One big “if” hung over the El Camino Hospital board of directors meeting last week. On April 5, the board approved a $480 million budget for its new hospital, and with it, a timeline that depends on the resolution of a lawsuit challenging public bonds that are vital to funding the project.
Still no court date has been given for the legal challenge by Saratoga attorney Aaron Katz, who sued the hospital claiming that even though he’s not a resident of the district, as a property owner he should have been allowed to vote on the $148 million bond measure in November 2003.
Pushed by the growing costs of California hospital earthquake retrofit projects, the price on El Camino’s new hospital has jumped 41 percent, from $339 million to the currently estimated $480 million. And despite the board’s recent vote to approve that budget, it could get worse if Katz’s case does not resolve itself by early May — at which point El Camino will be forced to rebid the project. Interim CEO Marla Gularte recently indicated that the hospital is “moving down both paths,” to settle the lawsuit outside of court or resolve it in court.
“My personal opinion is that we move on as quickly as possible,” said board member Mark O’Connor. “I have great confidence that the lawsuit will be resolved soon,” he said, pausing and adding more quietly, “I hope.”
Assuming El Camino can sell its bonds in the near future, moving forward with the bigger budget would mean El Camino would spend about $40 million in undesignated cash reserves, along with a revenue bond of $250 million.
Limiting a revenue bond to no more than $250 million would allow El Camino to maintain its “A” bond rating. However, this spending plan would also bring the hospital from its current 9 percent operating margin to below the recommended 3 percent.
“There’s no question that it is going to place pressure on future operating budgets,” said hospital spokesman Jon Friedenberg. “It’s going to put pressure on the hospital to perform well financially to allow the continued reinvestment in the hospital.”
At the board meeting, Ken King, vice president of facilities, laid out the same contingency plans he presented at a recent facilities subcommittee meeting. Options included scaling back the project (which he concluded would not align with El Camino’s mission), waiting a year (which would make the price soar above $500 million, requiring a second public bond and a lower bond rating), or moving ahead as planned in hopes of a prompt resolution to the lawsuit.
Despite the big “if,” board members were eager to approve the motion and move forward with construction.
“I will take a motion to spend a whole lotta money,” said board chairman and cardiologist Edward Bough.
Acknowledging what spending cash reserves and a revenue bond would do to the hospital’s financial security, board vice president David Reeder added a word of warning.
“The numbers say we can do it but I don’t want anyone going away thinking it’s going to be easy,” Reeder said. “We’re going to have to tighten the belt.”
King repeated several times throughout the meeting that, if the board approved the $480 million budget, he would make it his “personal goal” to bring the project in under that amount.
E-mail Molly Tanenbaum at mtanenbaum@mv-voice.com
