Board considers hospital-debt options

Published 1:56 am Wednesday, June 30, 2010

Staff Writer

The Beaufort County Board of Commissioners on Tuesday night was scheduled to discuss, and likely approve, a loan agreement that would ensure repayment of $1.57 million in debts owed to the county by the Beaufort Regional Health System on a recent construction loan.
That loan agreement would eliminate three cents per $100 valuation of the proposed property tax rate included in County Manager Paul Spruill’s recommended 2010-2011 budget as a “Hospital Debt Reserve.”
The set-aside was included in Spruill’s recommended budget so the county could make the debt payment if the health system were unable to do so.
Whatever loan agreement the commissioners choose, it will ultimately only buy time for the health system, which includes the former Beaufort County Hospital, to get its finances in order, according to county officials.
That’s because, beginning in July, the clock starts ticking on a $2.1 million debt payment the hospital will have to reimburse the county by July 1, 2011. 
The proposed budget under discussion by the commissioners includes a property-tax rate of 52 cents per $100 valuation for the 2010-2011 fiscal year. It is based on a property tax base of about $5.5 billion — an increase of about 29 percent over the current fiscal year. 
Without that medical center set-aside, the remaining tax rate of 49 cents per $100 valuation just misses — by eight-tenths of a cent per $100 valuation — Spruill’s targeted revenue-neutral tax rate of 48.2 cents per $100 valuation.
The commissioners have until today, the last day of the current fiscal year, to adopt the county’s 2010-2011 budget.
The board “will adopt the budget without the recommended 3 cent tax increase designated for Beaufort County Hospital so long as the county is making progress with a selected bank and the (Local Government Commission) on refinancing approval. Otherwise the County will adopt the 3 cent tax increase in order to reimburse itself for the unpaid debt service. Such an outcome will endanger the ability of the hospital to utilize the county in an support role for the purpose of leveraging short term operating capital,” Spruill wrote in an e-mail June 14 to the Local Government Commission.
Under the auspices of the state treasurer, the Local Government Commission is charged with approving, substantially, all North Carolina local government bonds and debts.
Much of the commissioners’ budget discussion Tuesday night was expected to focus on two loan proposals that are described in e-mails and other correspondence obtained by the Daily News through a request under North Carolina’s open-meetings and open-records laws.
Under one loan proposal to be considered Tuesday, the county would buy from the health system 13 pieces of property valued at about $6 million. The properties include the Marion L Shepard Cancer Center, vacant land and various other offices.
The county would then obtain a loan in an amount up to $4.8 million at a fixed interest rate of 4.65 percent from First Citizens Bank to finance the project, according to the e-mails and other documents obtained by the Daily News.
The hospital would use the proceeds from the purchase to pay $1.8 million on an existing loan with First Citizens Bank on the property, reimburse the county $1.57 million for its debt payment and use the remainder as operating capital.
This option would also require the health system’s governing board to agree to sell the properties to the county.
The repayment schedule proposed by First Citizens Bank on a $4.8 million calls for the county to make a $543,200 payment on the 15-year loan in the 2010-2011 fiscal year, according to the June 11 loan proposal by First Citizens Bank.
That payment is not included in the recommended budget presented to the commissioners, Spruill said in an interview Monday.
If the commissioners choose this option, they would have to decide how to make the loan payment. They could take the payment amount from the county’s fund balance, add an additional one cent to the 49 cent per $100 valuation recommended tax rate or find another way of making the debt payment.
The source of funds for the debt payment was expected to be the subject of debate Tuesday as commissioners considered this loan proposal.
Under the second loan proposal, the health system would obtain a $3 million loan at a fixed rate of 4.25 percent from BB&T to provide operating capital. The loan, for 53 months, calls for even principal payments except for the first six months of the loan, during which time the hospital would make payments only on the interest of the loan, according to the June 7 loan proposal from BB&T obtained by the Daily News.
This proposal calls for the county to either co-sign or guarantee the loan.