BRADENTON, Fla. — The Securities and Exchange Commission has opened an investigation into an $83.3 million bond deal that Miami-Dade County sold last year on behalf of the county’s financially ailing Public Health Trust.
The SEC on April 8 sent a subpoena to John Copeland, chairman of the PHT, which is the county-appointed governing body of Jackson Health System. The public health care system, which includes Jackson Memorial Hospital, is owned by Miami-Dade County.
The SEC is demanding the PHT turn over a host of documents and communications, including those pertaining to the 2009 bond issue, as well as financial statements, projected operating deficits, information about patient accounts for the years ending Sept. 30, 2009 and 2008, internal revenue projections, and audits.
“We are trying to determine whether there have been any violations of federal securities laws,” said a cover letter signed by SEC Miami branch chief Christine Lynch. “The investigation and the subpoena do not mean that we have concluded that the Public Health Trust or anyone else has broken the law.”
Victoria Mallette, communications director for Miami-Dade Mayor Carlos Alvarez, said PHT officials are working with a county attorney to fulfill the commission’s request. She said the date to produce materials has been extended to May 7 from April 23.
“Jackson Health System is cooperating with the investigation and is working in full compliance with the law,” the PHT said in a statement yesterday.
The SEC investigation comes on the heels of a growing deficit at PHT. The system is beset by complex financial problems that have been unfolding for months related to improperly classified expenses, bad debt that was not written off over several years, and conversion to a new accounting system as well as increasing expenses related to the recession.
In mid-March, PHT officials appeared before the Miami-Dade County Commission to review the financial crisis and to explain how the hospital system is now confronting a deficit that could be as large as $230 million.
Last year, Miami-Dade sold $83.3 million of revenue bonds for the Jackson Health System for various improvements such as air conditioning replacement, renovations, electrical system enhancements, and to cash fund a debt-service reserve.
The bonds are secured by gross revenues of the Public Health Trust and a 0.5% local health care tax approved by county voters in 1991.
The insured bonds received underlying ratings of A-plus from Fitch Ratings, A1 from Moody’s Investors Service, and A from Standard & Poor’s. Fitch and Standard & Poor’s also assigned stable outlooks to the credit.
The debt related to PHT is subject to an intercept program in which the county receives the health care tax revenue first and sets aside the amount required for debt service before sending the remaining revenues to the trust, according to county finance officials.
The debt also receives a secondary covenant pledge from the county to annually budget and appropriate legally available non-ad valorem revenues to maintain the required amounts in the debt service reserve fund.
A similar structure secures $300 million of revenue bonds sold by Miami-Dade on behalf of the PHT in 2005, of which $290.3 million is outstanding. The 2005 series is not mentioned in the SEC probe, most likely because the current financial problems occurred after that issuance.
The county added the intercept program and the backup covenant pledge with the 2005 issuance, which is the only debt on par outstanding with the bonds sold last year.
According to Standard & Poor’s, the security features improved the credit characteristics of the PHT and tied the rating to Miami-Dade’s general obligation pledge.