Here's how a tax settlement between Marshfield Clinic and the city of Marshfield impacts taxpayers

MARSHFIELD − After a nearly three-year legal battle between Marshfield Clinic Health System and the city of Marshfield, an agreement has been reached. But, how the city will make up the loss of tax revenue agreed upon in the settlement is yet to be determined.

“The City greatly values its relationship with Marshfield Clinic Health System, and we are pleased to have reached an agreement that is acceptable to both parties,” Marshfield City Administrator Steve Barg said in a joint news release with the health care provider. “This paves the way to continue and strengthen our cooperation and coordination to the greatest degree possible for the betterment of our community and the surrounding area.”

The agreement is in place through 2028, after which each entity will reevaluate its position and proceed with a typical property tax process.

“Marshfield has been our home for more than a century, and we are fully committed to seeing the community thrive,” Dr. Brian Hoerneman, interim chief executive officer for Marshfield Clinic Health System, said in the release. “We employ thousands of community residents, support area business and community organizations and build and support educational programs, and as a major economic driver for the region, we continually look for ways to further make Marshfield a premier health care destination in Wisconsin.”

Here’s what the lawsuit was about, what the settle means for taxpayers and how a court decision could have impacted the city.

What was the dispute about?

The civil lawsuit, filed by Marshfield Clinic Inc. on July 13, 2021, involved taxes the health care provider has paid since the 2020 tax year, according to Barg. Marshfield Clinic claimed their properties at 1000 and 1001 Oak Street were exempt from property taxes under Wisconsin State Statute 70.11, which lists a number of property tax exceptions including one for “nonprofit hospitals.”

How was the settlement reached?

Due to the possible implications of a court decision, the two entities negotiated a compromise that resolved the dispute on prior years and secured an agreeable tax rate for the next five years.

Marshfield Clinic will pay $1.272 million total on the two properties in taxes for each of the next five years. In addition, it is dropping its claim of unlawful taxation for the previous four tax years, which were paid on time and in full.

Wood County, Marshfield School District and Mid-State Technical College will each receive their allocated portion of the Clinic’s property tax payment.

How does this relate to other recent property tax changes?

Marshfield School District reduced its tax levy by $5.3 million in 2023, which caused a significant reduction in property taxes within the district. This decrease was a result of an increase in general aid from the state and a completed repayment of debt approved by a 2005 referendum, which funded capital improvement projects including the rebuilds of Madison and Washington elementary schools.

City-wide property reappraisals resulted in increased residential property values, Barg told the News-Herald. The city’s property tax levy limit remains the same but the reappraisal shifts the proportion of taxes paid by individual property owners and this particular reappraisal shifted more toward residential properties.

For these reasons, the Clinic’s tax bill on the two properties went from over $3 million in 2022 to about $1.8 million in 2023. Tax rates are set based on a number of factors that change each year. The $1.272 million the Clinic will pay for five years beginning with the 2024 tax year is about 70% what they paid in 2023.

What were the implications of a potential court decision?

A judge could make any decision that could result in the tax payment being zero or the full amount based on property valuations and mill rates. Given the amount of uncertainty with a judge’s decision and the relative certainty that neither side would be happy with either of the extreme outcomes, a negotiated settlement was beneficial for both sides.

If a judge granted a full tax exemption, each of the city of Marshfield, Marshfield School District, Wood County and Mid-State Technical College would not collect their portion of the two properties' tax bill. In a 2022 presentation to the Marshfield City Council, Barg said the roughly $1.1 million in tax dollars the city received from the Clinic accounted for about 4.7% of the city’s 2022 general fund revenue. The rest of the properties' roughly $2.8 million tax bill at that time sent over $900,000 to the school district, roughly $600,000 to the county and about $140,000 to the technical college.

Each of the taxing entities would then decide if they would ask the remaining taxpayers to pay more to make up for the loss or make cuts to balance the budget. Levy limits would not decrease if the properties were ruled as exempt so the taxing entities would be authorized to continue to collect roughly the same amount of total tax dollars from their district's taxpayers minus one significant payer. However, districts do not need to collect taxes up to the levy limit and the loss in revenue could instead be balanced by cuts to services or finding other additional revenue sources.

The two properties make up less than 0.2% of the city’s total land area.

Erik Pfantz covers local government and education in central Wisconsin for USA-TODAY NETWORK-Wisconsin and values his background as a rural Wisconsinite. Reach him at epfantz@gannett.com or connect with him on X (formerly Twitter) @ErikPfantz.

This article originally appeared on Marshfield News-Herald: Marshfield Clinic and city settle civil lawsuit over tax dispute