Op Ed  
Westside Observer
May 2009, at www.westsideobserver.com

Mortgaging Laguna Honda Hospital’s Future
by Patrick Monette-Shaw

When voters approved a general obligation bond measure to rebuild Laguna Honda Hospital (LHH) in November 1999, they understood at a gut level they were “mortgaging” Laguna Honda’s future in the form of $299 million in principal, plus additional interest, on bonds for a project voters were told was initially budgeted to only cost $401 million. Voters were lured into believing the bond would fund a healthcare facility for our elderly.

Voters were not told in 1999 that in addition to the “mortgage” they were undertaking to rebuild Laguna Honda, that our City fathers would then turn around and enter into two separate rental leases on the value of LHH’s property in addition to the bonded indebtedness, by issuing another form of long-term debt known as Certificates of Participation (COP’s) that are based on leasing property owned by the City.

To date, $227 million in COP’s are being leveraged against the value of LHH’s future in the form of principal payments; another $163.4 million in interest will be required to pay off the COP’s, even though only $120 million of the $227 million of COP’s are actually being applied to complete construction of LHH.

Voters were told the bonds would be used to build some sort of “continuing health care facility,” principally to care for San Francisco’s “old-old” (a.k.a. the “frail elderly,” meaning those over the age of 85) and disabled San Franciscans. To date, between the general obligation bonds and COP’s, the City has leveraged Laguna Honda for long-term debt of $745.7 million including principal and interest, and is using an additional $177.9 million in other sources of funding (mainly from tobacco settlement revenues) to complete LHH’s rebuild. This totals $923.6 million between long-term debt and other financing sources to complete a project currently budgeted to cost $594 million (at current minimum), only $354 million of which includes “hard costs” for actual construction.

On April 28, San Francisco’s Board of Supervisors approved issuing $42 million in COP’s using the “residual rental value of Laguna Honda Hospital’s property,” on advice of the City’s Real Estate Division and the Mayor’s Office of Public Finance, who assert that LHH’s “special use” is not fully leveraged. They also assert the $42 million in new long-term financing via COP’s are the “most efficient way of timely accessing capital” to finance street improvement projects, by adding a second lease and sublease to Laguna Honda Hospital’s $575 million “market value.”

The street improvement projects include Union Street, Montgomery Street, Kearny Street, Chestnut Street, Stockton Street, Steiner Street, Castro Street (between Divisadero and 15th Street), and Bush Street (between Van Ness and Battery Street), among other streets nowhere close to LHH.

The street COP projects are in addition to the planned $309 million “Road Repair and Safety Improvement” general obligation bond in November 2009 that also deals with street resurfacing, and in addition to any federal stimulus money San Francisco may receive for street improvement projects.

Recently, Peter Scheer, a lawyer, journalist, and executive director of the California First Amendment Coalition, noted that “Legitimacy, the most valuable asset of any court, is diminished by judicial secrecy and enhanced by openness.” Reasonable people assume that Mayor Gavin Newsom, and his appointed president of San Francisco’s Health Commission, Jim Illig, would know by now that the legitimacy of Newsom’s administration is diminished by its level of secrecy and failure of open government. The nearly-secretive COP’s are not the only change affecting Laguna Honda’s replacement project and its changing mission.

The Health Commission’s subcommittee known as the Laguna Honda Joint Conference Committee (JCC) secretly discussed on January 12 reducing its monthly meetings to quarterly meetings, when Commissioner Illig introduced the discussion without placing it beforehand on the JCC’s publicly-noticed agenda. Remarkably, minutes of its January 12 meeting fail to document that this discussion had actually taken place. The LHH-JCC has managed to add a layer of secrecy to Laguna Honda by holding fewer public meetings annually. Illig now claims this decision wasn’t made on January 12, as some meeting participants asserted had occurred. Instead, he now claims the decision to reduce the number of the LHH-JCC’s public meetings was made at a later date and doesn’t require notice under San Francisco’s open-government Sunshine Ordinance. He neglected to elaborate on whether this decision was possibly made during an illegal seriatim meeting of the Health Commission outside the public view.

During the LHH-JCC’s April 22 meeting, both Illig and LHH’s Communications Director, Marc Slavin, noted that “themes” being advanced include Laguna Honda’s evolving “community mission” to bring San Franciscans on campus as a recreation destination of hiking trails, public park space, and community auditorium, with the help of the Mount Sutro Stewards, a group dedicated to expanding trail spaces and habitat restoration.

In 1999, Laguna Honda supplied one-third of skilled nursing beds in San Francisco. By the year 2013, given additional skilled nursing beds that are projected to close, Laguna Honda will provide just over one-quarter of desperately-needed skilled nursing facilities for San Francisco’s frail elderly, who are expected to increase by the year 2030, since San Francisco is projected to have another 1,280 people over the age of 85, and another 15,790 people over the age of 75 who also may need skilled nursing level of care.

Voters weren’t told in 1999 that rather than building critically-needed skilled nursing beds for elderly and disabled San Franciscans we’d get, instead, community amenities and hiking trails from the bond expenditures and COP funding being used to complete LHH’s replacement project, or that a third “mortgage on the future” would be added to bond expenses by renting and subleasing Laguna Honda’s property to fund street improvement projects.

Reasonable people must now consider whether before completing LHH’s rebuild the City will issue even more COP’s for other non-project uses, claiming LHH’s “residual rental value” justifies leveraging additional mortgages against Laguna Honda Hospital’s future. After all, various forms of principal and interest for long-term debt, combined with additional financing sources, now stands at $923.6 million “leveraged” against LHH - just $76.4 million shy of a cool one-billion-dollar investment - for a project of $354 million in construction hard costs.

At what cost — in both dollars and declining healthcare services — will mortgaging LHH’s future end?

Patrick Monette-Shaw

Monette-Shaw, an accountability watchdog, operates www.stopLHHdownsize.com.



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