Ordinarily Halloween is not the holiday most associated with gift-giving, but for the trustees and administrators of the Virginia Baptist Homes it was like Christmas. On Oct. 31, the Virginia Supreme Court ruled in favor of VBH, ending a three-year legal battle with Botetourt County over tax emption.
The dispute centered on the Home's newest retirement facility, called The Glebe, which was completed in 2005. It is located in Daleville, near Roanoke.
When the property was purchased, the VBH notified Botetourt County of its status as a faith-based 501(c)3 tax exempt organization and that it did not pay real estate taxes in its other places of ministry. VBH leased the land, an orchard, back to the previous owner and paid the land use taxes since it was being leased. Again when The Glebe was completed and occupied, notification was given to the county that it was exempt from local taxes.
According to Randall Robinson, president of Virginia Baptist Homes, it came as a surprise when the county attempted to collect $7,591.50 in real estate taxes for 2005.
The Botetourt County commissioner of the revenue maintained that Virginia Baptist Homes did not operate the Glebe primarily for religious or benevolent purposes. VBH asserted to the contrary that religious ministry was an integral aspect of the services it provides.
The county, however, pressed its position in the district Circuit Court which ruled against VBH saying that The Glebe was not entitled to tax exempt status.
Recognizing that the question of tax emption affected not just its own ministries but virtually all denominational faith-based non-profits adjunct to the local church, the Homes appealed the ruling to the state supreme court.
Justices of the high court were split 5-2, with the majority stating that “because the General Assembly designated VBH as a ‘religious and benevolent' organization, it follows that the General Assembly considered VBH's operation of retirement communities for the elderly, its only purpose, to be both religious and benevolent.”
The ruling noted that from 1999 to 2005, VBH provided $5.6 million in financial assistance to its residents at its facilities in Culpeper, at The Chesapeake in Newport News and at Lakewood Manor in Richmond. That similar financial assistance has not been extended to residents of The Glebe was an issue in the lower court's decision in favor of Botetourt County.
But Robinson is confident that eventually The Glebe will be financially able to match the practices of the three older facilities. “Of course we had just opened our doors and we were paying our bills and had a lot of indebtedness and persons moving into The Glebe at that time were not benevolent cases. You can imagine that it would be impossible to open your doors and be totally benevolent, because how would you pay your bills? That was the angst that we found ourselves in.”
With respect to legal expenses, Robinson said he could not remember exactly and was hesitant to release a figure without consulting the VBH board of trustees. He did acknowledge, however, that the cost ran into the “hundreds of thousands of dollars.” Botetourt County reports it spent $220,000 on the case and justified the expense to taxpayers saying it represented approximately the total annual taxes the The Glebe would have been forced to pay.
“A lot of non-profits should be contributing to our legal defense fund” Robinson joked. “I should have passed the hat that day [at the Baptist General Association of Virginia meeting] when all the agency heads were on stage” at the Roanoke Civic Center.
With the suit settled, Robinson and the trustees can apply their attention more fully to The Glebe's financial challenges. “Currently, because we have 70 percent occupancy, we have been able to maintain. What we have not been able to do is pay the debt service and interest on the bonds.”
To finance construction and start-up costs, The Glebe borrowed $4.6 million from its parent organization, the VBH, and raised another $55.3 million by selling bonds.
When the bonds were sold, U.S. Bank was named the trustee for the sale. “The trustee is holding approximately $10 million in escrow and will release those funds set aside for the payment of debts in the future at the discretion of the trustee.” The interest-only payments amount to $3 million a year.
“What we are working on is getting The Glebe filled-up so we can get back on schedule with payments.” As occupancy rises, The Glebe will be in an increasingly better position to meet its financial obligations, Robinson points out.
The court battle, stretching over a three-year period, was not only a very expensive distraction for the administration, but it also affected potential residents who were hesitant to make financial commitments and sign contracts with a lawsuit pending, Robinson notes.
Although Robinson is the first to admit that VBH has had to make adjustments in the other three retirement centers because of the financial stress created by the lawsuit and the on-going obligations of The Glebe, he is also quick to point out that each retirement center, including The Glebe, is a completely separate legal entity. The actions of one do not legally jeopardize the others.
Overall, the occupancy rates at the other three retirement centers are very high.