Gutwein explained to Burton that the referendum is required because the HHC is issuing general obligation bonds. Bingo! A governmental body can't issue general obligation bonds unless it is pledging to the bondholders that it has taxing authority to levy sufficient property taxes from property owners to repay the bonds with interest. Indeed, the little-noticed public notice that ran in the Indianapolis Star this week makes this abundantly clear. The notice reads, in part:
All or any portion of the Health and Hospital Corporation’s payments of principal of and interest on the General Obligation Bonds and/or rental payments under the Lease may be payable from ad valorem property taxes collected by the Health and Hospital Corporation on all taxable property within the geographical boundaries of Marion County, Indiana. The proposed General Obligation Bonds and Revenue Bonds (collectively, the “Bonds”) shall be issued in an original aggregate principal amount not to exceed $703,040,000. The maximum term of each series of the Bonds will be 30 years, and the Bonds will bear interest at a rate or rates estimated not to exceed 6.16% per annum. Dated this 25th day of September, 2009.THE HEALTH AND HOSPITAL CORPORATION OF MARION COUNTY By: Dan Sellers, Treasurer (S - 9/25/09, 10/2/09 - 5543528) - 09/25Gutwein couldn't leave well enough alone when answering Burton's question. He distinguished this bond issue from the CIB's problems in paying the costs to operate Lucas Oil Stadium. Gutwein claimed the CIB relied on revenue bonds to pay for the new stadium and that it faced difficulty in paying for the costs because it relied on a stream of revenues that was insufficient to cover the costs. That statement was patently false. The State of Indiana, not the CIB, financed the construction of Lucas Oil Stadium. While it is true it relied upon revenue bonds funded by new taxes on food and beverages, which are being collected on a regional basis, those tax revenues have proven to be more than adequate to fund debt service on the stadium. The CIB merely leases the stadium from the State and because it entered into a one-sided agreement with the Colts that essentially gives up all stadium revenue-generating opportunities to the team, it lacks any income to pay for the operating and maintenance expenses, which are considerably higher for LOS than the RCA Dome.
Proponents of the CIB bailout always assured the public they wouldn't raise property taxes to shore up the CIB's finances. As I previously explained to the readers of this blog, the CIB has no present authority to levy property taxes without council approval so that was never a real option. This is not the case with the HHC. It has the authority to levy property taxes, which means it can issue general obligation bonds backed by property tax levies. Gutwein has repeatedly claimed that the HHC plans to rely upon discounted Build America bonds rather than traditional general obligation bonds. The urgency for approval, he says, is necessary to take advantage of the short window offered to local governments by the federal government to issue more affordable bonds in a tight financial market. The public notice claims the Marion Co. Building Authority and not the HHC plans to issue both general obligation bonds and revenue bonds as part of the proposed $703 million in borrowing, which also contradicts Gutwein's claims; the HHC will lease the new hospital property from the building authority. Gutwein specifically claimed at the McANA meeting that no revenue bonds were being issued, which is contradicted by the public notice. Other than property taxes, HHC really has no credit-worthy revenue streams to pledge for revenue bonds. It appears the revenue bonds will be secured by unspecified lease payments the HHC will be required to make to the building authority.
Pressed by tough questions at a public meeting in Speedway last week, Gutwein made more contradictory statements according to the Speedway Navigator. It turns out that only a small fraction of the bonds will be issued through the Build America discounted bond program. The Speedway Navigator noted Gutwein's previous claim that the HHC has $150 million in cash reserves to put towards the project, but it says Gutwein indicated that only $120 million of the more than $700 million bond issue will be represented by Build American bonds. More than $600 million of the bond debt will be represented by those general obligation bonds, repayment of which is based on a pledge to levy sufficient taxes from Marion County property taxes to cover the debt. The HHC will need a minimum of $38 million annually to cover the debt service on the bonds.
According to Gutwein's presentation in Speedway, Wishard spends about $25 million annually on maintenance and operating expenses on the existing Wishard campus. Gutwein doesn't detail what those annual expenses will be on the new hospital, but he leaves the public with the impression that the costs will be considerably less with a new building. Marion County taxpayers have learned the hard way with the Central Library and Lucas Oil Stadium, however, that new buildings can actually cost more to maintain than the older buildings.
Gutwein continuously repeats a claim that the HHC has been so successfully operated that it has been able to reduce its current property tax levy. That claim is contradicted by HHC's Treasurer, Dan Sellers. As he noted in a transmittal letter dated August 4, 2008 concerning the HHC's 2009 proposed budget, the legislature mandated the property tax reductions as part of the property tax relief measures contained in the 2008-09 state budget. As he further notes, the State of Indiana paid $40 million in property tax replacement revenues to the HHC out of the state's general fund. The City-County Council's passage of the controversial 65% increase in the local option income tax in 2007 provided an additional $6.7 million in revenues in the 2009 budget.
As of 2007, the HHC had long-term liabilities totalling more than $253 million. Instead of purchasing the 26 nursing homes the HHC acquired in recent years as a new line of business, the HHC financed their purchase through lease agreements with Eagle Care, Inc. of Indianapolis. Much of the HHC's long-term debt is represented by these capital leases. The HHC does not operate any of the nursing homes. Instead, it leases them to American Senior Communities, a for-profit nursing home company, which runs all of the facilities. If the HHC issues more than $700 million in new bonded indebtedness, it appears it will violate a state law limiting the HHC's legal debt limit, which is 0.67% of the assessed value of Marion County property. According to the 2007 audited financial statements for HHC, its legal debt limit was a little more than $299 million. As of 2007, the HHC had used up about $45 million of that debt limit with a legal debt margin of $255 million. It is unclear to me how the HHC can issue this much additional debt without running afoul of the state debt limit. I could not find any language in the massive state budget bill adopted in June that provided for the hospital referendum that increased the legal debt limit for the HHC. Are the bonds being issued through the Marion Co. Building Authority to avoid the statutory limit?
As I've started looking at the audited financial statements the HHC belatedly made available via the Internet, I'm finding a lot of contradictory information. These financial statements from my initial read provides no comfort to Marion Co. property taxpayers that the HHC will ever be able to finance the construction of this new hospital without raising property taxes. For all intents and purposes, the bonds that will be sold to investors carry with them the assurance that property taxes can and will be collected to satisfy the debt obligation. I don't know why Marion County property taxpayers should make any different assumption, notwithstanding the claims of Gutwein and all of the other proponents of this project to the contrary. It's a real scam on the voters of Marion County that the language that will be put in front of them at the referendum is a question that omits the fact that it's a hospital that is being constructed, the amount of money that is being borrowed and the fact that property taxes can be levied to pay for the bonds. The fact that the HHC went to such great lengths to mislead voters on this project should serve as a wake-up call to all concerned taxpayers.
UPDATE: The City-County Council may not be off the hook on the Wishard Hospital bond issue. Another Indiana statute, as fellow blogger Paul Ogden points out, may require the building authority to obtain council approval to issue the bonds and lease the new facilities to HHC. See the language at the tail end of this statute:
Powers and duties of board of directors
Sec. 22. (a) Except as provided in subsection (b), the board of directors of a building authority, acting in the name of the authority, may:
(1) finance, improve, construct, reconstruct, renovate, purchase, lease, acquire, equip, operate, maintain, and manage land, government buildings, or systems for the joint or separate use of one (1) or more eligible entities;
(2) lease all or part of land, government buildings, or systems to eligible entities;
(3) govern, manage, regulate, operate, improve, reconstruct, renovate, repair, and maintain any land, government building, or system acquired or financed under this chapter;
(4) sue, be sued, plead, and be impleaded, but all actions against the authority must be brought in the circuit court for the county in which the authority is located;
(5) condemn, appropriate, lease, rent, purchase, and hold any real or personal property needed or considered useful in connection with government buildings or systems regardless of whether that property is then held for a governmental or public use;
(6) acquire real or personal property by gift, devise, or bequest and hold, use, or dispose of that property for the purposes authorized by this chapter;
(7) enter upon any lots or lands for the purpose of surveying or examining them to determine the location of a government building;
(8) design, order, contract for, and construct, reconstruct, renovate, and maintain land, government buildings, or systems and perform any work that is necessary or desirable to improve the grounds, premises, and systems under its control;
(9) determine, allocate, and adjust space in government buildings to be used by any eligible entity;
(10) construct, reconstruct, renovate, maintain, and operate auditoriums, public meeting places, and parking facilities in conjunction with or as a part of government buildings;
(11) collect all money that is due on account of the operation, maintenance, or management of, or otherwise related to, land, government buildings, or systems, and expend that money for proper purposes;
(12) let concessions for the operation of restaurants, cafeterias, public telephones, news and cigar stands, and vending machines;
(13) employ the managers, superintendents, architects, engineers, consultants, attorneys, auditors, clerks, foremen, custodians, and other employees or independent contractors necessary for the proper operation of land, government buildings, or systems and fix the compensation of those employees or independent contractors, but a contract of employment may not be made for a period of more than four (4) years although it may be extended or renewed from time to time;
(14) make and enter into all contracts and agreements necessary or incidental to the performance of its duties and the execution of its powers under this chapter;
(15) provide coverage for its employees under IC 22-3 and IC 22-4; and
(16) accept grants and contributions for any purpose specified in this subsection.
(b) The building authority in a county having a consolidated city may not purchase, construct, acquire, finance, or lease any land, government building, or system for use by an eligible entity other than the consolidated city or county, unless that action is first approved by:
(1) the city-county legislative body; and
(2) the governing body of the eligible entity involved.