Hospital asks county for $10 million bond issue

Officials from Sidney Regional Medical Center came before the Cheyenne County commissioners Monday with a proposal they said would save the hospital $2.2 million in financing. The hospital requested that the county issue $10 million in bonds on its behalf to pay for part of the new $53 million hospital facility that broke ground at the end of last month.

The Cheyenne County commissioners were skeptical about issuing these revenue bonds without further investigation into the process.

“This group issues your name—Cheyenne County’s name—on the bond, but there’s nothing that the county has to do,” said hospital CEO Jason Petik.

Because the hospital is a non-profit, the county can issue bonds on its behalf, while a trustee named by the hospital would handle the work related to the bonds.

Commissioners Ken McMillen and Harold Winkelman both questioned why the hospital hadn’t come to the commission with this request sooner.

“We’ve been working on the hospital project for quite some time and here within the last 10 days, this has come up,” McMillen said.

Petik admitted that there was a communication error between the hospital and the commissioners. This issue wasn’t brought forth much earlier because the hospital couldn’t make financing decisions until it finalized building plans and found a contractor.

Andy Snyder of Smith Hayes, the bonding agency working on the hospital project, explained that although municipalities can issue these bonds as well, the city of Sidney is unable to do so. For any Nebraska entity to have bank qualified bonds, it cannot issue more than $10 million in bonds during a given year. The city of Sidney plans to issue some bonds of its own in the near future, so issuing the SRMC bonds would put it over that limit.

When bonds are bank qualified, they received a lower interest rate.

“If you had a big project that you were going to bond out before the first of the year, 2015, then this would probably be an obstacle for you,” Snyder said.

A single issuer can pay for multiple projects within this $10 million limit and still be bank qualified.

“This in no way, shape or form can come back to the county taxpayers,” Petik said. “This is not a general obligation bond, it is strictly a revenue bond that is paid for by the hospital operations to the investors through the trustee.”

The commissioners expressed concern that the county would somehow be liable if the hospital bonds failed. If the hospital went under, this debt cannot come back to the county, Petik said. If the county were to issue these bonds, it would not mean that the hospital was county owned. The hospital will stay a private entity. This is a way for the hospital to save around $2.2 million in financing because the county can issue tax exempt bonds on the hospital’s behalf. This means the bonds will have a lower interest rate.

“This is a very common practice in Nebraska,” Snyder said. “I don’t want you to think that this is something new that we’re trying to conjure up or anything like that. It’s very common practice in the state of Nebraska to have conduit issues.”

Although these bond issues are common in the state, many of the counties in western Nebraska operate county-owned hospitals. These counties issue bonds for hospital projects but also levy the debt to pay for those bonds, which is much different than what the hospital proposes in Cheyenne County.

“We’re a different animal out here where it’s a private entity and the county’s not going to be on the line for levying a tax to pay off this bond, it’s going to be solely from revenues at the hospital,” Snyder said.

Robert Goodwin, attorney representing the hospital asked that the county enter into a resolution of cooperation with the hospital in order to indicate its intention to issue the bonds, even if it didn’t make any official decisions on Monday. Commissioner Steve Olson commented that he wasn’t comfortable making any sort of agreement until the county attorney had looked over the proposal.

“We do not want the commissioners to pass this if you are not comfortable being in this position,” Petik said.

Officials at SRMC also hope to enter into a similar bond issue agreement with Deuel County for another $10 million in bonds. The hospital operates a clinic in Deuel County.

“The whole purpose is to get them, the hospital the best rate possible to get this project up and going,” Snyder said.

The alternative, if the counties do not agree to issue the bonds is taxable bonds.

“It’s not as if this is the end all of end alls, but certainly it’s a substantial benefit to the hospital for the county to act as the issuing authority,” Goodwin said.

The remainder of the funding for the $53 million project is a guaranteed United States Department of Agriculture loan of $32 million for long-term funding over 40 years.

The county commissioners took this issue under advisement, until their next meeting on July 7.