PDH directors resist challenge to Measure B

Linda Satchwell
Staff Writer


Plumas District Hospital’s board held its first post-Measure B election meeting Sept. 2. In fact, board members held two meetings: a special meeting and a regular monthly meeting.

The special meeting held two agenda items of note. The first was to discuss possible action following voter approval of Measure B and its impact on bondholders and the district.


The second was ongoing negotiations between the board and Chief Executive Officer Dick Hathaway over a new contract — his current contract has been extended through the end of September.

Tension in the room was palpable, with many members of the public in attendance from both sides of Measure B.

With district counsel Steve Gross on conference call, the discussion seemed to be going in a confrontational direction. Gross said he’d been in conversation the day before with Hathaway and Chief Financial Officer John Nadone, along with PDH financial advisor Gary Hicks and bond counsel Brian Quint.

They were in agreement, he said, that the tax cap posed “an impairment of the security of the bondholders that hold the $3.2 million in bonds ... those bonds were sold with respect to a security that constituted an unlimited taxing authority of the district to tax real property to generate revenue to pay debt service on the bonds,” said Gross.

He said the board had adopted a resolution when the bonds were sold, which said that the district would “protect the security” of the bonds.

Further, the district is obligated to inform bondholders of “any material events that may affect the bonds or the district’s ability to repay the bonds.” Gross said he got a jump on this, informing the sole bondholder, United Health Group, through its investment advisor of the Measure B results.

They discussed the election and its potential effect on the security of the bonds and, he said, “We anticipate the bondholder will be extremely concerned about the impairment of its security and will request further assurances that the district will take any and all necessary steps to protect their security.”

Gross suggested the likely necessary step “could be in the form of a lawsuit that challenged the validity of the measure.”

Board member John Kimmel maneuvered the discussion onto more neutral ground. He first suggested $50 per $100,000 would be more than sufficient to service the $3.2 million in debt.

When Gross replied that even if it were sufficient today and, likely, into the future, “that doesn’t mean that the security hasn’t been impaired” if the bondholders wanted to sell the bonds. In that case, the bonds would probably sell for a significantly lower amount because of the tax cap, compromising the current bondholder’s investment.

Undaunted, Kimmel looked for a solution that involved the hospital taking on responsibility for the bonds, “Would they give us the option to buy it back first?” he asked.

“I would think that would be an option you could probably talk with the bondholders about in lieu of some other action to challenge the measure,” said Gross.

Board member Bill Elliott, backed up Kimmel’s thinking, and also suggested the hospital could return the “$2 million in proceeds that we haven’t spent. That would mitigate any risk,” he said.

Though Gross didn’t use the phrase “precedent setting,” it did seem the hospital bond issue might be carving out new territory once again.

He explained the bondholder is a large investor, and a promise from the hospital to pay on the bonds might not be enough.

“Protecting the security” of the bonds is tied to the fear of a “ripple effect,” Gross said. United Health Group “holds lots of investments from other agencies in California, and this kind of an action ... would be of great concern.”

“We got the impression that the bondholder was going to look to the district to be proactive,” said Gross.

When Kimmel asked if buying back the bonds would be considered proactive, Gross enumerated a number of possible proactive measures, returning to the possibility of a lawsuit against Measure B.

“It could mean buying (the bonds) back. Another option would be maybe make some further assurances to make the debt service payments.

“Another type would be, ‘We think you really ought to be going out and taking legal action to challenge the validity of that measure.’”

While board member Valerie Flanigan and secretary Fred Thon appeared to consider that idea, Elliott and Kimmel remained undaunted in searching for an alternative that wouldn’t challenge the Measure B tax cap, which voters passed Aug. 31 with 52.39 percent of the vote.

Elliott again suggested paying back the $2 million, adding, “$50 at that point would be more than adequate to service the last million.”

Gross then seemed to back away from pointing to the inevitability of a legal challenge. “There may be several ways to handle it. I just wanted to let the board know we were proactive yesterday in trying to get ahead of the disclosure requirements ... to build on a good relationship ... to open up as many doors as we can to think about how we might creatively address the issue.”

Kimmel hammered home the need to find an alternative to a legal challenge. “I, for one, don’t want to be seen as trying to stop this vote from happening. The election was done. It’s valid. It seems like some way we can work this out between us and the bondholders.

“I know it’s put us in a difficult position, but to go back and try to challenge the legality of the vote is not somewhere I want to go.”

After the meeting, tax cap proponent Skip Alexander, who sat quietly through the proceedings, said he was surprised and pleased with the way things went.

The board adjourned to closed session to discuss Hathaway’s new contract. The session stretched past the 4:30 p.m. start of the board’s general meeting.

Board president Dr. Mark Satterfield announced at the beginning of the regular meeting that the board would return to its closed session contract discussion at the end of that meeting.

At the close of the second closed session, there was no reportable action; contract negotiations continue.

The regular board meeting was notable for its lack of rancor, given months of anger and the marked, emotional division between what became known as the “cappers” and the “savers.”

At the conclusion of the meeting, hospital directors each made remarks and, though there was some weariness and worry as to whether hospital employees might begin to jump ship because of the election results, most comments ranged from creative to conciliatory.

Bill Elliott said, “There is life after an election ... I’d like to see a group get together to ... propose some options.”

He suggested several himself, including using money available from the $3.2 million and some further borrowing to renovate the existing building; merging with a larger hospital; or joining with another hospital district (“easier said than done”), most likely Indian Valley.

Elliott said he was very open to others’ ideas. The advisory group he envisions would create a list of possibilities, with a short description of how each one could work.

John Kimmel said, “I want to be careful people don’t think the vote is a vote saying ‘We’re not for the hospital.’ I’d love to see why those 52 percent voted. I think it’s important to know.

“Was it ‘We don’t want to afford it. We can’t afford it. We think it’s the wrong time. We think it’s the wrong project. We don’t use the hospital’ ... or misinformation. I’d really like to find out.”

Kimmel also said he wanted hospital employees to know the board intended to keep the hospital strong, and they shouldn’t “leave our employment because they think this hospital is going downhill.”

Val Flanigan thanked community members on both sides, including “Skip and the group for giving the taxpayer a voice.” She hoped for a hospital advisory group similar to the Quincy Library Group, made up of community members, from both sides of the issue, who would “help figure out the future of the hospital.”

Fred Thon lamented the wasted time he felt the board has spent trying to come up with a solution for the hospital ultimately rejected by the community.

Finally, Satterfield rather eloquently raised his concern that community fears over the depressed economy might be the catalyst for self-fulfilling prophecy. In stopping the new hospital building, he asked, “Are we creating the very thing we’re most concerned about?”

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