The Mendocino Coast Hospital District held their December Board of Directors meeting on January 10th. If that seems puzzling, strap in for further confusion.
One of the first pieces of business for the hospital board was electing new officers. With four new board members one wondered for a second who might take charge. The answer came swiftly, Amy McColley, former hospital employee, spoke first and most often, nominating Karen Arnold, human resources officer at Mendocino Coast Clinics, to be President of the Board of Directors. Jessica Grinberg seconded and the motion passed on a four to one vote, John Redding dissenting. McColley continued to speak first, nominating Grinberg to the Vice-Presidential position, Redding for board treasurer, and holdover board member Steve Lund as secretary. All of these motions passed by five to nothing votes. Arnold took over the gavel and standing committee posts were doled out: Redding and Lund to Finance, Grinberg and McColley to Planning.
Before the new officers were installed, the board listened to comments from the public. Chief among those was John Allison, a fairly fervent supporter of the hospital and three year member of the Finance Committee before shifting to the Planning Committee in 2017. In his verbal remarks and in a letter addressed to each of the five hospital board members, Allison focused on the most recent independent auditor's report and the more recent financial statements of Chief Financial Officer (CFO), Mike Ellis.
Mr. Allison noted, “During the past three years the operating performance of MCDH [Mendocino Coast District Hospital] is continuing to deteriorate… with an operating loss of $2.4 million for the fiscal year ending June 30, 2018. The current [debt] ratio (current assets divided by current liabilities) and the net current assets at the end of each fiscal year have continued to trend downward. Unless those trends are reversed fairly soon, MCDH may very well be unable to borrow the money needed to rebuild or retrofit its facilities to comply with the 2030 seismic standards at affordable rates.”
Allison also compared the 2018 fiscal year operating loss of $2.4 million to the operating loss of $1.1 million for 2017 and the $2.1 million profit of fiscal year 2016. His letter pointed out that the $2.4 million loss last year is about three-quarters of a million dollars more than the new annual parcel tax revenue.
Page three of that independent auditor's report tells us the Hospital's net position decreased by 7.6% in fiscal year 2017 then decreased another 13.8% last year. Page four details the ever decreasing ratio of assets to liabilities from 1.2 in 2016 to 1.1 in 2017 to 0.9 for the 2018 fiscal year. The 0.9 ratio means that at the end of the most recent fiscal year MCDH had more liabilities than assets (a 1.0 ratio being the break-even point).
That 1.0 current ratio is one of three barometers in measuring the viability of MCDH's bond covenants. The days worth of cash on hand (from all sources) is a second measure and the hospital's debt service coverage ratio is the third. To meet its bond covenants MCDH must maintain 30 days worth of cash, have a current ratio of liabilities to assets of 1.0, and keep its debt service coverage ratio (net operating income divided by total debt service) above 1.25. As of the latest known numbers at the end of November, 2018, MCDH has 40.3 days cash on hand, a current ratio of 1.0, right at the break even amount, and a debt service coverage ratio of -1.41. That's negative 1.41 as opposed to a required positive 1.25 ratio.
Required by whom?, you might well ask. In MCDH's case, it's the entity that holds the bag for guaranteeing the Hospital’s debt. That entity is Cal-Mortgage, a State agency, which owns about 60% of MCDH's overall debt. Because of those break even and negative covenants Cal-Mortgage has the right to step in and take over financial management of Coast Hospital. MCDH's CFO, Mike Ellis, has been granted a waiver to allow the hospital to go on governing itself for the time being. The most likely tipping point in favor of the granting of the waiver was passage of a parcel tax by the voters last June.
The parcel tax made it onto the January 10th board agenda in two places. First, in a closed session item identified only by this statement, “Anticipated litigation pertaining to Measure C Parcel Tax.” Secondly, a “New Business” item entitled, “Parcel tax and specific action recommended by legal counsel on the treatment of the subject lumber harvest property owners.”
What this boils down to is information the voters weren't given in the run-up to the election on the parcel tax. The hospital, through the CFO and/or the CEO, has been negotiating with large timberland owners like Mendocino Redwood Company (MRC) to “consolidate” their numerous pieces of property into much smaller geographically connected parcels. Other than the government, MRC is the largest landowner in the county. Within the coastal hospital district it possesses about 600 (possibly more) parcels, as noted in the assessor's books. Six hundred or so parcels would roughly equal a $90,000 annual tax payment to MCDH. Through consolidation MRC hopes to reduce the number of parcels counted against it to around seventy, thus lowering their yearly hospital tax to about $10,000.
This concept of consolidation for MRC and other large landowners was presented to the new MCDH Board in the softest of smooth talking sells by a consultant (from Eastshore Consulting) initially hired by the hospital in conjunction with the endeavor to pass the parcel tax measure. However, with comments from the audience, including yours truly, addressing the complexities of the consolidation efforts and its potential for inequity when compared to the single parcel taxpayer, the new Board refused to go along with a swift passage of the consolidation plan that would largely benefit only corporate landowners.
At this point it may be instructive to return to the actual text of the Measure C parcel tax. The opening paragraph of the measure makes clear the rate for a single parcel: $144 per year. Later Measure C defines the key word, “For purposes for the healthcare parcel tax, the term ‘Parcel’ means any parcel of land which lies wholly or partially within the boundaries of the Mendocino Coast Health Care District, that receives a separate tax bill for ad valorem property taxes from the Mendocino County Assessor/Tax Collector, as applicable. All property that is otherwise exempt from or upon which are levied no ad valorem property taxes in any year shall also be exempt from the healthcare parcel tax in such year. [Those exemptions largely apply to non-profit organizations.]
“For purposes of this healthcare parcel tax, any such ‘Parcels’ which are (i) contiguous, and (ii) used solely for owner-occupied, single-family residential purposes, and (iii) held under identical ownership may, by submitting to the District an application of the owners thereof by June 15 of any year, be treated as a single ‘parcel’ for purposes of the levy of the healthcare parcel tax.”
The second paragraph may prove to be the most instructive. This writer qualifies under the (i), (ii), and (iii) of that paragraph as a contiguous landowner who resides at the property being assessed. Their are 80 or more other such landowners within the hospital district. It would appear that corporate landowners are “consolidating” their dozens and, in cases like MRC, hundreds of parcels into far fewer contiguous parcels in an attempt to reduce their tax bill as much as 90%, as in the case of MRC. However, the wording of that paragraph granting a reduction to contiguous parcels states that beside being contiguous these must be used solely for “owner-occupied, single-family residential purposes.”
The Fisher family who own MRC as well as Humboldt Redwood Company and GAP Inc. do not possess this vast swath of Mendocino County timberland for single-family residential purposes, nor do the other corporate timberland owners within the coast hospital district.
In other matters, MCDH will receive approximately $36,000 from Summit Pain Alliance as a result of litigation. The hospital will soon have its first medical director, Dr. William Miller. It is hoped that his presence, work ethic, and leadership will, among other things, encourage more patients to stick with MCDH for their medical needs rather than travel over the hill or south to the Bay Area for such services.
A full performance review for CEO Bob Edwards was scheduled, but due to an hour and a half closed session and a two and a half hour public meeting much of the review was postponed. The CEO performance review will be revisited at a special session of the board on January 24th. Though these affairs are mostly held in closed session, the public can come to the opening or closing of the meeting to provide input.