This section is from the "The Subvention In The State Finances Of Pennsylvania" book, by Frederic B. Garver.
A relatively large proportion of the amounts appropriated to aid private charities has been devoted to making permanent improvements. This has been especially true in the case of hospitals. The objections to this sort of grant are as serious as they are obvious, unless the state takes measures to secure reimbursement if the property is converted to non-charitable uses. To put a concrete case : Suppose that the General Assembly should appropriate $10,000 to a private hospital or orphanage for the purpose of constructing or aiding in the construction of a new building. Now the funds thus received cannot properly be used except to provide free treatment for those unable to pay.101 But it is a difficult matter in many cases to determine whether a hospital, which has received large amounts to assist it in building and in purchasing equipment, is rendering an equivalent service. Formerly it was possible for an institution that had received aid in making permanent improvements to refuse to take charity patients in subsequent years.102
State appropriations could thus be converted to private uses. In 1911, however, an act was passed which made all appropriations for structures or other permanent improvements liens upon the structure and the real estate upon which the improvements were erected. No interest was to be charged by the state, but if the institution sold the real estate or converted the property to purely private uses the state was entitled by the act to collect the amount of the appropriation.103 This was also the policy followed in the case of the normal schools until the state came to hold a large equity in their property.
100 See their Report, in the Report of the Board of Public Charities for 1914, pp. 265-266.
101 An exception would, of course, be an appropriation to aid in the clinical work of a medical college.
102 Board of Public Charities, Report (1900), p. 3.
103 Act 9 June, 1911, P.L. p. 736.
The act of 1911 interfered, however, with the improvement of institutions because the lien of the state made it difficult to secure loans by giving mortgage bonds. So, in 1915, another act was passed which made the lien of mortgagees who might lend the institution money for improvements superior to that of the state. The act provided that the consent of the Auditor General and of the State Board of Public Charities must be obtained before any such mortgage could be given.104 The interest of the state is thus fairly well safeguarded against direct and open conversion to private uses of property purchased with public funds.