AUSTIN — The $1.3 billion effort to replace Dallas County’s public hospital was able to get off the ground with the use of Build America Bonds, which reduced the debt service burden on county taxpayers.
John Dragovitz, chief financial officer of Parkland Health and Hospital System, told the Bond Buyer’s 14th Annual Texas Public Finance Conference on Monday that officials considered several options for financing the replacement for Parkland Hospital before opting to issue taxable BABs rather than conventional tax-exempt general obligation bonds.
The Dallas County Hospital District last August issued $705 million of bonds for the effort to replace the existing hospital, which was built in 1954. All but $26.1 million of the bonds were issued as BABs.
“We developed an opportunistic pricing plan, we took advantage of the BABs program, and we got a little market luck,” Dragovitz said.
Voters in November 2008 overwhelmingly approved $705 million of GOs and $42 million of revenue bonds for the new Parkland Hospital.
Voters approved a 2.5-cent increase in the district’s property tax rate to 27 cents per $100 of assessed value to support the bonds, and another penny for hospital operations.
The original financing plan adopted by the hospital board in 2008 included a proposed sales schedule with a GO tranche of more than $530 million of 20-year bonds in 2009 and a second one of more than $160 million in 2010 or 2011, though the timetable was flexible.
Dragovitz said the hospital system felt no pressure to sell the voter-authorized bonds quickly upon approval because it had developed a cash reserve of $250 million to finance a portion of the project.
He said that gave hospital officials time to await market conditions or other opportunities to lower its cost of borrowing.
“I told people I was an investment banker’s worst nightmare because we didn’t need the bond proceeds for up to two years,” Dragovitz said. “We had the money to get the project started, so we were in no hurry to get to market.”
When the BAB program was authorized as part of the federal stimulus package in early 2009, he said, the hospital system saw the taxable bonds as an opportunity.
Debt service on the BABs will be $39.6 million, Dragovitz said, rather than the $45.5 million in debt service under the original scenario, which involved a mixture of taxable and tax-exempt debt issued over two sales.
Dwight Burns, executive director of the Texas Public Finance Authority, said the state will finance a cancer research and prevention effort approved by voters in 2007 with a $225 million commercial paper program.
Voters in 2007 approved the sale of up to $3 billion of general obligation bonds for the cancer effort. The Texas Legislature in 2009 authorized the sale of up to $450 million of bonds by the end of fiscal 2011.
Burns said only $12.7 million of the debt has been issued so far. More bonds will be sold to reimburse the state as research and prevention grants are awarded by the Cancer Prevention and Research Institute of Texas from the commercial paper program.