Published: June 26, 2009 01:59 pm      

Clark County Commissioners reach debt agreement with hospital

Deal lowers Clark Memorial’s interest rate, but could put the county on the hook for $52M

Clark Memorial Hospital reached an agreement with the Clark County Commissioners at its meeting Thursday to refinance the hospital’s debt using the county as a financial backer.

The agreement — which has not been finalized — will need the approval of the Clark County Council before it becomes official.

The terms of the agreement allow the hospital to sell bonds for the value of the buildings and property, and buy the bonds back over time. It sets up an arrangement where the county is the landlord and hospital the tenant.

This type of agreement has been entered into before between the county and the hospital — in 1968 — and was paid off about a year ago, said Martin Padgett, president and CEO of Clark Memorial Hospital.

“The source of funds from the bond issue ... would be $52 million,” he said.

Clark Memorial Hospital sought to include the county in an arrangement because of a letter of credit not being renewed by Chase Bank, which previously extended credit to the hospital.

“The reason I am here asking for this today ... is the national banking crisis that we are all dealing with,” Padgett said.

By going through the county to secure the loan, the hospital gets an interest rate that is substantially lower than if they continue to work with Chase.

“In essence you’re co-signing to get a lower rate,” said Greg Fifer, attorney for the commissioners. “It’s no different than a 16-year-old kid going out to buy a car; if dad goes to sign, he’s probably going to get a better interest rate, and that’s what we’re doing here.”

The current rate is about 3.92 percent, but the highest interest rate the hospital would expect to get, through the county, is about 5 percent. The reason for the variability is the number will not be fixed until financing is actually applied for.

“If we had to go out an issue debt without the county’s backup ... at a rate projected forward to October [it would be] at 9.4 percent,” Padgett said. “That is really not sustainable in today’s market for a hospital our size.”

The first step in allowing the hospital to refinance through the county was to approve ordinance, 8-2009, to create a hospital association. The hospital association would be a five-member administrative body, appointed by the county commissioners, to oversee the bond allocation and repayment, said Pamela Thompson, hospital attorney.

The ordinance was approved 2-1, with Mike Moore voting against.

“Fifty-two million dollars is a lot of money and I am not prepared to saddle the taxpayers with that without more information,” Moore said. “What happens if the hospital were to fail and nobody comes in here and saves us,” he asked. “Fifty-two million dollars, wouldn’t it go onto the property taxes, for the people to have to pay?”

“Ultimately, as a county hospital, that is correct,” Padgett said.

Uncertainty remained a topic of discussion with the national health care program proposed by President Barack Obama and how it would affect the hospital’s ability to repay debt if the legislation passes.

“The fact of covering everybody doesn’t make me nervous because I’m doing it now,” Padgett said.

A yearly analysis of whether or not the hospital is meeting bond covenants — where debt service ratio requirement of more than 100 percent must be met, a reserve fund is to be held by the hospital for each year and annual reports are to be made to the hospital association — will provide advanced warning if the hospital is falling behind in its repayment, Fifer said.

More reassurances were given by Padgett that the hospital would not default on the loan.

“If you have three bad years, you could still operate,” commissioner Les Young asked.

“Yes,” Padgett said.

He also assured even if the hospital were to default, it would not affect the county’s ability to secure loans.

“This transaction does not affect the county’s ability to borrow money whatsoever,” Padgett said. “Ultimately, this transaction is backed by the moral obligation of the state of Indiana. Ultimately, this is a state of Indiana issue.”

Commissioners Ed Meyer and Les Young agreed that they had enough information to vote in favor of the deal.

“I’m very supportive of our hospital and I’m disappointed if you’re not,” Meyer said, looking at Moore.

Ordinance 9-2009 — for the lease agreement between the county and the hospital also was approved 2-0, with Moore abstaining.

The agreement must still be approved by the Clark County Council and will be presented for approval at its next meeting July 13.



In other business

• A funding scenario for the Salem-Noble Road project was presented to the commissioners for approval. The money is funded through the Transportation Improvement Program, and therefore requires a 80/20 percent match in funding, locally. The county’s portion of the 20 percent match — which is $812,000 — would be $406,000, according to the report. The other portion of the funding would come from River Ridge Development Authority.

Moore made a motion to approve county funding for up to $375,000. The motion did not pass for failure to second.

All three commissioners expressed an interest in approving the project, but want to negotiate how much and where the county’s funding will come from. Another traffic light already has been approved independently by River Ridge and will be constructed at Ind. 62 and River Ridge Circle.

• A contract with LifeSpring — which provides mental health services and evaluations to county inmates — was not renewed so the commissioners can explore other interest in the contract. Commissioners must still pay for services LifeSpring has provided since its contract expired in January, and it will continue to provide services for the county while the commissioners explore other options.

LifeSpring has not been removed from consideration to receive the new contract.

• Bids were turned in for construction of bridge 76 — in Henryville at Blue Lick Road — with the low bidder Gohmann Asphalt and Construction Inc. offering to complete the work for $334,600.

Also, bids for a paver were turned in, with Rudd Equipment Co. offering the lowest combined bid — with trade-in-value of the current paver included — at $190,696.

Both bids were tabled for the next meeting July 9 and will be evaluated by the county.

• A road at Lakeside at the Summit was determined to be passable and will be kept open. There have been problems with the road sinking because of the hill underneath the road sliding. An engineering report was requested for the road.