Health service tax breaks are Jersey's little secret.

A little-known New Jersey law gives those municipalities that have been determined by the State to be lacking in basic medical service providers (Health Enterprise Zones or HEZs) the opportunity to offer commercial property owners and redevelopers powerful new incentives--substantial property and income tax breaks--when marketing properties located in, or within five miles of, an HEZ to applicable tenants.

Enacted in 2004, the law is sometimes called Chapter 139 or the Health Enterprise Zone Act (the Act).

First, the Act gives a primary care dental or medical practice located in or within 5 miles of an HEZ the ability to deduct from its taxable income an amount equal to payments received by the practice in Medicaid funds, provided that at least half of the income earned by the practice is paid in Medicaid funds.

For most practices located in an HEZ, this should not prove to be a difficult threshold to reach.

The Act also grants to municipalities located in an HEZ the ability to authorize a property tax exemption for that portion of a building used to house a medical or dental primary care practice. Property owners must rebate to that tenant an amount equal to the exemption, either in a lump sum or through discounted rental payments.

In other words, at no additional cost to the owner, the owner or redeveloper can offer substantial financial incentives to a prospective medical practice tenant, subject to the following caveat: Not a single municipality has enacted an ordinance to grant these property tax breaks since The Act took effect in June 2005.

Currently, Newark appears to be the only city government that even has such a proposed resolution before it. This is too potentially powerful an incentive to let go to waste. The benefits to the city, including medical services, and to the practitioner, such as significant financial breaks, would seem to call for a much more concerted effort to convince applicable municipalities to act.

In addition to Newark, cities with more than 30,000 residents that are designated as HEZs include Atlantic City, Camden, Jersey City, Irvington, New Brunswick, Paterson, Perth Amboy and Trenton.

Municipalities with populations ranging from 5,000 to 29,999 include Asbury Park, Burlington, Freehold, Gloucester and Salem.

This creation of HEZs is intended to encourage primary care practices to remain located in, or relocate to, medically under-served areas, where many residents utilize the emergency room of a local hospital as their primary care facility. The Act defines primary care as the practice of family medicine, general internal medicine, general obstetrics and gynecology, and general pediatrics as well as general dentistry and pedodontics. Taking patients needing primary care out of overcrowded emergency rooms and putting them into the offices of primary care doctors, should more than outweigh any lost property tax revenues.

The Act provides other major benefits to qualified medical and dental practices that earn 50 percent or more of their income from Medicaid.

One is a low-interest loan program, administered by the New Jersey Economic Development Authority, for the construction or renovation of medical office space in a HEZ or within five miles of the designated zone.

In addition, qualified healthcare providers are granted income tax deductions for revenues from social services programs, such as Medicaid and the FamilyCare Health Coverage Program.

The New Jersey Academy of Family Physicians (NJAFP), which served as the driving force behind the creation of HEZs, is now lobbying for municipalities to implement the ordinance that grants owners a property tax exemption for the portion of their building used to house a healthcare provider.

No other organizations or groups seem to be involved in this lobbying effort outside the NJAFP.

Developers and commercial property owners may be more apt to get behind the NJAFP's lobbying effort if they realized the potential such an ordinance may have to lure stable tenants to lease commercial space from them.

The relationship between real estate and local politics has always been close--even if not always completely amicable.

Real estate professionals now have the opportunity to promote municipal action that will benefit everyone.

BY IVAN KAPLAN & STEPHEN PAGANO, ATTORNEYS, BECKER MEISEL LLC