Erie County Medical Center wired $17 million to Erie County, N.Y., last week as part of a major borrowing deal that enables the hospital to build a new emergency department and make improvements on the campus.

The backstory on how Erie County wound up with $17 million as part of the deal involves lengthy political wrangling between the Poloncarz administration and Republican-backed members of the County Legislature. Both sides argued over the financial prudence of ECMC handing the county a cash windfall in exchange for its cooperation in allowing the hospital to borrow money at the lowest possible rate.

But in the end, the total $107 million borrowing deal enables the hospital to move forward with emergency room construction and energy improvements. And Erie County is getting $17 million that County Executive Mark Poloncarz said will be spent solely to offset future payments to ECMC for the care of poor, uninsured patients.

"I'm just happy we closed the transaction, and on the date of the pricing it was the largest bond transaction on the market," Poloncarz said. "We were all thrilled when we got the news."

Erie Country Medical Center in Buffalo, N.Y.
Erie Country Medical Center in Buffalo, N.Y. D-Day [CC BY-SA 3.0], via Wikimedia Commons

Because of the lack of competing bond offerings, he said, the Erie County control board, which was borrowing money on the hospital's behalf, received an excellent interest rate.

"The Erie County Medical Center will have a state-of-the-art emergency department that is capable of handling the number of patients that it currently receives — 70,000, on average, per year — versus the 40,000 originally built for," Poloncarz said.

Hospital officials said the borrowing deal will benefit both the county and hospital patients. Site preparation for the new trauma center and emergency department will begin in a few weeks, they said.

"As in 2009 when ECMC and Erie County came to an agreement that provided over $30 million to county taxpayers annually, this agreement also will benefit the county and, more importantly, the patients for whom we provide care," ECMC Chairwoman Sharon Hanson said in a statement.

The deal closed Thursday. It includes nearly $99 million in principle borrowing for the construction-related improvements, plus $8 million to cover initial interest payments on the loan. The hospital has also raised $4 million so far from outside contributors toward its capital campaign, officials said.

The controversy surrounding the borrowing has to do with the cash the hospital is giving the county as part of this deal.

The county allowed the hospital to have the Erie County Fiscal Stability Authority — better known as the control board — borrow money on the hospital's behalf because the control board has a far better bond rating than the hospital and can borrow money much more cheaply.

In exchange, the hospital agreed to pay the county a cash sum that approximates the difference between the high costs associated with the hospital borrowing through a private lender and the cheaper costs achieved by borrowing through the control board.

The county and hospital originally estimated the difference in that long-term savings to be $18 million. ECMC was expected to give that money to the county once the borrowing deal closed. But because of a last-minute change in calculation of the hospital's cash flows, the county wound up receiving $1 million less, Poloncarz said.

Regardless, some county legislators expressed frustration that the hospital was asked to provide the county any money at all. Moreover, some said they felt misled because they initially were told the Legislature would have final say over whether the county could accept any money from the hospital.

Comptroller Stefan Mychajliw, a Republican foe of the Democratic county executive, went so far as to accuse Poloncarz of doing the equivalent of robbing the hospital, even though the hospital willingly agreed to the cash transfer.

"I believe the Poloncarz administration is stealing from the poor to plug a massive budget deficit," he said. "What's the point of ECMC engaging in this lengthy borrowing process if they're going to gift the county $17 million?"

Poloncarz said the $17 million from the hospital, which will flow into the county's general fund, would not be spent this year, nor would all the money be spent next year. Instead, he said that money will eventually be sent back to the hospital as part of the county's annual contribution to cover the costs of uninsured and underinsured patients.

The county already earmarks $18 million a year in contributions to ECMC for this purpose. Poloncarz said the $17 million given to ECMC on Thursday would be used to cover any additional money owed to the hospital above that amount. Making payments to ECMC to cover health care costs for the poor is a major pressure point for the county budget each year.

As far as county legislators being cut out of the decision-making process regarding the acceptance of the $17 million payment from the hospital, Poloncarz said it wasn't until after the Legislature agreed to allow the borrowing to go through that he learned that the county could accept the payment from ECMC without the Legislature's consent, based on the language of the bond resolution the Legislature passed.

That boded well for the county executive since the Legislature would have argued strenuously over whether a multimillion-dollar payment to the county served the hospital's interests.

"It wasn't until afterwards that counsel said, 'You have all the approvals necessary,'" Poloncarz said.

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