The Two Harbor City Council on Monday, July 22, approved scheduling a public hearing on financing a project for Lake View Hospital and Medical Clinic.
The city received a request from Lake View Hospital, part of St. Luke's medical group, to borrow $6 million on behalf of the hospital to finance improvements to the clinic and hospital. Municipalities such as Two Harbors are authorized to issue bonds and loan the tax-exempt funds to a nonprofit. Although the city is issuing the bonds, St. Luke's is entirely responsible for paying the bonds.
In May, Lake View broke ground a $17 million expansion project to link the hospital and clinic and provide more services to the community. The $6 million borrowed tax exempt through the city would be part of a financing package to fund the project.
The crux of the issue is over a conduit issuing fee. The city established a policy for conduit financing situations such as this in 2001. The policy requires the charge of a 1% of the principal amount of the bond plus an ongoing administration fee of one-eighth of a percent for the life of the loan.
In this case, the charge would be approximately $60,000 upfront and $7,500 annually.
Lake View made a counter offer to the city: 0.5% upfront and no annual fees. This would total approximately $30,000.
Mia Thibodeau, attorney from Fryberger, Buchanan, Smith and Frederick, who represents the city in financial matters, said several municipalities who enact conduit financing have been moving in this direction.
"There is some movement away from the ongoing administrative charge for a couple of reasons," Thiboudeau said. "One being that it’s not that much revenue to the city and you are more attractive to a conduit issuer if you don’t have ongoing fees. The second reason is there are some administrative burdens with making sure it gets paid every year and keeping track of the finances."
Lake View CEO Greg Ruberg said they proposed the counter offer after meeting with the St. Luke's finance team and comparing the fee schedule with other cities, including Duluth. He reports that Duluth's origination fee policy accepts one quarter of 1% upfront.
"That was a pretty large stretch from the current policy, so we wanted to come back with double that for our proposal," Ruberg said. "We certainly want to partner with the city and we’d rather pay those closing fees to the city if we possibly can, but we have looked at other options including bank financing."
The council didn't approve any policy changes to the fee structure, but did approve a public hearing on the issue scheduled for Aug. 22 at 6 p.m. The motion was approved unanimously; councilor Robin Glaser recused herself from the discussion and vote due to a conflict of interest.
The council also called for a special meeting to discuss amending/modifying the resolution on fees for conduit financing arrangements Friday, July 26 at 6:45 p.m. at City Hall.