also criticized Morris for making arrangements last year for representatives of a company affiliated with St. Joseph’s to come to a city council meeting to ask for Paterson’s backing on the bonds needed to build a hotel near the hospital. That project has stalled and the Jones administration has supported the construction of a hotel near the new Great Falls national park as its preferred alternative.
Morris said his involvement in the project did not constitute a conflict for several reasons. First of all, he said, the meeting was not with St. Joseph's. Secondly, he said, he has fully disclosed his role at St. Joseph's. "You have to understand conflicts,'' Morris said. "It's a conflict in the event that one of the parties involved has a potential conflict and does not disclose it.''
Moreover, Morris said Monday's meeting represented only a prelilminary step in the deal. If a tax deal were to come before the city council for a vote, Morris said he would recuse himself and not vote.
"What's disheartening is the mayor's attempt to cast a shadow on an opportunity to bring in new revenue and give some relief to the taxpayers who are still suffering from the 29-percent increase his administration hit them with last year,'' said Morris.
When asked why he did not attend Monday’s hospital meeting, Jones said, “I wasn’t invited.’’ When asked about the city’s role in the transaction involving the hospital, commonly referred to Paterson’s largest employer, the mayor responded, “That’s the biggest question in the world. I don’t know.’’
Normally, Jones said companies seeking to do business with his administration make their initial inquiries with one of the departments in his administration, or through his office directly.
St. Joseph’s currently is owned by the Catholic Church. Ascension is a Catholic-oriented company, but operates on a for-profit basis and does not have tax exempt status, officials said. Ascension has been entering partnerships with various non-profit hospitals around the country, officials said.
“As part of an overall strategy of regional growth and to continue providing cutting edge medical technology to its patients, we regularly consider strategic opportunities with potential partners. At this time, St. Joseph’s Healthcare System in Paterson and St. Mary’s Hospital in Passaic are in discussions with Ascension Health Care Network of St. Louis regarding the potential creation of a new Catholic Healthcare System in New Jersey,’’ said St. Joseph’s public relations director Nancy Collins, in a statement issued in response to questions from PatersonPress.com.
Collins did not discuss the possible change in the tax status of the St. Joseph's property. But council members focused on that aspect of the deal.
“What they’re talking about would be a revenue-generator for the city,’’ said Councilman Aslon Goow, who attended the meeting on Monday. “It wouldn’t be a non-profit anymore.’’
“The numbers in terms of revenue could be substantial,’’ said Councilman Andre Sayegh, who was also at the meeting with Ascension representatives.
Sayegh said the borough of Westwood stands to reap $1.7 million per year in new taxes through the conversion of Pascack Valley Hospital from non-profit to for-profit status. “We’re a cash-strapped city. We need ratables in the worst way.’’
Goow and Sayegh said details of an agreement on possible tax incentives were still being worked out. In some ways, they said, the deal would work much like an existing city program that allows businesses that make new investments in the city to get tax breaks for five years before they start paying their full share. Even at an initial reduced rate, the taxes on the hospital property should be welcomed by the city, said the council members.
“We’re talking about getting revenue on something that we’re not getting anything from now,’’ said Goow.
Morris estimate Paterson would reap millions of dollars in new ttax revenue if the deall went through.
In this year’s budget, the loss of about $260 million in taxable property, also known as ratables, has cost the city more than $6 million in revenue. That loss has been shifted onto the shoulders of the remaining tax base, resulting in an average city tax increase of about $519 in this year’s first two tax bills just to cover the reduced ratables.
When asked whether he had concerns about Morris being involved in a conflict of interest, Goow replied, “Not at all.’’
“He just made sure we were well-informed,’’ said Goow. “He really didn’t participate in it.’’
“I believe Councilman Morris is intelligent enough to know when a situation poses a conflict and when it doesn’t,’’ said Sayegh. “I’m confident he sought a legal opinion on that.’’
But it was not clear whether that was done. Paterson’s manual on personnel policies says municipal employees shouldn’t conduct “business with a firm in which the employee or an immediate family member has a substantial interest.’’
When told that Jones accused the council members of infringing on the administration’s job of negotiating economic development deals, Goow and Sayegh both pointed out that two members of the administration, Corporation Counsel Paul Forsman and Finance Director Anthony Zambrano, were at the meeting.
The Jones administration’s track record on economic development has been the subject of ongoing criticism by Sayegh and Goow. “They should be joining forces with us,’’ Sayegh said of the administration’s involvement on the hospital deal.
“This looks like it’s something solid,’’ Goow. “This could be very significant for our city.’’’
Morris said Ascension and Oak Hill wanted to gauge the city's willingness to provide tax arrangements before the companies moved further along in their negotiations with St. Joseph's.