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.
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.
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):
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.
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.