In the next year to year and a half, residents of the Mendocino Coast Health Care District (MCHCD) will face a $40 - $60 million tax question. It is likely that by this time in 2026, the MCHCD Board of Directors will be asking you to vote for a bond issue. How much will it cost? It could be a math equation as old as Solomon. Or as Deep Throat said to Bob Woodward, “Follow the money.”
What will $40 million get you besides a better tax bracket under the current federal administration? A seismically retrofitted hospital in Fort Bragg, possibly some additional modernization of the facility. It may cost close to that $40 million threshold to maintain the status quo because a 55-year-old medical facility needs a lot of upkeep to meet standards acceptable in the 21st Century.
By “a lot of upkeep” I refer you to the $7 million in repairs, maintenance, and machinery replacement the Healthcare District has approved for the Adventist Health-run hospital in the last six months. Some of those expenditures can be attributed to delays caused by the Covid epidemic. However, the need for more costly new machinery and facility repair will likely continue into the foreseeable future. At a recent Measure C Committee meeting, Adventist Health's Project Manager referred to pieces of medical equipment in the Coast Hospital that are now one-of-a-kind, meaning they are so old that no other hospitals in the state have such ancient machinery = more expense coming soon.
Why are the Coast Healthcare District taxpayers paying for repairs in a hospital run by Adventist Health? That is a central piece of the voter-approved affiliation agreement between MCHCD and Adventist Health that took effect July 1, 2020. Each year of the affiliation, MCHCD is obligated to pay into an Improvements Fund that AH can spend on the hospital's upkeep. In fiscal year 2020-2021 that Improvements Fund amount was $2 million annually. Presently, the figure is $2,251,024. Next year the amount will go up slightly to $2,296,044.
In return Adventist Health makes a rent payment each year to the Mendocino Coast Health Care District. That amount started at $1,750,000 in 2020. By fiscal year ending (FYE) June 30, 2030 the annual payment will have risen to $3,193,175. To see all the payments made and received per the affiliation lease agreement, go to the District's website, mendocinochcd.gov, then navigate to the legal documents section, click on the lease agreement, and scroll down to Exhibit D near the end.
The difference in payments out to Adventist Health and payments in to our Health Care District for the period between 2020 and 2030 is approximately $5 million on the plus side for the district. Most of the positive gain will accrue in the five years between 2025 and 2030.
Readers will correctly ask this question: What about the money from Measure C? Indeed, the parcel tax approved by voters in mid-2018 amounts to about $1.55 million per year for the Healthcare District. Measure C sunsets on June 30, 2030.
Basic district tax receipts bring in about a million dollars each year. MCHCD has two long term debts to pay off. Those will total about $2.3 million before they are off the books in FYE 2029.
Let's get closer to a bottom line. Currently, MCHCD possesses about $16 million dollars. Adding and subtracting the rental payments in from AH and the Improvement Fund payments out, plus Measure C funds and the basic tax dollars received, while also subtracting the long term debt along with the district's annual budget, MCHCD could add nearly $12-13 million over the next five years. Meaning that by 2030, when the $1.5 million from Measure C runs out, the Mendocino Coast Health Care District could have approximately $28 million to spend on a retrofitted hospital or less than half needed to build some kind of new facility.
Therein lies the need for money from a bond. Leaving aside the most basic premise, voters approving a bond measure, where's the collateral to convince a bond carrier? There's an idea floating around that MCHCD would use the approximately $3 million annual rent payment from Adventist Health as some sort of guarantee. Of course, to guarantee a bond of $60 million that $3 million in rent would have to keep coming in for more than 20 years.
That assumption rests on Adventist Health viewing a Coast Hospital as a viable concern for the next quarter century. There's also the matter that as of July 1, 2030, MCHCD will no longer be receiving the $1.55 million annual payment from the Measure C parcel tax. Using the figures from Exhibit D in the lease agreement between AH and MCHCD, the district would have about $3.17 million available in “cash available for distribution” in FYE 2030. In 2031, and ensuing years, that cash figure would drop to about $1.6 million yearly.
So, how to finance a new facility? There is the option of splitting the difference. Let's say $60 million is needed. The difference can be split by making the taxpaying residents of the Mendocino Coast Health Care District responsible for only half that amount through a Government Obligation (GO) bond. The other $30 million could be raised through a revenue bond. Only the former would require a two-thirds vote of the public and the revenue bond would be backed by an insurer, likely Cal Mortgage.
At present the new facility seems like the safer option. Retrofitting the 55-year-old current facility would meet the state standard, but it is likely that the old hospital is going to continue to require millions in repairs and new equipment for years to come, paid for by taxpayer dollars. Those ongoing costs plus the retrofit could add up to a total near the price of an entirely new facility. A new facility should also please the current tenant, Adventist Health, and help to encourage them to stay for the long haul. If the public is only responsible for something in the ballpark of $30 million, that expense would scarcely be more than the money needed for a retrofit and a scant few of the much needed upgrades in medical equipment.
There is something of a wild card in the current mix. HCAI (The California state Department of Health Care Access and Information), the modern version of OSHPD (Office of Statewide Health Planning and Development) has a pool of about $65 million available to hospitals for retrofit purposes only. How much of that would make a difference for MCHCD's decision making? The coast hospital would likely need to receive at least $10 million from the HCAI pool in order to have an impact. Remember, the HCAI funding would not be for construction of a new facility or extra modernization added to a seismic retrofit. It would only apply to the retrofit.
If MCHCD received $10-15 million from HCAI that could reduce the cost of the retrofit to as low as $10 million. That would allow for $20 million in needed modernization to the current hospital, which would help circumvent some of the continual costs of new equipment and repairs — but not all.
Obviously, such a grant from HCAI would lessen the load of GO or revenue bonds. As stated earlier, Cal Mortgage would be a likely insurer for a revenue bond. Cal Mortgage and HCAI are tied together in the state healthcare bureaucracy, as in the same building.
Want a second wild card, one-eyed jacks and deuces? As of this writing, the Mendocino Coast Health Care District had not completed audits for fiscal years ending in 2021, 2022, 2023, and 2024. Without completed, satisfactory audits it is next to impossible to possess any credit rating let alone attract a bond carrier or provide encouragement to Cal Mortgage to insure a revenue bond. The potential good news here is that the auditors are allegedly within weeks of completion.
Perhaps a more pertinent and key question has yet to be resolved. What are Adventist Health's specific needs with a new facility? As usual, AH is playing its cards close to the vest. Once that is known, and it may not be far off, the MCHCD Board of Directors can explain the options to the general public. Those options essentially boil down to retrofitting the existing structure (for purposes of meeting state standards the Coast Hospital is several smaller structures pieced together, thus adding more costly intricacies to meeting state seismic standards), a retrofit with another $15-20 million in modernization, or building a new facility.
- To get a specific list of the hospital's recent repair and equipment expenses go to the mendocinochcd.gov website, click on board meetings, then the Measure C Oversight Committee. Click on the May 5th meeting and the Measure C Pending Approvals item. On Page 1, you will find specific items, such as a new ambulance or new lab equipment. (These things aren't cheap!) The Measure C Committee voted to approve all the items on page 1. The items on page 2 are still pending approval at the next Measure C Committee meeting.
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