How Fast is UMC Paying Down the EPCH Bond?

UMC has finally posted their audited financials for 2015 and we thought we would take a look at how quickly the El Paso Children’s Hospital Bond was being paid down.  The bond was issued in 2008 for $120.1 million dollars.  Seven years later, care to guess how much money is still owned?   $114.3 million!  That means that UMC has paid down $5.8 million or $.83 million,less than 1 million a year.  At this rate, it will take UMC 145 years to pay off the Children’s Hospital.  Why aren’t they paying this down faster?  Why aren’t they using the rent money from Children’s to help YOU get out of debt?  Next time you see Jim Valenti, why don’t you ask him.

How Is The Bond Paid Down?

We pulled this graphic from the El Paso County Web Site (here).  The entire document was created to talk about the 2015 property tax rate.  We pulled out the debt portion that talks about the bonds that are currently being paid by UMC.  Interesting to note, bonds paid by the Hospital District are NOT paid by the Tax Assessor’s office.  Instead, your property taxes are given directly to UMC who then decides how to allocate the money based off of the budget that was approved by the County Commissioners Court.

2008A General Obligation Bonds is the $120 million for the El Paso Children’s Hospital.  If you look closely, you’ll notice that only 27% of total that they are paying on that bond goes toward actually paying it down, 73% of the money goes toward paying interest.  We know that the rent from the El Paso Children’s Hospital goes into UMC’s general fund.  If even a portion of that $6 million were used to pay down the bond, think how much faster YOUR property taxes could go down.

We Were Wrong

An eagle-eyed reader pointed out an error that we made in our post Rent, On Demand.  Our graphic stated that UMC got approximately $7 million a year in property taxes.  Actually, that should have been $7 million a MONTH in property taxes.  So, that means that UMC receives $7 million a month in property taxes as well as $650,000 a month from El Paso Children’s Hospital for rent + base rent.

Property taxes are being used to pay down the bond, at a very slow rate. On a $120.1 million bond, UMC has managed to pay down a little less than $4 million in 6 years. According to UMC CFO Nunez in his second deposition (document page 184), the rent that is being paid by El Paso Children’s Hospital would eventually go toward depreciation but currently just goes into UMC’s general fund (bolded letters are Nunez, non-bolded is EPCH lawyer asking questions):

Nunez Depo

So, there is no separate fund for the depreciation, no way these funds are segregated out for this time in the future when the building needs repairs.  This money just goes into UMC’s general funds to be used for… whatever.  What is to keep UMC from spending this money now and then raising taxes or additional bonds later to pay for repairs on the building ?  They should be segregating the money into a separate account and using AT LEAST a portion of it to pay down the bond.

By Request

In June of this year the El Paso Chamber of Commerce issued a letter to then El Paso Children’s Board Chair, Rosemary Castillo.  In it they asked “the leadership of both UMC and El Paso Children’s Hospital to put their differences aside to come to a solution that: 1) will be financially sustainable, 2) in the best interest of the children of our region, and 3) and will not impose an additional burden to the taxpayers of El Paso.” You can read the entire letter here. Since that time, UMC, El Paso Children’s and the County Commissioners Court have come to an agreement on a plan.  But does that plan fulfill the requests set forth by the El Paso Chamber?

  1. Financially Sustainable – if you have been following our posts, you will see how UMC was taking money from the Children’s Hospital at every opportunity:  Rent, Overcharging on contracts, even El Paso First was under reimbursing EPCH. Finally, there is the matter of the County Commissioners choosing control over the Children’s Hospital INSTEAD of Money.  If things don’t change, we’re going to rate this one as a big fat NO.
  2. Best Interest of the Children – this is a fuzzy one.  There will still be a children’s hospital, so we’re told.  However, it depends on how that hospital continues as to whether or not the physicians stick around.  We’re going to rate this one a MAYBE.
  3. Additional Tax Burden – HA!  We’ve spoken at great length about how UMC and the County Commissioners have decided to maintain control instead of allowing EPCH to have a higher reimbursement rate.  In fact, you can read Veronica’s letter about this here.  They think it will be ‘a wash’ but they don’t know.  So far, it looks like the hospital is being set up to fail… again.  Just like the last 3 years, expect anything that is going wrong at UMC to be blamed on El Paso Children’s Hospital.  So, just like #1, if things don’t change, we’re going to rate this one a big fat NO.

So far, it isn’t looking that great for the Chamber of Commerce’s requests.  There is still time, UMC and the County Commissioners can still fix this.  However, the clock is ticking and January 8th is rapidly approaching.  After that date, many of the items set in motion can no longer be corrected.  Hold onto your hats, folks, it’s going to be a bumpy ride!

A Bond Is Like A Mortgage

According to UMC’s audited financials from September 2014, pg 42, “The outstanding balance was $116.335 million and $118.255 million at September 30, 2014 and 2013, respectively.”  So, on a $120.1 million bond, UMC has managed to pay down a little less than $4 million in 6 years.

For the majority of us, when you buy a house you have to take out a loan.  That loan has an interest rate and a time frame associated with it (for example, 7% over 15 years).  When you apply for the loan, the bank calculates what your monthly payment is going to be and that is a mixture of interest, property taxes and principle (money that goes directly to paying for the house).  Any extra money you pay each month goes directly to the principle and pays down the house faster so that you pay less for the house in the long run.

It is the same with a bond.  When UMC ‘issues’ a bond, they are basically taking out a loan that has interest and a time frame.  They are committing to take the property taxes that they receive from you and using those to pay down the interest + principle on that loan.  Any extra money that they pay goes directly to the principle and pays down the bond faster so that YOU pay less for the bond in the long run.  As part of the deal with EPCH, UMC will be receiving $6 million a year in rent.  Imagine how much faster that bond would be paid down, how much less money you would pay for it if that rent money was being used to pay the principle.

Right now, we’re being told that the money is being saved for ‘depreciation’ with no indication that it will be held in a separate account or when/how that money will be applied to the EPCH building.  But, use the rent money to pay for the bond and, for tax payers, the burden of paying for the $120.1 million bond will be relieved MUCH faster, allowing our property taxes to go down that much sooner.

New Rabbit, Same Hat

In 2007 the tax payers of El Paso passed a $120 Million bond to establish an independent and separately licensed Children’s Hospital.  At the time, it was decided to build the El Paso Children’s Hospital on the UMC campus and to employ a Hospital-Within a-Hospital (HwH) concept. However, if the rules of the HwH model are not followed, EPCH could lose some of its funding from Medicare and Medicaid which would no longer make it viable and it could lose its separate license.  If that happens, the intent of the bond would not be satisfied and UMC could have to pay it back.

Hospital-Within A-Hospital (HwH) is an interesting concept.  To ensure that two hospitals occupying the same location are not trying to ‘game’ the system by transferring a patient back and forth, CMS (the Centers for Medicare and Medicaid Services) has put some regulations into place:

  1.  “CMS regulations require a high level of organizational separation between host hospitals and HwHs, including separate governing bodies, separate chief medical and chief executive officers, and separate medical staffs” (https://www.law.uh.edu/healthlaw/perspectives/(SC)LTCHWHrev.pdf)
  2. CMS also requires financial independence “the cost of services that an HwH obtains from its host hospital must not exceed 15% of the HwH’s total inpatient operating costs.” (https://www.law.uh.edu/healthlaw/perspectives/(SC)LTCHWHrev.pdf)

UMC and EPCH need to have COMPLETELY separate boards and they need to quickly straighten out the service contracts.  Having an interlocking board (i.e. one or more members who are on both boards) is playing with fire.  Service contracts that exceed 15% of the inpatient operating costs are tempting fate.  Charging rent and not using that money to pay down the bond is just criminal. Doesn’t it behoove UMC to use the EPCH rent money to pay down the bond as quickly as possible to protect the El Paso Tax Payers?

Bankruptcy is supposed to be a clean slate for the organization, an opportunity to correct the mistakes that were made before.  To us it would appear that old mistakes are be propagated into the future and new ones are being added.

Rent, On Demand

We understand that there is a deal between UMC and El Paso Children’s Hospital and that it will be confirmed next month.  What we don’t understand is, why is El Paso Children’s Hospital still paying rent??  Yes, we’ve heard the rhetoric that it is for depreciation, but doesn’t the additional $150,000 that El Paso Children’s is paying cover that (we wrote about that here)?  Also, if UMC is going to continue to DEMAND rent from the El Paso Children’s Hospital, why isn’t that money being used to pay down the $120 million bond?  UMC has the ability to actually save the tax payers some money in interest by paying down the bond faster.

Clearly the County Commissioners believe the rent is required, they were intimately involved in the negotiations between UMC and El Paso Children’s Hospital.  However, why are they not advocating for using that rent to pay down the bond and, thereby, saving the tax payers money in interest costs?  Using the rent money to pay down the bond faster is one way in which they could ensure that the El Paso Children’s Hospital is not a burden on the El Paso Tax Payers.

Never On My Mind

Veronica Escobar, really likes using the word never, particularly when it comes to talking about the rent for the Children’s Hospital. Below are some tweets she’s recently sent out. She claims that the Children’s hospital NEVER paid rent. However, the audited tax reports that we found had the following statement in them: “… all monthly rental payments are current as of February 1, 2013.” (http://elpasochildrens.org/…/06/2012-EPCH-990-Tax-Return.pdfpg.17 of the Auditors report). That means that, at least for the first year, EPCH was actually making rental payments. So, if Veronica is claiming that rental payments were NEVER made but the Auditor’s report claims otherwise, WHERE DID THE MONEY GO?

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Update:  This was originally published on our Facebook page on 10/3/15.