Borough Assembly OKs $3M in bonds for CPH

The Kenai Peninsula Borough Assembly voted on Tuesday to move forward with issuing more than $3 million in bonds to fund a Central Peninsula Hospital project.

The bonds, which were originally proposed to fund medical equipment purchases for the Central Peninsula Hospital in Soldotna, will be extended on short, 8-year terms, according to Kenai Peninsula Borough Mayor Mike Navarre.

Assemblyman Blaine Gilman objected to issuing the bonds. He argued that because the hospital currently has approximately $13.8 million available in its plant replacement and expansion fund, issuing more bonds would incur unnecessary debt on the hospital. The hospital already has more than $57 million in bond debt, and using unencumbered funds to pay for equipment is more practical, Gilman said.

“I still think that right now, we have about $57 million worth of debt on the bond issue,” Gilman said. “I’m concerned with the payers for the hospital, Medicare and Medicaid. There is continually pressure on the hospital and I’m concerned about the amount of debt the hospital has incurred. I think it’s more prudent to pay it out of the contingency account.”

The ordinance would also withdraw an equivalent amount, $3,050,000, from the plant replacement and expansion fund, to help fund the equipment purchases. Because the fund has enough to pay for the equipment, Gilman said it made more sense to use the existing funds to make the purchase.

However, Navarre said the currently low interest rates make the bond market attractive and the hospital has managed to retire approximately $25 million in bonds over the last 10 years. Finance committee chair Brent Johnson said the total interest on the bonds over that period would total approximately $288,000.

“All debt, quite frankly, is not bad,” Navarre said. “It’s likely that our opportunity to finance bonds in the future is going to be more difficult. The concerns that Mr. Gilman raised are valid concerns with regard to what we’re going to do with expansion, but it also argues for why we should be conserving capital in the plant replacement fund and issuing bonds while they are at a favorable rate.”

Rick Davis, the CEO of Central Peninsula Hospital, argued for the issuance of bonds rather than withdrawal of funds from the plant maintenance and expansion fund. The last major sale of bonds to fund hospital projects was in 2005, when the hospital revenue was significantly less, he said. Today, the hospital nets approximately $165 million in annual revenue, versus approximately $50 million when the 2005 bonds were issued, he said.

“We have about 22 million worth of one- to two-year capital projects that will be coming before this body, (including) a pretty big one next month. Yes, we do have about $13.8 million in our funds right now, but we have some pretty huge capital needs,” Davis said. “And $17 million is not a huge reserve when you’re talking about a $165 million business. So I think that’s worth considering.”

The assembly unanimously approved the motion.

The construction on the building began in May 2014. It is slated to be completed in December. The hospital administration proposed the center as part of its expansion plan initially introduced in 2003. Four other phases with construction and purchasing preceded the construction of the Specialty Clinic Center, which was initially proposed in early 2013.

The total estimate for the project is $38.2 million. The hospital board proposed the center to expand the hospital’s ability to treat cancer, which was identified as a critical need by the hospital’s Community Health Needs Assessment, a community survey and report conducted every three years.

The center would expand the hospital’s ability to treat the area’s aging population, according to the hospital’s original proposal. The PET scanner would be the first on the peninsula and the increased space and technology would allow peninsula residents to stay local for cancer treatments and other medical procedures, according to the proposal.

 

Reach Elizabeth Earl at news@peninsulaclarion.com.

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