City attorney Mike Boyd met with the Magnolia Regional Health Systems board during last week’s meeting to discuss options for their issues regarding sale tax revenues.
He told the board he was there to discuss the issue of ambiguity in the city/hospital lease about expenses that can’t be paid with sales tax revenue.
“The city has concern about how we pay for a major expense item should it arise,” Boyd said. “What are the other major expenses that exist?”
He said the idea is to build a reserve fund that would take care of most major items that might occur.
“Once that reserve is negotiated and agreed upon, and it’s actually reached, then the hospital, or the non-profit, receives 100 percent of the reimbursable taxes that can be paid under this lease,” he said.
He added that the things to discuss were the appropriate amount for the reserve and what would constitute a major repair.
“We don’t want to set this hospital, this organization, or the city up for another fight down the road over what is a major repair item,” Boyd said.
“The language is really broad in this lease,” he said. “You can say that’s good because it can cover a lot of things, but it's also bad in the sense that it's not specific enough to say this is related to the building or not.”
He suggested that the city and the hospital board come up with an agreed upon list of major repair items that would be paid out of the reserve.
“That way this organization wouldn’t have to worry about coming up with money, and the city wouldn’t have to worry about coming up with money out of their general budget,” Boyd said.
He said the other thing that needed to be discussed was how to replenish the reserve fund after the money is used for a major expense. He suggested either a percentage of taxes or a certain dollar amount every month.
“Those are the things I think we need to hammer out to get to a point where the city’s concern about being able to have the monies available to repair its asset, which is this hospital, and this organization’s concern about receiving the maximum amount that it can receive for the expenses that are reimbursable under this lease,” Boyd said. “I’m here on behalf of the city, but I’m here trying to find a solution.”
He commented that the city needs the hospital and the hospital needs access to that tax money.
“But this organization is in a little bit different standing than it was before,” he said. “Because now what you’re entitled to is governed by this lease as opposed to the taxes themselves and the vote the people took.”
Boyd said Mayor Parnell Vann thinks there’s enough money in the account that is a sufficient reserve that would take care of the major expense items.
Board member Wally Wood questioned whether the lease overrides the bond ordinance that says the tax revenue is for “maintenance and operation.”
“Even though the bond is written maintenance and operations, the taxes collected from a governmental collection process cannot go toward the operation of another non-profit,” Chief Executive Officer Rex Jones said.
Wood questioned again whether utilities would be included as a maintenance expense.
Jones said it is determined by the interpretation of what is considered a legitimate landlord expense.
“One interpretation is that a landlord expense includes utilities because whether you have a tenant or you don’t, you’ve got to maintain the building and you have to have utilities operating,” Jones said. “The argument on the other side is that that is something that is passed on to the tenant. In the past it’s been interpreted by other facilities that utilities are considered a landlord expense and would be reimbursed.”
Boyd reminded the board that the lease says the hospital will be reimbursed expenses related to the hospital building and premises, not expenses directly associated with providing health care services.
Wood said his issue is that it wasn’t until payment was denied that a reserve was mentioned.
“Committees did discuss that utilities were part of maintenance,” Wood said. “Now it’s denied because somebody thinks we should have a reserve, and it was never mentioned or put in the lease to begin with.”
Boyd reminded the board that there was a difference in how the money was paid previously.
“That money used to come directly to the hospital,” he said. “It didn’t come to the city. So what you were using it for wasn’t much of an issue because it didn’t go through the city’s hands.”
Wood questioned whether a reserve fund is legal under the bond ordinance.
“I’m fairly confident that it would be because it would be designated to take care of that building,” Boyd said. “The taxes that are paid, the first portion is dedicated to repay the bond. The second portion was called the maintenance and operation portion. The second portion is also the collateral for the first portion. If there’s not enough collected then nobody gets the money except the bond holders. Then you have to make sure it’s being used for the purpose for which it was collected.”
Roxanne Stewart, MRMC’s financial officer, commented that another item that was unapproved was property insurance for the building.
“Your lease says ‘lessee agrees to secure and maintain during the term of this agreement’,” Boyd said.
Jones said they would make sure the hospital has insurance, “but it doesn’t say we can't get reimbursed for it.”
“I understand that the hospital is used to receiving these funds with no real limitation, but you’re not in the same situation that you were,” Boyd said.
“The limitation is that those expenses were presented to a board appointed by the city to represent the city’s best interest and approve it,” board president Dr. John Alexander said. “I assume that’s what we’re doing going forward with the thought in mind that we are helping the hospital and protecting the city and being appropriately responsible for the expenditure of those funds. That’s what we’re here for.”
Boyd said that he understands both sides.
“I understand some hard feelings have occurred over the last year, as far as negotiations,” he said. “I remain hopeful that we can find a resolution. The last thing that I want is for the city and this organization to end up in a public courtroom fight that will last for multiple years, will not be as simple as it sounds, and neither of us know what the outcome will be.”
Wood asked what Mayor Vann is proposing.
“His thought was that a $250,000 reserve would be sufficient to take care of any and all major repair items that might arise in the future,” Boyd said.
Jones said the board was going to conceptually agree to reserve a quarter of a million dollars.
“We’re going to develop a list of what we would consider to be a typical major expense for maintenance of the building itself that will not include dollar amounts attached to it,” he said. “We are going to go ahead and offer a plan to replenish the fund if it should be used. We are going to include some language very specific to some of the expenses that are to be paid, such as utilities and insurance and we’re going to submit that to the city.”
In other board news:
-- The hospital ended the month of January with a positive EBITDA of $446,639.
-- Net revenue for the month was $2,508,633.
-- The hospital had a non-operating income of $63,903, including $57,734 in sales tax revenue.
-- Year to date, the hospital has a positive EBITDA of $619,974.
-- Gross revenue is $19,155,425, with a net revenue of $8,482,407 after contractual allowances and charity care deductions of $123,692.
-- The net labor expense is $5,620,429. Non-operating income for the year is $219,739 including $133,813 in sales tax revenue.
-- Karen Weido said the hospital received its Home Health license and has received Medicaid numbers. They are still waiting on Medicare change of ownership approval for Rural Health and swing bed.
-- There is both an orthopedic surgeon and a family practice physician interested in coming to Magnolia.
-- Jones expressed appreciation to law enforcement officers that helped through the winter weather crisis.