Publication:Colo Spgs Gazette; Date:Jan 25, 2011; Section:Section A; Page Number:1


MEMORIAL HEALTH SYSTEM

$246M PERA TAB SINKS APRIL NONPROFIT VOTE

BY ANDREW WINEKE awineke@gazette.com —

background: IF MEMORIAL WERE CONVERTED TO AN INDEPENDENT NONPROfiT, IT WOULD HAVE TO LEAVE THE PUBLIC EMPLOYEE PENSION SYSTEM, SO IT WAS NECESSARY TO GET A BUYOUT ESTIMATE. why now?: MEMORIAL WAITED UNTIL A CITIZENS COMMISSION GAVE ITS REPORT TO THE COUNCIL IN NOVEMBER BEFORE REQUESTING THE ANALYSIS THAT TOOK UNTIL LAST WEEK FOR PERA TO fiNISH. what now?: THE HOSPITAL HAS ORDERED ITS OWN ANALYSIS OF THE PERA COST. A TASK FORCE WILL WORK ON BALLOT LANGUAGE FOR POSSIBLE FUTURE USE.

ONLINE > IN DEPTH

Douglas Bruce weighs in on Memorial vote, and medical marijuana advocates rally for Tom Gallagher in mayor’s race on “The City Desk” blog at

gazette.com.

    Getting Memorial Health System out of the state’s Public Employees’ Retirement Association would cost a staggering $246.2 million, Colorado Springs City Council members learned Monday. The huge tab led the council to shelve plans to put a proposal to turn Memorial Health System into an independent nonprofit on the April ballot.

    “That number was a heck of a lot more than I anticipated or the health system anticipated,” Mayor Lionel Rivera said. “I think my first reaction was, ‘You’ve got to be kidding me.’”

    If Memorial were converted to an independent nonprofit, it would have to leave the public employee pension system, so it was necessary to get an estimate of what that buyout would cost. If the City Council were to put Memorial’s future on the ballot and voters approved it, funding the PERA liability would drag the new, nonprofit Memorial’s bond ratings below investment grade, said Dr. Larry McEvoy, Memorial’s CEO.

    The PERA analysis includes $217.48 million for retiree benefits, plus an additional $28.84 million for retiree health benefits, McEvoy said. The city-owned hospital system received the PERA analysis last week.

    In Memorial’s internal projections, McEvoy said, the “best-case” scenario for the system’s PERA liabilities was $0. The worst case? $250 million, he said.

    “For Memorial to take on that

    —
amount of debt is simply not viable,” McEvoy said.

    Rivera said he believed the PERA liability would be in the $25 million to $50 million range, based on a proposal he received two years ago from a company interested in buying Memorial.

    PERA’s estimate isn’t the final word on the matter, McEvoy said. The hospital has ordered its own actuarial analysis and the improving economy might strengthen the PERA system and reduce Memorial’s share, he said, adding that Memorial will also study other options such as finding a way to keep employees inside the system even if the hospital leaves it, or paying the tab over time.

    “I can’t say that the timing is good,” McEvoy said. “I wish we had this information a year ago.”

    Bill Murray, a member of the Memorial citizens commission that spent nine months last year weighing potential options for Memorial before recommending it become a nonprofit, said he was upset to learn the size of the PERA liability only a day before the City Council planned to vote to place the nonprofit option on the April ballot.

    “With a PERA number of this magnitude, the question is, ‘Why didn’t you know?’” said Murray, who is now running for City Council. “This is really, really not good. It does a disservice to everybody.”

    McEvoy said that the hospital waited until the commission presented its report to the City Council in November before requesting the analysis and that it took until last week for PERA to finish. Asking PERA to give a buyout number for Memorial before the commission finished its work would have been putting the cart before the horse, he argued.

    Despite his frustration, Murray said that making Memorial an independent nonprofit remains the best option for the city — if there’s a way to make the numbers work. Rivera echoed that sentiment.

    “I still believe the best model for Memorial in the long run is a standalone 501(c)3 nonprofit,” Rivera said.

    Councilman Sean Paige, who has said the process to get the proposal on April’s ballot was far too rushed, said he was glad the community will have more time to debate the issue and that the city should solicit proposals to sell or lease Memorial. It also, he said, underscores the financial burden PERA places on the city.

    “What we’re finding out is that PERA is a trap,” Paige said. “It’s the Hotel California — you can check out any time you like, but you can never leave.”

    If the PERA estimate upset plans to turn the hospital into an independent nonprofit, it also complicates matters for proponents of selling Memorial to a large hospital system, since the city would likely have little to show for the sale after paying off PERA and other debt and liabilities, Rivera said. The citizens commission estimated Memorial would bring in about $400 million if it were sold.

    Kevin Walker, the local spokesman for the Denver hospital company HCAHealthOne, which has expressed interest in buying Memorial, applauded the council’s decision to delay the vote. He wouldn’t say how the PERA number might affect a potential offer for the city-owned hospital.

    “Throughout the past couple months, people and businesses have asked only that the City of Colorado Springs and its voters take more time to study and consider all options and ramifications of a change — and evaluate real proposals — before making a decision,” Walker said in a statement.

    Even with a nonprofit proposal off the April ballot, the mayor’s task force decided to finish its work on ballot language and a memorandum of understanding on how the nonprofit would be set up so that the next City Council and voters will have a firm proposal to debate.

    “Their work has not been for naught,” Rivera said of the citizens commission.


caroL LawrEncE, thE gaZEttE after learning that a PEra buyout could cost $246 million, Memorial health System cEo dr. Larry McEvoy told city council members Monday: “For Memorial to take on that amount of debt is simply not viable.”