At a special meeting of the Sitka Assembly on Tuesday (1/29/19), the assembly heard three financing options for the potential sale of Sitka Community Hospital. While assembly members spent some time considering those options, they also debated a possible conflict of interest, and questioned consultants on what parts of the confidential draft agreement could actually be discussed at the public meeting.
After months of negotiations between the city of Sitka and Southeast Alaska Regional Health Consortium (SEARHC), the dollars and cents are finally coming into focus. At a meeting of the Sitka Assembly on Tuesday night, consultants Sarah Cave and Steve Huebner presented three options for financing the sale of Sitka Community Hospital.
Option 1: SEARHC purchases Sitka Community Hospital for $8,300,000 up front with a 5 year lease of the building at $140,000 per year (700,000 total).
Option 2: SEARHC purchases the business, making $700,000 annual payments for the next 22 years- a grand total of $15,400,000. Plus a $1 annual lease and $646,000 toward the PERS termination cost.
Option 3: SEARHC purchases the business for 9 million up front with $1 dollar lease.
Regardless of which option they choose, the city will maintain ownership of the building.
While Cave and Huebner did not give a firm recommendation during public session, they stressed what they said were the “pros” of option two.
“That appears to be the best, and the only thing you wouldn’t say- ‘safest.’ There’s nothing more safe than getting $9 million dollars on day one,” Huebner said. “But if you look at security and other things, and if we have the right protections in there, we would like to help you get the best return possible.”
Huebner said that if the city was able to get more than 6.1 percent interest return on their investment, then receiving only 9 million dollars up front would be a good option. But he said that wasn’t likely.
“We don’t believe, historically, you have been able to approach this rate of return over time,” he said. “If we thought we could out perform that, we would take the nine million.”
Shortly after Cave and Huebner opened the floor up for questions, assembly member Aaron Bean cut in to make a disclosure.
Bean said he recently secured a deal with SEARHC to provide charter fishing trips for the organization during the summer. City Clerk Sara Peterson informed Mayor Gary Paxton that, as the chair, he needed to make the decision independently as to whether or not Bean could continue to participate in discussion.
Mayor Paxton said he didn’t believe Bean’s business with SEARHC was a conflict of interest. Then assembly member Valorie Nelson moved to overturn Paxton’s decision. P
At a prior meeting, Nelson disclosed Bean’s business with SEARHC, believing it to be a conflict. But Bean said it would not change the way he would vote when it came to the sale of the hospital.
“The timeline in the story is consistent,” he said. “There’s nothing that should lead you to believe that my votes are going to be any different than they have. I think that I’m pretty sold on the idea. I think that the body is working in this direction and we have been for a good six to nine months now.”
Ultimately, Bean was able to participate in the discussion and Nelson’s motion to overturn Paxton’s decision failed with Bean, Paxton and assembly members Richard Wein and Kevin Knox voting against.
Then came the matter of executive session- assembly members each held draft copies of the asset purchase agreement or APA, and lease agreement for the hospital. And the assembly was set to discuss certain legal and financial aspects of those documents in executive session. But Wein said he wanted to make the process more transparent.
“I’m sorry that we can’t do it, I’ll say, as Frank Sinatra did, ‘My Way,'” he said. “Meaning that the members of the public and people at home could read along.”
Wein said that, when asking the consultants questions, he wanted to read directly from the document in order to add context for the public. He then began to read from his copy. Consultant Sarah Cave interrupted, asking him to hold on for a moment.
“Tell me what I can and can’t do,” Wein responded.
Outside legal counsel Sandy Johnson approached the podium. She said that even though parts of the APA are resolved from the consulting team’s point of view, the document must remain confidential until the city and SEARHC reach a formal agreement on the terms of the sale.
“Once we have that meeting of the minds, then we’ll be happy to go through clause by clause, sentence by sentence with you,” she said. “But until we reach that point it’s still confidential.”
The assembly made a motion to go into executive session at 7:55, finishing shortly after 10 p.m., taking no public action. Once the city and SEARHC come to a formal agreement, a final draft of the APA and lease will be made available to the public. The assembly is expected to vote on the APA in March.
