County Rejects Loan for Edgemoor : Officials Say $6 Million Has Too Many Strings Attached
A $6-million low-interest loan once heralded by county officials as a key piece of a package to renovate the deteriorating Edgemoor Geriatric Hospital has not turned out to be such a great deal after all, San Diego County officials say.
David Janssen, the county’s assistant chief administrative officer, said the loan from a state agency would have come with “too many strings attached,” the most significant being a requirement that the county obtain a costly letter of credit guaranteeing that the loan would be repaid.
He said the county on Wednesday notified the state Health Facilities Financing Authority, which authorized the loan in August, that the county no longer wants the money.
Janssen said the county has decided to phase in its improvements at Edgemoor over a period of years and expects to be able to pay for them a little at a time with general funds or with financing that the county can obtain on its own.
But Assemblyman Larry Stirling (R-San Diego), who helped arrange the loan, contends that county officials have bungled a chance to obtain money quickly and at low cost. He said that, even if the county did not need the money immediately, it could have banked the funds at a higher interest rate and made a profit of as much as $450,000 on the difference. The state was offering the money at an interest rate of 4.4%.
“On the face of it, there’s no merit I can see to the county rejecting this money,” Stirling said.
He said the experience has made him question the sincerity of the county’s complaint that the state is giving San Diego too little money for an array of health, social and criminal justice programs, from children’s services to jails.
“It’s hard for me to cater to the county’s persistent position that they are underfunded and can’t do anything, and then square that with their reluctance to take these profits when they’re available,” Stirling said.
Edgemoor hospital takes the county’s poor and aged invalids who have nowhere else to turn. A one-time county poor farm, its buildings, poorly maintained for years, deteriorated so much that patient care was affected, according to state and local officials who investigated the hospital a year ago. The hospital’s physical condition was cited, along with several other major problems, when the federal government threatened in 1985 to end Medicare payments for Edgemoor’s patients.
Since then, the county has transferred the hospital’s administrator, hired new employees, made minor repairs and painted the buildings. But some of the buildings needed major work, and the county intended to pay for those improvements and some new equipment with the $6-million loan from the state.
Janssen said the county was unaware when it asked for the loan that the state would place conditions on the county’s acceptance of the money.
“When this first came up last spring it was packaged as $6 million--quick, no strings attached,” Janssen said. “It sounded wonderful, and not like something you could pass up. Time changes all. We’ve concluded it is not to our advantage to jump all the hurdles they said are required to get that money.”
Janssen said the letter of credit required by the state--which would have cost the county 1% of the loan’s outstanding balance each year--could have added as much as $400,000 to the cost of the loan over its 10-year life. He also said the requirement could raise questions in the financial community about the county’s creditworthiness.
“We spent months working with the state and various insurance companies trying to convince them that the county was a viable risk,” Janssen said. “We were never able to convince the bond people that the county could receive the money without having to get a letter of credit.”
Janssen and William Kelly, the county’s assistant auditor and controller, said the county could probably obtain the funds at about the same rate, perhaps cheaper, on the open market without the letter of credit. And Kelly said he would not recommend that the board borrow money at a variable interest rate, which the state loan would have required.
In the state’s package, the letter of credit was required by the companies that insure the loan to guarantee that the money will be repaid, said Barbara Smith, executive director of the Health Facilities Financing Authority. Every other loan the authority has made has been to a private hospital, and Smith said she tried unsuccessfully to persuade the insurance companies that the county did not need to produce the same kind of guarantee.
“We said this is a strong county, why would they default on a $6-million loan?” Smith said. But she said the insurance companies insisted on the letter of credit because the county Board of Supervisors does not have the power to force a future board to appropriate funds--in this case, the loan payments.
“The board can only commit for a year at a time, and they (insurance companies) were not comfortable with that,” she said.
Still, Smith described the offer as a “pretty good deal,” and said she was surprised that the county would turn it down.
“But it’s their decision to make,” she said. “We just do our best to make the money available. There are plenty of other people who want it.”