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HomeMy WebLinkAbout04292024 City Council Work Session Laydown - FinanceAPRIL 29 WORK SESSION THROUGH SULLY JUSINO, FINANCE DIRECTOR Providence Health & Services 240429 City Council WS Laydown - Finance WORK SESSION - PROVIDENCE The City of Seward (City) is the owner of the local hospital and long-term care facility (PSMCC), which are managed by Providence Health & Services (PH &S) under a management agreement with the City. It's crucial to note that the City bears the financial responsibility for the operations of these health facilities. WORK SESSION - PROVIDENCE The COS issued bonds for the construction of Mountain Haven in 2008. They refinanced most of the debt in 2016, resulting in a $1.46 million principal and interest payment broken out into two semi-annual payments of interest (due February) and principal and interest (due August), maturing in 2033. WORK SESSION - PROVIDENCE Providence Health & Services (PH & S) provides a monthly payment based on their patient revenues. This payment is primarily allocated for debt service. However, in cases where patient numbers are insufficient, a gap for debt service arises. This is where the 1% sales tax dedicated to healthcare comes into play, covering this gap. It's important to note that any surplus beyond patient revenue and the 1% sales tax is intended to address capital needs. WORK SESSION - PROVIDENCE The patient revenue calculation is based on 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 proactively 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. (Res.2012-099). In a strategic move, in the event that Providence cannot meet the census number and make the complete payment, the city is allocating 1% of the sales tax to the Mountain Heaven Fund to cover any potential shortfall, ensuring the financial stability of the healthcare facilities. WORK SESSION - PROVIDENCE As of 4/26/2024, the city had received $23,708,112.77 from Providence for the bond payment, of which $13.2M is an excess of the bond payments. The city makes all the LTC bond payments. The Mountain Haven bond is in the City’s name, and we make the bond payments; Providence does not. The Borough is responsible for collecting the full 7% of the sales tax. On a monthly basis, the Borough remits payment of our 4% of the sales tax via check. We then transfer one-quarter of the received funds to the Healthcare Fund monthly. It's important to note that this transfer does not appear as revenue or expense in either fund; it is simply a cash transfer from the General Fund to the Healthcare Fund. WORK SESSION - PROVIDENCE The debt repayment schedule on the SMH bonds was meticulously 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 strategic approach was employed to ensure the City has sufficient cash in the Fund to pay debt service payments when due and to prevent capital reimbursement-related revenues from being used to cover operating costs, thereby safeguarding against insufficient funds to meet bond payments in later years. As of 4/26/24, the Health Care Fund has $2.6M in cash, and the Mountain Heaven Fund has $13.3M. WORK SESSION - PROVIDENCE Currently, the Mountain Haven fund has $13.3 million on our books to cover future bond payments, with a $12.3 million balance on the bond remaining. The building has been depreciated over 17 years, which was done intentionally in case the State changed its method of cost-based reimbursement. The administration then chose to shorten the depreciation length to receive maximum reimbursement upfront. WORK SESSION - PROVIDENCE Once the building is depreciated (2025), the amount Providence will receive from Medicaid will reduce significantly, so having a pot of money available is important to make the remaining bond payments. After 2025, there will be 8 years left of debt service, which is roughly $1.5 million per year with principal and interest; the City/Providence will need to have roughly $12 million to cover the remaining bond payments. We recommend retiring the debt early in February 2026, for a total of $10.2M taking any excess from the bond and utilizing it to make the capital contribution.