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TRAVERSE CITY — Grand Traverse Pavilions, a county-owned nursing home, is seeking to sell $6.3 million in bonds to finance unfunded pension debt, a financial plan provided the Record-Eagle shows, though some county officials question the strategy.

“It would be like taking out a second mortgage on your home to invest in the stock market,” said Grand Traverse County Commissioner Gordie La Pointe. “You may be ahead of the game but you are taking a gamble. Should you be gambling with taxpayer funds — that’s the question.”

La Pointe is the county board’s liaison to the local Department of Health and Human Services Board, which oversees the Pavilions. The three-member DHHS board includes Chairman John Rizzo, Vice Chairman Cecil McNally and Ralph Soffredine.

McNally and Soffredine voted to approve a resolution to authorize the bonds at their meeting Sept. 25 — Rizzo was absent — and it is on Grand Traverse County Commission’s meeting agenda for Wednesday.

Rizzo, McNally and Soffredine did not return calls seeking comment. Steve Burke, President of MFCI LLC, who helped draft the financial plan, will be one of the presenters at the meeting.

“They’ve really studied the risk, studied the savings of combining the two pension divisions and closing them,” Burke said. “Because general interest rates continue to be at all-time lows, that makes these bonds attractive when you go out 20 years.”

Burke said the state requires a “stress test” to ensure a cost savings if rates of return are at the current 7.35 percent, but also at 6.35 and 5.35 percent. In each of these scenarios, the Pavilions would save money, he said.

As much as $3.1 million of the present value of the liability, Burke added.

While county oversight of the Pavilions is minimal — La Pointe is not a voting member of the DHHS board, for example — the nursing home is still a component unit of county government.

County Finance Director Dean Bott said without county board approval, the state’s Municipal Finance Act states the bonds cannot be issued.

That approval may be difficult to come by, he said.

“I think our board’s position has been to say that a safer path is to pay a little bit more in, and not issue another type of debt to fully fund the obligation,” Bott said.

There are other advantages to the Pavilions of bonding the debt, Bott said.

A bond payment, which tends to stay the same over the life of the debt, is more predictable than a pension debt payment, which vacillates from year to year, he said.

The Pavilions also receives a majority of its funding from Medicare reimbursements, which may also offer to reimburse anywhere from 50 to 75 percent of the bond debt, under a federal program.

That federal program, however, has posted repeated changes, may ultimately reimburse nothing and could be eliminated altogether after the first of the year, La Pointe and Bott said.

“Before COVID, the Pavilions would get reimbursed by Medicaid for this,” Burke said. “If nothing changes, they still may get reimbursed 52 percent of the bond. But the DHHS board made the calculation that the bonds stand on their own in terms of the savings.”

La Pointe said he’d met with Pavilions staff on the Medicaid reimbursement possibility.

“That makes this an interesting wrinkle,” La Pointe said. “It was a sweetheart deal, a win-win. Then a month ago or so it changed and what I’ve learned is the whole program is up in the air. There’s no guarantee. It could be zero.”

La Pointe said he was looking forward to learning more details Wednesday. Both Commission Chairman Rob Hentschel and Vice Chairman Ron Clous said they were skeptical but would be listening closely to the pros and cons.

“You’re supposed to pay for a service when you get that service,” Clous said. “Not kick the can down the road.”

“I plan to let them present their case and listen to what they have to say,” Hentschel said. “There are a lot of opinions surrounding bonding out of a pension debt. My stance is, it’s a very risky thing.”

“There are communities that bonded their pensions, the market dropped and now they have a bond payment in addition to the pension payment,” Hentschel said. “That’s the risk.”

Derek Melot, communications manager for the Michigan Association of Counties, said he wasn’t aware of MAC data on any other of the state’s 34 county-owned nursing homes which had issued bonds to fund pension debt.

Kory Hansen, Pavilions CEO, said in an email that Iron County Medical Care Facility and Martha T. Berry Medical Care Facility in Macomb County had both utilized pension bonds.

Some officials have compared bonding municipal pension debt to paying off one credit card with another — its a gamble, a debt is still a debt and the strategy will net winners and losers, La Pointe said.

In Oakland County, the gamble paid off when then-administrator L. Brooks Patterson borrowed $557 million to fund that county’s pension debt, refinanced $350 million in 2013, for a 100 percent-plus increase in value, records show.

Burke said his firm was involved in the Oakland County transaction.

But in 2005, Detroit Mayor Kwame Kilpatrick’s administration borrowed nearly $1.5 billion in a complex debt restructuring aimed at saving that city’s pension fund — a decision that was later listed in court documents as a contributor to the city’s 2013 bankruptcy.

Burke said Detroit did not “close” the pension funds, as state law now requires, after bonding.

“You close the funds,” Burke said. “That’s how you stop the bleeding.”

Still, nothing is certain about future liability, Bott said.

“One of the issues you have is the liability can change,” Bott said. “So even if you issue pension obligation bonds, there’s always a chance that those divisions don’t stay at 100 percent funded. That’s when problems arise. That’s when you suddenly have the bond payment and the pension payment.”

Wednesday’s commission meeting begins at 8 a.m. The public can attend by watching the meeting’s livestream at http://gtcmi.us/bocstream or by calling 408-418-9388 and entering pin number 792-476-402.

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