CNU given approval by Elk Grove to seek $900 million in tax-exempt bonds, warned of their exhausted 'political capital'

Alvin Cheung was told by one city council member that he and his school have wasted a lot of their political capital. | 

During a special meeting last night, the Elk Grove City Council approved California Northstate University's request to seek an underwriter for $900 million in tax-exempt bonds for their proposed hospital. The vote was 4 - 0 with Councilmember Darren Suen, whose represents the district where the project is proposed, was absent.

With the approval at the so-called TEFRA hearing, CNU can now seek to have the California Public Finance Authority act as an agent on their behalf to seek underwriters of bonds needed for their proposed 400-bed hospital in Elk Grove's Stonelake neighborhood. In recent weeks CNU changed their organization from a for-profit enterprise to a non-profit 501(c)(3) which is one of the requirements to have the financing authority act on their behalf.

Even though CNU can pursue this option, financing from groups like hedge funds or Wall Street investment bankers will scrutinize CNU's ability to make debt and interest payments. Tax-exempt bondholders do not pay federal or state taxes on their returns and could slightly increase possible yields.

Before the city council made their decision, they heard almost two hours of public comment. Of the 40 people speaking, slightly more than half opposed the move to give CNU access to the CPFA.

Although most of those speaking in support of the project were from construction trade unions such as sheet metal workers and carpenters, some were Elk Grove residents. One resident supporting the project was David Cano, who took issue with fellow residents opposing the hospital.

"I understand you don't like the traffic, you don't like the population, it is going to get bigger whether you like it or not," Cano said. "If you don't like Elk Grove and you know it's getting populated like it was in San Jose when I lived there for 35 years, here's the door, here's the Uhaul, you can pack up anytime you want to."

Some of the speakers against CNU reside in the Stonelake neighborhood and have organized a group called NEST - Neighbors Ensuring Sincere Transparency. If the city council approves CNU development application the Stonelake Landing shopping center will be demolished for the hospital and other structures.

One possible impediment to CNU's bond pursuit came during public comment from two representatives from Dignity Health, who already has approved plans for a hospital in Elk Grove's civic center area. One of the speakers was the president of Dignity Health's Methodist Hospital in south Sacramento, Phyliss Baltz who said they expect construction to start soon on their hospital, which will have a minimum of 100 beds.

"We have done some diligent study of the community, the trends of healthcare, and we are a proven and trusted medical provider," Baltz said.

Baltz said Dignity would soon submit their plans to Office of Statewide Health Planning and Development, the state agency that approves hospitals. She said obtaining their approval is a lengthy process.

"Factoring all that timeline, standard process from today to opening their doors, would be about six to seven years," she said. "That's when we will bringing the hospital to the Elk Grove community as a phase one."

One of CNU's arguments justifying their project is that there is no current hospital in city limits and that they could quickly complete their facility. Notwithstanding Baltz' comments on the six to seven-year OSHPD process, on the City of Elk Grove's FAQ page for the project, it says "CNU is targeting a spring 2020 start of construction for the Hospital Project."    

While deliberating the council asked staff questions that demonstrated the city would not be liable if the bonds were issued. They also emphasized their TEFRA approval does not ensure CNU will secure an underwriter.

During his comments, Vice Mayor Pat Hume voiced skepticism and warned his council colleagues not to place credence on CNU claims on the project's financial viability particularly before the project has received final approval from the city.  He also said the move by CNU was unorthodox.

"Any investor, any underwriter that would put out good money on a maybe, needs to have their head examined," Hume said. "The idea that they are going to be able to go to the CPFA and then put this out to the market and the market is going to respond positively prior to approvals, I think is a slim chance."

Hume also criticized Alvin Cheung, CNU's president on how they handled their initial rollout in December 2018 and their bungling of community relations. At least two elected officials in Elk Grove have said when Elk Grove's economic development director Darrell Doan summoned them to the CNU press conference, they were unaware of the purpose of the proceedings. 

"When you held a press conference without even a modicum of outreach to the community that is greatly affected by your project, you've spent political capital," he said. "When you have businesses here that are countering what you are telling us what you are doing, that you are in negotiations to act in good faith, that's spending political capital."  

Hume also implied that the special meeting put the city council in a bind by saying "Asking us, to what I consider an unorthodox timed-decision that doesn't necessarily have repercussions to the city of Elk Grove or the residents of Elk Grove, is spending political capital." 

He added it was a difficult decision to approve their request and that CNU put him in a position he "was not happy to be put in." 

After the meeting, CNU representative Brian Holloway and NEST spokesperson Staci Anderson were contacted to comment on their reaction to Hume's comments. Both Anderson and Holloway spoke during public comment.

Holloway said the approval was an important step and CNU is pleased it was a unanimous vote.

"We appreciate and respect all of the resident’s and Council’s comments and thoughtfulness. And we look forward to continue working with everyone in building a great hospital," Holloway said in regard to Hume's commentary. 

"While we think it would have been more prudent to wait until the project matured, it was encouraging to hear Vice-Mayor Hume caution his peers on the council and give a stern warning to CNU about exhausting their political capital," Anderson said on behalf of NEST. "It would appear the vice-mayor is well aware of the potential for failure that CNU faces as they try to acquire tax-exempt bonds, while hiding under the skirt of a 3-week old nonprofit corporation with less than $5,000 in revenues and zero dollars in assets."

Copyright by Elk Grove News © 2019. All right reserved.

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Renegade said...

City approval of this crazy project ( an application still incomplete, built in flood plain, run by corporation with absolutely no track record and no funding capital at all) doesn't surprise me. ,but it should wake up all voters in this city that NEW BLOOD needs to be elected, s current councilpersons are deaf to their constituents. Not only that, they are either unethical or just plain stupid to vote to support this project that has no chance of success. It shows a a lack of understanding and reasonableness.
Do we need a hospital? Yes. A trauma center? Yes.
Dignity Health president spoke last night about their plans for an Elk Grove hospital; the actual timeline that is required for approval; the funding and the future of hospitals based on a proven track record and rock solid funding. Yet the council didn't ask them a single question. Why?
They didn't want to hear the actual answers. They would rather lend support to a crazy scheme that couldn't find any private financial support. I wonder why that is?
How disappointing. Our council has let us down again and exposed us to more future embarrassment.

D.J. Blutarsky said...

Alvin Cheung is a visionary like Elon Musk, Steve Jobs, and Henry Ford. Cheung could have been content dispensing pills behind a pharmacy counter, but no, he has grand plans for our city! Step aside and let the genius do his work!

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