A sales tax disbursement agreement approved Monday by Iola City Council members moves Allen County one step closer to being able to sell $25 million worth of bonds in support of a new Allen County Hospital, but still leaves some questions unanswered.
Council members unanimously approved the agreement, which forwards as much as $350,000 in city sales tax revenues in support of the hospital up through 2019.
The new disbursement agreement conforms to the original agreement from 2010 between former Iola city commissioners and Allen County commissioners.
The original agreement says that a portion of the sales tax revenues would be refunded to the city if the hospital does “better than expected” financially. However, how much would be refunded, and the triggering mechanism for the refunds, were left undecided.
The city’s $350,000 annual contribution will go toward paying off $5 million in bonds that will be used as startup capital once the new hospital is built. Allen County voters approved another quarter-cent sales tax boost in November 2010 for the hospital.
THE VAGUE language of the 2010 agreement is what Alan Weber, legal counsel to Allen County and the hospital trustees, had hoped to eliminate.
Hospital trustees set three criteria be met before any rebate of the city sales tax would occur:
1. That the $5 million loan for startup capital be paid to UMB;
2. That the earnings for any particular year would be 1.75 times the EBIDA. The acronym stands for Earnings Before Interest, Depreciation and Amortization.
3. That the hospital have 100 days’ of operating cash on hand.
“The cash flow of the hospital must meet more than its debt service,” said Weber this morning. “You can’t run a business and make zero profit.”
Debt service on the new hospital will be “in the ballpark” of $200,000 a month, Weber said.
IN THEIR VOTE, city representatives unanimously objected to the criteria, instead leaving the terms of when the hospital is able to refund any of the city sales tax to a “loose and vague interpretation,” said Jay Kretzmeier, who serves on the hospital board of trustees and is an accountant by profession.
“The agreement is not well-defined,” Kretzmeier said. “What are ‘adequate’ funds? At what point are revenues more favorable than expected?”
Weber said the “clumsy terms” of the agreement “leave too much wiggle room,” and could lay the ground for future litigation between the two bodies.
“I was hoping for a warm and fuzzy feeling from the city in regards to these negotitians,” Weber said. “I guess that’s not going to happen.”
