BATON ROUGE, La. (AP) — Plans to privatize most of LSU’s public hospitals will increase the costs of borrowing for repairs and construction of the health facilities, because the bonds issued for the work will be taxable, a bond expert said Thursday.
The Bond Commission learned that bonds issued for LSU hospitals and clinics slated to be managed by private hospital operators don’t meet the requirements for tax-exempt status by the IRS.
“Because of the changing nature of the operations of who will control or manage the facilities, these facilities will no longer meet that test,” said Whit Kling, director of the Bond Commission, which oversees state borrowing.
Outside bond attorneys for the state agreed and suggested taxable bonds for LSU construction work, including the dollars being borrowed to build the new teaching and research hospital in New Orleans.
Nearly $56 million in taxable borrowing was approved Thursday for LSU health care facility construction projects, done through bond sales to investors that are paid off over time.
Kling said the bond repayment will cost the state $13 million more than if the bonds were tax-exempt, or about $600,000 more in debt payments each year for the life of the bonds. The Jindal administration disagreed with the estimates.
The LSU borrowing was part of an approval Thursday for $300 million in bond sales to replenish the state’s construction budget fund, to keep money flowing for road work, building repairs and economic development projects.
Gov. Bobby Jindal has pushed to privatize the LSU hospitals to cut costs in operating the facilities that care for the poor and uninsured. He also says the charity hospital model is outdated and privatization will improve health care services and graduate education at the hospitals that train most of the state’s medical students.
Jindal’s chief budget adviser, Commissioner of Administration Kristy Nichols, sits on the Bond Commission. She didn’t object to Kling’s data during the commission meeting, but she issued a statement later Thursday that called Kling’s cost estimates misleading.
“It overlooks the fact that taxable and tax-exempt bonds are structured differently and in the current interest rate environment taxable bonds have certain efficiencies,” Nichols said in the statement.
Nichols said the taxable bonds for the LSU projects instead will save the state about $1 million over 20 years when other factors are considered about the structure of the bonds.
The borrowing was wrapped up in plans to sell $300 million in bonds to pay for continuing state construction work. The construction project fund was slated to run out of cash within less than five months without another infusion of bond proceeds.
“This buys us another four to five months before we run out of money,” said Treasurer John Kennedy, chairman of the Bond Commission.
The state had a limited amount of borrowing capacity remaining under the state’s constitutional debt limit, and Kennedy said Thursday’s approval will use up much of the space that was left under the cap.
Kennedy said state officials were working on a multiyear plan to restructure state debt, to keep from breaching the debt ceiling. He said he expected recommendations to go to the Bond Commission within 30 to 45 days.
