City loans $348,000 to Eastern Plumas Health Care
Portola’s City Council unanimously voted to loan Eastern Plumas Health Care $348,000 to pay off a loan on a 34-acre parcel adjoining the hospital. The low-interest loan will reduce the hospital’s monthly payments, ultimately easing EPHC’s struggle with cash flow.
Although the loan indicates the city’s willingness to help the hospital, there continues to be much discussion about who can or will develop the property and about the property’s value relative to development.
EPHC’s Chief Executive Officer Tom Hayes, along with board members Larry Fites and Jay Skutt, first presented the council with a request to buy the property outright at the June 8 meeting of the city council. Council members, who are currently under attack by for instituting rate hikes community members feel they cannot afford, were reluctant to purchase a property for which they had no use.
Real estate agent B.J. Pearson, one of the community members protesting rate increases, argued for a city purchase of the property, stating that the city had the authority to re-zone the property (currently about two-thirds residential and one-third light industrial) into light industrial, an act that would automatically increase its value.
The council was reluctant to enter into the development business in the current economy, especially since Woodbridge, both residential and commercial, was at a standstill and the Portola 192 project had stalled. Other development plans had been unsuccessful so there was discussion of how a city-financed development would impact or compete against developments already in progress. City staff worried that they did not have the financial or manpower resources to invest in infrastructure.
There was also considerable discussion about the property’s value. EPHC originally purchased the property for $552,000 in 2003 at 7.8 percent interest, with monthly payments of $5,200 and a final balloon payment of $263,000 due in 2013. EPHC currently owes $348,000.
At the June 8 meeting, the council asked Hayes and board representatives to secure a current appraisal of the property and offered the hospital a loan rather than outright purchase. At that time, they also voted to waive conflict of interest regarding legal advice from Steve Gross, who represents both the city and EPHC.
At that time, Supervisor Terry Swofford also agreed to approach the county to see if it would be willing to loan half of the amount.
City Finance Officer Susan Scarlett sent the hospital some loan terms for review, terms that envisioned sharing the debt burden with the county: 15 years, interest only payments for the first year, interest rate at 1 percent above LAIF rate (currently 0.5 percent) adjusted annually. EPHC’s monthly payments would be roughly $2,260, divided equally between the city and the county, if the county participates.
By the Sept. 14 meeting, Swofford had enlisted the expertise of County Assessor Chuck Leonhardt to provide an appraisal of the 34-acre piece. Leonhardt valued the property at $6,000 to $7,000 per acre, for a high-end total of $238,000.
Hayes returned to the council with vice chairman Larry Fites at the last meeting to continue lobbying for financial help. He was disappointed by the valuation, which was less than EPHC owed on the property. He did add that there were few property sales to compare with, but a recent one-half-acre plot zoned light industrial in the area had sold for $29,000.
City Manager Leslie Tigan reported that the hospital district board had also approved a conflict waiver, which allowed Gross to participate in discussions. Gross responded that for the city to pay more than the land was appraised for might leave the city open to charges that the purchase was “a gift of public funds.”
By the same token, if the city loaned the money, using the property as collateral, did the hospital have some additional collateral to make the difference between the appraised amount and the amount owed? This question came from Scarlett.
Hayes said no, but proposed, “We would like to start breaking up the property into parcels now.”
Hayes gave an update of the hospital’s current financial situation since the last meeting, when he had reported a half-million dollar loss in February. Since then he had cut back at the hospital: everybody took a cut in pay. Hayes expected to end the year with an $800,000 – $900,000 loss in operating income, which would amount to a $150,000 to $200,000 overall loss, once tax receipts and donations were factored in.
“Our Achilles’ heel is cash; we don’t have enough cash,” he said.
Currently, the hospital is trying to refinance its debt burden, he reported. There are also ominous signs from the federal government regarding MediCal and Medicare payment rates. The state had already passed cuts to MediCal payments to skilled nursing units, but the federal government still had to approve the reductions. The state cuts amount to a $1.1 million loss to EPHC, which houses approximately 60 patients in the two facilities in Portola and Loyalton.
“If that decrease goes into effect, there’s no doubt in my mind that we’ll have to close both units,” Hayes said. He added that 65 employees would lose their jobs.
Council member John Larrieu noted that a loan from the city would be a one-time infusion and asked if it would help with the skilled nursing unit situation. It would not, said Hayes; they’re separate issues. One of EPHC’s largest loans was used to renovate the skilled nursing unit and he was not sure the district would be able to continue payments on that if the skilled nursing facilities were closed.
Community member Larry Douglas urged the council to buy the property outright.
Council member William Weaver invited B.J. Pearson to offer his expertise. Pearson started by stating that it was obvious that the city could not solve this problem by itself; the hospital district encompassed Graeagle and Sierra Valley as well.
“I believe it’s better for the taxpayers for the city to buy the property rather than the loan, and here’s the reason. The city has the unique ability to legally create value, as it did with Woodbridge.”
The city can divide the property any way it wants as well as re-zone it. People will buy smaller parcels, he said.
“What I think has to happen is this: The city buys the property and, at the same time, sets up a committee of two people, with people from Sierra Valley and a couple from Graeagle, and you start the process right now for a special election.
“If you want to save the hospital, what’s going to have to happen: the people will have to backfill the money the state takes from us. I suggest that you structure it with a very narrow scope: this can only be used for operating capital,” Pearson proposed.
“I think that if the people understood that it was only to keep the doors of the hospital open, they’d vote for it. And if they don’t, we’re going to lose our hospital.”
There was considerable discussion about appraisals, their cost ($4,000 – $5,000), who should parcel out the property and sell it — discussions which did not result in consensus. Council members Juliana Mark and Weaver spoke for the city buying the property outright; Larrieu voiced caution and advised that the city get an official appraisal before committing further.
Fites commented, “Speaking as one board member, Eastern Plumas will not close. The skilled nursing unit is only one part and we will keep as much open as we can.”
He offered to begin a plan for dividing up the property.
Scarlett then suggested that the city go ahead and give the hospital the full loan, with or without the county’s involvement, and continue working out the details regarding the property.
Tigan agreed, saying that subdividing and providing infrastructure was both time consuming and costly: “All that splitting up is a nice discussion, but it’s a long, lengthy project.” She reminded the council that the city had a part-time planner and a reduced staff.
The council then voted to loan EPHC $348,000 at the terms discussed, with property development details to be worked out at a later date.