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HomeMy WebLinkAboutRes2012-009 Sponsored by: Hunt CITY OF SEWARD, ALASKA RESOLUTION 2012 -009 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, AUTHORIZING A DELAY IN REMITTANCE OF CAPITAL ADD -ON PAYMENTS FROM PROVIDENCE SEWARD MEDICAL CENTER (PSMC) TO THE CITY OF SEWARD IN THE AMOUNT OF $2,071,323.96 TO COVER CASH FLOW WHEREAS, Providence Health & Services Alaska (PH &S) manages and operates Providence Seward Medical Center (PSMC) on behalf of the City of Seward (City) and to the extent that PSMC does not maintain a positive cash balance, the shortfall is loaned to PSMC by PH &S at the rate of prime plus 1% interest, per the Management and Operating Agreement between the City and PH &S; and WHEREAS, each month PSMC remits payment to the City reflecting the capital add -on component of the revenues from the long -term care facility. This currently amounts to $240.07 per patient day, and the City utilizes 100% of these receipts to cover repayment of principal and interest payments on the Seward Mountain Haven revenue bonds; and WHEREAS, as of December 31, 2011, PSMC has received $2,071,323.96 in capital add -on payments which it has not yet passed on to the City due to operational shortfalls resulting from an average daily census of 32 and reimbursement rate disputes with the State of Alaska; and WHEREAS, a temporary delay in reimbursement from Seward Mountain Haven will mitigate a cash shortfall and reduce the need to borrow money from PH &S and pay interest on said borrowing; and WHEREAS, the City expects that PSMC will remit sufficient funds to the City to ensure timely payment of upcoming bond payments in 2012 and 2013, and that once a plan is in place to mitigate this shortfall, full reimbursement will be made to the City. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, that: Section 1. The Seward City Council hereby authorizes a delay in remittance of $2,071,323.96 from PSMC to the City representing a portion of the 2011 capital add -on portion of SMH revenues, to be booked as a loan receivable from PSMC at December 31, 2011. Section 2. It is fully expected that PSMC will remit payments sufficient to cover the timely payment of revenue bond debt service payments in 2012 and 2013, and that the full reimbursement ire of this short -term loan will be made by PSMC within a reasonable timeframe. CITY OF SEWARD, ALASKA RESOLUTION 2012 -009 1 3 Section 3. This resolution shall take effect immediately upon its adoption. PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 23 day of January, 2012. THE CITY OF SEWARD, ALASKA David Seaward, Lot- AYES: Valdatta, Bardarson, Keil, Shafer, Casagranda, Terry, Seaward NOES: None ABSENT: None ABSTAIN: None I ATTEST: wail f l A anK ilAg° irmey , o City Clerk (City Seal) �tvs• "g #0 • () • '' ' s *r a RI My a � � N b 4. .r aas.rm. 44•4 e : OF ,,,,% ®. Council Agenda Statement f of Skit, Meeting Date: January 23, 2012 ,/ �� ._ 1 ; •` ' �}`��G 1 , 4 Through: James Hunt, City Manag " From: Kristin Erchinger, Finance Director e Agenda Item: Delay in remittance of capital add -on reimbursement from PSMCC BACKGROUND & JUSTIFICATION: The City of Seward (City) owns the local hospital and long -term care facility (PSMCC) which are operated by Providence Health & Services (PH &S) under management agreement with the City. The City is financially responsible for the operations of the health facilities. The City receives monthly payments from PSMCC reflecting the capital add -on component of the revenues from the long -term care facility. This currently amounts to $240.07 per patient day. The City utilizes 100% of these receipts to cover debt service payments at Seward Mountain Haven (SMH). The annual debt service payments on Seward Mountain Haven are approximately $1.97 million. The debt repayment schedule on the SMH bonds was originally designed to allow for a build -up of reserves in the debt service reserve fund (Fund) in the initial years of the facility's operations. This strategy was employed to enable the City to ensure sufficient cash in the Fund to pay debt service payments when due, and also to ensure that capital reimbursement - related revenues would not be used to cover operating costs which could result in insufficient funds to meet bond payments in later years. Since opening in October, 2009, PSMCC has received $6,302,535.49 in capital add -on payments and has passed on $4,231,211.53 to the City, leaving an amount due to the City at December 31, 2011 of $2,071,323.96. Bond payments totaling $3,248,325 have been paid through capital add -on payments. The current amount of cash available to make debt payments is approximately $982,000. Debt payments are due in the amount of $1.3 million in April and $611,581 in December. PSMCC will forward the cash necessary to timely make those bond payments. In 2011, PSMCC has withheld forwarding a portion of capital add -on payments to the City due to a combination of issues: 1) the facility has been in dispute with the State of Alaska over more than $2 million in cost report reimbursements, and settlement of this dispute in PSMCC's favor could result in a break -even financial bottom line; 2) Seward Mountain Haven has experienced an average census of 32 in 2011 resulting in anticipated financial losses barring a positive outcome in the dispute with the State; and 3) to the extent that PSMCC has to borrow cash from PH &S, they are charged interest. At this time, it appears that litigation may be the only viable option for resolving any remaining rate disputes with the State. The administration recommends authorizing a delay in reimbursement from Seward Mountain Haven until the funding dispute with the State can be resolved, and until such time as the census is stabilized at a minimum of 38 elders. This will reduce the amount of additional interest expense charged to the facility. PSMCC will forward sufficient funds to ensure there are adequate reserves available to meet annual debt service requirements. In the near term, the administration is meeting g1 City of Seward Resolution 2012- 001 Page Two with PH &S leadership to develop a plan to strengthen the census at Seward Mountain Haven, as well as to identify other strategies to improve the financial sustainability of the healthcare system. In the longer -term, the City's healthcare system maintains financial flexibility due the pending maturity of existing hospital bonds in April 2013. After that time, the one - percent sales tax dedicated to healthcare in Seward (approximately $980,000 per year) can be utilized to fill the debt payment funding gap if necessary, as pledged in the bond covenants for the new long -term care facility. INTENT: This resolution provides a short-term non - interest - bearing loan to PSMCC for the purpose of covering cash flow, by allowing PSMCC to delay remitting capital add -on reimbursements to the City from Seward Mountain Haven. It is expected that PSMCC will forward those reimbursements to the City at such time as it resumes a positive cash flow, and/or if it succeeds in its challenge to the State's reimbursement rate. This resolution intends for these capital add -on funds to be paid to the City. CONSISTENCY CHECKLIST: Where applicable, this resolution /ordinance is consistent with the Seward City Code, Charter, Comprehensive Plans, Land Use Plans, Strategic Plan and City Council Rules of Procedures. Other: FISCAL NOTE: This resolution authorizes a delay in the remittance of capital reimbursement monies from PSMCC to the Seward Mountain Haven Debt Service Fund, but expects receipts sufficient to ensure timely payment of bond debt service payments in 2012 and 2013. Finance Department: 4, k fu,,,, RECOMMENDATION: 9 City Council approve Resolution 2012- authorizing the delay in remittance of capital add -on payments from PSMCC to the City of Seward.