Billionaire Touts Hospital Bond Driven by Obamacare: Muni Credit

Voters in Florida’s most-populous county will decide next week whether to pay higher taxes and sell a record $830 million of debt for their flagship public hospital to help it prepare for Obamacare.

Miami-Dade County’s Jackson Health System would use the proceeds to help lure more insured patients as it copes with an expected funding drop under the health-care law passed in 2010. The borrowing would be the county’s biggest to aid Jackson, which has its main hospital in Miami and faces cuts to the government subsidies it relies on to treat the poor and uninsured who make up 62 percent of its patients.

The campaign to pass the borrowing has raised $1.8 million from local executives and philanthropists, including $25,000 from billionaire car dealer Norman Braman. Yet Burt Mulford, a money manager at St. Petersburg, Florida-based Eagle Asset Management, says even with the bonds financing room renovations, the hospital will be “a fiscal drain on the county.”

Partly because about 34 percent of Miami-Dade residents lack coverage, more than double the national average, “Jackson is going to take a hit every time they take in a new patient who is unemployed or doesn’t have insurance,” said Mulford, whose firm oversees about $2 billion of munis.

Expansion Denied

The county of 2.6 million may add to its debt load for the hospital after Florida joined 24 other states in deciding against expanding Medicaid. Under President Barack Obama’s health-care overhaul, the U.S. would pay all the added cost for the first three years and at least 90 percent after that for enlarging the state-federal insurance program for the poor.

The U.S. Patient Protection and Affordable Care Act has a goal of reducing the number of uninsured by widening Medicaid coverage, while cutting payments to providers for uncompensated care. Jackson had $139.2 million in unreimbursed costs last year for community benefits such as free care to the uninsured poor.

For Jackson, which flirted with insolvency as recently as 2011 and tackled five straight years of deficits, selling debt on its own wasn’t an option, said Carlos Migoya, its chief executive officer.

Migoya said the money will help the 95-year-old system make needed improvements. Funds would go toward projects such as renovating rooms, buying medical equipment, building a rehabilitation center and creating a network of urgent-care clinics.

Balance Sought

“We need to have that balance of luring those who are paying patients to also help support those that can’t,” said Lynda Bell, vice chairwoman of the county commission.

Expanding Medicaid would have added more than 1 million Floridians to the program and brought more than $50 billion in extra U.S. aid over the next decade. Some of the cash would’ve gone to Jackson, the largest provider of Medicaid services in the fourth-most-populous state.

While Republican Governor Rick Scott, 60, announced his support for Medicaid expansion in February, lawmakers adjourned three months later without an agreement on the issue. Like Florida, the states that have decided against expanding Medicaid are led by Republican governors or legislatures.

Miami-Dade County Commissioner Xavier Suarez said he tried to convince lawmakers in Tallahassee to expand Medicaid earlier this year, to no avail. The refusal will cost Jackson, he said.

“It puts enormous pressure on us,” Suarez said. “The estimates were that we could lose $100 million. How we make that up isn’t easy.”

Tax Burden

If the hospital measure passes, property levies would rise as much as $50 annually for the average homeowner to pay off the debt over 30 years, government projections show.

The hospital’s political campaign committee has been helped by donors such as Braman, a former owner of the Philadelphia Eagles, and Stuart Miller, chief executive officer of Miami-based homebuilder Lennar Corp. Miller contributed $200,000.

The hospital is Miami-Dade’s seventh-largest employer, with more than 11,000 workers.

Moody’s Investors Service, which grades the county Aa2, third-highest, with a stable outlook, has cited financial pressure from the hospital as a challenge. The county had about $1 billion of general-obligation debt as of September 2012, financial records show.

In the $3.7 trillion municipal-bond market, Miami-Dade obligations have fared worse than benchmark securities in recent months, even as local debt nationwide is on pace for its steepest annual drop since 2008, Standard & Poor’s data show.

Spread Surge

Tax-exempt county bonds maturing in July 2029 traded Oct. 23 at an average yield of 3.74 percent, or 2.4 percentage points more than benchmark debt, data compiled by Bloomberg show. That compares with a yield spread of about 1.5 percentage points at the end of May.

As the region’s largest hospital for the poor and uninsured, with 2,449 beds, Jackson receives federal, state and local subsidies for providing unreimbursed care. The system began as the 13-bed Miami City Hospital, which opened in 1918. Renamed Jackson Hospital, it affiliated with the University of Miami medical school in 1952. After opening outside clinics and other facilities, it was renamed Jackson Health System in 2001.

Migoya took charge in 2011 as part of a new management team assigned to turn the ailing system around.

Jackson posted an $8.2 million 2012 surplus after five years of losses, according to a February audit. In December, the county obtained a $75 million line of credit for Jackson, according to S&P.

Deficit Plugged

The value of all taxable property in the county rose 3.5 percent this year, as buyers from abroad helped boost home prices. The jurisdiction still struggled to plug a $50 million budget gap, choosing to draw from reserves rather than dismiss library workers. The area’s jobless rate of 7.9 percent in August was higher than the 7.3 percent U.S. average.

“The tax base in Miami-Dade is not quite as robust as we want to see,” said Eagle Asset’s Mulford. The labor force has contracted by 1.2 percent since February as fewer residents seek work, according to federal labor statistics.

Voters authorized $1.2 billion in school bonds last year, backed by tax revenue. The county has also approved bond sales this year to finance improvements to sewers and the seaport, with each set to cost more than $1 billion.

Jackson got $335 million from county taxes and about $90 million from federal and state sources last year. The system’s costs for providing free care and related expenses topped $565 million in 2012, according to an April 29 report on its website.

Market Week

In the municipal market this week, issuers are set to offer about $5 billion in long-term debt with benchmark yields at a four-month low.

The interest rate on AAA 10-year munis is 2.65 percent, the lowest since June 21, Bloomberg data show. That compares with 2.54 percent on similar-maturity Treasuries.

The ratio of the yields, a gauge of relative value, is about 105 percent, compared with an average of 94 percent since 2001. It has been above 100 percent since June 24. The higher the ratio, the cheaper munis are compared with federal debt.

Following is a pending sale:

The industrial development authority of Florida’s Collier County will offer about $190 million in debt next week to finance Arlington of Naples Inc.’s continuing-care project, according to a preliminary statement. The project consists of 242 living units and 44 nursing-home beds being built by the not-for-profit corporation affiliated with the Lutheran Church.

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