Lutheran Senior Services lures retirees to Meramec Bluffs in west St. Louis County for a “maintenance-free lifestyle” in “extravagant residential living apartments.”
At Bethesda Orchard in Webster Groves, which is owned by Bethesda Health Group, residents can shoot billiards, hop a shuttle to a winery, or feast in an elegant dining room, when they’re not exploring shops in the Old Orchard neighborhood.
Lutheran and Bethesda, both based in St. Louis County, are among the nation’s biggest nonprofit organizations offering upscale housing for aging boomers, an industry that is experiencing a boom of its own. The nonprofits pay their executives handsomely and have pumped millions of dollars into expanding their footprints in the St. Louis area.
But because no real estate taxes are paid on Lutheran’s properties — nor on most of Bethesda’s — the lifestyles are subsidized by St. Louis County taxpayers, a Post-Dispatch investigation found. Without tax exemptions granted years ago, they would have paid $3.1 million in property taxes last year.
Property owners across St. Louis County are getting their annual tax bills this month; their tax dollars will fund schools, police, fire protection and other government services. When a property is declared exempt from taxation, the burden of paying for those services is pushed to others.
For-profit competitors that offer high-end senior housing do not get breaks. The Gatesworth, in University City, paid $491,000 last year in real estate taxes. And some nonprofit senior living communities are told to pay. In 2006, the county denied a request for an exemption by the nonprofit Friendship Village of West County, in Chesterfield. Its tax bill last year was $345,000.
County officials have recently dug in their heels again. Earlier this year, the board of equalization denied an exemption for Aberdeen Heights, a 326-unit senior living complex in Kirkwood, owned by the nonprofit Presbyterian Manors of Mid-America. At $93 million, it is the most valuable retirement property in St. Louis County. County Assessor Jake Zimmerman called it a “matter of fairness” that Aberdeen’s owner pay “its fair share.” Aberdeen paid $1.2 million in real estate taxes under protest last year. Its petition for relief is pending in circuit court.
The newspaper’s review of public records points to years of arbitrary decisions by county officials that resulted in tax breaks for some senior living properties, but not others.
Today, Bethesda and Lutheran hold properties in St. Louis County, including independent living apartments and skilled nursing centers, that are worth about $200 million. Meanwhile, the burden of providing services is shifted to other county residents, who may find a retirement to Bethesda or Lutheran properties out of reach.
Consider Lutheran’s $51 million Meramec Bluffs, where a resident can pay up to a $379,000 entry fee and $2,636 a month to live on a campus with a full-service restaurant, a bistro, Jacuzzi, cinema, fitness center and on-site physicians.
“It’s a class act,” said Valley Park Fire Protection District Chief Charles Wilken, who said his department averages 30 to 40 calls a month to the complex. “They do great things for the elderly people there. Sometimes, I say it’s a five-star hotel there.”
Joseph Brinker, president and chief executive at Bethesda, said his nonprofit is providing services to some people whose care would otherwise be on the taxpayers.
However, an expert on the financial and managerial performance of health care organizations, who has studied the proliferation of high-end senior living, called the tax advantage unfair.
“It’s giving upper-income people a way to afford longevity,” said Nancy Kane, an associate dean in the department of health policy and management at Harvard School of Public Health.
CHARITY AT HOME
Missouri property is taxable by default. A taxpayer has the burden of proving why his property should not be taxed. State law says property used for “purely charitable” purposes can be exempt from taxation.
The Missouri Supreme Court in 1978 set up a three-pronged test for exemption. To qualify, a property must not be operated for profit. It must be dedicated exclusively to a charitable purpose — for example, to counsel, to educate, or to heal. And the use must primarily “benefit an indefinite number of people.”
In 2003, the county board of equalization denied a tax break for three Lutheran properties, including Meramec Bluffs; in 2004, the board denied an exemption for Bethesda Orchard. In all cases, the board pointed to a high cost of living in the facilities, and a relative lack of charity.
A taxpayer anywhere in Missouri can appeal an equalization board ruling to circuit court or the state tax commission. But, for several years, only St. Louis County allowed another remedy: an appeal to the County Council.
Both Lutheran and Bethesda appealed to the council’s three-member revenue and personnel committee — and won.
Lutheran’s case was heard Dec. 23, 2003. Two committee members were present for a meeting that lasted 11 minutes. The members, councilmen Greg Quinn and Kurt Odenwald, said at that time they were swayed by the argument that charity was paramount at the Lutheran sites.
Odenwald said he believed Lutheran’s properties qualified for tax exemptions “as long as some individuals with an income under $20,000 were allowed to live in the facilities,” according to the meeting minutes.
But a decade later, a sales brochure for Meramec Bluffs shows a $139,600 entrance fee for the smallest independent living unit, a one-bedroom apartment. Service fees start at $1,908 a month.
Odenwald, now a judge in the Missouri Court of Appeals, did not return a call seeking comment. Despite his statement as he gave the crucial vote — which resulted in millions of dollars in lost revenue to St. Louis County over a decade — Lutheran officials acknowledge it has never been possible for people to live at Meramec Bluffs without hundreds of thousands of dollars.
Lutheran provides housing elsewhere in the St. Louis area for low-income seniors in complexes that are built and subsidized by federal Housing and Urban Development grants. If someone buys into Meramec Bluffs, but subsequently could not afford the monthly fee, he wouldn’t be evicted from the Lutheran system, but he could wind up at a low-income facility, a Lutheran official said.
It is in these situations that the charitable care kicks in, said Jane Wilke, a communications officer for Lutheran. Lutheran pays the gap between the cost of the care being provided and the amount paid by Medicaid.
Lutheran calls this gap “benevolent care.” Wilke said the value of that care has roughly doubled in the past six years, to about $5.5 million in 2013. The money for benevolent care comes in part from an endowment that’s funded by pancake breakfasts, thrift-shop proceeds, donations and bequests.
The current balance of the endowment stands at $40 million, according to Wilke.
Bethesda also draws from an endowment to cover the cost of $13 million it devotes each year to residents who can no longer afford to cover the cost of independent living or the skilled nursing service on its properties. Bethesda officials declined to provide the amount of the endowment.
Bethesda’s Brinker said it is the nonprofit’s policy to provide lifelong residence and care to those able to afford the initial Bethesda fees.
“We’d never ask anyone to leave because they have outlived their assets,” Brinker said.
The Meramec Bluffs exemption raised the hackles of Wilken, the fire chief who suddenly had the responsibility of taking care of hundreds of new residents who weren’t paying for services via taxation.
“I just felt it was wrong they could bring a facility like this into your community and then your taxpayers have to provide services for nothing,” he said. If Meramec Bluffs were generating tax revenue, he said it would supply a major portion of his budget.
The district sued the County Council and Lutheran, alleging that it had been illegal — and wrong — for the county to overturn the equalization board. In a settlement with Lutheran, the fire district agreed to a payment in lieu of taxes of $50,000 a year with a 3 percent annual increase. A circuit court judge then ordered the case sealed, which has kept the public — and presumably other taxing districts — from learning about it.
The suit against the county was dismissed, but in the midst of the litigation, the County Council changed its rules so it no longer hears tax exemption appeals.
Webster Groves schools and municipal services do not receive taxes from two retirement properties — Lutheran’s Laclede Groves and Bethesda Orchard, a complex that converted to nonprofit status after Bethesda Health Services purchased the property about 14 years ago.
Bethesda, which would have an annual tax bill of $308,000 for Bethesda Orchard without the exemption, does not make a donation in lieu of taxes to the school district. The nonprofit gives $5,000 to support the Webster Groves public safety departments, including the ambulance service used by Bethesda residents.
“We are a higher user than the average of ambulance services and emergency services,” Brinker said. But as for schools, “we don’t have many, or any at all, who take advantage of the school district services.”
Lutheran donates $100,000 to the Webster schools on behalf of Laclede Groves but does not make any payment to Parkway schools for Meramec Bluffs. Wilke said Lutheran determines which districts receive payments in lieu of taxes on a “case-to-case” basis.
“It’s basically what they want to pay; there’s no set amount,” said Douglas Copeland, a lawyer for the Webster Groves School Board. “And there’s no guarantee you’ll get it in the future.”
An exemption is not automatically granted every senior community that asks the county for a tax break.
A circuit court judge in St. Louis County in one instance rejected an exemption for the Barclay House, a Bethesda-operated high rise overlooking Shaw Park in Clayton.
“The evidence clearly demonstrates that obstacles are placed in the path of less fortunate individuals seeking residency at the property,” an appellate court said in a 2002 ruling upholding the denial.
“Barclay House has failed to prove that its primary and inherent use of the property is for purposes purely charitable.”
SALARIES AND PERKS
While Bethesda and Lutheran largely aren’t paying property taxes, they are paying their executives handsomely.
Top Bethesda and Lutheran executives exceed the median compensation for senior officials heading nonprofits in the health field, according to a compensation study by Charity Navigator, an independent nonprofit that evaluates U.S. charities.
Federal tax filings show that Lutheran president and chief executive John Kotovsky earned $436,225 in total compensation in 2011, while his counterpart at Bethesda, Brinker, had a compensation package of $338,742 last year.
Bethesda spent $1.6 million on executive salaries in 2012. Lutheran spent $1.4 million on executive salaries in 2011.
Tax records show that Bethesda in 2012 also paid nearly $37,000 in country club fees for its executive team. Brinker defended the memberships as “marketing expense” used by Bethesda executives to “entertain donors” that help keep the endowment growing. He said it was a small expense for a $65 million nonprofit.
David Stokes, a policy analyst for Show-Me Institute, a free-market think tank based in St. Louis, said the Meramec Bluffs case points to a flaw in a system that does not provide a clear definition of “purely charitable.”
“The country club memberships are offset by taxpayer subsidies,” Stokes said. “If their purpose is ‘purely charitable,’ then I don’t think country club memberships used by executives can be defined as purely charitable.”
Or, as Webster Groves School Board attorney Copeland put it, “If you say you’re charitable, then you can get away with not paying taxes.”
Brinker, of Bethesda, said the charity comes in giving elders peace of mind.
“When residents choose to live in our community, they do so knowing they will be taken care of,” he said.