DALLAS — No revenue bond debt will be required to build a new $1 billion state teaching hospital in New Orleans under a revised business plan being considered Thursday by the University Medical Center Management Corp.
The plan developed by Verité Healthcare Consulting no longer calls for $407 million of hospital revenue bonds for the 424-bed University Medical Center. The revision also reduces the cost of building the project to $1.088 billion from the original $1.2 billion without reducing the scope of the facility.
The reduced price tag results from the combination of lower construction costs and the avoidance of $82 million in financing costs with the elimination of the revenue debt.
A medical office tower and a parking garage would be financed by the LSU Physicians Foundation. Verité said removing the $300-$400 million cost of those facilities from the project eliminated the need to issue revenue bonds.
The revision also reduces the expected annual state subsidy to $52.5 million in the first six years after it opens in 2015, down from $100 million.
The revised financial plan was outlined and endorsed Tuesday by Louisiana Gov. Bobby Jindal and New Orleans Mayor Mitch Landrieu.
“This is a strong business plan that calls for no state bond debt financing, lowers the overall construction costs, and a reduced annual expense to the state,” Jindal said.
The Republican governor said the hospital complex will be “a world-class teaching facility that will train the next generation of medical professionals, and a catalyst for more research and development, economic development, and good, high-paying jobs.”
Landrieu said the hospital complex has the potential to be “the largest, most catalytic economic development project in this city’s history.”
Jindal called for development of a debt-free business plan in June after by U.S. Sen. David Vitter, state Treasurer John Kennedy, and House Speaker Jim Tucker proposed a smaller hospital project that did not require bonding or a large state subsidy.
In July the UMC board withdrew an application for federal enhancement of the revenue bonds.
Chairman Bobby Yarborough said that the bonds would be rated below investment grade without mortgage insurance from the Department of Housing and Urban Development.
The University Medical Center will replace Old Charity Hospital, which was damaged by flooding after Hurricane Katrina in 2005.
The Verité Healthcare plan calls for using around $830 million of cash the state has on hand to build patient towers with a total of 424 beds, an emergency trauma facility, and a diagnostics and treatment center.
The available funds include $225.5 million of proceeds from general obligation bonds authorized by the 2006 Legislature, $478.4 million received by the state from the Federal Emergency Management Agency for flood and storm damage to Old Charity Hospital’s structure, and another $130 million expected from the Federal Emergency Management Agency for replacement of damaged medical equipment.
The complex’s central energy plant would be financed, built and operated by an unspecified third party, accordintg to the plan.
The hospital will be part of the Louisiana State University system. It will serve as the main academic medical training center for LSU, Tulane University, and other area medical schools.
A resolution adopted by the Louisiana Legislature in this year’s session requires the Joint Legislative Committee on the Budget to approve a business plan before the State Facilities Office can begin on-site construction.
The committee is set to meet Sept. 16 to consider the new plan.