Hospital’s Bond Payments Cast Shadow Over San Fernando

Nearly 20 years after San Fernando saved its town hospital from financial ruin, city officials find themselves in a financial predicament. The hospital has had trouble making good on payments for city-issued bonds, and it’s the town that is liable for the $2-million balance.

City officials recently were sweating it out whether Mission Community Hospital’s board of directors would make a $250,000 bond payment due at the end of November. If not, the city would have had to pay the balance.

The incident heightened the concerns and suspicions of some residents and officials about the hospital’s dealings with the city.

While the hospital made the payment, more are due--including a $39,000 monthly payment through 1996, notes Julia E. Sylva, the city’s interim legal counsel.

“This was a very large payment, and they met it,” Sylva said. “There are many more payments to be made.”

Officials cite the frustrating denial of access to the hospital’s financial records and questionable legal agreements the hospital has entered into--including its 1992 purchase of Panorama Community Hospital--since benefiting from the sale of the city-issued bonds.

“I don’t know exactly what’s going on,” Councilman Raul Godinez said, “but it sure doesn’t look good. The city stands to lose a great deal if things don’t work out.”

Several residents, including former Councilwoman Cam Noltemeyer, said they suspect foul play, citing sizable campaign contributions from hospital administrators to several current council members.

Hospital board members say there is no cause for concern.

“The only thing the city of San Fernando has to do with the hospital is that when the bonds are paid off, the city takes the property,” said Jean Olin-Nelson, chairwoman of the hospital board.

Though the city could ultimately lose money if the situation isn’t resolved, its situation bears no similarity to the financial upheaval in Orange County, which became the largest municipality in U.S. history to declare bankruptcy.

But officials of the small city worry about what might happen if the hospital can’t pay off the bonds. In such an event, the bank--or trustee--that manages the tax-exempt bonds would either demand that the city pay off the balance or forfeit its future title to the land--a right the city obtained when it agreed to issue the bonds.

“Neither possibility is one the city wants to consider,” San Fernando City Administrator Mary Strenn said. Strenn referred other questions to the city attorney.

The city approved $2.6 million in bonds on behalf of the hospital in 1976 to keep the financially ailing facility from closing. As part of that agreement, the city would obtain ownership of the hospital--then San Fernando Community Hospital--after the bonds were paid.

“In an ideal world, the hospital would pay off those bonds, and the city would take title to the hospital,” Sylva said.

But a number of developments could prevent that from happening, according to Sylva, city officials and residents who have monitored the status of the agreement between the hospital and the city.

One potential pitfall is $1 million borrowed against the hospital’s worth, enabling the board of directors to finance the purchase of the former Panorama Community Hospital, a deal completed earlier this year.

The two hospitals are known now as Mission Community Hospital. The Panorama facility is a general-use hospital, while the San Fernando building is used expressly as a psychiatric treatment center.

The merger of the two facilities appears to violate the initial agreement between the city and the hospital, which states that after the bonds are paid, the city is to receive title to the hospital “free and clear”--in other words, without any liens on the property, according to Godinez and other officials.

Hospital administrators deny the purchase was a merger, noting that the Panorama hospital was not operating at the time it was bought. Olin-Nelson has said the lien would very likely be removed in a future hospital refinancing.

But Godinez also said he is concerned about other issues, including potential conflicts of interest among hospital board members who hold contracts to provide services to Mission Community Hospital. At a council meeting in November, Councilwoman Rosa Chacon called for the entire 11-member hospital board to resign.

Hospital administrators have confirmed that several board members hold contracts to supply services for the hospital, but deny that it is out of the ordinary or a conflict of interest.

Sylva said she is researching the issue. “I don’t see it as a problem,” she said recently. “Private corporations are not governed by the same rules as public officials.”

Sylva said what worries her the most is “the ultimate risk that when--and if--the bonds are paid, the city gets this property with liens on it, versus getting it ‘free and clear,’ ” Sylva said.

City officials and Bruce Ackerman, treasurer and former chairman of the hospital board, have said that a September investigation into the matter conducted by the city attorney and the San Fernando Police Department cleared the hospital of any wrongdoing.

That investigation also examined campaign contributions from hospital administrators to Councilmen Doude Wysbeek and Raymond Ojeda. Wysbeek received a $15,000 contribution in February from Robert Bourseau, a principal partner of Intercare Resources Inc., the firm that manages operations for the two hospitals. Ojeda received a $500 contribution from Bourseau in 1992.

The investigation determined that the contributions did not violate any rules, and that both officials properly reported the donations to the city.

But Sylva has expressed other concerns about the city’s legal vulnerability under the terms of the agreement with the hospital.

In an Oct. 19 letter to the mayor and City Council, Sylva said her attempts to obtain information on the hospital’s financial status were denied by its board. She warned the council in October that a foreclosure on the hospital’s property was an option under discussion between the bank’s attorney and the hospital’s board.