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ECMC to retain subsidy Judge's ruling means problems for county coffers

A State Supreme Court judge ruled Friday that Erie County government is obligated to subsidize the Erie County Medical Center, even after it was spun off to a new public benefit corporation in 2004 with the goal of making it self-supporting.

Justice Joseph G. Makowski's decision has multimillion-dollar implications and could affect just how "temporary" the looming half-cent increase in Erie County's sales tax rate will be.

The January increase to 8.75 cents on the dollar was, in theory, to expire late in 2007. But unless the government can find other savings, officials might have no other way to support ECMC without the half-cent tax remaining through that year.

The sales tax increase could remain under other scenarios as well -- even with an out-of-court settlement between ECMC, the County Legislature and the Giambra administration. One negotiated deal, put on the table before Makowski ruled on Friday, would give ECMC $8 million more in operating aid than county budget-makers had planned in 2007. And that assumes the hospital can save $15 million from its work force.

That five-year deal featured a gradual decline in taxpayer-provided operating support but was not ratified by the County Legislature in the waning days of its 2005 session. Without a ratified settlement, county officials had no way to deter Makowski from ruling before year's end, as he had vowed to do.

Makowski stated that Erie County must support ECMC in serving "all uninsured and under-insured patients, foster its role as a teaching hospital and provide tertiary care services that are unavailable at other facilities in Western New York." The ruling gives the Giambra administration more reason to bargain with ECMC and sell the deal to legislators.

>Various options remain

County Attorney Laurence K. Rubin indicated the prior deal could be put before the new Legislature, in which nine of the 15 members will begin their first terms in January. But Rubin said the county has other options, including an appeal, which he will discuss with County Executive Joel A. Giambra and lawmakers.

An appeal would throw the hospital into limbo for months. Hospital CEO Michael Young and his lead attorney, Anthony J. Colucci III, spoke favorably Friday of a possible settlement akin to the five-year deal that had been described to some lawmakers behind closed doors Dec. 16.

The Legislature's new chairwoman, Lynn M. Marinelli, D-Town of Tonawanda, said Friday that she is committed to resolving the issue in January, assuming Giambra puts a proposal before the Legislature.

As for 2006, the county should have enough money to subsidize ECMC. County officials are securing five more years of the payments that the nation's large tobacco companies will give Erie County under a 1998 agreement. Erie County will accept $15.6 million in trade now for a future asset that will be worth an inflation-adjusted $45 million.

In his ruling, Makowski referred to the section of the New York Public Authorities Law that in 2004 put the hospital and its nursing home in Alden under the control of a new public benefit corporation. That change freed the hospital from certain state rules that barred it from partnering with physician groups and other businesses in moneymaking ventures.

The new nonprofit entity would borrow $101 million to buy the hospital and nursing home from the county, and the county would pay off the $101 million loan over 30 years through its annual subsidy.

State Comptroller Alan G. Hevesi later panned the transaction as being a way for the county to balance its books rather than getting the hospital off to a good start. Indeed, the sale delayed the county's financial meltdown by one year.

>Not so easy a target

When the budget trauma of 2005 arrived, ECMC became a fat target for budget cutters trying to close a gaping deficit. They cut a $29 million operating subsidy to $19 million, and the hospital filed suit. In preparing the 2006 budget, Giambra cut the subsidy by about $13.5 million, granting ECMC just enough to cover debt service on the loan, about $6 million.

The county's lawyers argued the county had agreed to maintain the subsidy "subject to the annual budgetary process," so ECMC was like other departments that had to tighten their belts.

Makowski saw it differently. He ruled in September that county officials were obligated to provide $18.37 million for ECMC's capital improvements for 2004 and this year. Reading from his 45-page decision Friday, he said, "Erie County shall maintain and provide an operating contribution to ECMC in an annual amount that is the difference between the corporation's total revenues minus total expenses."

He also said ECMC may have been harmed this year when its subsidy was cut by more than $10 million. He scheduled a trial for Jan. 23 to examine that question.

Giambra and ECMC officials agreed the operating subsidies needed to end, but they differed in how quickly that could be done. Young, who took over as CEO early in 2005, said the public-employee contracts that were negotiated by officials at County Hall, not ECMC, hamstrung the hospital's competitiveness.
Young was gratified that the judge recognized ECMC was not like other county departments.

"We are very, very happy," Young said outside Makowski's courtroom Friday. "This was a complex scenario. The judge spent a good amount of time and energy coming to this decision. This pretty much vindicates our position."


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