Metro Hospital looking to bond market

August 19, 2011
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Kent County commissioners are likely this week to let the Kent Hospital Finance Authority issue, sell and deliver up to $27 million worth of bonds on behalf of Metro Health Hospital. If authorized, KHFA would issue the securities and then loan the sale proceeds to Metro, which, in turn, would purchase the power plant located on its four-year-old Wyoming campus from a Chicago developer.

According to finance authority records, Metro had two outstanding bond issues at the beginning of this year that totaled roughly $161 million. Both were issued in 2005 and were used to build the hospital’s campus on Byron Center Avenue. One was a $135 million revenue bond that had an outstanding balance of $132.3 million on Jan. 1. The other was a $30 million revenue-refunding bond that had a balance of $29 million on Jan. 1. Both are 30-year, variable-rate bonds.

By going through the KHFA, Metro gets access to the county’s triple-A bond rating for its issue. But the county is not pledging its full faith and credit on the bonds and is not responsible for any of the Metro debt.

“We do not support or back those bonds,” said County Administrator and Controller Daryl Delabbio.

Commissioners, however, will soon have to make some serious financial decisions for the county’s 2012 general operating budget. The preliminary spending plan has a deficit of $4.82 million as expenditures have been projected at $165.9 million for the coming fiscal year and revenue has been forecast at $161.1 million.

Delabbio told members of the Finance Committee last week that spending has to be reduced by the projected shortfall amount because he isn’t certain what action the state Legislature will take on the county’s revenue sharing, which is supposed to be $9 million in 2012, and the state personal property tax, which is also worth $9 million to the county.

Gov. Rick Snyder has suggested that the PPT should go away and not be replaced by another business tax, and statutory revenue sharing to cities, townships and villages was eliminated. The county receives statutory revenue sharing, but not as much as the $12.5 million it should get each year.

“Quite frankly, I’m afraid to come to the board without a structurally balanced budget,” he said of a somewhat precarious revenue situation, which includes a projected 1.5 percent decline in property-tax receipts. “The departments have submitted budgets that meet a structurally balanced budget. I’m not going to be proposing a budget that’s not structurally balanced. It will be balanced.”

The committee is expected to get a look at the proposed spending cuts at its next meeting. Reducing expenses isn’t a new exercise for the county. Between 2007 and this year, the county has cut spending by $19.7 million.

Another issue commissioners will have to deal with is making the payments on the DeVos Place bonds, which paid for much of the convention center’s construction. Although revenue from the county’s 5 percent lodging-excise tax was up for the first half of this year for the first time in years, the tax won’t bring in enough money to pay for the bond. The bond payment rises by 3.5 percent every year, and the county has subsidized the tax fund with general operating dollars for the last three years. The county has targeted another $1.6 million as next year’s subsidy.

The bonds apparently can’t be successfully refinanced as the interest rate is acceptable. Delabbio said he looked at a swap, but he concluded that there was too much risk for the county to take that action.

Commissioner Dick Vander Molen said the county needs to find a new revenue source to pay for the bond and Delabbio said he is looking into that. Although he didn’t reveal the potential revenue source, Delabbio said getting it would involve some action from the Convention and Arena Authority, which operates DeVos Place and has a cash reserve of roughly $20 million.

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