DALLAS — Sen. David Vitter, R-La., met last week with federal officials to oppose Louisiana’s request for credit enhancement on $400 million of revenue bonds for a new $1.2 billion teaching hospital in New Orleans.
Louisiana has applied for mortgage insurance on the bonds under the Department of Housing and Urban Development’s 242 Program.
Vitter said he met with HUD Secretary Vaughn Donovan to urge that the application be denied.
“Today, I met personally with Secretary Donovan and presented him with documents pointing out the flaws with the current oversized, unrealistic Mega-Charity business plan,” Vitter said after the private meeting on April 14.
Louisiana wants to issue the debt to build a replacement for the old Charity Hospital, which was damaged by Hurricane Katrina in 2005.
The financial plan for the proposed 462-bed University Medical Center includes $300 million from the state, $475 million in federal reimbursements for damages to Charity, and up to $425 million of hospital revenue bonds.
Vitter said the plan is a bad one.
“So far, that business plan has been panned by the private bond market,” he said. “But apparently the state is going to forge ahead anyway without full funding, then probably have to depend on junk bonds or an expensive deal with a developer to finish the project.”
“That seems really imprudent,” Vitter said.
The state hospital will be the primary teaching center for medical students and post-graduate residents at Louisiana State University, Tulane University, and other New Orleans-area universities. It would be one of 10 state hospitals that provide indigent care and medical education in Louisiana.
A ceremonial groundbreaking for the new facility is set for Monday.
In a letter sent to Duncan earlier in the week, Vitter criticized Gov. Bobby Jindal’s plan to forge ahead with the hospital project.
“The irresponsible nature of the state’s plan is further evidenced by the state moving forward to break ground even though fully one-third of the financing for the project is still not secured,” the letter said.
Commissioner of administration Paul Rainwater, Jindal’s top budget officer, said Louisiana will move ahead with the replacement hospital project if the HUD enhancement is not available.
He said the facility would not be downsized.
The state is awaiting the release of a revised financial plan by Causey Demgen & Moore Inc. of Denver before making a decision on issuing the revenue debt, according to Rainwater.
The current business plan prepared last year by Verite Healthcare said the facility will need at least $70 million a year in state subsidies at first and as much as $100 million annually in later years.
The Verite business plan suggested increasing the debt to $575 million to provide working capital for the first months of operation.
The new hospital will be an affiliate of Louisiana State University and will be independent of the state.
The arrangement was proposed by Jindal’s administration so that bonds issued for its construction would not count against the constitutional limit on state tax-supported debt.
The Louisiana State University system would own the hospital. The facility will be leased to an independent governing board that would issue the revenue bonds.
Vitter said a better option would be to gut the old Charity and rebuild a new facility within the existing shell. If a hospital is to be built, he said, it should be smaller than the current proposal.
“A modern teaching hospital should have been rebuilt by now,” he said. “Much of the delay is the result of the state’s insistence on building an unsustainable mega-Charity that threatens to saddle state taxpayers for years to come.”
In his letter to HUD, Vitter said the proposed new hospital would have a hard time filling the greatly increased number of beds.
“The current interim hospital has about 206 inpatient beds filled and is far from fully occupied,” he said. “The $1.2 billion proposal before you nevertheless increases that number of beds to 424, a jump of over 100%.”
Fred Cerise, LSU’s vice president for health affairs, said a smaller hospital would not be able to provide the specialty teaching opportunities needed at an academic medical center. He said renovation of the old Charity would be unsuitable and more expensive than a new facility.
Robert Yarborough, chairman of the hospital board, said the new financial report should resolve Vitter’s concerns.
“Some of the senator’s questions are exactly why our board commissioned a study to analyze the size and scope of this project,” Yarborough said. “We look forward to seeing the final results of that study.”