McCOOK, Nebraska -- Red Willow County, Nebraska, commissioners Monday morning authorized a $1 million bank loan to save the county-owned nursing home from financial woes that could threaten to close its doors.
Commissioners declared the financial situation at Hillcrest Nursing Home an "emergency," legally allowing the county to borrow money to make sure that obligations of the facility are paid, and that 82 residents won't have to make other living arrangements.
The money will be borrowed from McCook National Bank for five years at an interest rate of 3.55 percent. The annual payment will be $221,000. Brian Esch, President / CEO at McCook National Bank, said the loan will be a "single advance" and not treated as a "line of credit," as discussed earlier.
County attorney Paul Wood told commissioners that the resolution authorizing the loan directs how the loan will be repaid -- with revenues generated by the nursing home and / or a tax levy not to exceed 7 cents (on each $100 of value on all taxable property within the county).
Jerry Rothmeyer -- interim administrator at the nursing home since Peggy Rogers walked away from her position on May 16 -- told commissioners, "I'm comfortable that Hillcrest can pay this debt" from nursing home revenues. Randy Dean, a member of the nursing home's board of trustees, echoed Rothmeyer's feeling, "I really think we can pay $221,000 a year on a million-dollar loan."
The tax levy is "just in case that doesn't happen," commission chairman Earl McNutt said. Dan Miller, the county's budget clerk, told commissioners and Hillcrest trustees that the tax levy would most likely be about 3 cents.
Dean said it's possible that the nursing home won't need the entire $1 million. He said that interest rates on the loan "are very, very fair, and there is no penalty for pre-payment."
Dean and fellow trustee Jim Hall agreed that there is strong interest in the new resident rooms under construction / renovation now. Hall told commissioners, "Our census is running strong. And in August, we'll have 10 new beds. Income will be coming back. I'm confident this is a totally new situation."
The existing financial situation started with a cash shortfall created when a billing clerk was let go in February and Medicare and Medicaid reimbursement requests / billings -- together generating about $225,000 per month -- were not made for three months. Those claims have since been submitted and reimbursements are coming in, Rothmeyer said.
A sale of bed licenses that did not materialize as planned also put a kink in the nursing home's budget. The sale was expected to generate $250,000, but, Wood said, the sale did not take place because the proper paperwork was not submitted to the Nebraska Department of Health and Human Services. "This was a surprise to trustees, as it was presented to trustees as otherwise," he said.
Payroll and operating expenses at the nursing home amount to about $360,000 per month. The nursing home has in its checking account and a couple construction funds a total of $723,505.28. Accounts payable for June are $118,570.16.
It owes general contractor Ra-Dec Construction two payments -- $314,606 due in June (late, but not delinquent, Dean said), and $596,626 due in August -- on the construction of the $3.5 million renovation / construction project going on now. The nursing home owes a $32,000 interest payment on bonds taken out to finance that project.
The nursing home also needs to make the last two bond payments -- $165,000 each, one due Nov. 1, the other next year -- on a previous 20-year construction / renovation project. Money was to have been being put aside each month to make these two payments, but trustees have discovered that those monthly installments were not being made.
In June, as cash flow problems at the nursing home became critical, commissioners okayed advancing the nursing home up to $300,000 from the county's inheritance tax fund.
Wood said he does not recommend expending all of the facility's available funds to pay for construction costs, bond payments, an interest payment, payroll and operating expenses,"leaving the nursing home flat broke."
Randy Dean said that the Hillcrest Nursing Home Foundation is a private non-profit organization separate from the nursing home, and cannot gift to the nursing home money that has been given to the foundation and earmarked by donors for specific projects. "The Foundation has put $200,000 into our construction fund. The Foundation has stepped up for us," Dean said.
Wood said in June that a bank loan could be used to pay the nursing home's "three big obligations" -- the two construction bills and the first $165,00 of the two bond payments, which total $1,076,232 -- freeing revenues (including Medicare / Medicaid reimbursements) to pay for payroll and operating expenses. "These big obligations you know exist. You have to be able to meet them," he said.
Wood said Monday the situation "to me is extreme. The problem as I see it is a cash flow problem. The emergency (declaration) and loan gives the facility time to develop a budget, budget carefully, save money, and see where we are one year from now."
He continued, "One year from now, we'll look at money available on hand, and determine if revenues can handle the next 20-year bond. Hopefully, revenues can handle this bonded indebtedness."
Wood concluded, "The fact of the matter is, Red Willow County owes this money. These are county debts, and these are county employees. The loan is breathing room to get organized again." Wood said he is concerned that if Hillcrest can't cover the loan repayment and its own bonded indebtedness with revenues that the county will be responsible for those expenses in addition to paying for bonds sold to finance the county's new $5.1 jail.
Tax payers decided to keep the jail bond tax levy of 4 1 / 2 cents within the state-mandated 50-cent tax levy. The levy to repay the Hillcrest bond would also be within the 50-cent tax levy.
Wood called Hillcrest's cash flow problem "an unfortunate chain of events." He said that the facility's process to make bond payments with revenues "has worked in the past." And Rothmeyer, Dean and Hall all feel it will work that way again.
To default on bonds is not an option, commissioners and trustees agreed.
Commissioners agree they want a better handle on nursing home operations and budgetary concerns than they have had in the past. "We've had no control over what's gone on," McNutt said. While he said that the former process "was fine until there was a lapse in proper billing," he continued, "it's about full accountability." Fellow commissioner Steve Downer requested a financial statement from Hillcrest each month, "to keep surprises at a minimum." And Dan Miller, the county's budget clerk, was asked to write a proposal to help create the Hillcrest budget.
Wood suggested that commissioners be "more interactive" with the nursing home and with the new administrator, who was offered a contract Friday.
Downer said he prefers a five-year loan over a three-year loan, to help Hillcrest rebuild some stability within it budgets. "So we don't have to do this every month," he said.
McNutt and fellow commissioner Vesta Dack, who sits on the nursing home's board as the commissioners' representative, said it's important to rebuilt confidence in the facility. "It's a wonderful place," Dack said. "I trust the trustees. I know we will make them accountable for everything they do."
She continued, "I trust them (the trustees) to pay as they say they can. They've met their obligations before."
Downer made the motion to adopt the resolution to authorize the loan, and Dack seconded it. "We're out of choices," Dack said, and McNutt added, "It's obviously an obligation we have to take care of. It's (the nursing home) not doing anyone any good if it can't operate."
Brian Esch encouraged the trustees to look at these challenges "as a great opportunity" after times of adversity. He said that with improved teamwork and morale, a new administrator, new processes and more buy-in and accountability, Hillcrest could become "a better facility in the long run."