The council, at Monday’s meeting, approved the scheduling of a public hearing at 7:01 p.m. April 5 to gather any public input and discuss whether the city should approve CentraCare’s plan to refinance and assume the hospital debt. There was no council discussion about the matter at Monday’s meeting.
The proposal was presented at the Feb. 18 meeting of the council’s Finance Committee, which recommended moving it forward to the City Council for final discussion and approval.
Due to historically low-interest rates, the city and CentraCare for several months have been discussing refinancing the hospital debt. The debt is presently held by the city in hospital bonds from 2012 and 2013 that paid for improvements at Rice Memorial Hospital and Rice Care Center. The original bond amounts were $40.9 million for the hospital project and another $9.1 million for the care center.
As part of the lease agreement between CentraCare and the city of Willmar, CentraCare pays the city rent, in the same amount as the city’s debt payment for those hospital bonds. The city still owes $32.5 million on the bonds.
The conduit revenue bonds, if issued, would allow CentraCare to assume that outstanding debt, removing it from the city’s ledger. CentraCare will also be able to take advantage of lower interest rates in the current bond market, resulting in some savings.
The city would need to act as the issuer of the bonds, to keep them tax-exempt, another savings for CentraCare. In an interview, Monday with the West Central Tribune, Willmar Finance Director Steve Okins said the city has participated in such financing strategies before.
“This has been sort of like a puzzle and the pieces are lining up together,” said City Councilor Audrey Nelsen at the Feb. 18 committee meeting. “It is good for the city and good for Carris Health and CentraCare also. I think this is a win for our community.”
Once the conduit bond funds are used to pay off the city’s debt, the operating lease agreement will need to be amended to reflect the changes brought on by the new bond issuance. CentraCare will no longer be required to pay the city rent as part of the agreement. All other aspects of the lease, including city ownership of the hospital, Rice Home Care and other leased properties, will not change.
The lease agreement between CentraCare and the city of Willmar was officially approved in November 2017 and went into effect Jan. 1, 2018. The agreement created Carris Health, the wholly-owned subsidiary of CentraCare, which operates Rice Memorial Hospital and its facilities such as Rice Home Medical, along with Affiliated Community Medical Centers.
“Things continue to go quite well with the affiliation,” said Mike Schramm, Carris Health co-CEO at the Feb. 18 meeting.
The lease does include the option for CentraCare to purchase the leased property after 10 years has passed, if both parties can agree on terms and conditions. Terms laid out in the lease agreement include paying off the city’s hospital debt, which the refinancing proposal would fulfill, Okins said.
CentraCare would also have to continue the service commitments and capital investment requirements in the lease for another 10 years. All procedural requirements, including a public referendum if the city would ever want to sell the hospital, would also need to be satisfied before a transfer would be completed.
Read More: CentraCare could assume Rice Hospital debt from Willmar