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West of Twin Peaks Observer
July–August 2008

Newsom's Laguna Honda Boondoggle
by Patrick Monette-Shaw

Cost overruns continue to skyrocket on the Laguna Honda Hospital replacement project, ostensibly being jointly managed by Department of Public Works and Department of Public Health staff, even while the project’s scope has plummeted dramatically.

As a disciple to his guru, Mayor Gavin Newsom is artfully utilizing Willie Brown’s playbook.

In 2003, former Mayor Willie Brown snatched $25 million from tobacco settlement revenues (TSR) earmarked to rebuild Laguna Honda Hospital (LHH) in order to balance his final City budget, although the tobacco settlement fund wasn’t established to balance City budgets. The eleven then-sitting Board of Supervisors — including Gavin Newsom — passed a special ordinance granting Willie permission to raid the TSR account.

Mayor Newsom just de-appropriated another $18.3 million of TSR’s from the LHH Replacement Project fund: $15.2 million to help balance his fiscal year 2008–2009 budget, plus $3.2 million for funding new community housing subsidies mandated by the Chambers settlement. Newsom has done this without a special ordinance, by simply including the de-appropriation in next year’s Annual Appropriation Ordinance budget.

The guru and his disciple have siphoned $43.3 million from the TSR account.

Belatedly, Planning for Elders in the Central City (PECC) just requested a full, clear accounting of LHH’s new $110 million capital budget increase, how the cost overruns occurred, and who is responsible. Following San Francisco’s Capital Planning Committee June 9 meeting, PECC also requested an examination of $47 million in Certificates of Participation (COP) — a form of public financing bypassing voter approval — for the LHH Replacement Project.

Unlike bond financing, COP’s aren’t considered, and aren’t shown as, City debt; they’re considered repayments of future revenue streams tied to City assets, in this case guarantees against the General Fund as simple payments on leased assets. Public scrutiny of COP spending isn’t required. COP’s can only be applied to debt service payments for capital costs related to the LHH replacement project, including construction and equipment acquisition.

To qualify for leased assets, Newsom and Supervisor Sean Elsbernd suddenly introduced on June 5 a new Ordinance the creates a Property Lease, a separate Project Lease, and a Trust agreement with a Trustee for the LHH Replacement Project, without explaining the lease terms or why leases are suddenly necessary.

It’s not $47 million, but $185 million in COP’s being proposed to complete LHH Replacement Project financing — in addition to the $420 million already appropriated. Of the $185 million, $30 million is believed to be earmarked to service the debt on already existing bond indebtedness; $110 million for construction; and $45 million for furniture, fixtures, and equipment that former City Attorney Louise Renee had reportedly previously negotiated to be funded from the General Fund to repay Guru Brown’s raid of $25 million from the TSR account.

There’s no explanation about why $47 million is now needed to replace the $25 million, or why $47 million is now needed for furniture, fixtures, and equipment for a facility reduced from 1,200 beds to only 780 beds.

In its March 2008 status report to the Citizens General Obligation Bond Oversight Committee (CGOBOC), LHH’s Replacement Project team indicated the Controller had identified $120 million in COP’s that could be issued using the City’s General Fund as credit, to be repaid using federal revenue. [Note: the repayments are actually made by the State, not the Fed’s.]

Suddenly, without explanation, the amount of COP’s to be issued has surged to $185 million. The $185 million in COP’s will cost an additional $123.7 million in interest, totaling a $306.4 million increase to LHH’s replacement project.

The true cost overruns of the LHH Replacement Project have been hidden from the public long before September 2007, following repeated cancellations of the Laguna Honda Hospital Joint Conference Committee, a subcommittee of San Francisco’s Health Commission; Health Commission meetings; and CGOBOC meetings. Few LHH-sponsored Town Hall meetings have been held.

The LHH Replacement Project team’s September 2007 status report to the CGOBOC stated the “forecast at completion” of the then-approved 780-bed project was $541,168,339, an increase at the time of $58.3 million.

Six months later, its updated report in March 2008 says the same 780-bed project forecast-at-completion cost is now estimated at $593,946,602, another increase of $52.8 million. The two increases total $111 million above previous estimates.

The March 2008 status report doesn’t describe the many reductions in the scope of the project, including elimination of various programming, and the de-funding of a decade-long-promise to provide $15 million towards assisted living housing on Laguna Honda’s campus.

The replacement project’s Budget Revision 14 released on March 26 increases consulting services by $14 million, to a total of $96 million. It simultaneously reduces actual construction costs by $16.3 million, and eliminates entirely the $15 million assisted living commitment, for a total of $31 million in project scope reductions. The reductions had to be made, in part, to finance the consulting services, and a new $20 million increase to renovate the front section of the current hospital’s administration building. A full accounting of all project cuts hasn’t been described publicly.

Although LHH’s rebuild is now smaller by 420 beds, the LHH Replacement Project team claims the 780-bed project will only cost $594 million. But the Mayor’s Office of Public Finance has forecasted the total budget to be $641 million, $240 million — or 60 percent — over the initial budget, apparently anticipating additional cost overruns. The Project Team’s March 2008 status report also forecasts $642 million in total sources of funding. No explanation has been made public as to why the current project budget of $594 million is expected to soar another $48 million, to the new forecasted $642 million amount.

In 2007, a City audit of the Department of Public Works pointed to a lack of oversight of projects that leads to project delays and questionable project costs. DPW’s oversight of the greatly delayed LHH replacement project has been pathetic.

Voters should demand a Grand Jury investigation of Newsom’s Laguna Honda rebuild boondoggle to determine who is responsible for the project’s cost overruns and scope reductions.

Patrick Monette-Shaw
is an Independent Community Observer and AIDS Accountability Research Investigator

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