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County to issue $32M in bonds on SRMC's behalf

Cheyenne County will issue $32 million in conduit bonds on behalf of Sidney Regional Medical Center in order to fund its new building project.

The public hearing in this matter, held on Monday, was moved from the commissioner meeting room to the district courtroom to accommodate all of the community members and hospital representatives in attendance.

“We got off previously on the wrong foot when we were talking about this originally a month or two ago,” said Jason Petik, CEO of SRMC.

Some of the commissioners were irked when SRMC asked the county to issue these bonds on its behalf at what some of the commissioners saw as the last minute. The hospital did this because the funding it had previously worked out fell through. SRMC had already secured a private bank loan for the $53 million hospital project, which began construction earlier this summer. By the time the hospital received the final guaranteed maximum price from the contractor, the rates had gone up. The hospital can save $2.2 million over the life of the bond by having the county issue these tax exempt bonds, which must be issued by a municipality.

“It’s not that we didn’t have financing or had financing and lost it,” Petik said. “We chose to go a different route because it became more advantageous for the project overall.”

Both parties have since then worked out all issues with the plan through bond council.

Although the hospital had previously told the county it needed $10 million in bonds issued, the county will actually issue $32 million.

Only one member of the public spoke during the hearing.

“I think this is an interesting project,” said Sandra Robnett. “I recognize that revenues from the hospital will be paying for the bonds that are issued. I’d like to know what liability the county faces because you are acting as a conduit.”

The county taxpayers have no liability on these bonds, said Amber Preston, the hospital’s bond council. In the past 40 year that counties in Nebraska have issued conduit bonds on behalf of non-profits, a county has never been held liable, she said.

“It must be paid for by the hospital,” Petik said.

Robnett wondered if any of the hospital board members or Petik himself had gone through the construction and funding of a hospital project in the past.

Petik answered that he has overseen the construction of an assisted living facility in the past, but has never overseen a complete re-build.

“From a financial standpoint, this is the first time that I’ve gone through a bonding process,” he said.

The hospital has hired Project One out of Denver to manage construction as well as bond council Smith Hayes out of Lincoln to take care of the finances.

In addition to the $32 million to be issued by Cheyenne County, SRMC will also ask Deuel County to issue $10 million in bonds.

The bonds from Deuel County will be bank qualified and tax exempt. Bank qualified loans come at a lower interest rate than non-bank qualified loans. The bonds to be issued by Cheyenne County are tax exempt but not bank qualified.

“At the end of construction, USDA (United States Department of Agriculture) will be coming in for $32 million and paying off those bonds if you will and we’ll have a long-term debt with USDA,” Petik said.

USDA will pay off these bonds, issued by Cheyenne County within two years. The $10 million from Deuel County will be long term bonds.

The $53 million project, which will replace the hospital’s current facility, built in 1953 is funded by these bond issues as well as well as from the hospital’s cash reserves.

 

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