Allen County Hospital trustees selected UMB, a Kansas City, Mo.-based bank, to sell the bonds for a new hospital at their meeting Tuesday evening.
UMB was in competition against Piper Jaffray, the investment service that participated in last summer’s Master Plan Report that concluded a new hospital was economically feasible for Allen County.
Representatives from both firms gave hour-long presentations about their ability to market Public Building Commission bonds to build the $25 million facility.
A majority of trustees settled with UMB in part because of its willingness to also finance outright the $5 million needed in startup capital at a 1.25 interest rate, while Piper Jaffray could not.
“They can do that because they’re a bank, while in the traditional sense, Piper Jaffray is not a bank, but an investment bank which does not collect deposits and turn around and make commercial loans with that money” explained Jim Gilpin, a banker, who attended the meeting.
Gilpin also said that local banks would defer to UMB’s offer to finance the startup capital, saying they could not compete with UMB’s low interest rates.
UMB representatives Scott Crist and Philip Richter said they could offer the low-interest loan as a revolving loan that comes due each year. The loan is then renewed annually at the going interest rates for tax-exempt securities, which banks can secure for municipal buildings such as hospitals and schools.
Gilpin said his bank, Community National Bank, could offer such a loan at a 2 percent interest rate.
The advantage of the revolving loan is today’s extremely low interest rates, which even if they rise, most likely would not offset the savings seen in the near term.
“Interest rates would have to go sky high,” for it to be a disadvantageous means of financing, said Chuck Wells, the financial adviser hired by Allen County commissioners to help trustees make such decisions.
And if trustees get nervous about interest rates, they can go to a fixed-rate loan Wells said.
Both firms offered identical fees for their services, a .75 percent rate on the bonds issued. UMB said it would charge a .65 percent rate on the $5 million note.
Wells said the rate was very favorable. Most firms charge a 1 percent fee, he said.
Both bidders also said the Public Commission Bonds would sell quickly.
“I’d say within two hours,” UMB’s Crist said.
The bonds are especially attractive to investors because of Allen County’s low debt load, Gilpin said.
Allen County has $2,435,000 in indebtedness. For a comparison, Neosho County to the south has a total bonded indebtedness of $15,509,895.
Buy-in from individuals in the community for the bonds would be in $5,000 increments, Crist said.
Payback of the bonds will come from two sources: hospital income and dedicated sales tax proceeds from Iola and Allen County. Iola has committed a half-cent sales tax and the county a quarter-cent sales tax to the hospital’s construction and operation for the next 10 years.
ON OTHER MATTERS, trustee Tom Miller reported he had met with City of Iola officials about the overhead power lines that line Monroe Street and the possibility they could be buried. Monroe Street divides the land hospital trustees are investigating for a possible site for the new hospital on the east side of town.
Miller said Corey Schinstock, assistant city manager, said he thought the power lines could be taken underground by city crews.
Miller also believes the sewer line that runs along Monroe and services Gas City to the east may go under property chosen for the hospital and may have to be relocated to assure access to it by city crews in the future.
Jay Kretzmeier said a letter to prospective land owners had been sent expressing the desire of trustees to schedule individual meetings with each to discuss the hospital project. Those discussions should begin soon, he said.
Trustees met in executive session for about five minutes to discuss land acquisition.
A few responses have been received by appraisers to submit requests for proposals (RFPs) to appraise the desired land, Kretzmeier said. They have until Friday to submit their requests.
Trustees agreed to send RFPs out to prospective accountants at the beginning of the new year. An accounting firm should be on hand by February or March, Wells advised. Their role will be to conduct a financial analysis of the hospital and its expected income. They’ll also conduct the hospital’s annual audits, Weber said.
Wells also said trustees are making decisions typical of hospital administrators and advised them “not to get used to it. You’re doing a lot of CEO-type stuff,” he said, and that until a hospital management team is in place, “it’s going to be a weird, weird six months.”
Trustees meet again at 7 p.m. Tuesday in the courthouse assembly room. All meetings are open to the public.
