NOTE:  As provided in LFC policy, this report is intended only for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used for other purposes.

 

The most recent FIR version (in HTML & Adobe PDF formats) is available on the Legislative Website.  The Adobe PDF version includes all attachments, whereas the HTML version does not.  Previously issued FIRs and attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

 

 

F I S C A L   I M P A C T   R E P O R T

 

 

 

SPONSOR:

Altamirano

 

DATE TYPED:

02/26/03

 

HB

 

 

SHORT TITLE:

Amend Hospital Funding Act

 

SB

656

 

 

ANALYST:

Neel/Williams

 

 

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact (FY07)

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

 

 

 

 

 

$5,000.0

Recurring

UNM/HSC

 

 

 

 

 

(Parenthesis ( ) Indicate Revenue Decreases)

 

Duplicates HB 558

Relates to SB 292 NMFA Loans for Public Projects (UNM Hospital building project)

SB 528:  Increase Cigarette Tax

SB 804:  Increase Cigarette Tax

 

SOURCES OF INFORMATION

 

LFC files

 

Responses Received From:

Commission on Higher Education (CHE)

Health Policy Commission (HPC)

University of New Mexico Health Science Center (UNM/HSC)

 

SUMMARY

 

     Synopsis of Bill

 

Senate Bill 656 amends statute to allow any State educational institution operating a county hospital to execute a financing instrument dealing with the educational institution’s ownership or lease interest in the hospital and other related health care facilities.  Sb656 would limit the right of the holders of the debt to seek a judgment against the educational institution.

 

In other words, this new language means that a debtor (the state educational institution operating a county hospital) could use state property as collateral for a loan (a mortgage, deed of trust or other security interest) for purchase, expansion, improvement, furnishing and equipping qualifying facilities.

 

Senate Bill 656 gives the option to a State educational institution to retain or terminate the lease between a County and a State educational institution in the event of failure of a mill levy election for a county hospital or untimely remittance of mill levy funds from a county to the State educational institution.  Existing language required the termination with specific exceptions. 

 

This bill contains an emergency clause.

 

    Significant Issues

 

According to a representative from the University of New Mexico Health Science Center (UNM HSC), Senate Bill 656 would allow a state educational institution operating a county hospital to mortgage a property to secure a bond guarantee through the Federal Housing Authority (FHA).

 

The UNM HSC is the only state educational institution operating a county hospital.  The UNM HSC is proposing a 400,000 square foot expansion, the Children’s Hospital and Critical Care Pavilion, to emphasize pediatrics, maternity and adult critical care.  The expansion will also include an emergency center, private patient rooms, enhanced security and a new entrance.  The expansion is to replace outdated facilities and to stay competitive in today’s market. 

 

According to materials provided by UNM HSC, construction costs are projected at approximately $173 million, with total project bond issuance of $213 million. Based on this estimate, debt service costs would range between $13.0 million to $15.0 million annually.   UNM/HSC estimates the additional cost of using the alternative financing mechanism to be 250 basis points (i.e. difference between 5 percent and 7.5 percent) or approximately $5 million annually.  Pledged revenues to repay bond holders would include patient revenues from an additional seventy beds as well as an existing 6.5 mill levy authorized by voters in November 2000, which generates approximately $60.0 million (100 percent collection rate).       

 

UNM HSC presented to the CHE Facilities Committee a preliminary proposal of the expansion.   As the project progresses, the UNM HSC will report to the NMCHE Facilities Committee, and then to the full Commission.  All capital projects and revenue bonds must be approved by the NM CHE; other approvals required include the State Board of Finance, UNM Regents and the Bernalillo County Commission. 

 

FISCAL IMPLICATIONS

 

Senate Bill 656 does not contain an appropriation; however passage of the bill would allow UNM HSC to gain preferable interest rates through federal bond guarantees.  According to UNM HSC, this financing mechanism would save approximately $5.0 million in interest expenses versus conventional bonding beginning in FY07. 

 

According to UNM/HSC, UNM Main has approximately $200 million in outstanding bonded debt.  If UNM Main issued bonds for the proposed expansion at the UNM/HSC, the significant increase in outstanding debt could potentially impact the bond rating of UNM main.

 

 

 

TECHNICAL ISSUES

 

Page 3, line 20:  references the Public Health Division of the Department of Health. The division which promulgates regulations for licensure is the Division of Health Improvement of the Department of Health.

 

OTHER SUBSTANTIVE ISSUES

 

In its analysis for House Bill 558, a duplicate bill to Senate Bill 656, the Office of the Attorney General expressed concerns the legislation raises the constitutional issue of whether or not a state institution can use state property as collateral for a loan (a mortgage, deed of trust or other security interest).  The HPC notes the legal configuration for the UNM Hospital is complex with the University of New Mexico Health Sciences Center operating the hospital.  Both Bernalillo County and the University of New Mexico own title to the land and improvements, through property tax records reflect Bernalillo County as owner. 

 

POSSIBLE QUESTIONS

 

1.         What revenues would be pledged to the project ?  How strong is the financial position of UNM HSC given warnings of financial crisis facing the nation’s teaching hospitals ?

2.         Will operational revenues for UNM HSC be constrained in future years if voters in Bernalillo county do not reauthorize the 6.5 mill levy, which is authorized for a maximum of 8 years? 

3.         What assumptions are used for incremental revenues from an increase in patients receiving care ?  How is the cost of indigent care considered in the analysis ?

4.         What are the costs/benefits of seeking a guarantee through the Federal Housing Administration?  Why is this financing mechanism needed ?

5.         Are there more cost effective financing approaches which might be utilized ?

6.         Who would the bond holders seek judgment against in the event of a default ?

7.         Would there be any impact on Carrie Tingley hospital ?

8.         What impact would this expansion have on recurring operating and maintenance costs ?  How would these costs be addressed ?

 

SN, AW/njw:yr