WATERBURY – City officials have deemed $18.4 million in 2024 and 2025 property taxes owed by Waterbury Hospital to be uncollectible amid the ongoing bankruptcy of owner Prospect Medical Holdings.
On the recommendation of Tax Collector Frank Caruso, the Board of Aldermen voted Monday to place the nearly $9.5 million in delinquent 2024 real estate and personal property taxes and $8.9 million in delinquent 2025 real estate and personal property taxes on the property tax suspense list.
Suspense lists are records of taxes that are deemed uncollectible by the local tax collector. Placement does not mean the tax debt is abated. The tax debt remains collectible for 15 years from the due date. Interest also continues to accrue at a rate of 18% a year.
Prospect Medical Holdings filed for Chapter 11 bankruptcy protection Jan. 11 in U.S. Bankruptcy Court for the Northern District of Texas.
Caruso advised the Board of Aldermen that the likelihood of collecting all or some of the delinquent 2024 and 2025 property taxes is in jeopardy because of the Prospect bankruptcy.
The placement on the suspense list only removes the 2024 and 2025 back taxes as receivables that are included in the city’s year-end tax financial statements. The delinquent taxes will remain in the tax collection system for the application of any subsequent payments.
But Mayor Paul K. Pernerewski Jr. told aldermen that Waterbury is unlikely to collect 100% of the delinquent 2024 and 2025 taxes, and how much the city may ultimately collect depends on the outcome of the bankruptcy proceeding.
“It is out of our control at this point. There is nothing we can do to get those taxes until the bankruptcy court resolves this,” he said. “The idea is to take this off as a receivable because it is not a realistic receivable at this point, and we know at some point we’re going to get something, but it is not going to relate to the numbers that we’re showing on the books.”
Pernerewski Jr. also informed aldermen that a deal that the California-based hospital chain made in 2019 to sell the grounds of Waterbury Hospital to a real estate investment trust and lease the property back is a complicating factor.
The sale-lease back arrangement with MPT Waterbury PMH LLC, a subsidiary of Alabama-based Medical Properties Trust, was part of a larger $1.6 billion financing deal that also included Prospect’s real estate assets in Connecticut, California and Pennsylvania.
Subsidiaries of Medical Property Trust also own the grounds of Prospect’s two other Connecticut hospitals, Manchester Memorial Hospital and Rockville General Hospital in Vernon.
The three Connecticut hospitals are being sold through a bankruptcy auction that Pernerewski said has attracted four bidders.
Earlier this year Medical Properties Trust agreed to help expedite the bankruptcy sale. Investment banking firm Houlihan Lokey Capital is working with MPT and other parties to speed up the hospital sales.
Pernerewski told the Board of Aldermen that the hospital building and its underlying grounds must be packaged for any sale of Waterbury Hospital to work.
“No one is going to buy the hospital as an ongoing entity if they have to continue the relationship with the holding company,” he said. “That is just not a viable solution to all of this, and that is being dealt with through the bankruptcy court.”
There is also an ongoing tax appeal in state court over the assessment of Waterbury Hospital. Pernerewski said this litigation is proceeding on a separate track and the dispute is expected to go to trial later this year.
Prospect Waterbury Inc., the Prospect subsidiary that owns Waterbury Hospital, sued city in state Superior Court in Waterbury in March 2023 contesting the city’s updated $171,714,900 assessment of the hospital building and grounds at 64 Robbins St. following a citywide revaluation in 2022. It represented an increase of $29. 6 million over the previous 2021 assessment.
The lawsuit is claiming the tax assessment was excessive, and it is seeking a court-ordered reduction.
Pernerewski said the outcome of the Prospect bankruptcy will also likely affect the amount of 2022 and 2023 taxes that city may be able to collect. The city is owed nearly $22 million in real estate taxes and personal property taxes for the 2022 and 2023 tax assessment years.
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