Government and Health Care

Are there reservations about using hotel taxes for clinics?

July 19, 2013
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The number of hotel reservations made in the area and how responsive Lansing is will determine which method Kent County will use to finance its consolidation of two health clinics.

Kent County Assistant Administrator Wayman Britt told members of the county’s Executive Committee late last week that he was close to finalizing a merger of the health department’s clinics in Wyoming and Kentwood. Both would go into the former Kentwood Library at 4700 Kalamazoo Ave. SE.

Britt presented the committee with five options to finance the purchase of the 16,000-square-foot building that sits on 6.5 acres and make the structure suitable for the county’s use. That total comes to $2.8 million.

The price Britt negotiated for the building with Kentwood commissioners is $300,000, down from the $900,000 the city initially wanted for the structure.

Britt also mentioned time is of the essence, saying the county isn’t the only party eyeing the building.

“There are other entities that are interested in purchasing this site at a premium of $400,000 or more. We’ve amended this agreement twice and have been working on it since January,” he said.

He noted, however, that the county is $1.6 million short of the $2.8 million needed to purchase and convert the building. He gave the committee five options to cover that funding gap ranging from appropriating funds from general operations or taking money from the capital improvement budget to borrowing the necessary dollars.

County Fiscal Service Director Stephen Duarte told the committee he favored the option that involved using revenue from the county’s 5 percent lodging excise tax. Under this scenario, the county would earmark $1.3 million from the hotel-motel tax receipts and then transfer $300,000 from the capital improvement fund balance to the consolidation project.

Duarte said going with that option frees the county from taking on further debt and doesn’t drain the general operating reserve account. On the other hand, taking those dollars from the CIP fund balance would remove 87 percent of its total, which is $354,000. In addition, $431,000 is already coming from the actual CIP budget for the consolidation.

“So, it kind of depends on which way the lodging excise tax goes?” asked Jim Saalfeld, commission vice chairman.

“I feel that (a) 3 percent (increase) is a legitimate projection,” answered Duarte.

Last year, tax revenue from hotel and motel room nights rose by 13.4 percent from the previous year. That increase came to $800,000, and the year’s tally was nearly $6.6 million, up from the $5.8 million the county received in 2011. Half of last year’s increase came from two hotels that made good on their delinquent tax bills.

One difficulty with using those tax dollars on the project is that money can’t be set aside for the annual debt payment the tax makes on the construction of DeVos Place, which was $5.8 million last year and is $6 million this year. Using those dollars could result in the county having to subsidize the tax account with funds from general operations, which the county has done in recent years but wants to stop doing.

The county’s Finance Committee will review the five financing options Aug. 6 and likely make a recommendation to the full commission in time for the board’s meeting two days later.

“The gap funding has to be decided by the county,” said Commissioner Harold Voorhees, who chairs the Finance Committee.

The county’s Kentwood clinic is at 1620 44th St. SE, while the one in Wyoming is at 852 47th St. SW. Britt said both sites are leased, and consolidating them would save $67,149 annually in rent and $64,650 in payroll from staff reductions that would come from being in a single location. Multiply those numbers by an undetermined amount of years, and the savings make the merger plausible over time.

In addition, the new location would add dental services to the county’s health offerings as Michigan Community Dental Clinics, based in Boyne City, would locate in the new building. Britt said MCDC will pay the county $41,600 each year in rent.

“In my opinion, the best part of this whole thing is the dental service that we need. This is great work,” said Commission Chairman Dan Koorndyk.

Britt was especially pleased the consolidation effort has received strong financial support from a dozen private sources that have contributed $562,500 toward it, with the Grand Rapids Community Foundation giving the largest gift of $125,000.

“Our original estimate was we would receive $400,000 from the community, and we almost have $580,000,” he said. “And there still is a potential for us to receive other support and grants.”

One of those grants could come from the state. Britt has applied for one from the Economic Vitality Incentive Program because of the cost-cutting consolidation aspect of this project. He has asked Lansing for $700,000; getting that amount means the effort wouldn’t need any money from the CIP fund balance and quite possibly a lot less from the lodging tax account.

“We have a 50-50 chance to get the EVIP money,” he said. “We have a good project. We feel reasonably confident that we are going to get something.”

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