DALLAS — The board set up to finance and operate a new state teaching hospital in New Orleans has withdrawn its request for federal enhancement of revenue bonds needed to build the $1.2 billion University Medical Center.
Financial adviser JPMorgan Chase sent a letter July 7 to officials at the U.S. Department of Housing and Urban Development ending the effort by the University Medical Center Management Corp. to obtain mortgage insurance for an estimated $407 million of revenue bonds for the 424-bed facility.
Bobby Yarborough, chairman of the UMC board, said trustees are considering a plan to build the hospital in stages over several years, and are looking for private partners to build a parking garage and ambulatory care facilities at the medical campus in New Orleans's Midtown area.
Yarborough said earlier that without the HUD backing, the proposed debt would be rated at below investment grade. He said Thursday that the alternative proposals being considered could allow the facility to be built without bond proceeds.
Louisiana Gov. Bobby Jindal, who has asked the UMC board to consider all options for the hospital finances, said the lack of HUD enhancement would not delay the project. "I'll keep saying this until we're standing in front of the new hospital: we continue to move forward with the development of this hospital," he said.
The hospital, which will train medical students of Louisiana State University and other New Orleans medical schools, is set to open in 2015.
Sen. David Vitter, R-La., said the board withdrew the request because it knew HUD would turn down the enhancement application. He said the current financing plan was "unsustainable."
Vitter sent a letter to HUD Secretary Shaun Donovan in April urging that the application be rejected.
Vitter, Louisiana House Speaker Jim Tucker, and state Treasurer John Kennedy have proposed a smaller hospital that they said could be financed without issuing high-interest, low-rated debt.
Their proposal includes construction of a 250-bed hospital at the UMC site, and acquisition of an existing 235-bed hospital near the proposed site and another 119-bed facility in nearby Jefferson Parish.
Kennedy, who had urged the UMC board to apply for the enhancement, said he was not surprised it was withdrawn.
"It is clear to anyone who had read the reports from the board's own financial experts that this project will not work," Kennedy said. "We need a hospital in New Orleans, but it is foolhardy to go ahead with this project."
"As currently envisioned, it would go bankrupt and the state would have to bail them out," he said. If the financing plan had met HUD's criteria, Kennedy said, it would have relieved his concerns that the project was not viable.
"But this has reaffirmed my concerns," he said of the withdrawal. "I think at the end of the day, a smaller hospital will be built."
In the letter to the director of HUD's hospital facilities office, Jay Shah of JPMorgan said things have changed since the application was submitted in late 2010. He did not specify the changes.
"With the passage of time, several issues have arisen that have not at this time been resolved favorably," Shah said in the letter. "We further anticipate future project changes which are beyond our control or prediction." Shah said a revised application might be submitted, "should circumstances change or issues currently under consideration be resolved."
The hospital would replace Old Charity, which has been closed since it was damaged by Hurricane Katrina in 2005.