The Riverhead IDA at a special board meeting yesterday evening backpedaled on a decision made last month to charge Peconic Bay Medical Center more than $114,000 in fees on a bond transaction that hospital officials say is aimed to save it more than $1 million over the next decade.
The three members of the five-person board who were present yesterday voted to rescind its previous resolution setting the IDA’s fees in connection with the transaction at $114,631 and replace it with one setting the fees at $35,000.
The deal for the lower fee was struck in a closed-door negotiation session between two board members and hospital officials during a recess from the public meeting.
The board had entered into executive session to seek advice from its counsel, Richard Ehlers. When they broke from executive session, Ehlers told hospital officials who were waiting in the hallway that two members of the board would like to meet with them privately to discuss a settlement of the matter. If less than a quorum of a public body is present, the state law requiring meetings to be open to the public does not apply.
The dispute arose because the Industrial Development Agency had determined that the transaction proposed by the medical center — substituting a bank as sole bond holder for the balance of the hospital’s 2006-2007 $50 million bond issuance — was a new transaction rather than a refinance. PBMC argued that it is just a refinance and the hospital should pay a fee of just $2,500, according to the agency’s published fee schedule.
“No money is changing hands,” PBMC president and CEO Andrew Mitchell told Riverhead Industrial Development Agency board members Thomas Cruso, Lou Kalogeras and Dawn Thomas during the open portion of the meeting. “The original bonds are not being retired. No new bonds are being issued.”
M&T Bank, since 2012 the holder of PBMC’s letter of credit in the bond transaction, has offered to hold the bonds “because of the financial strength of the hospital’s balance sheet today,” Mitchell said.
PBMC attorney Richard Dennett told the IDA that if it can’t come to the conclusion that it’s not a new issue, there’s a bigger problem because the agency lacks authority to do a new issuance. The state legislature changed the law several years ago to strip industrial development agencies of the authority to issue bonds for health care facilities, Dennett said. Only the state Dormitory Authority can issue those bonds now, he said.
“I’m not pounding my hand on the table saying this is a new issue,” Ehlers responded. “Looking at the hospital’s resolution, the rate has changed, the term has changed, it looks very much like a different duck.”
Dennett pointed out to Ehlers that the resolution’s language he was referring to pertained to a different loan, not the bonds.
“Maybe I misunderstood that,” Ehlers said.
But he argued that, in any case, since for federal tax purposes it’s a new issuance — “the organization’s tax-exempt status is what gives the lender apetite for the bonds,” he said — there could be a “fair debate” over whether characterization of the issuance should be made in consideration of federal tax law or in consideration of the state law, which prohibits the IDA from issuing new bonds for a hospital.
Mitchell asked the IDA to give consideration to the hospital’s role in the community as its largest employer and economic engine. The hospital operates on a tight margin because each year it provides $8 million worth of uncompensated or under-compensated care to the community.
“PBMC is not rich and its cash reserves are very limited,” Mitchell said. The bond refinance is “essential to keep Riverhead’s largest economic engine viable.”
The agreement settling the dispute was struck in the private meeting between IDA board members Cruso and Kalogeras and PBMC board chairwoman Sherry Patterson and member Gordon Huszagh, who is chairman of the hospital board’s finance committee and also chairman of the PBMC Foundation.
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