Community may be asked to vote on hospital bond

June 28, 2006

By DAN JOHNSON
ARGUS-COURIER STAFF

It's a bustling, growing hospital that has received a huge shot of adrenaline with the hiring last year of an ambitious, buoyant new chief.

But the chief, Vice President of Operations Wayne Fairchild, and other leading local health administrators warn that to remain competitive and keep pace with modern technological developments, much more funding is needed.

"Our hospital can pay the bills, but we must find a way to fund future, essential capital improvement projects," Fairchild said.

And so, as one major step, the Petaluma Health Care District and St. Joseph Health System of Sonoma County will embark on an intensive process during the next several months to determine whether or not a ballot measure will be created to obtain $30 million to $70 million through a 30-year general obligation bond, which would be used for capital improvements but not operating expenses.

"We're looking at the same type of process we just went through with the 20-year lease," said Daymon Doss, CEO of the health care district. "We'll be taking a look at feasibility and legal issues for the next three or four months.

"Then, if the district wants to go through an evaluation process, another four to six months would be required because so much analysis would be involved. Just as with the lease, we would involve community members during the process."

In a June 3 letter regarding the lease to Josephine Thornton, president of the PHCD board, George Perez, president and CEO of St. Joseph Health System of Sonoma County, specifically cited his expectation that the board will pursue a G.O. Bond.

"As you are well aware, even with the significant investment St. Joseph Health System has made, Petaluma Valley Hospital is still lagging behind the technology curve," Perez wrote. "And as demands for future investments are required both at Petaluma Valley Hospital and Santa Rosa Memorial Hospital ... the resources available to meet these organizational needs will be stretched thin.

"Your commitment to execute the general obligation bond process will help ensure that Petaluma Valley Hospital will be able to obtain the needed capital to continue providing quality care to our community."

Doss emphasized, however, that no decision has been made on whether or not a G.O. bond measure will be put to voters, and that the earliest a vote could take place would be in 2007. The measure requires approval by two-thirds of the voters.

"George has said that the health district needs to use its resources, and taxation is one of those resources," Doss said. "But we will need to talk with St. Joseph and community members about the G.O. bond process and its potential."

G.O. bonds are secured by the taxing and borrowing power of the municipality using them, generally have maturities of at least 10 years and are paid off with funds from taxes or other fees. Revenue bonds, on the other hand, are used to fund projects that eventually will create money directly, such as lease payments on a facility. The revenues from these projects are used to pay off the bonds.

The PHCD has never utilized G.O. bonds, but used revenue bonds that were paid off when Petaluma Valley Hospital was leased to St. Joseph.

On Jan. 5, Gary Hicks, president of G.L. Hicks Financial, made a presentation to the PHCD board about G.O. bonds, partly because Sonoma Valley Hospital in Sonoma, Palm Drive Hospital in Sebastopol and Healdsburg District Hospital have used them.

Hicks explained that G.O. bonds are tax supported, and that the tax is based on the assessed value of property, is pro-rated to all taxable property and lasts only as long as the debt is outstanding.

He stressed that the bonds are the lowest cost of capital (below 4.5 percent); are favored over capital contributions; improve access to capital and preserve a health district's credit; involve no financial or operating convenience; can utilize high rating and AAA bond insurance; and greatly simplify legal documentation.

Fairchild emphasized the importance a G.O. bond could have to Petaluma Valley Hospital.

"Otherwise, we won't be able to do upgrades as quickly as we would like. We need to continually improve our hospital, and this gives us a golden opportunity," he said.

The PHCD board will discuss the matter at its Aug. 24 meeting, Doss said.

(Contact Dan Johnson at djohnson@arguscourier.com)