California HFFA May Decide Fate of Sutter Health Bonds

SAN FRANCISCO — The long debate over whether the California Health Facilities Financing Authority will serve as a conduit bond issuer for nonprofit hospital operator Sutter Health may be nearing a close.

Tomorrow afternoon, the CHFFA board is scheduled to take up a resolution authorizing the authority to issue up to $958 million in revenue bonds for Sutter.

The proposal has been stalled for months as board members debated whether or not the public would benefit from providing Sutter with a vehicle to borrow money on a tax-exempt basis.

The law that established the CHFFA contained a provision stating that the law’s intent is for savings from the use of tax-exempt financing to be passed through to the public — thought it does not say how the savings, or how much of the savings, should be passed through.

The dispute has been colored by an ongoing dispute between Sutter and the union SEIU United Healthcare Workers-West. The SEIU is historically allied with Democratic politicians in California, including the previous treasurer, Phil Angelides, who was in office when the Sutter-CHFFA debate began, and current Treasurer Bill Lockyer.

The CHFFA, a conduit bond issuer for health care nonprofits, is staffed by the state treasurer’s office, and the treasurer is chair of the nine-seat CHFFA board. Six of the board members are Democratic elected officials or their appointees.

At the authority’s January meeting, Lockyer’s first as treasurer, he signaled a desire to move forward with Sutter Health’s bond program, even without a definitive answer to what “pass-through” savings state law requires of CHFFA beneficiaries.

Since then, Sutter and the treasurer’s office have negotiated a compromise that would deliver pass-through savings by having Sutter provide funds to rural hospitals, health systems, and clinics that are not affiliated with the chain, said a state treasurer’s office official who declined to be identified by name.

“We’ll be back at CHFFA on Thursday,” said Sutter Health spokesman Bill Gleeson. “We are submitting our application for approval and are hopeful it will be approved.”

At the January CHFFA meeting, executive director Sandra Simpson-Fontaine said she would set up a stakeholders committee to study adoption of a permanent pass-through savings policy.

Sutter’s request includes $791 million in new money, the largest share being $508 million to build a replacement for Sutter’s Mills Peninsula Health Services Peninsula Hospital, according to a staff report prepared for this week’s meeting. It would also finance projects at five other hospitals.

There would also be $171 million in refunding bonds, plus $14 million in financing costs, including $8 million for bond insurance, according to the staff report.

Morgan Stanley would run the books on the deal, which would feature a mix of fixed- and variable-rate debt.

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