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Hospital eyes fiscal options

The $42.6 million construction project to bring Sonoma Valley Hospital into compliance with state seismic laws won’t be finished until Nov. 12, 2013. But, as finances stand today, the project will run out of money by July 8. During a special meeting on Tuesday, the Sonoma Valley Health Care District board reviewed its options, ultimately deciding to reevaluate the issue in February.

  “February is the drop dead date for making decisions on this project,” hospital Chief Executive Officer Kelly Mather told the board, suggesting the board may have more complete information to consider at that time. “There’s a number of moving targets still out there. Fundraising, as we know, has been going well so far …  And we have two major asks going out in the next two weeks.”

  The project includes building a new central utility plant along with a new west wing to house the emergency department on the first floor and a surgical center on the second floor. In 2008, voters approved a $35 million general obligation bond to finance the project, but since then, the scope has expanded.

  “The GO bond never included any equipment, so there was already kind of a gap in the project,” said Chief Financial Officer Rick Reid, explaining that the bond covered the construction of building and “fixed equipment” such as boilers and chillers.

  As of Oct. 1, the required budget was $42,609,376 to finish the project by November 2013. Of the $35 million from the bond, $4 million went to refinance old debt, leaving $31 million for the project. The hospital has received $2.5 million in donations, with another $2 million pledged over the next four years. It also secured a $1.5 million low-interest loan from the California Energy Commission for environmental upgrades, and got another $500,000 in interest from the bond money. Today, the hospital has about $37.5 million for the $42.6 million project, leaving a gap of more than $5.1 million.

  “We currently have the funds to complete 84 percent of the project, which includes a new emergency department and new central utility plant as promised to the community when we passed the general obligation bond,” Mather said in an email.

  In reviewing options to cover the gap, on Tuesday the board considered “shelling” the operating suites (building but not completing them), as the current surgical department will meet seismic standards until 2020. While the new west wing would be built as planned, the interior of the second floor and all of the equipment needed would be deferred, for a total savings of $3.5 million. While that option would still leave a financial gap, Mather was insistent that would not impact emergency services.   

  “I want to be very clear, the emergency room will be built,” Mather said, explaining that the hospital’s $3 million donation from Marcia and Gary Nelson was specific for the emergency department. “We have, based on the Nelsons donation, guaranteed the emergency room will be built.”

  Board Chair Peter Hohorst added that the emergency room is the main priority expressed by community members, as well.

  If the hospital did defer completion on the operating suites, it would have more time to fundraise for the project, with a target goal of $6.5 million. Expanding fundraising efforts was another option considered to finance the gap. “That will wrap up our seven-figure asks,” Mather said, adding that she is continuing to seek donors in the $100,000 to $1 million range.

  The board also discussed whether the hospital could finance the rest of the project, and considered whether it could receive loans based on pledges of future gifts to the hospital.

  Ultimately, the board agreed to address the issue again in February after the capital campaign has had more time to bear financial fruit. Come February, the board will need to make final decisions about whether to go forward with the surgical department. “That’s the drop-dead deadline,” Mather reiterated.