DALLAS — New Orleans is spending millions to purchase a hospital damaged by Hurricane Katrina and renovate the vacant facility to serve residents of the city’s east side.

The city will pay $16.3 million to purchase Pendleton Memorial Methodist Hospital, which has not operated since 2005. Mayor Mitch Landrieu estimated Friday that it will take another $110 million to fully renovate the facility into an 80-bed community hospital.

Pendleton Memorial had more than 200 rooms before the 2005 storm, which is widely considered the worst natural disaster in U.S. history.

The facility was badly damaged by the hurricane and was not repaired afterward.

Pendleton Memorial would be the first hospital to open east of the Industrial Canal since Katrina if the city plan goes through.

It could begin providing emergency service by 2011 and is expected to be fully functional by 2013.

Funding options include hospital revenue bonds issued by the Orleans Parish Hospital Service District A, federal loans, and allocations from the city’s general fund or capital budget, city officials said. The goal is to keep bond financing at 50% of the project cost.

If the bonds can be sold by the end of 2010, the debt could be issued as conventional hospital revenue bonds, Gulf Opportunity Zone bonds, or Build America Bonds.

The GO Zone bond program and the BAB stimulus effort will expire at the end of the year.

Landrieu said the city is negotiating with a potential operator for the hospital.

“It has been nearly five years since Hurricane Katrina, and it is shameful that more than 80,000 residents in New Orleans East, the Ninth Ward and parts of Gentilly still have to drive up to 30 minutes to an emergency room,” the mayor said.

The area’s population is expected to grow to more than 100,000 residents by 2014.

The hospital service district is one of two in Orleans Parish created by the Louisiana Legislature in 2006 to restore medical services to New Orleans after Hurricane Katrina. It has not yet issued bonds.

An economic study of the project estimated that the public hospital will have an operating deficit of $18 million in its first year.

The facility should break even by the third year of operations, the study said, and generate an $11 million surplus by the seventh year.

New Orleans will purchase the property with $40 million in federal recovery grants.

Former Mayor Ray Nagin had allocated the money from the U.S. Housing and Urban Development Department to the hospital district for the purchase of three facilities operated by Methodist Health System Foundation Inc.

Landrieu said the remaining $23.7 million would be redirected to other recovery efforts in New Orleans.

Nagin had proposed a $160 million effort to renovate all three properties, but the plan announced Friday by Landrieu would involve only the main hospital facility. The foundation will continue to operate a nearby surgery center and medical office building.

The Nagin administration agreed in 2009 to purchase all three properties for $40 million, but HUD said that was more than the facilities were worth and terminated the agreement.

Landrieu originally offered $9.7 million for the land, but Pendleton Memorial Methodist officials rejected the bid as far too low.

Landrieu said HUD and the property owner have accepted the city’s $16.3 million offer.

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