Editor’s Note: This article was updated to include comments from the San Benito Health Care District. Last updated Oct. 23 at 5 p.m.
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San Benito County is proposing to create a Joint Powers Authority (JPA) and submit a letter or intent to the Hazel Hawkins Hospital, which is currently in the process of filing for bankruptcy. The county presented to the Hollister and San Juan Bautista city councils its consultant ECG’s final report and proposal to form a JPA, along with the hospital’s current governing body, San Benito Health Care District, on Oct. 16 and 17 respectively.
“In this case we are not proposing a sale of the district’s assets,” said Cecilia Montalvo, a consultant the county hired to look into the hospital situation. “In this case we would suggest that the operations be governed under the Joint Powers Authority.”
Montalvo said the JPA can take several steps to provide a long-term solution to the hospital’s finances such as broadening the governing structure which would include physicians and other experts who are in the healthcare industry on the board and contracting for management with Salinas Valley Health.
“They are an extremely high-quality organization,” Montalvo said. “Some of the ratings some of the hospitals get such as Leapfrog and others they do really well and also very importantly they have a sizable physician base and a good physician strategy, so many of those specialty groups can be leveraged to provide more care.”
Hollister City Attorney Mary Lerner said among the risks associated with joining JPAs are shared liabilities and finances. Montalvo added that among the largest liabilities associated with operating the hospital is the unfunded portion of their pensions. She told the San Juan Bautista City Council the other large source of debt is the hospital’s bonds. According to its 2022 audited financial statement, it has two active bonds from 2014 and 2021 of $30 million and $12.7 million respectively. However, only the 2014 bond appears on tax property statements and the San Benito County auditor’s office confirmed only one bond is open.
The hospital’s financial statement also states the hospital is $1.5 million short of covering its pension obligations for 2020 and 2021.
San Benito County Auditor-Controller Joe Paul Gonzalez said the hospital district has one general obligation bond.
“The other long-term debt disclosures described are not general obligations subject to assessed valuation assessment that would appear on property tax bills,” Gonzalez said. “Revenue bonds are repaid from the respective obligated revenue streams of the hospital district.”
San Benito Health Care District consultant Marcus Young told BenitoLink the hospital’s general obligation bond is $23 million and the revenue bond debt is $9.8 million. He added the total pension obligation is $16.5 million per the Actuarial Report for the calendar year ending in Dec. 31, 2022.
Montalvo told the Hollister City Council the benefit of creating this JPA is that it would give members a seat at the decision-making table. She later said a contract with Salinas Valley to manage Hazel Hawkins should include some type of financial incentives rather than a flat fee to ensure they provide high-quality management.
Hollister Mayor Mia Casey questioned whether Salinas Valley is in a position to manage a hospital after its president/CEO Pete Delgado announced his resignation, but Montalvo said he has committed to stay through the transition.
According to a Salinas Valley staff memo, Delgado’s resignation will take effect June 30, 2024.
“The news sounded more jarring than it turned out to be,” Montalvo said.
The Hollister City Council directed staff to conduct a legal analysis of joining the JPA.
“Whatever we can do to help the community we will do, but it has to be a sound financial decision, it has to make sense because we are also stewards of the tax dollars,” Councilmember Rolan Resendiz said.
San Juan Buatista also raised concerns about any financial investment required in the JPA. Councilmember John Freeman said the last JPA San Juan Bautista joined was Central Coast Community Energy and its investment was returned in less than six months. He said he does not expect that to be the case with this option.
“I don’t see that happening in health care because of the situation you [Montalvo] have spoken of that half of the hospitals are in the red, and that is really a serious concern,” Freeman said.
He added that solving the problem is above the city’s pay grade and should be handled by the state. The overall comments from council members favored waiting to see what happens with the hospital before contemplating joining a JPA.
The San Benito County Board of Supervisors is scheduled to speak on Oct. 24 about the report and efforts to create a JPA. Also on the agenda is to change the contract with Founderwerk, Inc. from $50,000 to not to exceed $125,000 to assist in “conducting research and analysis, developing recommendations, providing expertise and advice, and . . . assist the county in searching for solutions to help Hazel Hawkins Memorial Hospital.”
The meeting will be held at the San Benito County Administration Building on Fourth Street starting at 9 a.m. The agenda is available here.
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