If Voters Approve Transfer, New Hospital Will Be Built
To The Editor:

Recently there have been statements doubting information that Mackinac Straits Hospital has made available to the public. It is vital that the voters have accurate information about transferring ownership of the hospital to a private corporation in order to build a new facility.

An issue has been raised about the debt-to-capitalization ratio of the planned United States Department of Agriculture (USDA)-guaranteed low-interest loan. The percent of indebtedness is 86%, which is not uncommon in financing. Individuals frequently borrow 90 to 95% of the value when initially purchasing or building their home. As a percent of total assets, debt is 71%. Both of these figures are confirmed by a feasibility study for the initial year of the new hospital's operations.

The debt to capitalization, which is what most finance markets consider, is high compared with the industry norm, but that is why we sought and received a USDA guarantee. There is no doubt that this is a highly leveraged transaction, but the cash flows are sufficient to service the debt. For the year ending March 31, 2011, the projections show our ability to cover debt service is 105%. For 2012, our debt service coverage increases to 153%.

The lack of net assets at the start of the project is in large part due to showing a $1.4 million loss on our forecasted financial statements to account for the 1994 Long Term Care building addition bond payment. This bond obligation has no offsetting asset in the feasibility study.

In case of financial distress, most of the loans are guaranteed by the USDA. In case of default, which we emphatically do not anticipate, the USDA will step in and make the payments. This is a significant safety net that should not be overlooked. The USDA approved the financing and they were satisfied with the arrangement. This is not a liability that is being placed on the community or the taxpayers.

Another recent allegation suggests that the USDA could have loaned the funds for the new building to the present Mackinac Straits Hospital Authority. That is correct, but not without obligating the taxpayers of the hospital authority for the entire debt.

As a municipal hospital corporation under Act 47 of 1945, the authority has limited powers.

It can only take the actions and has the powers set forth in its authorizing legislation. There is no authority in Act 47 for granting mortgages. The authority can only borrow and issue notes on a shortterm basis, maturing in one year or less, and only for operation and maintenance expenses.

The act allows the authority's member units - the City of St. Ignace and Brevort, Moran, and St. Ignace townships - to levy a tax of up to 0.4 mills to pay for annual operating expenses. That is not enough to operate the current hospital and make required improvements, and it could never begin to contribute to building a new facility.

Arbor One, a USDA-certified lender which will provide the USDAguaranteed loan, requires a mortgage as a condition of the loan. It would be very difficult to request financing for a new facility and not include the property in the financing. As a private entity, the new corporation will have the ability to grant a mortgage, which the current authority cannot do. With the mortgage in place, Arbor One will proceed with the loan so the new hospital may be built.

From the beginning of this process we included current and former legislators, the former director of the Michigan Department of Community Health, and attorneys from Miller, Canfield, Paddock and Stone, Kelly-Cawthorne, and Brown and Brown in advising our board on the correct path to secure funding for our new facility. Congressman Bart Stupak, Senator Debbie Stabenow, and Senator Carl Levin urged the USDA to approve the loan guarantees.

Our goal is to be very open about the facts. As part of this effort, we have mailed extensive information to the voters so they will have the complete facts before them. It is disturbing to see this information being used to cast doubt on a project that will secure the Straits area's healthcare for future generations.

If the voters approve the hospital transfer on May 6, the new hospital will be built at no additional expense to local taxpayers. If the voters reject the transfer, we will be foreced to cut costs, reduce services, lay off employees, and increase taxes to pay for required improvements to our outdated current facility.

The entire hospital staff appreciates the community's support throughout the years. We look forward to continuing to serve the community's future healthcare needs.

Rodney M. Nelson, CEO Mackinac Straits Hospital

St. Ignace