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Erie County control board likely to finance ECMC's new trauma center

Erie County leaders appear to have found a way to finance Erie County Medical Center's new emergency department and trauma center and sidestep critical legislators who blocked an earlier hospital borrowing request from County Executive Mark Poloncarz.

The new plan calls on the county control board, not Erie County government, to borrow $100 million on ECMC's behalf. The control board offers the cheapest borrowing option for the hospital because of its high bond rating.

"The current proposal that is on the table is affordable, is the least expensive option, and makes the most sense to ECMC," said hospital CEO Thomas Quatroche. "All of the debt and all of the payments sit on ECMC's books. There's zero cost to the county. And in fact, we've offered to assist the county with their budget."

In exchange for the county government's assistance in brokering the deal, Poloncarz still wants ECMC to give the county millions of dollars that would be used over the next few years to offset the county's heavy financial burden to the hospital for expenses associated with the care of poor, uninsured and underinsured patients.

Without that money, Poloncarz said this week, a percentage of the county budget earmarked this year for roads and bridges, arts and cultural groups, and senior and youth services would need to be temporarily frozen until late in the year, and possibly eliminated.

The hospital is agreeable to giving the county the cash, roughly estimated at $23 million, but some legislators continue to criticize the arrangement as a "scheme" meant to camouflage unsustainable spending by the county executive.

"If we're using these one shots to fill recurring expenses, that's financially irresponsible," said Legislator Edward Rath III, R-Amherst.

The complex issue has garnered heightened attention, not only because of the hospital's expressed need for modernized and expanded emergency facilities, but because county arts and cultural groups have grown increasingly worried about a potential loss of funding if the hospital borrowing deal falls through.

Poloncarz said he intends to submit a "declaration of need" for the County Legislature's consideration next week. If approved, the declaration would give the control board the authority to borrow money on ECMC's behalf. Approval of the declaration also appears to only require a simple majority of the 11-member Legislature, unlike the original plan to have Erie County borrow directly for the hospital, which required a two-thirds majority.

Seven members of the 11-member Legislature -- all five Democrats and two in the Republican-supported majority -- supported Poloncarz's original plan. Four remaining majority members opposed the deal, criticizing it as a "smoke and mirrors" attempt by the county executive to cover excessive spending.

Under the original proposal, the county would have borrowed $100 million on the hospital's behalf because it can borrow at a lower interest rate than the hospital could. ECMC would have agreed to pay off the loan over 30 years and give the county an upfront cash equivalent of the savings it realized. The borrowing plan would have paid for ECMC's construction and renovation projects, including a new $45 million emergency department and trauma center, and millions more for new energy projects and improvements to the building's exterior.

The control board, formally known as the Erie County Fiscal Stability Authority, can borrow money even cheaper than Erie County because of its better bond rating. But it could not float a 30-year bond for ECMC because the advisory board is slated to go out of existence in 22 years. Hospital leaders said they could not afford to repay a $100 million bond in that short a time period.

But after Poloncarz's borrowing plan failed by one vote last week, the control board reached out to the hospital and offered a plan to borrow $100 million for ECMC over 22 years and to make that debt service affordable by refinancing the debt for ECMC's Terrace View Long-Term Care Facility and extending the term of the loan by about three years, Quatroche said.

"That's great," he said. "That works for us."

The latest 22-year borrowing plan through the control board would cost the hospital $149.7 million in overall debt service. That's nearly $32 million less debt ECMC would  incur borrowing under Erie County's original 30-year borrowing plan because of the shorter loan term and the control board's higher bond rating, according to a spreadsheet Poloncarz provided.

But under the new plan, the hospital's annual debt payments would be $490,000 higher because the debt has to be repaid more quickly.

It's up to county officials to consider Poloncarz's request that ECMC help pad Erie County's budget in exchange for the county authorizing the control board to borrow the money, Quatroche said, "That's a decision between the county executive and the Legislature," he said. "ECMC stands ready to assist the county because we're in a financial position to do so."

Legislature critics said that if Poloncarz really wants to help ECMC, he'd let the hospital keep all of the savings related to the borrowing deal instead of asking the hospital hand over the difference between what the borrowing would cost through the control board and through the open marketplace.

But Poloncarz said the county not only needs the money to help cover its costs over the next few years, but that if the hospital realizes savings through the county's assistance, then county taxpayers should be the beneficiaries of that savings. He pointed out that the Legislature unanimously supported a similar maneuver in 2011 to finance the construction of Terrace View, though that transaction was more complex.

Control board president James Sampson said his board has no role in whether the county gets cash back from the hospital in exchange for the county authorizing the Fiscal Stability Authority to borrow the money. He said the control board is most concerned that the county have a viable plan for balancing its budget this year and presenting a sound four-year fiscal plan. Sampson said, however, that he considered it "unwise" to use up all the money provided by ECMC over a short timeframe.

"That's different than what he told me," Poloncarz responded.

Poloncarz added that it falls to him and his budget office to present a sound budget and four-year fiscal plan to the Legislature and the control board, and that's what he intends to do.

Legislator Lynne Dixon, I-Hamburg, who caucuses with the Republican-supported majority, said she wants to hear more about the latest plan and remains concerned about the county's long-term budget health. But as chair of the Health and Human Services Committee, she recognizes the long-term needs of the hospital and the short-term needs of the county.

Both she and Legislator Kevin Hardwick, R-City of Tonawanda, voted in favor of Poloncarz's original borrowing proposal, along with all Democratic legislators. Majority Leader Joseph Lorigo, C-West Seneca, and legislators Ted Morton, R-Cheektowaga; John Mills, R-Orchard Park, and Rath voted against it.

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