On Wednesday, the Sonoma Valley Health Care District board of directors will vote on whether to proceed with the first bond issuance to raise $12 million needed to keep renovation plans for the hospital on track.
At the Jan. 14 meeting of the Sonoma Valley Hospital board of directors, the board put off the vote on the issue due to discussion around two major uncertainties. The first was whether failure to secure an extension to the state seismic upgrade deadlines would impact the future of Sonoma Valley Hospital. The second is whether the bonds would hold their value given the state of the economy.
SVH officials lobby state to fix law
SVH has twice applied and been denied an SB 306 extension from the state that would allow the hospital to delay seismic upgrades to the central wing until 2020. This extension would apply only to the central wing, not the entire hospital, as the west wing is under a different set of applications, and the east wing is already in compliance.
The extension is critical because SVH, like many small hospitals, will not be able to comply with the required seismic retrofit deadline by 2013.
SVH CEO Carl Gerlach said the problem is not that SVH misjudged its ability to get the extension nor that they made mistakes while filing. He analyzed the situation with CFO Jim McSweeney and both fault the legislation itself.
“Others who have read this believe this is just a technicality,” said Gerlach. “Essentially the calculation used [to grant the extension] really is not consistent with legislative intent.”
To that end, Gerlach is pressuring Jared Huffman (D-San Rafael, 6th Assembly District) and Sen. Patricia Wiggins (D-Santa Rosa) to get the law changed.
Norman Gilroy, who worked to pass the design-build legislation, SB 1699, authored by Wiggins, explained in an interview Friday that the state Office of Statewide Health Planning and Development (OSHPD) chose a form of debt-to-equity evaluation different from what they themselves use, and which doesn’t seem to follow customary financial procedures. “We need to have a redefinition of the way the formula was used in order to get this right,” he said. “And if that’s done, the hospital will easily comply.”
In the Jan. 14 meeting, some members of the public voiced concerns that the hospital might be forced to close if it didn’t get the extension.
“That’s just not true,” said Gerlach on Friday, caught on his cell (hands free) phone as he drove toward Wiggins’ office to discuss this very issue. He outlined how the hospital is working around the restrictions. “All SB 306 does is guarantee an additional seven years of service out of the central wing.” He said the hospital is currently planning to move certain departments in the central wing into other areas which would render the seismic issue moot.
As Gilroy also explained, “The waiver under SB 306 is only required for acute care functions that are the subject of SB 1953, the Seismic Act. Over 80 percent of the central wing is non-acute care,” he said. “So in that context, the SB 306 does not apply to the continuing use of over 85 percent of the central wing.”
The three departments that are affected are: the Central Utility Plant, which, under current plans will be relocated; the two operating rooms, which could be replaced by two ORs that already exist in the west wing that are not used; and the emergency room, which complies with OSHPD because it was built and remodeled later than the rest of the central wing and under OSHPD permit. “So,” said Gilroy, “there’s some likelihood that it is compliant or close to compliant already.” In that case, it could continue where it is, or be moved into the west wing. In any case, he continued, there is a strategy for continued operation whether SB 306 is granted or not. It is not the case, said Gilroy, that “the hospital ” would be forced to close past 2013 if SB 306 were not granted or they could not get an extension and could not meet the 2013 deadline.
Bonds won’t be affected by economy
SVH CFO Jim McSweeney said that the value of the bonds should not be affected by the economy nor by the uncertainty around the SB 306 issue.
“We went to a rating agency and had these bonds rated,” he said Thursday. “We got rated in the ‘A’ category. The higher the rating, the less risky these bonds are.”
He said the bonds are not vulnerable to shifts in the hospital’s value. “We’re exchanging a promise to pay the amount of debt plus interest, over time, like a mortgage,” he said. “Paying them back is contingent on property tax, not hospital value.” For him, whether the state issues the seismic extension or not should not affect the decision to go ahead and issue the bonds. “In my mind, whether we get it or not, we have to go ahead.”
The bills in brief
SB 1953, authored by Sen. Liz Figueroa (D-Fremont), passed in 1994, requires that hospital buildings in the state that provide acute inpatient care must comply by Jan. 1, 2013 with state seismic standards to ensure the building’s structure will withstand a major seismic event and allow the patients and staff to be safely evacuated. By Jan. 1, 2030, acute inpatient care facilities must be upgraded further to not only withstand a major seismic event, but also allow safe, uninterrupted operations, without requiring the evacuation of patients and staff. Failure to meet either deadline will require the de-licensing and closure of the inpatient facility.
SB 306, authored by Sen. Denise Moreno Ducheny (D-San Diego), passed in 2007, provides a safety net for financially challenged hospitals by collapsing the two deadlines specified by SB 1953, relaxing the 2013 deadline and allowing financially challenged hospitals to meet higher seismic standards 10 years earlier in 2020. In a press release, Ducheny said, “No one, neither patients, nor employees will be served by forcing these hospitals to close because they can’t afford two seismic updates. With this compromise, we’ll get them to the higher standard ten years ahead of schedule and maintain the critical health services they provide for their region.”
SB 1699, authored by Sen. Patricia Wiggins (D-Santa Rosa), passed in 2008, allows use of the “design-build” bidding process to build new hospitals or retrofit existing hospitals, which, by consolidating the design and construction phases, should save time and money.
