The Effingham Hospital is taking its plan for expansion and modernization to the federal government after county commissioners agreed to back their proposal — but not without some final and pointed questions for hospital representatives.

By a 6-0 vote, commissioners agreed to show their intent to guarantee the hospital authority 2 mills and to convey more than 5 acres of land adjacent to the hospital, property the hospital says it needs to expand and modernize its 40-year-old facility.

Chairman Dusty Zeigler said he was casting his vote “reluctantly” to approve the resolution after he continued to question if the hospital had explored alternative financing options.

The hospital, which is planning a 50,000 square foot addition, is seeking to use Build America bonds backed by the Department of Housing and Urban Development. Alan Richman, president and CEO of Innovative Capital, based in Springfield, Penn., said this avenue is the best for the hospital.

The loan, for $30 million, would be for a term of 25 years.

“My biggest question is on the 2 mills,” said Commissioner Bob Brantley, “and I still haven’t gotten a good answer. Who are we obligating the 2 mills to — the hospital? HUD? Who? I don’t want to see us (grant) 2 mills and see a hospital shut down.”

Richman tried to allay the commissioners’ worries, noting the federal government only shuts down hospitals in areas where there wasn’t a need for them to exist.

“If the hospital is closed and sold for something else, I’m not sure there is a mechanism in place to grab 2 mills from you,” he told commissioners. “I would find it inconceivable that you guys would pay 2 mills to the federal government for a fractured agreement. They are not going to make the deal thinking you are not going to be in business. It’s bad politics, too.”

If the hospital isn’t performing well or its financial operations suffer, the federal government likely won’t close it but would instead sweep out the management team, Richman said.

“They have a huge risk in this — 30 some odd million dollars,” he said.

Rusty Ross, an attorney representing the hospital in its modernization plans, added the government won’t foreclose on the hospital.

“We’re dealing with a very, very conservative lender,” he said.

Commissioner Jeff Utley also wanted to know if the property values change, does HUD want the 2 mills or the dollar equivalent. Assured it was the 2 mills, commissioners still are seeking protection in the language of the agreement between the county and hospital.

“We want some kind of safety net,” Zeigler said.  “We’ve never seen a HUD contract. We don’t want to get to March and can’t get those stipulations in there.”

The hospital is planning to meet with HUD on the loan pre-application in December or January, with a sample regulatory agreement to follow.

“The borrower is not the county,” Richman said. “The county does not have the customary standing in the documents.”
Richman said his firm has recently completed such loans in Texas, Colorado and Idaho.

“They turned down 80 percent of the people they met with last year,” he said of the feds. “We were 2-for-2.”

Richman also advised the county not to go into a meeting with HUD officials in a defiant mode.

“They’ve got to have a smile on their face when they walk out,” he said. “You should be happy because you’re going to get a new hospital. They’re not going to screw you. They have no incentive to do it. You have to start looking at the feds as your partner and not your adversary in this.”

Chairman’s questions

Zeigler also asked for a variety of reports that were scheduled to be done, such as a consumer confidence analysis and a medical needs analysis.

“Some of these were scheduled to be done by late November,” he said. “We were told some were scheduled for mid-June.”

A schematic design report on the expansion plans will be done by December to allow for construction pricing. That will be needed to finalize the project budget. The hospital’s feasibility study is under way now and likely will be finished by mid-January, Richman said. There also are business plans and physician recruitment plans.

“Any report required by HUD has to be completed by the time of the application,” he said. “Some are done internally; some are done externally.”

The hospital has spent about $68,000 on preliminary studies and could spend from $150,000-$650,000 more.

“It’s in the budget,” hospital CEO Norma Jean Morgan said.

Zeigler asked that if the county could promise 2 mills, and state law allowed them to levy up to 7 mills, why couldn’t state law be changed similarly to account for hospital authority members. He also seemed to be surprised to hear hospital officials had shelved their plans to have a non-profit corporation run the hospital because of their pursuit of the Build America bonds.

“This hospital has decided to defer any decision of moving the hospital to a 501c3. That’s off the table for the purposes of getting that financing done,” Ross said.

As a 501c3, the hospital wouldn’t qualify for Build America bonds, Ross added, and the hospital will get 35 percent of its interest back under the current structure.

Said Richman: “I don’t think the guys at HUD would be pleased to see a change in governing structure.”

Richman also tried to assure Zeigler that they had investigated all other types of possible financing, including other tax revenues.

“We vetted options and far and away, this was the least expensive option,” he said. “It’s been vetted backward and forward. The interest rate is at the lowest rate possible because it’s guaranteed by the federal government and by staying an authority, the hospital gets 35 percent of its interest back. There is no other alternative out there, short of an overall tax. This is it. The only way to get a better rate with the county is to have the county guarantee all $30 million. This really is the best alternative. I’m not pigeonholed to doing it this way; but this is what is best for you.”

Veterans Park

Commissioner Reggie Loper questioned the hospital’s site plans, concerned they infringed upon the nearby Veterans Park. A loop road connecting a service entrance for the hospital was drawn too close to the park for Loper’s liking.

“I won’t give up any of the Veterans Park for the hospital,” he said. “You can run a road somewhere else. A lot of people dedicated a lot of time and money to the Veterans Park.”

The loop road is necessary, said architect David Johnson, to comply with federal regulations mandating that fire and emergency vehicles have an access road to the hospital.

“Our intent was not to detract from it or the beauty of it in any way,” Johnson said of the park. “We are invested in maintaining that.”

Richman said they want to make sure the project is aestethically pleasing and does not violate zoning and noise ordinances, nor disrupts people around it. Any project that did, he said, “would be defeated by HUD.”

The loop road path was drawn away from the hospital in order to preserve space for an Alzheimer’s unit at the Effingham Care Center with a closed-in area that would have a view of Veterans Park and the pond.

“We wanted to reserve space to allow the nursing home to grow,” Johnson said.

Hospital representatives said the loop road, connecting a service entrance and ambulance entrance from Highway 119 to 3rd Street, could be gated at the 3rd Street end to allow only fire and emergency vehicles to use it.

Staying in contact

Zeigler said he wanted to work with hospital authority member Rick Rafter, the liaison to the commissioners, on the hospital’s business plan.

“You have identified a market,” he said. “People in the south end of the county are going to Savannah to get health care.”