Pella Chronicle

January 28, 2014

Bond capacity for City, County may be used for KHC project

By Steve Woodhouse
The Chronicle

Knoxville — As we've reported, Knoxville Hospital and Clinics (KHC) is planning several projects to upgrade its facility, with an estimated cost of $17 million. To help secure financing for the project at a lower rate, KHC is asking Marion County and the City of Knoxville for permission to use the governments' bonding capacity. 

There is a provision in the Iowa Code that allows nonprofit organizations like KHC to utilize a portion of a local government's bonding capacity to aid financing projects. The amount of bonding capacity a government can use in a calendar year is limited, and if the County and City eventually agree to the KHC requests, the borrowing KHC does will count against the governments' bond limits, but at the same time, will not obligate either entity to repay any borrowed funds. 

KHC's interest rate on the project can be reduced with the cooperation of the City and County. Credit ranking agencies do not provide an investment grade to hospitals as small as KHC to provide KHC with a credit rating. Marion County and the City of Knoxville do have these ratings. 

Tom Mayfield, of National Healthcare Capital explained to the supervisors at Tuesday's regular meeting that the entities would be a conduit for funds. He has 25 years of experience in this field and has not seen in Iowa a project the size of the one KHC is proposing. 

Mayfield added that any costs the County or City incurred to research this proposal, to protect taxpayers, would be covered by KHC. He insisted that taxpayers would be "absolutely safe," and would not be required to repay anything borrowed by KHC. 

KHC is a 501(c) 3 non-profit organization with its own independent board. It is not owned by the City, County or any other government. As part of the bond process, compensation levels of hospital employees will be reviewed, to ensure that the project, as well as the hospital's operation, are not being used to unreasonably enrich any individuals associated with KHC. 

"They're in good financial condition to do this," Mayfield said of KHC. KHC CEO Kevin Kincaid opened the discussion by reviewing the projects proposed. Before any action will be taken, public hearings will be held and agreements will be independently researched. 

The City does not have sufficient bond capacity to perform this function for the hospital, which requires assistance from the County. How the amount borrowed is divided between the City and County, against their bonding capacities, will be determined at a later time.