Today’s meeting of the Wichita city council will have a public hearing concerning the issuance of health care facilities revenue bonds for Larksfield Place, a decidedly high-end retirement and assisted living center in east Wichita.
These bonds are similar to the Industrial Revenue Bonds that the city issues frequently. The primary economic benefit to recipients of IRBs is the property tax exemption that accompanies the bonds. In the case of the applicant Larksfield Place, the property tax exemption is of no value, since as a 501(c)(3) non-profit organization, it doesn’t pay property taxes. The economic benefit to Larksfield is that the buyer of the bonds will not have to pay taxes on the interest it earns. This allows Larksfield to reduce its interest costs on the bonds.
Larksfield may also benefit from a sales tax exemption on materials purchased with bond proceeds. A Larksfield representative said that it will apply to the State of Kansas for the exemption, which it has received in the past. With the state budget situation, however, that exemption may not be granted, he said.
The important public policy question is why does Larksfield operate as a non-profit institution, and what impact does that have on Wichita. Generally we think of non-profits as having an educational or charitable mission, perhaps helping the elderly who can’t afford to live in an assisted living center. The Larksfield representative I spoke to was not able to give examples of things Larksfield does to merit non-profit and tax-exempt status. Instead, he referred me to the organization’s IRS form 990. That form asks for the organization’s primary exempt purpose. Larksfield’s response on that form is this: “To operate and maintain suitable resident facilities and services for the care, treatment, and rehabilitation of elderly persons including non-acute health care, in an integrated environment in which quality of life can be maintained at the lowest feasible cost.”
It’s a good thing that the statement didn’t mention the lowest possible cost, as Larksfield Place is definitely not a low-cost operation. It is probably the most luxurious retirement home and assisted living center in Wichita.
Good public policy requires that similar organizations are treated equally by government. It is difficult to distinguish the mission and business plan of Larksfield Place from assisted living centers in Wichita that don’t have non-profit status. The fact that Larksfield is able to operate outside the realm of the tax system gives it an advantage that isn’t justified by any rational pubic policy.
Further, the privileged tax status of Larksfield Place serves as a deterrent to others who may wish to compete in the same market. This is the reason why the Wichita city council should deny the application for health care revenue bonds. Businesses without tax-advantaged status have to pay higher overhead costs (in the form of higher property taxes) and are at a competitive disadvantage for hiring workers from within this community if they compete with Larksfield Place (or other firms with these tax breaks) in hiring workers and raising capital.
Although the Wichita City Council did not issue the 501(c)(3) tax exempt status to Larksfield Place (that was issued by the Internal Revenue Service), the council can help keep the playing field level by denying this application.