2007-03-15 / Front Page

Hospital Authority asks county to back $18 million regeneration

By SPARKY NEWSOME editor

More than 45 years after the construction of Wills Memorial Hospital, its governing board says the physical structure, particularly the plumbing, is "at the end of its useful life" and "regeneration" is becoming necessary in order to maintain the hospital's position in the community.

The Wills Memorial Hospital Authority met with the Wilkes County Board of Commissioners last Wednesday, March 7, to propose a financing plan which would expedite a planned reconstruction which would essentially replace the current building with a new one on the same site. The plan calls for a bond issue providing some $18 million for the project and Authority members want the county to sign on to guarantee the note.

Beginning with an on-site regeneration concept proposed by the architectural and engineering firm of GMK of Columbia, S.C., the Authority set about trying to find ways to finance the project. A "weak financial history and lack of reserves" made the usual approach seem impossible but with the help of SPF Healthcare Capital, the Authority learned that it could access the taxexempt bond market through the use of "enhanced" bonds backed by either the county or FHA 242 mortgage insurance.

The backing is what makes the difference and the Authority would prefer that the Wilkes County Commissioners agree to back the project for a number of reasons. County backing would speed the completion of the project and reduce the cost considerably, according to the proposal.

Because of "extensive added work to satisfy the people at HUD," costs added due to wage scale requirements, and constructions costs escalated due to the anticipated delay, the Hospital Authority estimated that the additional costs associated with FHA 242 backing would amount to at least 12 percent or about $2.2 million. Construction costs alone would escalate at about 1 percent per month, the Authority maintained.

With the county's backing, on the other hand, bond issuance and underwriting would be completed in about one third of the time and other significant costs associated with the 242 approval process would be eliminated. The only disadvantage, the Authority maintains, is that the county would be responsible for the debt if Wills Memorial Hospital should fail to meet the obligation.

"Only if the whold thing went to hell in a handbasket would the county have to make any payment," said Marvin Goldman, CEO of Wills Memorial. As part of the presentation, figures were shown to illustrate the hospital's growth in revenue and profit over the last few years. Also, Chris Holloway, representing SPF Healthcare Capital, said that in his experience, he did not know of any bond-issue hospital that had to be bailed out by the county.

Because of current practices and allowable Medicare interest and depreciation pass through expenses, the annual risk to the county, as backer, would start out relatively small and increase throughout the life of the 25-year note. Beginning at $166,992 (based on estimated figures) for the first year, the local liability would increase to over $868,000 for the last year. That is assuming that those Medicare practices and policies don't change.

"We would be depending on the federal government to continue its programs and policies," County Commission Chairman Sam Moore said in expressing some caution. "There's no guarantee that they are going to keep doing that."

"I can't say that this is a risk-free venture," Goldman admitted.

"Anything could change," Moore continued. "I don't want to leave the risk of debt to our children."

But a member of the audience questioned, "How do you balance that with not having a hospital at all?"

Holloway commented that the reconstruction could be seen as "leaving an asset for our children. As a community grows and thrives, so does its hospital as one of its anchors," he said.

As a show of confidence in his proven leadership, concern was expressed as to whether Goldman would remain in his position throughout the reconstruction project. "If this project goes through, I'm not going to abandon anything in midstream. That's a promise," he said.

The regeneration project calls for 31,900 square feet of new construction, 19,950 square feet of renovation, and 20,800 square feet of demolition. The total estimated cost of $18 million includes $15.5 million in construction and $2.5 million in new equipment. Time to complete the project is estimated at 52 months.

"The reason it takes that much time is that it is a regeneration project that must be done in phases," Goldman explained. "We can't just shut down the hospital while the project is going on," he said.

"One of the beauties of this plan is that we would end up with essentially a new hospital on the existing site without having to go through the agony of shutting down," Goldman added.

No decision on the proposal was made at the meeting. A second meeting between the Authority and the County Commissioners is being planned for Thursday or Friday, March 29 or 30, for the purpose of further exploring the proposal and reviewing construction plans.

The meeting will be open to the public.

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