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SPONSOR: |
Altamirano |
DATE TYPED: |
|
HB |
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SHORT TITLE: |
Amend Hospital Funding Act |
SB |
656 |
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ANALYST: |
Neel/Williams |
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REVENUE
Estimated Revenue |
Subsequent Years Impact (FY07) |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
|
$5,000.0 |
Recurring |
UNM/HSC |
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|
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|
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates HB 558
Relates to SB 292 NMFA Loans for Public Projects
(
SB 528:
Increase Cigarette Tax
SB 804:
Increase Cigarette Tax
Responses
Received From:
Commission
on Higher Education (CHE)
Health
Policy Commission (HPC)
University
of
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
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 ?