Assembly revisits hospital boundary move

The debate over who has to pay property taxes to which of the borough’s hospitals is getting into gear again.

The Kenai Peninsula Borough Assembly introduced an ordinance that, if approved, would ask voters if the line between the Central Kenai Peninsula Hospital Service Area and the South Kenai Peninsula Hospital Service Area should move south. Only voters in the current Central Kenai Peninsula Hospital Service Area and in the area proposed to be moved into that service area could vote on it.

The ordinance, proposed by assembly member Dale Bagley, is meant to remedy a long-standing dissatisfaction from area residents who say they pay property taxes to South Peninsula Hospital but regularly use Central Peninsula Hospital.The difference in the mill rate between the two service areas is substantial — Central Peninsula Hospital’s service area carries a 0.01 mill levy, while South Peninsula Hospital’s is 2.3 mills. On a $200,000 home, that calculates to about $2 for Central Peninsula Hospital’s service area and $230 for South Peninsula Hospital’s service area.

The community of Ninilchik falls roughly halfway between the two hospitals, and Bagley wrote in his memo that it can be assumed most of the people in the Ninilchik area and to the north of the halfway point use Central Peninsula Hospital.

“In my view, those people should not pay taxes for the (South Kenai Peninsula Hospital Service Area) which are much higher than the taxes paid for the (Central Kenai Peninsula Hospital Service Area),” he wrote in his memo to the assembly.

The assembly didn’t discuss the ordinance much during the regular meeting Tuesday, introducing it on the consent agenda and setting it for public hearing at the May 1 meeting in Soldotna.

The assembly has debated the location of the dividing line several times, most recently in summer 2016. Each time, South Peninsula Hospital representatives and Homer residents have strongly objected to the move, saying the loss in property taxes would severely impact the hospital. The hospital also helps operate a community clinic in Ninilchik, providing imaging support and rotating physicians, which it would no longer be able to do if the clinic were outside the service area boundaries.

Former assembly member Brent Johnson sponsored a similar ordinance in 2016, which Bagley cosponsored at the time. The current boundary falls at the Clam Gulch Tower, which according to Johnson’s research was placed there because it was the northern boundary of the Ninilchik precinct when the hospital service areas were established in 1969. Johnson’s ordinance in 2016 proposed moving the line about 12 miles to the south. Bagley’s proposed new boundary is in a similar location, running east from the coast near Oil Well Road.

The move would cost South Peninsula Hospital about $447,000 in property tax annually, according to a fiscal impact statement requested by assembly member Willy Dunne provided to the assembly. Dunne suggested a compromise in placing the service area boundary at the geographic halfway point, north of Bagley’s proposed line but south of the current line, at approximately Barbara Drive.

Johnson, who is no longer on the assembly but attended the meeting Tuesday, told the assembly he still supported the move. He said he proposed something similar to Dunne’s halfway point compromise during the discussion on his ordinance in 2016.

“An argument can be made for the people south of that line because the vast majority of them do use the Soldotna hospital,” he said. “That’s something we should scratch our heads and look at. Obviously the people from the halfway point north should be paying taxes to the Soldotna hospital.”

South Peninsula Hospital has a much smaller population within its service area to support its operations — roughly 11,000 people versus Central Peninsula Hospital’s approximately 33,000. Central Peninsula Hospital historically had a higher mill rate but began transitioning away from relying on mill revenue beginning in 2008, in part because the assembly tasked the hospital with becoming more self-sustaining. South Peninsula Hospital balances its operating budget on both the mill rate and service fees, among other revenues.

The borough administration has also considered if it would be possible to unite the service areas under one umbrella to avoid the stark difference in mill rates. The borough owns both hospital facilities in Soldotna and Homer but leases them to separate operating nonprofits. The hospital in Seward is owned by the city of Seward but operated by Providence Health and Services, a nonprofit that operates multiple hospitals in the country, including Providence Health and Services in Anchorage.

Former mayor Mike Navarre convened a health care task force in 2015 and 2016 to discuss options on how to reduce health care costs in the borough, including making the hospitals more efficient, and suggested the possibility of the borough adopting health care powers and uniting the service areas. However, some in Homer expressed concern about a loss of local autonomy at the community hospital if the service areas were united, and the report from the consultants the Healthcare Task Force contracted with did not conclusively recommend uniting the service areas, so the idea never went to the assembly as a formal ordinance.

Reach Elizabeth Earl at eearl@peninsulaclarion.com.

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