Rea: General obligation bond could shutter hospital doors

Imagine, for a moment, a City and Borough of Wrangell without a hospital – any hospital.

According to Wrangell Medical Center CEO Noel Rea, that could be the outcome if the June 19 recall election changes the majority composition of the WMC Board of Directors.

The USDA, which was set to guarantee a $24.7 million loan for the hospital replacement project, has signaled that an overhaul in the makeup of the board would lead them to require the borough to obtain a general obligation bond to fund the facility, rather than a revenue bond paid for by the operation of the hospital.

Rea said the chances of the public voting to approve such a measure is unlikely.

“I know when we had a general obligation playground bond, the first time it went to vote it failed,” Rea said. “It passed the second time, but I don’t think we’ll have a second opportunity to get this hospital paid for. Our time is up, and based on anecdotal comment I have heard, the history of bonds in Wrangell is not great.”

If a general obligation bond is required by the USDA, and passed by the voters of Wrangell, homeowners in the borough will see a sharp increase in their property taxes – for years to come.

Wrangell finance director Jeff Jabusch said the borough would be able to bond for all, or a portion, of the financing needed to build a new hospital if voters assent to such a move. The city, however, would be on the hook for any money it borrowed for the project.

“If the hospital wasn’t able to pay any of it, or even just a portion of it, the city would be responsible for any balance that was not paid for under a general obligation bond,” Jabusch said. “Assuming the worst case scenario, where the hospital couldn’t pay anything, I have heard a number of $1.2 million as the annual payment on that bond.”

On a yearly payment of that amount, property or other taxes paid by Wrangellites would spike.

“That would be equivalent to 10.3 mills, roughly,” Jabusch added. “Currently we’re at 12.75 mills as our rate. On a $100,000 house, that would be an increase of just over $1,000 per year.”

The ability of Wrangell to engage in future capital improvements using general obligation bonds could also be affected by such a large debt load, Jabusch said.

“When we apply for a bond we go through the Alaska Municipal Bond Bank,” Jabusch said. “They review the paperwork to see if we have the ability to pay. If we have something large like that on the books, we would be deeply scrutinized, even though we’re doing well financially.”

Planning for a “no” vote on a possible general obligation bond, and the contingency of life without a new hospital, Rea asked WMC project architect Julia Covington of David E. Johnson and Associates to evaluate one of the biggest thorns in the side of the current WMC facility: compliance with the Americans with Disabilities Act and construction guidelines from the American Institute of Architects.

“Within the existing hospital there are a total of 12 patient rooms with 10 being semi-private,” Covington stated in a memo to Rea. “None of these are ADA accessible and only 2 have a sink. AIA requires a sink in each room.”

Covington also explained what would be required to bring those rooms into compliance with current standards.

“In order to meet ADA and AIA requirements, at a minimum, all toilet rooms would need to be enlarged to add a sink,” she stated.

If the bathrooms are made larger, Covington added, it would remove beds from the facility.

“Once the bathrooms are enlarged, the patient room would be too small to allow for two patients within one room,” Covington stated. “Therefore, the hospital should anticipate a loss of 10 licensed beds.”

According to Covington, the memo and research into the issue were done free of charge.

The loss of 10 licensed beds, Rea concludes, would spell financial ruin for the hospital.

“We wouldn’t make it,” Rea said. “We’d have to shut down and we wouldn’t have a hospital in Wrangell. A subsidy of $3 million a year would be necessary to keep the doors open. And, I think it’s important for people to know that we don’t currently receive a subsidy from the city. We’re a completely self-sufficient entity.”

Although the patient rooms at WMC are out of ADA compliance, Rea said other issues around the hospital are also being looked at, though not in as strong a light as the bathrooms.

“We didn’t ask for a complete set of code violations that we’d have to come into compliance with,” Rea said of the DEJA memo. “Most of those, to the best of my knowledge, wouldn’t impact the revenue side of keeping the doors open.”

Adding additional floor space to the existing hospital is not an option, Rea added, in either financial or structural aspects.

“We went down that road back in 2008 and found the cost to renovate this hospital would be far in excess of the cost of building a new one,” Rea said. “In 2008, the estimate to bring everything up to code was $40 million to renovate, compared to $25 million to build new. We have no room either. We’re kind of landlocked here with our current facility.”

Rea added that the possible loss of bed space is a reality – and not a “scare-tactic” meant to influence the recall election.

“The point of this memo was to be thinking forward about all the outcomes,” Rea said. “To not inform the board, the community, or the assembly, we would be remiss. I think people need to be fully informed about what they’re deciding on.”