Ohio hospitals, universities invest billions in offshore tax shelters around the world

The sunny shores of the Cayman Islands may be a far cry from Columbus — more than 1,400 miles to be exact — but billions of dollars from Ohio nonprofits flow into the Caribbean and other tax havens around the world each year.

While nonprofit universities and hospital systems are already largely exempt from paying taxes, they are required to pay them on certain types of investment income in the U.S. But a Dispatch review of tax documents shows it's common for nonprofits to take a page out of the playbook of big corporations and the extremely wealthy to avoid paying taxes.

Many universities and hospitals in Ohio have offshore investments, which allows them to be paid out profitable dividends without paying the taxes they'd have to fork over for certain investment income inside the U.S.

The practice is completely legal, though experts told The Dispatch that it deserves more scrutiny since it undermines tax-funded programs that assist those in need and pay for infrastructure for which both colleges and hospitals benefit. Offshore investments also carry more risk, as they are subject to the politics and the stability — or lack thereof — within other nations.

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Combined, nonprofit universities and hospitals with a footprint or hub in the Columbus area have more than $3.3 billion in offshore investments, a Dispatch review of their Form 990s filed with the Internal Revenue Service found. Nonprofits or organizations exempt from federal income tax must file a Form 990 if they have either gross receipts of $200,000 or more or total assets of $500,000 or more.

Such investments "blur the line" as to whether colleges and hospitals making them should truly be considered nonprofits, said Charlie Eaton, an associate professor of sociology who studies the intersection of public policy, the economy and social groups at the University of California-Merced.

"It's more than a perception problem. When hospitals and universities essentially run tax exempt hedge funds...it undercuts tax revenue programs," Eaton said.

Among Columbus-area hospitals, OhioHealth had more than $939 million invested in Central America, the Caribbean, Europe, Iceland, Greenland, Canada and Mexico, while Mount Carmel Health's Michigan-based parent company Trinity Health had more than $2.3 billion in overseas investments. By comparison, the foundation for the Cleveland Clinic — a juggernaut health system that's nationally known — had $4.1 billion in offshore investments as of 2021, the most recent year for which returns for each entity are available.

Ohio University's foundation had over $44 million in offshore investments as of 2021, while Miami University's foundation had $21 million. Smaller, private universities such as Ohio Wesleyan University had $16.3 million invested in other countries while Capital University had $6.4 million, and Otterbein University had $5.1 million invested overseas as of 2021.

Neither Ohio State University nor its foundation in 2021 filed with their Form 990 a Schedule F, which details offshore investments. When asked whether the university has overseas investments, spokesman Ben Johnson said the public university does not share the details of its investment portfolio.

The billions in investments are being made even as students struggle under the weight of trillions in loan debt and as medical debt among Americans has also skyrocketed.

Local nonprofits told The Dispatch that they invest overseas to be strategic and financially prudent.

Maura Donahue, Ohio Wesleyan's vice president for finance and administration, told The Dispatch that overseas investments adhere to the university's "risk tolerance" and help it to meet financial objectives.

Trinity Health, which owns Mount Carmel, diversifies its investment portfolio with offshore accounts "to balance across all risk factors including geography, company and sector," a spokesperson said in an emailed statement.

Similarly, OhioHealth's chief financial officer Michael Browning told The Dispatch that the hospital system uses offshore investments to balance its financial holdings rather than to avoid paying taxes. At any one time, stocks in one country may be doing better than another, so spreading them across different markets helps ensure the health system is more stable, he said.

"We don't figure in the taxability in our decision making. We look at how it's balancing out the portfolio," Browning said. "What we want to do is have the highest returns possible with the lowest risk."

The ups and the downs

Since 2016, offshore investments have gone up and down for local nonprofits that use them.

OhioHealth's investments increased 173% from 2016 through 2021, and Mount Carmel's parent company saw its overseas investments increase by 52%.

While offshore investments appear on the rise for health systems, they've mostly shrunk for area universities and other Ohio colleges.

The biggest decrease was at the Miami University Foundation, which saw its offshore investments decline by more than 87%. Only Otterbein University's increased, by 40%, records show.

It's unclear what's causing the difference, but Rea Hederman Jr., executive director of the economic research center at The Buckeye Institute, a conservative think tank, said the COVID-19 pandemic may explain the ebb and flow.

"It's messed up what the coffers are showing," Hederman said. "The bottom line is that's made it harder to take a look at everything."

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OhioHealth's Browning said the hospital system was able to avoid having to dip into its investments because of the unprecedented global pandemic that changed the way people lived for a year or more. But, Eaton said, it's unlikely universities were as lucky.

Many colleges switched to online learning and some either had to lay off employees or were in danger of doing so, Eaton said. To stem the losses, Eaton suggested universities may have been forced to pull some investments to pay for other necessities.

Along with the pandemic, something else changed in the U.S. in the past few years that could mean fewer institutions are investing in tax-free jurisdictions, Hederman said.

In 2017, the U.S. corporate tax rate was lowered from 35% to 21% to be more competitive with other countries. Hederman hopes that may already be spurring some universities and health systems to move investments stateside.

"Hopefully there will be less incentive to invest in tax shelters and some of these other entities," he said.

How tax-exempt status is part of a 'social bargain'

Even if nonprofits are not moving investments back into the U.S., Hederman said offshoring is perfectly fine for them to do if tax law continues to allow it and so long as they're sticking to their promise of doing something for the public good.

Universities need to provide opportunities for students and help them build their careers, and hospitals should be serving those in need suffering from dire medical conditions, he said. If they're not living up to that promise as nonprofits, Hederman said it begs the question as to whether they should be tax-exempt in the first place.

"They're getting these tax breaks for social bargain ... but it's important to continue to monitor these institutions to make sure they're creating that value," Hederman said.

Browning told The Dispatch that OhioHealth does this through its charity care programs, which spent $107.7 million on patients in fiscal year 2023. The health system also shelled out $254 million for Medicaid programs and millions more for research and community health programs, he said.

Since nonprofits offer a "social good," they need to ensure they're financially able to maintain what they provide, said Zac Kester, chief executive officer of Charitable Allies, an Indianapolis-based law firm and nonprofit advocacy organization.

"Ultimately, the nonprofit has an obligation to be financially prudent, including being tax efficient," Kester said about organizations that make offshore investments.

Eaton disagreed. Whether the reason universities and hospitals invest in tax shelters is to balance their stock portfolio or avoid paying taxes, he said something's got to give.

But Eaton doesn't blame the nonprofits doing it and he doesn't expect institutions to stop investing overseas so long as it's legal.

Rather, Eaton said federal lawmakers should overhaul existing laws to try to stop it from continuing.

"The solution here is not to ask universities and hospitals to stop doing it ... It's to update the tax policy," Eaton said. "Still, I don't think you necessarily have a fiduciary duty to evade taxes."

mfilby@dispatch.com

@MaxFilby

This article originally appeared on The Columbus Dispatch: Ohio's hospitals, universities invest billions in offshore tax-havens