DALLAS — The University of Texas System has approved building an $800 million hospital at its UT Southwestern Medical Center in Dallas that will be financed largely through revenue bonds.
Hoping to take advantage of low interest rates on municipal debt, the Board of Regents approved the plan Thursday. They intend to start construction next March and complete the project in September 2014. Regents are aiming for a fixed rate of less than 4% on the capital they borrow for the project.
The 12-story, 424-bed facility is designed to replace the aging University-St. Paul Hospital that is connected to the medical school. Construction will coincide with building a replacement for nearby Parkland Hospital, Dallas County’s public hospital that is also affiliated with UT Southwestern.
Parkland, rated AAA by Standard & Poor’s and Fitch Ratings, last year issued $705 million in three series of limited-tax bonds for the hospital complex that is expected to cost nearly $1.3 billion. The Parkland deal included about $680 million of Build America Bonds — $222.5 million of 10-year par call BABs and $457.7 million of make-whole call BABs — and about $25 million of tax-exempt bonds.
UT officials are hoping rates for the new hospital are comparable to Parkland’s.
“We secured an overall average interest rate of 3.71%, significantly less than the 4.5% interest rate assumed in the original financing plan,” said John Dragovits, Parkland’s executive vice president and chief financial officer.
The new UT Southwestern hospital will not use any tax-backed debt, but will include revenue bonds backed by hospital revenues, the regents said. As with Parkland, private fundraising is expected to supplement the bond financing.
“Like Parkland, the University Hospital-St. Paul has well served this community for more than five decades but now needs to be replaced and modernized,” said Dr. Ron Anderson, president and chief executive of Parkland. “The opportunities for future collaboration, faculty development, and shared technologies stand to benefit the patients and the physician trainees of both institutions for future decades.”
Approval of the plan was accelerated to take advantage of favorable interest rates, according to system officials. The Board of Regents authorized planning for the new hospital in November. The Texas Higher Education Coordinating Board will meet in September to consider its final approval.
St. Paul, which opened in 1963, will remain open during construction of the new hospital on a 32-acre tract nearby, officials said.
Three buildings will have to be demolished to make room for the new structure. In addition to the patient beds, the new hospital will have 24 operating rooms, 40 emergency rooms, a helicopter pad, and a 450-car parking garage.
When the new Parkland is completed, the original hospital will be demolished, officials said. The fate of the old, 271-bed St. Paul Hospital has not been announced.
Voters in Dallas County approved the Parkland bonds in November 2008, with 82% of the votes in favor, despite the tumbling economy. The Parkland project includes an 862-bed hospital, outpatient center, office center, and parking.
The Parkland financing plan includes $350 million from the hospital’s current and future cash reserves and $150 million in donations raised by the Parkland Foundation. Construction is planned to begin in early 2011.
