Trustees of University Health System in San Antonio voted last week to recommend a 2% increase in the property tax rate to help support $472 million of general obligation certificates of obligation sold by the Bexar County Hospital District in the past 12 months.

The hospital district raised the property tax rate by 9.9% last year to help finance a $900 million expansion effort. The higher rate was to provide sufficient revenue for debt service on a $290 million sale in September 2008 as well as last month's sale of $282 million.

The 30-year certificates are rated Aa2 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings.

Chief financial officer Peggy Deming said another rate hike is needed because of a drop in property values over the past 12 months. The Hospital District had assumed a 5% increase in valuations this year, but assessed property values dropped by 2%.

Deming told the trustees that the district is using $12 million from its operations budget this year to help support the debt, and will spend $120 million of its reserves on the capital program.

District officials expect to issue a total of $751.2 million of debt for the $900 million expansion and renovation effort.

Bexar County commissioners opted in June 2008 to issue the debt as certificates of obligation rather than call an election for voter approval of general obligation bonds. Before the sale last year, the district had not issued tax-supported debt since 1965.

The district's primary service area is Bexar County, but it provides medical and hospital care to a 22-county service area in central and south Texas.

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