Cleveland Clinic gives $1 million to Strongsville schools in exchange for acceptance of tax-exempt status

Cleveland Clinic gives $1 million to Strongsville schools in exchange for acceptance of tax-exempt status

STRONGSVILLE, Ohio -- Cleveland Clinic, which one year ago was awarded tax-exempt status for its Strongsville medical center, will give the Strongsville City Schools a one-time payment of $1.05 million, under an agreement the Board of Education unanimously approved last week.

In exchange, the schools will not legally or administratively challenge the tax-exempt status of the Clinic’s Strongsville Family Health & Surgery Center, 16761 Southpark Center. The medical center is off Ohio 82, in front of SouthPark Mall.

The tax-exempt status means that Cleveland Clinic will no longer have to pay property taxes to the city and Strongsville schools. Also, the Ohio Department of Taxation ruled that the city and schools owe the Clinic a property-tax refund retroactive to 2013.

Due to that state ruling, the schools were required to return a total of $1.99 million in past property taxes to Cleveland Clinic. The Clinic will now return a little more than half that amount to the district.

“Other (school) districts fought (Cleveland Clinic’s tax-exempt status) all the way and spent a lot of money on legal advice and lawyers, and they all lost,” school board President Carl Naso said at last week’s board meeting. “We were able to go in and negotiate, and I think we came to the best conclusion that we could.”

In 2014, the Ohio Board of Tax Appeals ruled that Cleveland Clinic’s Beachwood medical center should be exempt from property taxes after a 12-year legal battle between the Clinic and the Beachwood City School District.

The settlement between Strongsville schools and Cleveland Clinic came about 3½ weeks after the City of Strongsville reached its own agreement with the Clinic over the hospital’s new tax-exempt status. In that agreement, the city dropped a lawsuit that challenged the Clinic’s tax-exempt status in exchange for a one-time payment of $186,000.

According to Strongsville Finance Director Joe Dubovec, the city was required to return $305,943 in property taxes to the Clinic, retroactive to 2013, due to the state taxation department ruling. With its one-time payment of $186,000, the Clinic returned about 60 percent of that amount to the city.

However, the city and schools will lose an annual total of between $775,000 and $800,000 in property taxes from the Clinic in future years. Most of that amount -- about $440,000 a year -- went to the schools, while the city, according to Dubovec, received between 7 percent and 10 percent of the total, or between $54,250 and $80,000 a year.

Opaque happenings

The city filed its lawsuit against Cleveland Clinic June 12, after learning about the Strongsville medical center’s tax-exempt status from Strongsville schools, according to Strongsville Assistant Law Director Dan Kolick.

Kolick said the state taxation board is required to notify school districts, but not municipalities, affected by the granting of tax-exempt status. This is because schools have significant dollars at stake. Notification allows school districts time to appeal.

When asked if the state notified Strongsville Schools about the Clinic’s tax-exempt status, whether the district appealed that ruling and why the district didn’t file its own lawsuit against the Clinic, schools Superintendent Cameron Ryba said he had no comment.

A spokesperson at the Ohio Department of Taxation didn’t return calls.

Mary Louise Madigan, spokesperson for Cuyahoga County Executive Armond Budish, said that while it is the state’s job to notify school districts of any newly awarded tax-exempt status, the Cuyahoga County Budget Commission informally contacted Strongsville Schools about Cleveland Clinic’s tax-exempt status and told the district that it would have to repay past property taxes to the Clinic.

At any rate, Kolick said that although the school district wasn’t part of the city’s lawsuit against the Clinic, it was involved in subsequent negotiations, which resulted in the two settlement agreements.

Ryba said that a school district lawyer, David Seed, and his law firm, Brindza McIntyre & Seed LLP in Cleveland, worked on the agreement between the schools and the Clinic.

On June 28 -- just days after the city had filed its lawsuit against Cleveland Clinic -- the Strongsville school board placed a tax increase on the ballot. At the time, board members said state funding cuts, plus the loss of property taxes from Cleveland Clinic, made the tax increase necessary.

District officials said that without the new tax, Strongsville Shools would start deficit spending in 2019 -- meaning that expenses would exceed revenues and the district would need savings to balance the budget -- until district savings are wiped out in 2022.

The district went forward with the tax levy while it was working with the city to oppose Cleveland Clinic’s tax-exempt status. Ryba said he had no comment about whether the district should have waited until the lawsuit was resolved before asking voters for a tax increase.

In November, Strongsville voters overwhelmingly defeated the proposed tax increase. Since then, the district has said it will place another levy on the ballot, possibly in May.