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HomeMy WebLinkAbout11252024 City Council Laydown - Reierson Healthcare-2024 Laydown 2Correspondence to Council from Skip Reierson November 25, 2024 CC Meeting 2025-2026 City of Seward Budget Healthcare Enterprise Fund - Laydown #2 Nov. 25, 2024 The City of Seward's first sales tax was approved by voters in 1982 for 1 % in order to support the operations of the city owned and operated City Hospital to assure quality healthcare services for all of Seward and surrounding citizens. This 1% Sales Tax, since inception has been deposited into the Hospital/Healthcare Enterprise Fund has always provided a Healthcare Safety Net and has been used for a wide array of healthcare uses, such as Bond Payments for the New Hospital construction, when the hospital was not self -sustainable until after Mt Haven was constructed to help stabilize cash flow, or to pay for a $1.3mm CAT Scanner, or to provide $100s of thousands for start- up monies to get the new SCHC off the ground and also for new medical equipment for Providences use of between $400,000 and $1-million annually. We sometime forget that the City of Seward's Healthcare Enterprise, which consists of the hospital and long-term center, is owned by the City taxpayers and is the City's largest Enterprise Fund (business unit) which is operated under a Management Agreement with Providence Alaska and employs approx. 175 employees. What is less known is that Seward Taxpayers are 100% liable for all liabilities or losses incurred by the Healthcare Enterprise. While the 1 % Sales Tax for the Healthcare Enterprise Fund has doubled since the construction of the new hospital in 1998, so too have its operational and repair expenses by 88% according to our City's Admin over the past 24-years. Having built up adequate bond repayment reserves, does not negate the necessity to maintain adequate and prudent Healthcare Enterprise Fund reserves, similar to the Electric and Harbor Funds. The Healthcare buildings and equipment could possibly be valued at between $50-$70- million if today's value. Yet while we are enjoying healthy fund reserves these past few years, this has not always been the case and the costs needed to repair and replace these assets could likely be very significant in the near future and we could easily find ourselves in a negative cash flow position again. Therefore I am recommending that until our City conducts work sessions and town hall meetings with all the stakeholders to define the future healthcare needs of our community, and/or also whether to sell our healthcare assets, that the 1 % Sales Tax for our towns Healthcare Safety Net should remain untouched. And last, our City and Prov need to collaborate on building a number of 12-16 plex 1 and 2 bedroom apartments for Providence, City and school staffs, just like the tourism companies do, either with refunded DRP funds or some 1 % Healthcare Funds. This formally concludes my letter to Council & Admin, and I will expand on the Healthcare Enterprise more detail below, to help our community better understand this complex enterprise. A. History of 1 % Sales Tax: In 1982 when the 1 % Hospital Sales Tax was approved by voters, it went directly to support the operations of the Hospital. Since the construction of the new hospital and long term care centers, Then when the new Hospital was built, it became clear that the hospital was not financially sustainable and the City decided to use the 1 % Sales Tax to pay the hospital (different than Mt Haven) bond off, which was completed in the past year or two. The City than paid for the $1.3mm CAT scanner with the 1 %, as well as supported the start-up of the Health Clinic for years up to $500,000 annually. Also, the 1 % was always the collateral for the Mt Haven Bond in the event it could not be paid from Medicaid Capital Reimbursement monies. We now find ourselves with a healthy fund reserve, and before we start to re -direct these reserves/surpluses to things other than healthcare, it is incumbent on us all to be good stewards for our community and develop a new healthcare strategic plan for the future, which hopefully provides expanded hospital services for the betterment of all concerned. I would like to request our City to locate the Healthcare 1 % Sales Tax Use Policy, which I vaguely recall prioritized the uses as, 1) Bond Payments or collateral for Bonds, 2) purchase/replace and repair buildings and equipment, which again could be valued today up to $70mm, and 3) the use of operations in the event cash flows are not adequate to pay all expenses. I do not believe the policy ever included the re -direct to use for General Fund services. B. Major Repairs: The Electric Director recently indicated that our generators may be in decline and the City has subsequently indicated that they would be looking into contracting an engineer to provide a report. Before we start re -directing the use of the 1 % Healthcare Sale Tax funds, might it be prudent of us to entertain an similar engineer to provide a detailed assessment of the Hospital and Mt Haven buildings and major equipment, as the hospital was built in 1998, 26-yrs ago, and Mt Haven in 2008, 16 years ago, to determine if any roofs, boilers, door/security systems, etc will need to be repaired or replaced in the upcoming years, which would require sizeable funding to make these necessary upgrades. This would also be a good list to add to the Annual CIP. C. GF Budget and Sales Taxes: For many decades, our City has been able to balance its General Fund Budget with many kinds of tax revenues, primarily Sales Tax. And as was pointed out at the last Council meeting by the Hotel businesses, prior to 4 years ago our City has done an excellent job forecasting budget Sales Taxes to within 95-99% of accuracy. But over the past 4 years budget predictions have only been for 80%, thus resulting in the G.F. Sales Tax enjoying a $1.3mm surplus that could be used to offset wage increases and other GF spending that is desired in the 25/26 Budget. We need to return to the 95-99% budget practice and see if we can balance the 25/26 Budget with that before we start recommending new revenue sources to fund new G.F. expenditures. D. New Equipment/Services: Recently there have been asks by the community to expand services at our hospital, which Providence has indicated they would be more than happy to consider if our City and its citizens would provide a list of suggested services. Providence could then research the viability of each and for those that they could implement, funding for these services would need to be attained, such as for the recent $1.3mm CAT scanner. One of the new services that Providence would be excited about adding is an MRI machine, which would require more building space. Expanded services would greatly reduce unnecessary trips to Anchorage, especially during the winters. Again this all takes capital and reducing the 1 % Sales Tax by 50% for the Healthcare Enterprise could result in cash shortfalls to assure the latest/best equipment at our hospital and long term care center. E. Healthcare Enterprise Funds: Currently our City has three (3) Healthcare Enterprise Funds. 1) 19100-Healthcare Enterprise Fund, is the operating fund (checking account) for the Healthcare business unit, not different than for 11000-Harbor and 15000- Electric. This account is where the 1 % Sales tax is transferred/deposited into from the General Fund and all payments for uses, except Mt Haven Bond payments, are made/spent out of this fund. Funds from this account are provided annually to Providence to purchase equipment. 2) 19102-Hospital Expansion Fund was set up for capital expansion uses, and monies are transferred into this fund from the operating fund (19100) when recommended byAdmin with Council approval. 3) 19200-Mt Haven Bond Reserve Fund has technically been funded by Medicaid based on a formula using a depreciation schedule to arrive at a Capital Contribution for each Mt Haven patient/day that by design will pay the City back for the entire cost of the Mt Haven construction, which initially were paid for thru Bonds. Adequate funds now exist in this account to pay off the Bond as early as 2026 when the Call Date comes up. F. Medicaid Re -Basing: Every 3-years Medicaid re -calculates the Operational and Capital Reimbursement Rates, which the next one will occur using 2025 costs. Currently Providence has transferred to the City with adequate Medicaid Capital Reimbursement funds to pay off the remaining Bond balance. As such, the City verbally notified Providence that monthly Capital Contributions are no longer necessary. Yet does the Capital Contribution include the $12mm+ of equipment that the City has paid for and should be receiving Medicaid reimbursements for? We may want to research this further as it could possibly result in providing the City up to $1 mm annually._One thing for sure, Medicaid Rates will change every 3-years and some 3-year periods result in more generous rates than others, so cash flows are susceptible to sizeable swings, which is why retaining the 1 % Sales Tax in reserves is necessary. G. Mt Haven Expansion: Several months back, the Council requested a work session with Providence at which time Providence presented a proposal to expand the Mt Haven complex with a 5th MOD and grow year-round jobs and our local economy. This project would cost upwards of $12-million and thru Sales Tax funding surpluses, grants and other means, the majority of this project could be funded without incurring debt which would save taxpayers much interest expense. Out of respect to Providence, we owe them a response and/or direction as they would not be bringing this project to our attention if it did not make sense for our community. H. Housing_ Regardless of whether the City decides to build the 5th MOD at Mt Haven, the time is long overdue to commence a collaborative effort in planning for the construction of severall 2-16 plex, 1 & 2 bedroom, apartments for the Providence, City and School employees and their families that are trying to move to our town to take a good paying job. This is no different than what our tourism businesses have done for years now in providing necessary housing. Possibly setting up a housing task force to develop a sound plan for design and funding is key. Funding consideration should be given to using the refunded monies from the DRP program and/or even some of the 1 % Sales Tax for Healthcare. The time is long overdue for our town to really address the housing shortage and develop quick and affordable solutions. This concept will no doubt have its challenges when it comes to using public monies to potentially compete with private multi -family housing owners, but the time has come to act. Thank you again for your consideration and again, I respectfully request that Council strongly oppose the use of any 1 % Sales Tax Revenues for any other purpose than Healthcare, until new long-term plans and strategies are developed for our towns long term future healthcare needs. ** Disclaimer: The information provided above has been extensively researched but may include a mistatement, which I am more than happy to correct if brought to my attention, but the intent of the majority of this Laydown is to help our community better understand their Healthcare Enterprise, its history and relationship between the City and Providence.