By David Howell
WATER VALLEY – A five million dollar hospital renovation and expansion project that has been in the planning phases for years and has gone out for bids twice could be shelved again. The problem stems from a complex financing package, complicated by environmental issues along with the big bucks involved.
Yalobusha Health Services (YHS) Administrator Terry Varner shared these concerns about the project at last week’s supervisor meeting, explaining that the hospital board had voted to go forward with it, but the vote had been split 4-3.
“We want more than a 4-3 decision on this,” Varner told supervisors, adding that past projects by the hospital involving millions of dollars have had strong support from the entire hospital board. The current project was to be the latest step for the county-owned hospital to expand health care services in Yalobusha as part of an aggressive long-range plan with over $15 million having been invested in the last 15 years for additions and new equipment at the top-rated nursing home, hospital and clinics around the county. Varner has previously reported that the majority of the investment during that time has come from short-term loans or from the entity’s cash flow.
The new project includes adding 8,000 square feet with a second floor at the hospital, along with a long overdue lab renovation, an updated look on the outside and renovating the interior to add new medical services in the future. With the second floor addition, Varner has reported that one of the main benefits for the expansion would be the addition of a geropsych unit at the hospital.
Financing for the project initially included a $640,000 CDBG grant already awarded to the county, along with New Market Tax Credits and a USDA loan. The financing package was in place last year and, with full approval from the hospital board, supervisors awarded a $5 million bid for the work to Century Construction Group, LLC in Sept., 2017. That bid was rejected by supervisors two months later after environmental concerns surfaced about the use of tiers to support the second floor at the hospital. The piers would require deep penetration in the ground and could disturb the trichloroethylene (TCE) in the soil and ground water.
The Environmental Problem
TCE is a non-flammable, colorless liquid used as a solvent for cleaning metal parts and was used at an industrial site formerly occupied by the Holley Automotive Division of Colt Industries, Inc. (Colt) from 1973 until 1982, according to a lawsuit filed last year by Mississippi Attorney General Jim Hood. The TCE contaminated the ground water in an area around the industrial site and also poses a threat when it vaporizes and migrates from ground water and through the soil and into the air in a process called vapor intrusion. The threat comes when the vapor enters a building exposing occupants for an extended period.
Concerns about vapor intrusion from TCE first surfaced in early 2016, following renewed scrutiny from MDEQ into the decades-old contamination from the former carburetor plant, which is located just east of the hospital property. According to MDEQ, their renewed scrutiny stemmed from new vapor intrusion guidelines implemented by the Environmental Protection Agency (EPA) in 2015.
Since the release of TCE at the industrial site, MDEQ reported the chemical has crept toward O’Tuckolofa Creek in an area described as a plume that spans an area north of the industrial site that includes an estimated 28 residences and 11 commercial buildings on portions of South Main Street, Frostland Drive and Champion Circle. The contaminated area includes the property where the county-owned hospital and nursing home are located.
First Hurdle Cleared
After the first bid was rejected by supervisors last November, county supervisors and hospital trustees convened the following month in a joint meeting to map out construction details, including a possible change to the plans that would scrap the second floor addition and instead only use ground floor space for the planned geropsych unit. During that meeting, both groups decided to forge ahead with the original two-story plan after learning MDEQ would approve the plan if steps were taken to address the potential TCE threat – steps that included monitoring the air and other precautions as part of the construction at the hospital.
However it took another six months for that MDEQ approval to become a reality and it came in the form of an environmental covenant executed by the county, MDEQ and other parties on the 12-acre tract of hospital property. Part of the delay in finalizing the covenant required getting all of the parties to sign off on the details, including the attorneys involved in the environmental lawsuit filed last year.
A Look At The Lawsuit
In April, 2017, General Hood filed a lawsuit on behalf of the State of Mississippi seeking monetary compensation from defendants – EnPro Industries, Inc., Goodrich Corporation and Oldco, LLC – for all costs incurred by the state for remediating and cleaning up the groundwater and costs for remediation of all TCE-contaminated soil to eradicate the source of contamination. The lawsuit also seeks punitive damages.
BorgWarner Emission Systems, LLC, currently owns the property where the contamination occurred, but the company obtained the site after the problem occurred and did not assume the environmental liability for the site.
In addition to General Hood, other attorneys listed as counsel in the lawsuit are Jackson law firm Liston & Deas, PLLC and Grenada attorney Reid Stanford. Both firms are also among a group of plaintiff attorneys also representing Yalobusha County and Yalobusha General Hospital and individual landowners affected by the contamination. Other attorneys also involved the consortium hired by the county and hospital include Texas environmental law firm Ted B. Lyon and Associates, Southaven attorney Craig Treadway and Crow Martin, LLC.
With his firm included in the group of attorneys involved in the lawsuit, board attorney John Crow has been the primary liaison between the county and plaintiff attorneys on the ongoing case. During a May Board of Supervisors meeting, Crow explained work on the covenant was still underway, and part of the agreement would be that the county nor hospital would waive any rights to sue any guilty parties responsible for the contamination.
After the covenant was finalized, the project was rebid in August and Varner’s appearance at last week’s supervisor meeting was to update county officials on the status of the project. Varner explained that initially the hospital board was in favor of recommending to supervisors to award the $5.3 million bid to Century Construction, Inc.
But Varner explained that issues surfaced last week on financing the project, issues that led to the 4-3 vote.
“We have worked through it, they have agreed to accept a percentage of revenue against the note which would be 15 percent,” Varner explained about the lender, NeighborWorks America.
Varner also explained that the next steps would be for the Board of Supervisors to award the bid and approve the hospital’s debt limit to borrow $5.1 million.
“My board voted 4 to 3, I feel like I do need to tell you guys it was not a 7-0 vote. It was 4-3, so now it is in y’alls hands to decide what to do next.
“Did they explain why they had some reservations?” Board President Cayce Washington asked.
“One was against borrowing anything, the other two felt there were too many obstacles relating to the environmental issues we have been dealing with,” Varner explained.
“That’s my trepidation,” District Five Supervisor Gaylon Gray agreed about the environmental issues.
“It is scary, John (Crow) had shared with all of us, if something does happen. I mean the county doesn’t have that $20 to $30 thousand, whatever that note is per month to support that,” Washington said about servicing the debt if the hospital could not.
“We have come up with spending cuts and budget savings that will more than cover the debt service. But my board was aware of it and the three still have their concerns. For full disclosure, that is where we stand,” Varner said, adding that the hospital board was contemplating pushing their November meeting up earlier in the month to revisit the issue.
“We want to make sure your team is on board,” Washington said.
“You are looking at almost six million dollars and I see that. We want more than a 4-3 decision on that,” Varner agreed, adding that past projects involving millions of dollars have always had full support from the hospital board.
“We have taken those on – the Spears Wing (nursing home addition), the hospital (renovation) and the clinic. We have tackled multi-million dollar projects in the past,” Varner noted.
“That was before this environmental thing came up,” Gray noted.
“The environmental blocked us last November,” Varner continued, adding it took a year to resolve the issues with MDEQ to satisfy lending requirements.
“I wish honestly, if we were going to say no, we should have said no last November to save the money that we have already spent on engineering fees, architectural fees and attorney fees,” Varner explained, adding the hospital has already spent $600,000 on the project. Varner also said the only outstanding debt was a nursing home bond issue from 2000, a debt that will pay out in 2025 and is currently a little over a million dollars.
“The concern you said the three no votes had was the environmental issue and perhaps, the type of financing. The environmental issue is something we have to deal with. It is there, and it is always going to be there short of a final settlement some day in the future,” District 3 Supervisor Lee McMinn said. “My thoughts are, if the projections work, and my appointee on the (hospital) board has looked at the numbers and says he is a go. I don’t know what the downside of the environmental issue would be,” McMinn added.
Varner explained the latest obstacle with financing from USDA. was a request for a NEFA financial review, a process that would take six to nine months, which would make the tax credits invalid.
“That is why we went with NeighborWorks, instead of USDA,” Varner explained about the financing. “Same interest rate.”
“As far as the environmental, it is not going to change,” Varner said, agreeing with McMinn that the environmental concerns are long-lasting and not a deal-breaker.
“As far as the project itself, we break even, including the debt service, at four patients a day. There is a need,” Varner said about the addition of the geropsych unit.
With Varner’s recommendation, supervisors agreed to wait for more input from the hospital board before making a decision.
“I want you to know we support the growth of the hospital,” Washington said.
“100 percent,” Gray agreed.