Article by Erik Smith. Published on Thursday, May 13, 2011 EST.

Contradicts Gregoire Claim in 2004 Campaign

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, May 12.—When is a tax not a tax? When it comes up for a vote in the state Senate.

            Lt. Gov. Brad Owen ruled Wednesday that a complicated scheme to goose more federal funding for the state’s nursing homes isn’t a tax at all, paving the way for Senate approval of the measure, 27-17. It’s the kind of thing that might look like a tax, act like a tax – but by the Legislature’s definition may not be one. And in the end it’s Owen’s call.

            Senate Bill 5581 will provide about $90 million every two years to bail out the state’s cash-strapped nursing homes, under a convoluted mechanism that is used in many other states, including Washington. And it will settle a lawsuit brought by the state’s for-profit nursing home organization, the Washington Health Care Association, that charged the state had been shorting payments for Medicaid patients. The money would fully restore cuts that have enacted by the Legislature over the last two years as tax revenue has tanked.

            “If the cuts that would be necessary without this assessment are enacted, many of our nursing homes will end up closing, failing, turning their patients out,” said sponsor Karen Keiser, D-Kent. “We cannot have that in our state.”

            There was sort of an inside angle on this one, too, that made it one of the more interesting episodes of the session. Owen’s ruling made passage of the bill possible. But it went against those who have been calling the mechanism a tax for years – a list headed by none other than Gov. Christine Gregoire, who used the argument against Republican Dino Rossi in the 2004 gubernatorial campaign. And there were plenty on the Senate floor who had bitter memories of that one.

            Second Time Around

            It’s actually the second time the state of Washington has used the same complicated scheme to leverage money for the state’s nursing homes. And for the sake of clarity, let’s call it a tax, because just about everyone else does. The way it works is this. The state imposes a tax on nursing homes, for the number of beds that are occupied each day. That means the state has to pay more money for each Medicaid patient. But because the federal government pays at least half the Medicaid bill, the state gets more money from the feds. And then, presumably, it can turn around and give the money back to nursing homes.

            It doesn’t always turn out that way. The last time the state tried it, back in 2003, it wasn’t long before lawmakers were diverting money to the state general fund. Last year they enacted the same type of mechanism for the state’s hospitals, and this time around they are planning to divert a big chunk of the proceeds to help bail out the state budget. It is a hugely controversial plan that will face a challenge of its own on the Senate floor.

            Lawmakers abandoned the nursing home mechanism in 2007, after the governor’s race poisoned the well and some senior advocates started calling it “the granny tax.” Even though the mechanism aimed to compensate nursing homes for inadequate Medicaid payments, the tax actually was paid by every nursing home occupant. That rankled the golden-age crowd.

            Holmquist-Newbry Raises Challenge

            There was plenty of opposition to the idea this time around, too. Though the bill was advocated by the state’s for-profit nursing homes, the non-profit nursing homes don’t fare as well. State Sen. Janea Holmquist-Newbry, R-Moses Lake, led the opposition on the floor when the bill came up for a vote Tuesday, asking for a ruling from Owen, the Senate’s presiding officer, on whether it was a tax or a fee.

            That’s an important point in the Legislature these days. A fee can be passed by a majority vote. But under Initiative 1053, passed by voters last year, a tax requires a two-thirds vote. That makes passage practically impossible, because Republican votes would be needed, and Republicans say there’s no tax they’ll support.

            What it comes down to is this. Under the Legislature’s definition, if an assessment benefits only the entity that pays it, then it is a fee. But if the benefits go to others, then it is a tax.

            When it became clear that a challenge would be mounted in the Senate, advocates actually rewrote the bill to get past the hurdle. Originally it would have raised nursing home taxes to the point that there would have been $30 million extra for the general fund. But they nixed that, on the grounds that it would never fly.

            Still, there are at least two nursing homes in this state that will pay the tax but receive no benefit, because they do not take Medicaid patients. That was the basis for Holmquist’s challenge.

            Not a Tax, Owen Rules

            Owen said he had to think long and hard about this one. Took him a day. “In this particular instance, excellent arguments have been made to support both sides of the ultimate question, whether this is a fee or a tax,” he said. “And the president believes that this is one of the more difficult decisions he has been called upon to make.”

            But Owen said the key thing is that the assessment benefits the nursing home industry as a whole. It’s paid by the nursing home industry. So everything winds up where it should.

            “Neither I-1053 nor the president’s prior ruling have required that a fee fall equally on individual payors, nor that its benefits be the same for each recipient,” he said. “Simply put, there must be a reasonable connection between the fee, those paying it, and the purpose on which its proceeds must be spent.”

            And so the tax isn’t a tax after all.

            Forgot to Check With Seattle Times

            Owen’s ruling left Holmquist-Newbry disappointed. “Although it may fit the definition in the Senate of a fee instead of a tax, I think most citizens in the state of Washington will regard this as a tax,” she said.

            But there’s still the big challenge on the hospital maneuver yet to come – and that may be more clear-cut, because it shunts millions into the general fund.

            Meanwhile, you might say there was a taste of irony in some lawmakers’ mouths. State Sen. Doug Ericksen, R-Ferndale, reminded the Senate of what happened the last time the Legislature tried it.

            For political reasons, Dino Rossi found himself writing the budget back in 2003, and he was a big supporter of the nursing home bed tax. But of course he called it a fee when he ran for governor the next year and said he balanced the budget without raising taxes. Gregoire called him on it, highlighted it in her ads and in debates. The Seattle Times even ran a ‘fact check’ piece, Ericksen said, in which it said the nursing home assessment was definitely a tax.

            “[The] then-attorney general, now governor of the state of Washington, Chris Gregoire said no, that’s a tax  – you’re not being honest, Mr. Rossi, you raised taxes. I could read page after page from the Seattle Times, 2003 and 2004, about the debate between Sen. Rossi and now-Gov. Gregoire about how was this a tax.

“Is this a tax? Clearly it was called a tax. I mean I could read it right here, ‘Fact Check  – The Seattle Times.’ It says clearly [despite] Rossi’s claim that as chairman of the Senate Ways and Means Committee he did not raise taxes, the fact, as was brought out during that campaign, was that he did raise taxes because he enacted the bed tax in 2003.”

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