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Taxpayers need to demand accountability from PDH

Robert T. Herr
Chief Financial Officer
Executive Vice President
Plumas Bank
10/28/2009

    I attended and spoke at the community meeting last Thursday night regarding the construction of the new Plumas District Hospital building. Like most of the hospital district residents, I would like to have a new medical facility in order to better serve the community.   
    The problem I am having is with the unfair distribution of the burden on the district taxpayers to repay the debt being incurred that will last for the next 30 years and the lack of accountability required on the part of the hospital during that time. I think it is time to step back and review the project from conception to the present and encourage the hospital board to do the right thing.

History
    For many years, the hospital and its board have wanted to build a new “state of the art” hospital to better serve the community, attract better doctors and to avoid the impending issues concerning the earthquake deficiencies of the current building. The problem has always been the inability of the hospital to pay for it.  
    Most businesses would not engage in a project of this magnitude without being able to afford it. The hospital and its board came to the conclusion that the community would support and pay for the financing needed to complete the project.
    It appears that somewhere along the line, the hospital and its board became more interested in how they could get the ballot measure passed rather than being fair to all hospital district residents. They selected a ballot measure that would tax the majority of district residents very little while taxing recently constructed buildings and new property owners at an excessively high rate.  
    Approval was virtually assured as 45 percent of the district voters were not property owners and would pay no direct taxes and a high percentage of the existing property owners had owned their properties for a very long time, had a very low tax assessment and would pay very little. All distributed materials expected the assessment per $100,000 to be reasonable in the very worst case.  
    That method was selected rather than an equal tax for each parcel, as it would not have had the same high percentage for approval.  
    As expected, the measure was approved by the margin required. Without as much as a prior public disclosure by the hospital and its board, tax bills were received by district property owners evidencing a $122 tax per $100,000 in (assessed) value instead of the $22 per $100,000 in value projected by the ballot measure.  
    We were told at the Thursday meeting that was due to the project progressing faster than expected, and the financing cost had increased much more than expected.  
    The board members apologized for not letting the public know and said they felt bad about the increased cost. However, it was clear that they still wanted to proceed as planned.  
    It appears there is no desire by the hospital or its board to seek voter approval to alter the measure approved by them. Just because we have to live with it doesn’t mean we can’t ask questions and demand certain safeguards for our tax dollars.
    If we are going to pay upwards of 20 percent of our property tax bill for a community hospital, all of us should have the opportunity to have transparency and disclosure by the hospital and its board.

Issues
    Gap funding: At Thursday’s meeting there was some discussion regarding the gap between the bond financing and the cost of the project. With the cost of the project being about $20 million and the bonds at $15 million (approximately) there is a $5 million gap that needs to be provided by the hospital, its foundation and other unknown sources.  
    Financing for a typical project of this type would require the borrower (hospital) to bring in the gap funding and use it prior to using long-term funding sources. Thursday, the hospital board indicated it had sold $3 million in bonds to cover the initial soft costs of the project.  
    I question why it would use 30-year taxpayer money for this purpose rather than the gap money? Is it because the gap money is not in place?  
    If it is not, I question the reasonableness of using 30-year bond money without the certainty that enough money has been gathered to finance the entire project. Finally, if the project comes in under budget, shouldn’t the gap money be used instead of more bonds?
    Bond rating: All of the materials distributed to support the bond measure used very low interest rates to project the parcel tax that would be assessed.  
    What bond rating was used to determine this? Did the hospital know its rating at the time the materials were distributed? Or, did it find out after the fact and not disclose it to the district residents?   
    It is hard to believe rates have doubled for the same bond rating over such a short period of time when rates in general have remained stable.
    Assessment calculation: The hospital and its board owe the taxpayers a full disclosure on the method used to calculate the assessment per $100,000 of value.  
    We know it is determined by the debt service needed and allocating it to the “expected” taxpayers. We should be told what portion of the tax is due to delinquencies, decline in assessed value and any other reason that is causing the taxpayer to pay more.
    Viability: So far, the public is not totally aware of the specifics of what is being constructed. Does it fit a business model for success? What areas are most profitable for the hospital and does the planned facility provide for expansion in those areas?  
    In other words, are we just replacing what we have or are we building a facility that matches the needs of the community and can best assure long-term success during the next 30 years.  
    We cannot lose focus on the fact that the taxpayers are being unconditionally bound to the repayment of the bonds for the next 30 years. What is the projected future for rural community hospitals?  
    Certainly Plumas District Hospital is not a unique case.  
    Bond guaranty and accountability: The hospital has asked the taxpayers to not only guarantee payments for 30 years, but to actually pay them.  
    However, the hospital is not required to be accountable to the taxpayers for the way it runs its business. The concern is that there are no performance requirements that the hospital has to meet to help insure it will be a viable business for the term of the bonds.  
    The taxpayers need to realize that if the hospital closes, they are still going to have to pay the bonds back for the full 30-year term. We can cite the residents of Indian Valley, who are paying a parcel tax for a hospital that has been closed for several years.  
    To insure hospital accountability, the Citizens Advisory Counsel should continue to exist for the term of the bonds.  
    In consideration of the taxpayer guaranty, the hospital should be required to meet performance standards regarding:
liquidity, minimum
debt service, minimum
capital expense, maximum
requirement for excess profits to be used for bond interest or principal repayment, debt to equity maximum, efficiency ratio maximum and future expansion restriction without taxpayer approval
    In addition to the above, the hospital should be required to bring any violation of any of the above into compliance within a prescribed period of time.  
    If management and the board fail to do so, there must be a provision for their replacement.  
    There should also be a public disclosure that is required to be published in the local newspaper that tells the taxpayer if the hospital is in compliance with its agreement with the taxpayers.   
    In the normal world of finance, performance conditions like those listed above are required by the lender and expected by the borrower. We as taxpayers should expect no less.  
    Healthcare reform: What will healthcare reform do to the viability of small rural hospitals? While I know that question cannot be answered with any accuracy, it is a huge element to be considered before tying down district taxpayers for the next 30 years. With all of the unknowns in the current pending legislation, how can we project there will be a place for the small rural hospital, as we know it now, for the future?  
    I am not a member of the Citizen’s Advisory Counsel. I do not know what its powers are, if any.  
    What I do know is there needs to be answers to a variety of questions before we leap into a project that will require a 30-year commitment at the expense of district taxpayers.  
    Can we make the hospital accountable? I see no reason why not.  
    Should we take our time in evaluating starting a project like this in light of the increased cost to the taxpayers, current economic conditions, projected long recovery and pending healthcare reform? You bet we should.  
    I urge the hospital and its board to consider the above and work with the community to determine whether building now is the right thing.

 




    




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