The case for rethinking hospital tax breaks, and why Buffalo should tread carefully

By Walter Pryce

Opinion. This is an analysis of a recent Tax Foundation paper. The views attributed to the Tax Foundation and its authors are theirs; the conclusions about Western New York are the author’s.

BUFFALO — Walk up High Street on the Buffalo Niagara Medical Campus and you pass some of the most valuable real estate in the city. Nonprofit hospital property is generally exempt from property tax under state law, and nonprofit hospitals pay no federal income tax. A new paper from the Tax Foundation, a Washington think tank that generally favors broad tax bases and low rates, asks whether that arrangement still makes sense for the country’s largest hospital systems.

In “Options to Reform the Tax Treatment of Exempt Hospitals,” published Oct. 22, Garrett Watson and Andrew Lautz of the foundation’s Center for Federal Tax Policy don’t argue that hospitals are villains. Their argument is about fairness in the tax code: nonprofit and for-profit providers do much of the same work but are taxed very differently.

What the Tax Foundation found

Of the roughly 6,100 hospitals operating in the U.S. this year, the authors write, nearly half are nongovernment, tax-exempt community hospitals. They generally pay no federal or state income tax and no local property tax, and they can borrow with tax-exempt bonds and collect tax-deductible donations.

These are not small charities. In 2024, the paper reports, 2,271 hospital tax filers together reported $1.4 trillion in revenue, $1.8 trillion in assets and $87.9 billion in net income.

The foundation modeled several reforms, each aimed only at systems averaging more than $1 billion in annual revenue. That would cover 287 systems in 2027, which hold about 85% to 89% of the sector’s revenue and assets. Its estimates over 10 years:

• Applying the 21% corporate income tax to those systems: $147.6 billion.
• Taxing their book (financial-statement) income at 21% instead: $224.7 billion.
• A 4% excise tax on their net investment income, modeled on the university endowment tax as restructured in the 2025 tax law President Trump signed: $22.8 billion.
• Denying the charitable deduction for gifts to covered systems: $32 billion.
• Ending tax-exempt bond financing for new borrowing: $5.9 billion.
• “Recapturing” tax benefits that exceed a system’s community benefits: $20.2 billion to $64.2 billion, depending on how community benefit is defined.

The authors’ central claim is that each option “would move the tax code toward greater neutrality between similarly situated taxpayers in the health sector.” They also flag the risks. Systems could sell or spin off hospitals to stay under the threshold, or convert to for-profit status, and the authors write that “the design details matter” to avoid “unintended consequences on the sector and patients.”

What it means on the Medical Campus

Western New York has a direct stake in this debate. Kaleida Health, the region’s largest hospital system, reported about $1.69 billion in revenue and $1.65 billion in expenses on its 2023 federal Form 990, according to ProPublica’s Nonprofit Explorer. On those public filings, Kaleida would appear to clear the foundation’s $1 billion line, while its margin that year was thin.

The local property tax stakes are visible too. State assessment data show Kaleida’s parcel at 100 High St., classified as a hospital, was assessed at $60.5 million on the 2021 roll and fully exempt from city, county and school taxes, as OpenGovNY’s copy of the state roll shows.

That matters for a city that is short on taxable property. Investigative Post reported in December that Buffalo lost about $20 million in a single fiscal year to exemptions and abatements, and that the taxable share of property in the city has fallen to 56%. Benjamin Swanekamp, then tapped as deputy mayor overseeing tax and finance in Mayor Sean Ryan’s incoming administration, told the outlet it was “too soon” to discuss a payment-in-lieu-of-taxes program for nonprofits. He also said Buffalo’s nonprofit hospitals are less profitable than Pittsburgh’s and are not the prime target.

Albany has a version of this idea on the table. A bill introduced in the state Senate in October 2025, S8548, would require nonprofit hospitals to pay 75% of their annual property taxes to their host municipality, unless they already have a PILOT or similar agreement.

The local record is mixed, not damning

Fairness cuts both ways. The Lown Institute, a health think tank that compares hospitals’ tax breaks with their community spending, found in its 2025 report that 42% of 132 New York nonprofit hospitals it studied received more in tax benefits than they spent on community investment. In an earlier analysis, Lown named Buffalo’s Sisters of Charity Hospital a top hospital for “fair share” spending, with a surplus of about $11 million. A blanket judgment about Buffalo hospitals would be unfair.

Where this leaves us

Washington should take the Tax Foundation’s framework seriously, because it asks the right question: what do taxpayers get for a break worth billions a year? And its suggestion that any remaining tax benefit be tailored to specific services, such as charity care, is more sensible than a blunt new tax on every hospital.

Buffalo should be careful about the local version. A new property tax bill for Kaleida or Catholic Health would come out of the same budgets that pay for patient care. A better approach is the transparent one: publish what each exempt system receives and what it gives back, and negotiate voluntary payments where the gap is real. The Tax Foundation is right that the details matter. Western New York should be the place that gets them right.

Views attributed to the Tax Foundation are its authors’ own. Read the full paper here.

Featured photo: Buffalo General Medical Center, by Reading Tom / Wikimedia Commons, CC BY 2.0, cropped.