Leaders defend city loan for new hospital project

Delores Dalke

The two lead officials for the city of Hillsboro say they recognize that providing a loan up to $1.5 million to help the owners of Hillsboro Community Hospital construct a new facility carries a degree of risk.

But both Mayor Delores Dalke and City Administrator Larry Paine say they are confident the plan will work?and the payoff will be instrumental for the city?s future.

Earlier this month, the city council voted unanimously to move ahead with the loan that will fund infrastructure for the $11.4 million facility proposed by HMC/CAH Consoli?dated Inc., the hospital?s owner.

The Kansas City-based company, which owns a network of 10 for-profit hospitals in five states, has agreed to repay the loan.

But some residents question the reliability of a company that bought the local hospital in 2008 but could not fulfill its contractual guarantee to build a new facility within five years of the purchase?and then filed for Chapter 11 bankruptcy in 2011.

Dalke said she understands local concerns, but believes the company has righted the ship in recent years.

?That bankruptcy bothers us?but it also doesn?t, because they came through it,? she said. ?They paid off the debts that were owed. It was a little tough there for a little bit, but they did it.

Dalke said Chapter 11 bankruptcy happens a lot in the business world.

?It?s kind of like when somebody mentions that Donald Trump has taken out bankruptcy four times, and he says that?s just part of business,? she said.

?I don?t know if (HMC/CAH officials) have that kind of flippant attitude about it, but it is a part of business. I think it?s wonderful that they have been able to work through it, and come back strong the way they have.?

Safety net in place

City Administrator Larry Paine quantified his confidence level with the city?s arrangement at 90 percent.

He said the mere possibility of a financial reversal prompted the city to designate a contingency fund within its Public Building Commission, which stands at $508,000, to help the city pay back any outstanding balance on the bonds.

?There is some level of risk,? Paine said. ?That?s the primary reason I?m adding to the fund each month so that if something were to occur, there is a safety net to fall on.?

The fund was established in 1998 when the city agreed to refinance what was then known as Hillsboro Com?munity Medical Center, which included both the hospital and the adjacent nursing home.

?The bond issue at that time was done through PBC required and the city to put 5 mills into that fund each year to pay for equipment and to back up the hospital so it could continue to make payments,? Dalke said.

?Even after the hospital was sold (to HMC/CAH), we have continued up until now to put the 5 mills into that fund?just as a backup if anything is needed (for maintenance or other needs).

?And we were able to do that 5 mills without ever increasing taxes in Hills?boro,? she added. ?We were very fortunate that we were able to do that.?

The contingency fund will keep growing as HCH and Salem Home, which is now independent of HCH, continue pay rent for using the building, according to Dalke and Paine.

?Once the hospital moves from where they are now, we could rent out that part of the building or sell it, or do something with it,? Dalke added. ?There should be money continuing to come into that account.?

Significant benefits

While acknowledging the wisdom of having a contingency fund in place ?just in case,? Paine and Dalke emphasize the benefits of having of a new hospital facility in Hillsboro.

?The important thing is that a new hospital would be a tremendous asset to the community,? Paine said. ?It?s going to be an economic draw, like in some communities Wal-Mart has become. You build the big super?center and then those pieces of land around it suddenly become populated with other businesses.

?I expect that same sort of thing to happen here,? he added. ?We?re not going to become a mecca of medical offices and that sort of thing, but I do see professional businesses in and around there on the property that is still yet under city ownership.?

Dalke highlighted the importance of a state-of-the art hospital in terms of the health-care advantages it brings to the community in the short run, but also how it contributes to the city?s longterm stability.

?The hospital is so important to this community?it?s like we can?t be here without it,? she said.

?It all works together. The new hospital is helping to draw new doctors, and it?s the doctors that put people in the hospital. People don?t go to a building for health care. They go to a doctor.

?But you have to have the good facilities to draw particularly the younger doctors who are coming out of med school,? she added. ?They have learned how to do things using new equipment and having it readily available.?

Another tangible benefit of having a new facility for a for-profit company is the property-tax revenue it will generate each year for local tax entities.

According to Marion Regier, HCH CEO, the city will receive $114,925 in property taxes at current rates, USD will receive $124,263, Marion County will see $198,703 and the state of Kansas $4,313.

Paine said HMC/CAH will not be receiving special tax credits, tax relief or tax abatements. In addition, the company will be paying debt service on the city?s loan.

?In the world of investments, if you go from $1.5 million to $2 million, that?s a half-million dollar return on investment,? he said. ?Is that an acceptable number? Well, yeah.?

He added: ?The intrinsic value of having a brand new facility and equipment that can recruit doctors and recruit patients, and have Hillsboro recognized as a quality medical provider?there?s some value to that.

?That?s the part of the uncalculated risk you can?t put a number on.?

Common practice

Dalke said it?s important for residents to know that the city has not done anything for HMC/CAH that it hasn?t done for other businesses in the recent past.

?If you look at Hillsboro Heights, we went out there and put in all the utilities and the streets with faith that people would come,? she said. ?We had no guarantees, we had nobody signed up to go out there, and we started that whole project.

?It was kind of like ?build it and they will come??and they did. But nobody out there has ever had to pay for their streets or their utilities.?

Developing the location for Midway Motors was a similar situation.

?The whole thing needed to be reworked because of the ponds that AMPI had there,? she said. ?It was quite expensive to have that all done.We had to bring utilities to them, and we did all of that.

?We did it through a TIF (tax-increment financing) and, yes, that has paid off those bonds?but Midway agreed they would not ask for a tax abatement when they built,? she added. ?They could have, but they said, ?No, we will pay our fair share of taxes.? And they have.?

Dalke said taking calculated risks is the only way small, rural communities can hope to enhance themselves and their residents.

?Without taking chances, Hillsboro would not be where it is today,? she said. ?There?s always a chance that you can make a mistake, but you have to take some risks in order to keep going.?

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