New River Medical Center board members have certified the final 2013 hospital district levy at $300,000, $1.2 million less than the initial levy.
The board conducted a special morning meeting Dec. 27 to certify the levy. According to Joni Pawelk, New River Medical Center’s director of marketing, the tax will be levied this year to cover New River Medical Center’s bond covenants for fiscal year 2012. New River Medical Center’s fiscal year runs Oct. 1 through Sept. 30. Budgeting begins in late April. The budget is typically reviewed by the finance committee and board in July and August and approved in September.
Nancy Friesen, New River Medical Center’s chief financial officer, said Wednesday the district’s audited net loss for fiscal year 2012 totaled $1.55 million. That total was reconfirmed by EideBailly, New River Medical Center’s approved financial auditor and regional certified public accounting and business advisory firm.
Friesen presented two tax levy final certification options for board approval Dec. 27. The first option was certifying the levy at $300,000, an amount lower than the five-year plan approved by the board of directors. According to Friesen, this option would allow New River some flexibility with a margin if not all taxes owed the district are paid in a timely manner. The second option was certifying the levy at $400,000. This amount was in line with a planned amount and would follow the tax levy reduction plan that was initially established by the board of directors. Friesen also addressed debt service coverage numbers linked to each option.
“I’ve listed the amount of the annual debt service as $2.36 million,” she said, referring to a background memo. “You take our yearly loss, add back depreciation and interest expense, and gives you the amount available for debt service coverage. I listed the amounts that would be needed to meet a 1.25 and 1.30 bond covenant. To cover the higher percentage, Friesen said the district would need to levy $303,000. She and CEO Marshall Smith recommended a $300,000 levy.
Cost containment efforts over the past year and lower discounts resulted in a significant reduction in the district’s operating loss. This reduction allowed New River Medical Center’s Board of Directors to certify the 2013 tax levy at $300,000; the levy is required to comply with bond requirements for long-term debt.
During discussion, Rob VanDenBerg, board member representing Otsego, asked Friesen why the district didn’t have a consultant make recommendations regarding the debt.
Friesen replied a consultant would not have lowered the debt. The purpose of a consultant coming in, Friesen said, would be to see if New River should increase its charges and determine if the district was running efficiently. Smith told the board that hospital administrators did consult bondholders.
“There would have been no additional operational issues identified by a consultant, and it would have cost us more money, depleting the financial resources that we already have,” Smith said. Friesen added the decision not to seek a consultant was made by the district’s finance committee and board last summer.
“We did several meetings with the bond company,” said Ervin Danielowski, hospital board chairman. “Hiring a consultant would have been paying somebody to tell us the obvious while adding to the debt.” VanDenBerg replied: It’s not as simple as that. They would have made recommendations where to make cuts.”
Richard Helms, representing Big Lake Township asked Friesen several questions about affiliation partner CentraCare’s promise to cover New River’s debt.
Paul Harris, vice president and general council, CentraCare Health System and Eric Lohn, CFO with CentraCare Health System Regional Health Services, attended the Dec. 27 levy meeting. “CentraCare said when they were here a couple of weeks ago we would never have to levy again,” Helms said. “If we don’t meet the 1.25 [needed to meet the bond covenant] next year, how can they give us money to make up that gap?” Friesen said that issue would have to be discussed during the affiliation due diligence progress. “What we are doing today is levying for fiscal year 2012,” Friesen said. “We will be working with CentraCare to determine how that process will happen during 2013.” Danielowski said he was confident New River and CentraCare could address that issue. “I’m confident with Option 1,” Danielowski added. “It’s actually $100,000 less than we had set up. The best option is nothing, but this is the next best thing.” Board members unanimously certified the levy at $300,000. Residents should see a reduction in their 2013 district taxes compared to 2012, Pawelk said.
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