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BACK-DOOR BORROWING
ECMC TRANSACTION LOOKS LIKE A DEAL THE COUNTY MADE TO HELP BALANCE ITS BOOKS

The seesaw arguments about Erie County Medical Center, its debt and its transformation into a public benefit corporation are as much the point of a new audit by the state comptroller as they are a distraction from the point, which is this: Erie County used the hospital as cover to borrow $101 million that went to fund the county's routine operating expenses.

When Albany does that, using one of the many state authorities, it's called back-door borrowing.

This is not a health care issue. ECMC was merely the conduit; a plausible pass-through agent whose interests were neither helped nor harmed by this county scheme. Whatever harm is caused will be borne by the taxpayers of Erie County, who are on the hook for a loan whose main purpose was to postpone the fiscal crisis that is on their doorsteps today. It is perhaps only coincidental that by delaying the crisis into the 2005 budget, the issue did not arise during Joel Giambra's re-election campaign last year. Perhaps, but not likely.

The Giambra administration, which pushed for this loan, portrays it as a matter of financial hygiene, a necessary consequence of the change in ECMC's governance model. The line of thinking is that the hospital, over a number of years going back to the Gorski administration, had accrued a debt to the county of $53.7 million, and that the county was properly extracting that money before setting the hospital up as a public benefit corporation.

But there are two problems with that theory:

The hospital required an annual subsidy of more then $20 million from the county, meaning it could never be expected to repay all that money. The $53.7 million was a loan in name only, recorded as such by both the Gorski and Giambra administrations, because it helped balance the books. Some of that money may have been recoverable, but not all of it, and it should have become the hospital's debt, not the county's.

The county didn't borrow $53.7 million, it borrowed $101 million, nearly double the amount it claimed the hospital owed. The difference, according to the county, included the hospital's $22 million long-term debt and other costs. But Erie County, not the hospital, is going to repay the $101 million.

So, what we have is this: The county is going to repay a loan the hospital took out to settle a debt to the county. (Next time you fall behind on a debt, tell the bank president you'll catch up by borrowing more money, as long as he pays it off for you. Best of luck.)

The bonding was approved by the County Legislature, but not without bipartisan criticism. Albert DeBenedetti, D-6th District, and Barry Weinstein, R-15th District, both said the county was using the hospital debate to disguise the fact that it was borrowing its way out of financial trouble, if only temporarily. Both endorse the critical audit by State Comptroller Alan Hevesi.

The audit also criticized the hospital for failing to produce a five-year business plan, as it was supposed to do. It's a fair criticism, but in the end, separate from the issue of the loan. If the loan ultimately had no impact on the hospital, the absence of a plan does hurt. Without it, ECMC cannot hope to take advantage of the opportunities its new status is meant to create.

All in all, a bad start.