As a condition for the guarantee of support, the freeholder board has asked the city of Bayonne to authorize a redevelopment study for the garage property, as well as sign on as the first level of guaranteeing the loan if the BMC should default on it.
This would mean that if BMC defaults, the city would pay off the loan and could use the property redevelopment as a way of paying the loan back.
"Should the area be determined to be an area in need of redevelopment, a redevelopment plan could include alternative uses for the site that would make it more valuable to potential developers in the unlikely event of a default by the hospital, thus providing an additional layer of security," HCIA Commissioner Steve Gallo said.
A public hearing for an ordinance that would have the city of Bayonne sign on as first to guarantee the loan will be held at the March 21 City Council meeting.
Fearing that the worst might happen to the hospital and leave the city to foot the repayment of the loan, Councilmen Gary LaPelusa and Anthony Chiappone want to review the turnaround plan proposed by the hospital before they vote in favor of the guarantee.
The freeholders, meanwhile, introduced their own ordinance on March 8 that would provide a second level of protection against a defaulted loan by having the freeholders also offer possible backing of the $9 million loan as well.
"We did not want to be the first in line for paying back the loan if something went wrong," O'Dea said.
Report showed problems and possible solutions
Jim Lawler of JPL Healthcare Consulting conducted the independent analysis of BMC finances earlier this year and found that the hospital had lost $6 million in 2006, adding to the more than $12 million in revenue shortfalls from previous years.
But the report said hospital administrators underreported the losses in 2006. They said the hospital was running less than $1 million in the red, while the mounting debt was more than $18 million and no one had taken preventive action. The report said BMC could be short as much as $23.6 million by the end of 2007.
However, the report noted areas of hope for the hospital's recovery.
"BMC is currently in a liquidity crisis," the report said in reviewing the hospital's cash-flow situation. "There are plans to sell and lease back the parking garage, and the financing of accounts receivable is also being explored. If consummated, BMC will have an infusion of working capital that will have an opportunity to implement a recovery plan."
But the report went on to say that even with additional financing, the hospital will have to change some of the ways it operates.
County sees hospital as worth saving
Although the bonds would be issued by the Hudson County Improvement Authority (HCIA), the redevelopment designation would allow the county to recoup its money through development of the garage site if BMC should default.
Freeholder Bill O'Dea said the hospital bailout was necessary, but hospital bailout is an area new to the county.
"We know the hospital needs the loan to keep it open and we want the hospital to stay open," O'Dea said. "While this is uncharted area for us, we have to put common sense over dollars and cents. If we look at this, there is an overriding need to have a hospital in Bayonne, which is a peninsula with a population of more than 65,000 people."
Paul Swibinski, spokesperson for the BMC, said the loan is part of a much larger and badly needed infusion of cash for the hospital, and he sees no obstacle in the City Council.
"Without [Mayor Joseph] Doria and also HCIA Commissioner Steve Gallo pushing hard for this deal, the HCIA would never have touched it," Swibinski said. "This is one of the most important parts of the hospital's financial plans."
Under the loan from HCIA, the hospital would receive $9 million to meet its current revenue shortfalls, and in turn would repay the loan over 25 years at $800,000 a year.
A review of BMC's finances released in February showed a deteriorating financial situation due to declining admissions.
Members of the Coalition to Save Bayonne Medical Center had pressed for the review after a series of cutbacks were initiated by hospital management in 2006. But apparently, the board of trustees at the hospital did not learn the full seriousness of the situation until after the resignation of President and Chief Executive Officer Robert Evans in November.
"Until then, the board had been presented with a rosy picture of the hospital finances," Swibinski said. "Once we learned the true situation, we implemented a plan to restore the hospital to financial health."
A report to the freeholders on hospital finances shows that hospital assets are projected to drop from $108 million in December 2006 to $96 million by the end of 2007. If unchecked, projected total assets for the hospital are expected to continue to drop until reaching a low of $71 million by December 2011. Although total liabilities are also expected to drop during the same period, hospital forecasts showed they will drop at a slower rate so that the hospital will see total liabilities exceed total assets by $4.6 million by the end of 2008 and continued in less steep declines in the years after that.
"Our $9 million loan to Bayonne Medical Center is only one piece of the puzzle to keep the hospital open," O'Dea said.