Tahoe Forest to borrow millions with revenue bonds
Tahoe Forest Hospital District recently approved first reading of a resolution for the issuance of $13 million in revenue bonds, as well as refunding of the district’s outstanding $9.62 million in revenue bonds.
The move would increase the hospital’s long-term debt to $22.6 million, but allow for substantial savings on its monthly debt service, hospital officials said.
“Since 1987, the policy has been to spend the 1986 bond issue for its stipulated capital purchases and all remaining capital purchases to be with available cash,” Hospital CEO/Administrator Larry Long wrote in a report to the Tahoe Forest Hospital Board of Directors. “Tahoe Forest Hospital has spent in excess of $35,000,000 on capital purchases since 1987, of which only $12,755,000 was borrowed.”
Money from the revenue bonds will be used in capital purchases of equipment, allowing funds from the operations budget to be used as a capital reserve for the hospital, Chief Financial Officer David Bottemiller said.
“We want to increase our cash flow,” he said. “To do that, we are going to refund our 1994 bond issue, which will allow us to save $700,000 a year. That’s because we are taking a bond issue which was to end in 2007 and extending it out by 30 years.” He said the hospital is also taking advantage of the extremely low interest rates now available.
Long said taking on the new debt and refunding the current bond issue will have two major benefits.
“It will improve our cash reserves so that we have greater protection against changes in healthcare reimbursements down the road,” Long said. “The second benefit is improved cash flow. Not only are we improving the cash reserve, but the debt service is lower.”
Should interest rates continue to drop, the hospital would see a reduction in the amount saved – possibly up to $200,000 – but would still have a lower debt service than before, Bottemiller said.
Money from the revenue bonds would be placed in a trust fund, Bottemiller explained. He said that when the hospital purchases capital equipment or facilities, it would turn the receipts into the trustee and would be reimbursed for the cost of the equipment.
That frees up money for investment which would otherwise be spent on equipment. Those funds which would total around $13 million over three years, could be invested to earn more interest than the amount due on the debt service, Bottemiller said.
Bottemiller said the bond issue would be expected to sell by the middle of March if approved by the board.
The second and final reading of the resolution authorizing the revenue bonds will be conducted during a special Tahoe Forest Hospital District meeting at 6 p.m. Feb. 2, Long said. He said the public will have a chance to comment on the proposal at that time.
In addition, plans for capital improvements and equipment purchases in coming years will be discussed, he said.
Revenue bonds are paid out of the income of the district, and are not reimbursed by means of a tax like general obligation bonds. Hence, they require only the approval of the hospital board.
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