Indiana Gov. Mike Pence announced plans Wednesday to build a new, bond-financed state mental health treatment facility.

CHICAGO – Indiana would build a new $120 million bond-financed mental health facility in what Gov. Mike Pence's administration is billing as an affordable option that will usher in a new model of care for the state's mental health treatment system.

The Pence administration will lay out the plan for the State Budget Committee on Thursday.

The committee must approve the concept and the financing, which relies on the issuance of taxable appropriation-backed lease rental bonds through the Indiana Finance Authority.

The planned neuro-diagnostic institute would serve as a flagship for the state's treatment system, providing a hub to advance public mental health care and addiction treatment.

Its focus will be on diagnosis and establishing a treatment plan for acute and chronic mental illness, chronic addictions, intellectual and developmental disabilities, traumatic brain injury, and neuro-degenerative illnesses like Alzheimer's.

Construction is to begin next year and the 159-bed center is expected to open in 2018 with the capacity to treat 1,500 patients annually.

"This new institute will serve as the centerpiece of our ongoing commitment to improve mental health care and address the scourge of addictions in Indiana," Pence said in announcing the project Wednesday.

The institute will be located on the campus of Community East Hospital in Indianapolis and operated in partnership with Community Health Network system.

The affiliation will allow for patients at the institute to be treated for their non-mental health related health issues without the need to transport patients off-site.

After the new facility opens, Indiana plans to phase out its Larue Carter Hospital in Indianapolis. Under the preliminary proposal, the IFA would issue bond anticipation notes for the initial stages of the project to hold down the overall borrowing costs.

The BANs would be issued in May and then taken out with a long term issue in February, 2017 that would also provide any additional funds needed to complete the tower portion of the project. The bonds would carry a final maturity of no later than fiscal 2039.

By using the two-tiered structure, the IFA anticipates about $4.9 million in interest rate savings.

The long term debt would be structured as appropriation-backed lease rental bonds. Appropriations would be limited to no more than $10.9 million per year for 20 years beginning with fiscal 2019.

The IFA anticipates capitalizing interest from the date the BAN issue through March 2019 to provide some leeway should the project's 2018 opening be delayed.

The IFA and its legal advisor are recommending the taxable structure to due to the project's goals.

By using the taxable structure, the state can enter into long-term service agreements, space sharing arrangements, research arrangements and partner with for profits without worrying about running afoul of Internal Revenue Service rules.

"This lack of certainty and additional compliance costs, were key factors in determining the tax status of the bonds," according to a feasibility study that accompanied the Pence announcement.

The study also lays out the case for building a new facility instead of renovating the Larue Carter Hospital, which would carry a $105 million price tag.

The state does not own the building but leases it through 2031. Another benefit of building the new facility is the partnership with an acute care network.

"While the capital investment is more costly at approximately $118 million, the long term benefit is greater to our residents through the CHN partnership," the study says.

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