Jul 15, 2018

Myth vs Fact

Myth: The community is still paying on the bond for the Skilled Nursing, unit.

Fact: The Skilled Nursing facility along with our surgical unit and cafeteria was built using a revenue bond. A revenue bond is approved by the Board of Directors not the voters. A revenue bond is used when the income generated from the new service will cover the associated costs. Any additional expenses incurred by the revenue bond has been covered with income generated by the hospital. therefore, the community has not and is not paying anything related to that project.

Myth: The hospital has mismanaged their finances.

Fact: After the 1989 San Francisco earthquake legislation was put in place (precursor to SB 1953) which increased the costs of construction for the Skilled Nursing Facility project. In order to meet the new building codes the project was scaled down. The project was cut in half and the cost to meet new building codes increased the cost of the overall project. This unforeseen circumstance was completely out of the district’s control. The expected revenue was decreased because the project had to be scaled back but the expected payment for the revenue bond was already in place and the district had to meet that payment. Those payments were $1.5m per year. That payment was being covered by revenue from the Skilled Nursing and Surgical unit along with additional funds from hospital operations. This caused a hardship on the hospital to make their other obligations in a timely manner. Hospital Administration being proactive approached Cal Mortgage to re-finance the debt. At the time the State was facing their own financial crisis and allowed the hospital to put together a plan which they could accept or deny. Cal Mortgage reviewed the plan and approved the restructuring of debt. The payments dropped from $1.5m per year to $1m per year. Cal Mortgage agreed to make the $500k payment until the original revenue bond is paid off. To this day, Kern Valley Hospital is the only hospital in the State of California that Cal Mortgage has allowed to do this.

The bondholders will be paid off in 3 years at which time the hospital will begin paying back Cal Mortgage the portion that they have been contributing over the last couple of years. The payments will drop from $1m to $500k until Cal Mortgage is paid in full. Again, Administration recognized the potential financial crisis and executed an acceptable plan keeping the district solvent. All payments have been made on time completely from funds generated by the hospital. Yes there have been lean times in the past but the hospital continues to see an increase in our bottom line due to Administration’s fiscal oversight.