Archive for Thursday, March 2, 2000

Council ponders appeal to assist in center’s revival

Bond proposal getting careful study

March 2, 2000

The DeSoto City Council has opened the door a little wider for a health care company to take over operations of the recently closed Cedar Grove Health Care Center.

However, the city plans to do some checking before agreeing to anything.

In a special meeting last week, council members were asked by representatives of Responsive Healthcare to accept their application requesting that the city form a partnership of sorts with the company. The application would include a request by the company for the city to issue about $4 million in revenue bonds for the project. The application also would include a request for a letter of intent from the city to move forward with the project. Council members voted 4-1 to accept the application.

Responsive Healthcare took over management of the facility in December when it was foreclosed on by a California bank. The company found alternative placement for the home's 35 residents and Cedar Grove was closed, leaving DeSoto without a care facility for its elderly.

Representatives of Responsive Healthcare then asked the city council to help them finance a deal to remodel and reopen the nursing home.

According to the proposal, the city would establish a not-for-profit organization, which would issue $4 million in tax-free revenue bonds to be used for the purchase and remodeling of Cedar Grove. The not-for-profit organization would then hire Responsive Healthcare to manage the nursing home.

Bob Haynes, president of Responsive Healthcare, assured council members last week that the city would not be liable for repayment of the bonds.

Haynes said his company would make rental payments equal to the bond payments until the debt was repaid in 20 years. At that time, the city would sell the nursing home to the company for a price of $100.

If the company defaulted on the bonds, Haynes explained, the city would not be liable. He further explained that the bonds are to be paid back only by revenue generated by the facility. If the company could not make the bond payments, the bond holders would lose their investment, he said.

"It would never resort back to the city," he said.

Councilmember Brad Seaman told Haynes the deal seemed "too good to be true.

"Why would we not do this?" he asked. "It sounds like a win-win situation."

City attorney Michael Howe explained to Seaman and the rest of the council that the primary risk of such a deal would be possible litigation costs if the project failed.

"I would suggest that the city do a good-faith investigation of the viability of the proposal, meaning you check it out," he said. "Otherwise it could come back to the city in defense costs. If the bond holders don't get paid, they could sue the city."

The company's financial adviser, Dave Malone, responded that the brunt of the risk lies with the financial institution that sells the bonds.

"We can't guarantee it will be a success," he said. "But we, as the underwriters, take the bigger risk. We are the ones who would probably be sued."

Howe then advised council members that they could require the company to establish a bond reserve fund, which could be used if it had trouble making a monthly bond payment.

Seward asked Haynes what his company planned to do if the city council decided against the proposal.

"Then we would be left to look for other resources and the viability of the project would go down," he replied. "We've been so hopeful of this that we haven't put much thought into that."

When asked by Howe if he also planned to ask the city for tax abatement, Haynes told the city attorney he would.

"We're going to plead for it," he said.

If the council gives the project the green light, Haynes said, the remodeling could include the construction of additional units. The goal of the healthcare company is to provide various levels of care for the elderly.

DeSoto resident Larry Bell, who lives near the Cedar Grove facility, told the council he had some reservations about the proposed project.

"What I'm hearing is, 'If you give me enough money I'll make it work, but no one wants to be the first to open their checkbook," he said.

Bell also voiced concern over the proposal to build additional housing units at Cedar Grove.

"I see kids playing soccer there. I see kids flying kites there, he said. "For some of them, it's the only place they have to play besides the park and their parents can't always take them to the park."

Council President Duke Neeland assured Bell there would be public hearings on the matter before any renovations were made on the building. He also reminded him that, without Cedar Grove, DeSoto is left without an assisted-living facility for its senior citizens.

"The parents of those kids also have parents who live in this community," Neeland said.

Council member Linda Zindler was the only dissenting vote. Zindler said Friday she was not against the project, but that she would like to investigate the matter further before moving forward.

"I'm just looking after the best interest of the city. This would be the first time the city ever issued industrial revenue bonds," she said. "I would like to hear from our bond council and financial adviser before we do that."

Zindler said she also would like to learn more about Responsive Healthcare.

"The title and ownership of that building would be in the name of the not-for-profit organization. We have no guarantee it would be run correctly," she said. "In no way am I against this. I think there is a demand for it in our city and I think it would be a great asset to our community. I just don't want to rush into it."

DeSoto City Administrator Gerald Cooper said representatives of Responsive Healthcare would now have to submit a complete financial report to the city, which will be reviewed by the city's financial advisor.

Following the review, the issue will be revisited by the city council, Cooper said. If the council is happy with what it sees, Cooper said the project could get underway soon.

"According to what they have submitted to us so far, they want to move pretty quickly on this," he said.

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