To continue the “Campus Integration” at Schuylkill Health in Pottsville, M. Michael Peckman, the organization’s director of public relations, said the hospital system is planning to go into debt.
It’s seeking a series of bonds to finance a multifaceted renovation project which could cost $20 million, according to a legal notice written by the Pottsville Hospital Authority and published in the Aug. 19 edition of the newspaper.
The authority is planning to pledge its support by serving as the issuing agency and allowing the hospital system to acquire the bonds tax free. A public hearing on the matter is slated for 8 a.m. Sept. 3 at council chambers, second floor, city hall, according to the notice.
Hospital officials did not want to discuss the project prior to the hearing, Peckman said Friday.
“At this point, we don’t want to do an interview prior to the hearing. We want to be respectful to the hospital authority and give our testimony at the hearing and not prior to,” Peckman said.
Immediately following the hearing, the authority will hold a special meeting to take action on the bond financing. The authority may approve a bond resolution “approving among other things the issuance of its Health Center Revenue Bonds in one or more series of tax-exempt or taxable bonds in an aggregate principal amount not to exceed $20,000,000,” according to a second notice published in the Aug. 19 edition of the newspaper.
“This resolution will then be considered and adopted by city council at a later city council meeting,” David H. Rattigan, the hospital authority’s solicitor, said Monday.
City Administrator Thomas A. Palamar said Monday council may take action on the matter at its next meeting, 6 p.m. Sept. 14 at city hall.
At the public hearing on the morning of Sept. 3, hospital officials will discuss the proposed project.
According to the legal notice, the applicants are: Schuylkill Health System, 400 S. Jackson St.; Schuylkill Medical Center–East Norwegian Street, 700 E. Norwegian St.; Schuylkill Medical Center–South Jackson Street, 420 S. Jackson St.; and Schuylkill Rehabilitation Center, 300 Schuylkill Medical Plaza.
The project involves “the design, acquisition, construction, reconstruction, renovation, rehabilitation, improvement, furnishing and equipping of real and personal property of the applicants,” according to the notice.
The “renovation, rehabilitation and improvement to the emergency room, the intensive care unit, and the radiology, pediatrics and obstetrics departments” are part of the plan, according to the notice.
So is “the acquisition and installation of furnishings, equipment and information technology and facilities,” according to the notice.
In a letter to the editor published June 15, Peckman offered insights into Schuylkill Health’s plans.
“Schuylkill Health is not closing a hospital. We will continue to use both facilities and have publicly shared that both hospitals will: remain open, offer the same services that we currently provide, but in different locations, introduce new services such as Convenient Care/Urgent Care, operate under a single license, and provide room for future growth and expansion,” Peckman said in the letter.
“We recognize that it is not in the best interest of those we serve to have two, full-service hospitals less than a half mile apart. It makes much more sense to integrate our services in a way that points us to the future while better delivering our services today,” Peckman said in the letter.
The City of Pottsville Hospital Authority was established in February 1980 as a vehicle for floating tax-free municipal bonds for financing additional construction to local hospitals, according to the newspaper’s archives.
The mayor at the time, Robert L. Allen, promised that the city and its taxpayers would not be liable in any way if a hospital should default on bond payments, according to a Feb. 13, 1980, story in The Pottsville Republican.
The hospital authority’s budget is financed by Schuylkill Health.
“The budget is adopted annually by the board based upon actual costs,” Rattigan said.
For example, in 2014, the hospital authority’s budget was $13,950. Expenditures were: auditor, $3,000; solicitor, $2,400; liability insurance, $3,000; postage and supplies, $150; advertising, legal notices, $200; rent and administrative salaries, $5,000; and miscellaneous, $200, according to a copy of the authority’s 2014 budget provided by Rattigan.
On Monday, Rattigan — who has been the hospital authority’s solicitor since 1985 — and the city solicitor, Thomas “Tim” Pellish, described how the hospital authority works:
• The hospital authority is required by the Tax Equity and Fiscal Responsibility Act of 1982 to hold public hearings regarding bond resolutions.
• Once the hospital authority approves a bond resolution, the city council must give the resolution its stamp of approval. “In addition to the TEFRA hearing and approval of the hospital authority, the Internal Revenue Code requires that the city council consider the project and make a finding that it is desirable for the health, safety and welfare of the people in the area served by the Schuylkill Health System to have the project provided by and financed through the authority. This resolution is considered and adopted by city council at a later city council meeting,” Rattigan said.
• To complete the bond financing, the hospital and the hospital authority work with bond counsel and the counsel of the bond underwriters to determine and comply with tax-exempt financing eligibility requirements. “There is underwriting, a private offering memorandum, loan documents and underwriters then market the bonds and find investors to purchase the bonds. The underwriter purchases the bonds under a bond purchase agreement for primarily institutional investors who acquire bonds through the underwriters in various denominations, amounts. The net proceeds are held by the bond trustee and then disbursed to the hospital for use to pay the costs of issuance and then for the Project costs as it progresses. Some amounts go into a debt service reserve fund,” Rattigan said.
• While the proceeds of the bond are used to finance the hospital’s projects, the interest paid on the bond is given to the bond holder tax free, according to the Internal Revenue Code. “Because federal income tax does not have to be paid on the interest payments received by the bondholders, the interest rate paid on the hospital bonds can be lower than a taxable interest rate,” Rattigan said.
• There is no interest payment to the hospital authority.
• “Schuylkill Health System pays all costs related to the issuance of the bonds and all fees and costs out of the bond proceeds or otherwise,” Rattigan said.
• “The bond documents require that annually Schuylkill Health pays and reimburses the hospital authority all its annual administration costs and fees,” Rattigan said.
• “The hospital revenue bonds are nonrecourse obligations and are payable solely out of the revenues of and other collateral provided by Schuylkill Health System. Neither the Hospital Authority nor the city of Pottsville are obligated to make payments on the bonds,” Rattigan said.
• “Tax free bonds do come through the hospital authority with no financial responsibility to the authority,” Pellish said.
In 2013, the authority and the city council decided to help Schuylkill Health refinance $35 million in Health Center Revenue Bonds, loans taken in 1998 and 2009, according to Rattigan.
Schuylkill Health has been working to pay off those debts and in June the combined balance was $29,765,000, Rattigan said.
When asked for a current figure, Rattigan said Monday it’s “close” to that.
The hospital authority’s current members include: George F. Halcovage Jr., chairman; and members Joseph Brahler, Dr. Christina M. DiCello, Heidi Eckert, Diana Gabardi, Joanne Hively, Susan Jochems, Michael Muncy and Judy Schweich.
They “traditionally waive compensation and serve without compensation,” Rattigan said.