The Citizens’ General Obligation Bond Oversight Committee (CGOBOC) has now discussed the Laguna Honda Hospital Replacement Project bond financing twice, and will be discussing Laguna Honda again at its next meeting on January 26, 2006.  In a transcript of the CGOBOC’s October 27, 2005 meeting, the public learned:
 

• Don Condon, Interim LHH Replacement Project Director, reported that the current budget for the LHH replacement project is $611 million.  He also reported that “The current forecasted cost of completion of the originally-planned program of 1,200 skilled nursing beds is $620 million,” but he did not elaborate on whether the $611 million figure is only for 780 beds, or whether the $611 million figure would be reduced if a decision is made to eliminate building the fourth building containing 420 beds.
  
• Mr. Condon reported that “In 2006, we intend to commence the remodel of the existing hospital.”  This is highly unusual, because the remodel of the existing hospital has, all along, been planned for the end of the replacement project, sometime between 2009 and 2011.  The remodel of the existing hospital was not to have started at the beginning of the project.
  
• Mr. Condon reported that the assisted living facility on the grounds of LHH that was to be built near the end of the replacement program still has 15 million set aside in the budget to construct assisted living beds, but how those assisted living beds will be used may be affected by the decision on whether to eliminate the 420 beds if the decision is made not to build the West Residential Tower.
  
• City Controller Ed Harrington reported that the $299 million in General Obligation Bonds “... can be used for pretty much anything on the site at Laguna Honda. It was certainly intended for SNF [skilled nursing] beds but as the questioning brought out a minute ago, it included some assisted living on-site at Laguna Honda ...” The discussion all along had been that 140 assisted living beds would be built on the campus, but Option 2 of the Controller’s Where Do We Go From Here? report to the Mayor.  But various documents currently released by the City have not pinpointed precisely how many assisted living beds are being considered for placement on the LHH campus.
  
  The number of assisted living beds ranges from 375 (235 additional assisted living beds plus the original 140), to 610 (the original 140 beds plus up to 470 additional assisted living beds). Indeed, a Policy Recommendation Related to the Replacement of Laguna Honda Hospital dated December 15, 2005 authored by the Mayor’s advisory body known as the Long-Term Care Coordinating Council discusses providing “assistance, care and support” (not long-term care skilled nursing) to “at least 1,340 people using current LHH workers.
  
• Mr. Harrington did not inform the CGOBOC on October 27 that the City is now projecting to receive $820 million in tobacco settlement revenues (TSR’s) over the next 20 to 25 years during the life of the bonds. There is sufficient money to build all 1,200 skilled nursing beds at LHH, but the CGOBOC has not been told formally just how much in TSR’s the City expects to haul in.
  
• In response to a question from a CGOBOC member, Mr. Harrington indicated that the decision to eliminate the 420 beds at Laguna Honda rests with the Health Commission, the Board of Supervisors, and the Mayor.  Mr. Harrington ignores the fact that the citizens who approved passed of Proposition A in 1999 authorizing the sale of the replacement project bonds should be involved in making the decision; after all, without the voters passage of Proposition A based on promises made to them, the other “decision makers” would not have the bond money available on which to base decisions.  San Francisco voters spoke (with their ballots) in 1999 that they wanted LHH replaced with 1,200 beds.  But now those voters are being taken out of the decision-making loop.
  
• Mr. Condon asserts that the fourth (West) building “can be deleted without affecting the overall design,” but this is mere hyperbole, since removing one of four buildings completely obviously affects the overall scale of the completed project.
  
• Ed Harrington continues to advocate for a funding mechanism known as “Certificates of Participation,” (COP’s) a new form of bond indebtedness that voters had not been told in 1999 would be part of the financial structure of the replacement project.  The COP’s would be “guaranteed” by the General Fund using a funding mechanism developed by Senator Jackie Spier to generate and draw down a Federal “revenue stream” under Medicare.  The Spier bill (SB 1732) was intended to to fund the repayment of the general obligation bonds when used to build skilled nursing beds, but Controller Harrington notes that [the City] could “... either put into a revenue stream that you can then bond and use for Certificates of Participation to build another facility at Laguna Honda, the West building, or it could be used somewhat more flexibly in terms of other kinds of assisted living facilities.”  Indeed, rather than using the projected $120 million available from the Spier bill to pay down the service on the bond debt, Harrington has included that $120 million in his “Option 2” to pay for construction costs of the $620 million replacement project budget, not to pay for servicing bond indebtedness.  So if the SB 1732 bill is creatively now re-interpreted on how it can be used, does that mean there is potentially yet another level of bait-and-switch involved in the LHH replacement project?
  
• CGOBOC chairperson Pamela Jue notes that the Committee has a responsibility and ability to look at more than just a strict interpretation of the Committee's responsibilities.  She believes the Committee should look at capital plans developed for the project. Hopefully, capital plans will be reviewed during the CGOBOC’s January 2006 meeting.  Notably, at the conclusion of the October 27 CGOBOC meeting, Ms. Jue asked Deputy City Attorney Martin, the CGOBOC’s advisor, whether the “Committee's jurisdiction is limited ... technically limited [only] to Bond proceeds. Um ... if we want, and we have, explored the tobacco settlement revenues, that we have no mandate [to look at the TSR’s] ...” Mr. Martin responded that “However, to the extent that this is a General Obligation Bond-funded project, I think you ... you do have the ability to look into other sources and uses [of funding available] ... I think this is a similar situation [to the Library bonds], that you could inquire [into] and look at it as it relates to the General Obligation Bond project” [for the LHH replacement project].
  
• Various documents presented to the CGOBOC on October 27 showed a $17 million discrepancy that the LHH Replacement Project’s interim manager could not explain.  The CGOBOC has asked that a reconciliation of the discrepancy be presented during its January 2006 meeting, because the Committee could not ascertain how much of the project funds have been expended to date, have been encumbered, or have not yet been encumbered.
  
• Ed Harrington notes that the City may avoid “... more cost escalation, but not necessarily more cost over-runs ...” on the project, since $26 million in remaining bid packages have not yet been completed being awarded.  Mr. Condon assured the CGOBOC on October 27 that the remaining $26 million in bid packages should be completed by January.
  
• There was much discussion during the October 27 hearing about the price-per-bed at LHH having gone from $322,000 to $536,000 per bed.  But Harrington neglected to tell the CGOBOC that the $40 million project to build 106 transitional housing beds at the Plaza Apartments that opened in mid-December at 6th Street and Mission Street translates to $377,358 per bed.  Nobody is talking about why the initial estimate of $322,000 per skilled nursing bed at Laguna Honda was inappropriate, at the same time they are not willing to openly discuss that the Plaza Apartments $377,000 cost per “transitional” bed is somehow appropriate.  And obviously, it is not politically correct to discuss how much in operating costs the 106 Plaza Apartments will cost the City annually.
  
• Ed Harrington claims that there is not much that can now be done to reduce the infrastructure costs at LHH (resulting in the $536,000 per-bed amount that he calls is “still an approximate number that’s decent,” despite it being an estimate developed back in May 2005 prior to the completion of the bidding process).  Indeed, Committee members were told on October 27 that more infrastructure has been placed on order than is required to support a 780-bed rebuild project, because the decision to eliminate the additional 420 beds had not yet been made. Mr. Harrington now claims that the Link Building contains much of the infrastructure for the entire campus, but this stands in stark contrast to testimony presented by the initial Replacement Project manager, Michael Lane, who informed the Health Commission on March 15, 2005 that the reason the East Building had been kept in the scaled-back 780-bed configuration was because the East Building contained much of the telecommunications, generators, and other infrastructure for the campus.
  
  Notably, Harrington said on October 27 that trying to cut back on infrastructure would have “required reengineering,” but, indeed, the various rounds of bidding had been designed to encourage “value [re]engineering” by bidders.  Harrington must have hoped that the CGOBOC members would not remember that value engineering had been a principal goal of the bidding process.  Nor did Harrington specify that one of the value engineering recommendations adopted is to reduce the height of ceilings in the replacement project to a mere eight feet.
  
• Typically, value engineering is performed at the start of building projects, not at the stage of issuing bids for the work.  But none of the CGOBOC members asked why value engineering had not been performed at the outset during initial design of the LHH Replacement Project, and none of Committee members followed up on the loss of value engineering savings between Bid Round 1 and Bid Round 2. Don Condon reported that the second round of bids reduced the construction costs by $5.5 million, but none of the CGOBOC members inquired about how much the first round of bids had reduced construction.  To her credit, Committee Chairperson Jue asked “would we have better off if we had accepted the previous [first] round of bids?,” and Don Condon responded “That’s possible.”
  
• Ed Harrington noted on October 27 that without the first $90 to $100 million in “available” TSR’s “... you don't have the funds to complete the skilled nursing facility beds.”  This is preposterous, because the Health Commission has previously been told that the cost per floor for the residential skilled nursing beds is only $7 million per floor, each floor having 60 beds. At seven floors, building the 420 beds would only cost $49 million, not $100 million.  Even if the $7 million per floor estimate had escalated by 34 percent, which is the claimed cost over-run, rather than needing $49 million for the 420 beds, the City would need only $65.66 million ($49 million plus $16.66 million), not $90 to $100 million, but Harrington does not mention why an extra $35 million would be needed to complete the skilled nursing beds.  Because the City is projected to earn $820 million in TSR’s, the City has the money to complete the full 1,200-bed rebuild of Laguna Honda Hospital.

Various members of the public — including Sister Miriam Walsh, Virginia Leishman, and Patrick Monette-Shaw — presented oral testimony during the public comments section of this meeting.

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