This article has been updated with comments from HCCA regarding the Section 242 loan project under the “HUD Loan Hazy” subheading.
In a contentious meeting, the Tulare Regional Medical Center’s (TRMC) board voted 3-2 along faction lines on Wednesday to allow the company that runs the hospital to not only pursue, but fully execute, a loan to complete the hospital’s beleaguered tower project.
The vote approved a resolution that would allow Healthcare Conglomerate Associates (HCCA) the company which manages TRMC, to apply for, obtain and execute any potential loan. The resolution, numbered as Resolution 851, was not provided to the public online or in pre-printed packets at the meeting.
Senior board members Dr. Parmod Kumar, Linda Wilbourn, and Richard Torrez voted in favor of a resolution to do so; new board members Kevin Northcraft and Mike Jamaica cast dissenting votes.
The two new board members criticized the move as giving HCCA “carte blanche” with regards to the district’s finances, stating the company would effectively be able to pursue and execute any loan “without limitation.”
HUD Loan Hazy
According to the resolution, which the Voice has received, one option the hospital would be “Section 242” HUD Mortgage Insurance and a loan backed by such insurance. However, pre-application documents available on HUD’s website appear to state that it would not provide such mortgage insurance to projects under construction.
An online pre-screening tool advises potential applicants that such loans may not be possible for projects with pre-existing construction:
“OHF permits varying levels of site preparation and construction activity to occur prior to application submission, and between application submission and loan closing. Such construction activity is permitted, in certain cases, because it is to the advantage of the proposed Mortgagor to begin construction prior to loan closing.
However, in order to qualify for financing through HUD’s hospital program, no construction activity or site preparation may be performed without obtaining HUD’s approval first. If construction or site preparation has commenced, unfortunately the project will not qualify for hospital mortgage insurance.”
An internal training presentation made available on HUD’s website from 2011 appears to also show that any early commencement of work would only be allowed after a HUD environmental review.
Hospital officials state that they are working through several possibilities, but that they so far believe that Section 242 options are still on the table.
“We are looking at several borrowing options simultaneously and are diligently working through the many details that each step in the application requires. All indications at present point to us meeting the requirements for qualification. We will update you whenever we formally cross each step, and as pertinent details become available,” a hospital spokesperson told the Voice, responding to requests for comment on the details of the Section 242 process.
“As you know, regardless of which governmental mortgage insurer we work with, the process is extremely complex, arduous, and requires extensive work to accomplish. It is critical that we all understand that we are extremely fortunate to even be in a place where these options are available to us. Clearly, the ideal way to fund public infrastructure is through a publicly supported measure. As this choice is not available to us, the next best approach is through a loan. Fortunately, because of the tremendous success that HCCA has brought to the hospital finances over the past three years, the loan option has become available to us.”
Dr. Benny Benzeevi, HCCA’s CEO/Chairman, publicly gave estimates centered around pursuing a Housing and Urban Development loan, though the summarized resolution available on the agenda would allow the company to apply for a loan from any source.
Assuming the district were able to go forward with a HUD loan, it would total $79,697,401, according to Benzeevi’s presentation at the meeting, which would include paying off existing bonds.
Lenders taking their risks on the hospital would not want to be “the second mortgage,” he stated.
“At this point in time, based on all parameters, we believe that it is doable, we believe that the hospital can carry a loan like this,” he said, “but most importantly, we feel that it is in the community’s best interest to be able to complete the tower and get this thing done.”
His slide calculated the individual amounts as:
- Redemption of existing bonds: $13,707,673
- Construction cost: $57,700,909
- Contingency: $2.885,045
- Capitalized Interest: $1,559,469
- Upfront HUD Mortgage Insurance Premium: $391,675
- Governmental fees: $642,580
- Financing fees: $2,350,050
- Legal/title/agent fees for bond redemption & environmental study: $460,000
Benzeevi encouraged the board to frame the vote not only as authorization to pursue a loan, but also as a reaffirmation of the board’s commitment to finishing the tower.
The board meeting’s agenda even described the vote as such, stating that the proposed action would be to “[c]onfirm the District’s commitment to completing its Tower project and authorize HCCA to obtain a loan to complete the Tower project from the Federal Department of Housing and Urban Development, CalMortgage or other sources.”
“We want to make sure that the board is interested, in fact, in getting a building done,” Benzeevi said. “We need to move forward with the application, we need to move forward with getting this thing done. It’s taken tremendous work […] to be able to get us to the point where [loans] are even considered as an option.”
After obtaining the loan, Benzeevi stated that he believed the construction would take anywhere from 12 to 15 months.
During the discussion, Tulare Local Healthcare District board members Kevin Northcraft and Mike Jamaica raised concerns regarding the wording of the resolution, which was not made available to the public on the district’s website or in printed packets at the meeting.
“We have a four-page resolution that no one in the public has had access to,” Northcraft said. “It reads in part that it authorizes HCCA to execute and obtain a loan without limitation. So our board would not be aware of what the loan was.”
After the resolution was ultimately passed, Wilbourn personally asked to receive an update on the progress at each meeting.
“I will ask that every time we convene that we get an update: where it’s at, how it’s going, what’s involved, what papers have been filed, what papers haven’t been filed,” Wilbourn said.
Though Wilbourn did not make a formal motion, the contract with HCCA already obligates the company to do so.
The resolution, which as of publication time had not been made available on the hospital’s website and was not included in agenda packets at the meeting, has been made available to the Voice and is available at the end of the article.
Resolution 851 allows the company to not only seek a HUD-backed loan, but to concurrently “seek to obtain a commitment and a Loan for an ‘alternative’ type of financing for the project,” which it states includes Cal Mortgage financing.
The resolution also states that “if a HUD Commitment is obtained, and/or if commitments for financing from HUD Lender and/or Alternative Lenders are obtained, the Board hereby authorizes and directs its Authorized Representatives to take any further actions and to execute, in the name of and on behalf of the District, any instruments and documents required by the HUD Lenders and/or the Alternative Lenders to obtain the Loan.”
The resolution further states that the “Authorized Representatives shall have absolute, full and complete power and authority to execute and deliver to the HUD Lender and to the Alternative Lenders any and all documents and instruments required to obtain and consummate the loan.”
The only two “Authorized Representatives” stated in the document are Alan Germany, CFO/COO of HCCA, and Benzeevi.
“Talked To Death”
Prior to the vote, Kumar stated that the resolution was not as permissive as Northcraft and Jamaica characterized it.
“If my colleagues state today that we pass this motion, and the money’s there — no, it’s not true at all. This is just a process. They could look in a different direction,” Kumar said. “We are not cutting our hands or our gut or our head off today, by voting for this.”
Wilbourn concurred with his view, stating that time has continued to pass as the hospital pushes up against a 2030 seismic compliance deadline.
“My feeling on this is that this is an application for the HUD loan, this is the investigative part, whether HUD will be able to loan us this money or not,” Wilbourn said. “At this point, for us in Tulare, I can’t see that there’s any other way to come up with the lending for the money to finish the tower.”
“We’ve talked and talked and talked about this,” she continued. “I quite frankly think it’s been almost talked to death. We don’t have the funds to finish the tower ourselves.”
Northcraft said that those statements were inaccurate.
“Dr. Kumar said this is the start of a process. [Wilbourn] said this is an application. Let me read from the second ‘further resolved’ on the second page of this resolution. It gives the authorized representative, which is HCCA, the ability to execute all instruments necessary for a loan, without limitation, all these other things,” Northcraft said. “And it also gives them full and complete power to execute and deliver, to consummate the loan, to obtain and consummate the loan. We are giving full authority to them in this resolution.”
He motioned, with Jamaica seconding, for an alternative — the board would authorize HCCA to reach out and apply to any agency or financier that would lend the Tulare hospital money, but for the final decision to come back to the board.
“This is too important for our community to just wash our hands of it and give up all authority,” Northcraft said . “It would be malfeasance for us to do that. That is our responsibility, that’s our pledge to our community: that we will be stewards of their funds. And this delegates everything away. I just cannot envision that any of you would consider doing that.”
The alternative motion failed 2-3, with Northcraft and Jamaica voting in favor and Kumar, Wilbourn and Torrez casting dissenting votes.
The next Tulare Local Healthcare District meeting will be held April 26 at 4pm at the Evolutions Gym, located at 1425 E Prosperity Avenue in Tulare.