Opinion ID: 2219756
Heading Depth: 2
Heading Rank: 1

Heading: What are market rates?

Text: We must be candid about the artificiality of any determination of market rates for Goodhue County. Rainbow provides services in Red Wing, where only three child care centers had been licensed on the assessment dates for the tax years in question. [15] This is a small sampling for establishing a market. Further, all three are nonprofit, tax-exempt organizations. This raises several questions about the validity of determining market rates by simply comparing the rates of other child care centers. For example, if all three were to charge equal rates, would all three be denied tax exemption because none could meet the majority's requirement that its rates be considerably below market? And, should the market rate be based on the actual rates charged by nonprofit organizations, which (like Rainbow) typically operate at low cost, benefiting from volunteer labor and donations to cover part of their expenses? If one nonprofit organization is able to subsidize its rates by private donations, do those subsidized rates nevertheless represent the market? Can we say that a rate is at market if it does not recover even the low nonprofit operating expenses, the organization operates at a loss, and the organization can only stay in operation because it receives private donations to make up the shortfall in operating income? Perhaps the true market rates are those that would be charged by a for-profit corporation. But Red Wing did not have any for-profit child care centers and thus there is no evidence of a true market rate. Finally, any comparison of rates of other providers should make adjustments for the differing cost levels incurred by each operation and, perhaps more importantly, differences in the type and quality of the services each provides. Rainbow is slightly larger than one of the day care centers and nearly twice as large as the other. And the next largest center has the benefit of being located in a church facility. As a result, one would expect that Rainbow would have greater space and staff needs, with correspondingly greater insurance costs. Further, Rainbow's staff is capable of providing a greater range of services. As the Executive Director of the Child Care Resource's Referral Program testified, Rainbow has both English-and Spanish-speaking staff, whereas the other two centers have only English-speaking staff. He confirmed that this was an important factor with the growing Hispanic population. Further, he explained that Rainbow's staff has training and experience to serve a greater range of special needs. This witness also emphasized that Rainbow's infant care program is larger, being licensed for up to 16, while each of the other two were only licensed for up to 8. He explained that there is always a shortage of infant care because it is more expensive to provide and brings in less revenue due to the higher ratio of care givers to each infant. Given these differences between the type and quality of the services provided, the rates of the other two centers cannot fairly be said to represent the market rate for Rainbow. Even so, Rainbow's rates compare favorably to them. Its hourly and daily rates are at or below the other two in every age category. Although its weekly rates are somewhat higher in some categories, this only reflects a difference in the degree of discount given to parents who are able to commit to full weeks. The majority does recognize that Rainbow's rates are less than the county's maximum authorized rates but questions whether the tax court was correct in concluding that the county's maximum rates represent actual market rates. I conclude that the county's maximum authorized rates are actually below market rates and that this would support the conclusion that Rainbow's rates were well below market. The maximum rates for Goodhue County provided in the record are those effective July 1, 2006. Those rates were established through a rather tortured process. When Rainbow commenced operations at the subject property in 2003, the maximum rates were frozen at 2002 levels. Act of June 5, 2003, ch. 14, art. 9, § 34, 2003 Minn. Laws 1st Spec. Sess. 1751, 2137-38. Those rates remained frozen at 2002 levels through June 30, 2005. Id. Then, in 2005, the legislature set the maximum rates for the period July 1, 2005, through December 31, 2005, for counties like Goodhue at the greater of the 100th percentile of the rates shown in a 2002 provider rate survey or the rates identified in Department of Human Services Bulletin No. 03-68-07. Act of July 14, 2005, 1st Spec. Sess., ch. 4, art. 3, § 1, 2005 Minn. Laws 2454, 2525-26 (codified at Minn.Stat. § 119B.13, subd. 1(a) (Supp.2005)). Commencing January 1, 2006, the maximum rates were increased to the lesser of the 75th percentile for like-care arrangements in the county or the previous year's rates for like-care arrangements increased by 1.75 percent. Id. In 2006, the legislature increased the maximum rates in counties like Goodhue to the rates for like-care arrangements in the county effective January 1, 2006, increased by six percent. Act of June 2, 2006, ch. 282, art. 2, § 2, 2006 Minn. Laws 1194, 1197 (codified at Minn.Stat. § 119B.13, subd. 1(a) (2006)). From this history, I would conclude that the maximum rates for 2003 through 2006 were well below the market rate. In any event, Rainbow's rates compare favorably to the maximum rates authorized for 2006, with the most relevant comparisons being the full day and weekly rates: PERCENTAGE OF MAXIMUM RATES RAINBOW'S RATES MAXIMUM ------------------------------------------------------------- Infant Hourly $ 5.40 $ 5.50 102% Full Day $ 49.82 $ 34.00 68% Weekly $ 167.48 $ 142.00 85% ------------------------------------------------------------- Toddler Hourly $ 4.31 $ 4.50 104% Full Day $ 43.14 $ 30.00 70% Weekly $ 151.58 $ 127.00 84% ------------------------------------------------------------- Preschool Hourly $ 4.31 $ 4.25 99% Full Day $ 43.14 $ 29.00 67% Weekly $ 146.28 $ 121.00 83% ------------------------------------------------------------- School Age Hourly $ 4.24 $ 4.00 94% Full Day $ 34.98 $ 27.00 77% Weekly $ 143.10 $ 112.00 78% ------------------------------------------------------------- Based on all of the comparisons noted above, I would conclude that the tax court understated the case when it found that Rainbow's rates were at or just below market rates. I would conclude that Rainbow's rates were considerably below market and, accordingly, that Rainbow satisfied factor three.