A politically popular program that has diverted millions of state tax dollars to struggling rural hospitals has not always benefited the most needy facilities, a state audit of the program found.
And a vendor that administers the $60 million-a-year program has reaped far more money than it cost to do the work and won't let the state see where the money has gone, the report said.
The audit was requested by the House Appropriations Committee, whose chairman, state Rep. Terry England, R-Auburn, has expressed concerns about how the program has been administered.
When contacted Wednesday by The Atlanta Journal-Constitution, England said he was midway through reading the report.
“There are some things in it I think that we will look at,” England said.
The audit raised the possibility of either creating a state-run nonprofit to administer the tax credit effort or simply turning it into a state grant program, either of which could save money.
The Legislature created the program for rural hospital tax credits to shore up the facilities after seven closed down for lack of funds.
Individuals or companies can designate donations to a specific hospital or the program — which includes 58 needy hospitals.
The donors receive a 100% tax break — every penny of a donation can reduce what a donor owes in state taxes by a penny.
The way it was set up has led to several problems, the audit found.
All the hospitals on the needy list have received some money. But the program has not weighted the money toward the ones with the most need.
A couple of big recipients: Phoebe Sumter Medical Center, ranked 31st-most-needy, received $906,000 from the tax credit program one year, and Phoebe Worth Medical Center, ranked 49th-most-needy, got $2.6 million in donations. They are part of a large health system that paid its CEO more than $2 million in total compensation his final year, according to documents posted on its website.
The hospital ranked most needy — Irwin County Hospital — received $980,000.
In addition, the program took advantage of a federal tax loophole that actually allowed people to make money on the donations. Now that the federal government has closed the loophole, donations have slowed.
Until earlier this year, people who made a donation not only claimed the entire amount as a state tax credit — getting 100% of it deducted from their state tax bill — but could also claim the donation as a federal tax deduction. That meant that you could actually make money on the tax donation, auditors said. They gave the example of a household with $800,000 making a donation and receiving 137% of it back in tax breaks.
Donations since the loophole was closed have fallen by half, the audit found.
Jimmy Lewis, who lobbies for rural hospitals and advocates for the tax credit, said the audit raises important questions. But he said the tax credit program is still necessary.
“The intent of the tax credit program is absolutely outstanding,” Lewis said. “At the end of the day what this audit apparently tells us is that there needs to be a much more intense review of how the funds are distributed; how the formulas are devised to determine the neediest hospitals; and then to have a full accounting on every line item for how the moneys were spent.”
That means every bit of the money, Lewis said, including the money that goes to the administrator.
Georgia HEART was allowed by law to keep 3% of the donations, or up to $1.8 million a year, to administer the program. But it used only $770,000 to administer it.
It transferred much of the rest, $890,000, to the Georgia Community Foundation.
It says that money is used to benefit rural health. But auditors were not able to verify that. Both of those organizations are led by the same people. And while auditors would like to have known how much those people got paid, as well as other expenses the money went to, the organizations said they wouldn’t provide it.
The lawyer who set up and runs the organizations, Jim Kelly, declined to comment.
Auditors said that replacing Kelly’s Georgia HEART with a state-run nonprofit or making the program a state grant program could both save the program money and lead to increased transparency.
RURAL HOSPITAL DONATIONS
A state audit found that 58 needy rural hospitals have received money from a $60 million tax credit program. But the money didn’t always go to the neediest hospitals.
In addition, a vendor that hospitals hire to administer the program, Georgia HEART, won’t give auditors internal documents showing where the excess has gone.
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