The Erie County Medical Center (ECMC) has been around for a long time. It originally opened in 1905 as the Municipal Hospital, then was called Buffalo City Hospital and in 1939 the facility was re-named E.J. Meyer Memorial Hospital. Ownership was later transferred to Erie County government. Operated as a department of the county for many years, the institution in the 1980’s morphed into the Erie County Medical Center. In 2004 it received a degree of independence.
In 1978 Buffalo General Hospital was in need of new facilities. The then County Executive Ned Regan proposed selling the newly constructed but not yet opened new Erie County hospital to Buffalo General. The plan was shot down after a protracted political battle.
Because of its role as a major Western New York health care facility and as the community’s prime provider of trauma care, the county hospital has usually had substantial financial losses from the care of indigent patients. The county has covered that expense in various ways.
The sale of ECMC
In 2004 the Erie County Medical Center Healthcare Network, consisting of the hospital and the county home and infirmary in Alden (since relocated to Buffalo), became an autonomous health system as a public benefit corporation. The name was changed to the Erie County Medical Center Corporation (ECMCC). In effect, the hospital bought itself from the County government for $85 million. The county agreed to retain various financial responsibilities for the corporation.
While there was a political spin about the sale freeing the hospital from county interference in its operations, the sale was primarily driven by Joel Giambra administration’s need for money to balance the annual budget. Substantial cuts in the county property tax levy following Giambra’s election in 1999, without comparable reductions in spending, led to the depletion of the county’s financial reserves. The sale of the hospital provided tens of millions of dollars in one-time revenues to the county, although in the end the cash infusion proved insufficient to stem the county’s financial problems. The ensuing crisis led to the creation of the Erie County Fiscal Stability Authority in 2005.
The creation of the ECMCC left the hospital with a degree of independence from the county government, but also with a substantial debt in the form of bonds that were sold to pay the county for the purchase.
Medicaid and indigent patient funding issues
For many years ECMC has been the beneficiary of Medicaid payments made to the hospital by the federal government for indigent care. The program is known as Intergovernmental Transfer or IGT. The county is also obligated to make indigent care adjustment payments to the hospital.
The amount of the county’s annual obligations to ECMC has increased over the past few years. The total amount owed by the county is not generally known until later in the year, long after the budget number is determined. In September 2016 the costs for the year exploded to $38 million. County Executive Poloncarz responded by using positive variances and less spending in other areas of the budget to fill the gap. The 2017 county budget projected a total expense of $23 million in IGT and indigent care adjustment payments, but the total costs are expected to be $34 million.
Projections for out-years of the indigent patient expenses show continuing substantial growth. The County Executive’s 2017 Budget Message projected the annual indigent care adjustment costs growing from $6.81 million this year to $15.05 million in 2020, an increase of 120 percent in just three years. The numbers could grow bigger. The potential negative impact of ending the federal Affordable Care Act is another wildcard in the projections of this spending.
The hospital’s need for renovations
The current ECMC facility was built in the 1970’s. Over the years the number of beds authorized by the state for use at the facility decreased substantially. The hospital’s preeminence in trauma care, however, has grown. It has also developed other medical niches as it fit itself into the Western New York health care structure. While renovations have occurred from time-to-time over the past forty years, the improvements now proposed for the facility, centering around the remodeling and expansion of the emergency room, are the most significant since the building was opened. ECMC has proposed $100 million in total projects.
The Poloncarz plan for funding hospital renovations and how it would impact county government
Since the County of Erie is still financially responsible for some of the hospital’s costs through IGT and the indigent care adjustment, the growing costs have had a direct impact on county government finances. The growing and not always predictable amounts pose a serious financial threat to the county as it strives to keep property taxes low and to continue supporting its other obligations. The state property tax cap also restricts budgetary options.
The county executive’s Budget Message in October 2016 indicated that the county had an unrestricted fund balance of approximately $101.9 million at the end of 2015. Those funds are available for any county government purpose, but County Charter restrictions make it more difficult to access those funds than was previously possible. The county is required by the Charter to maintain a fund balance equal to at least five percent of the annual general fund.
The financial arrangement proposed by County Executive Mark Poloncarz to finance the $100 million in renovations at ECMC would involve the county government selling the bonds for the hospital. The county has a better credit rating than the hospital and can therefor borrow at a lower cost, producing estimated savings of $23 million in bond repayment costs.
Poloncarz has requested that the hospital administration return the savings from the lower bond costs to the county, which then could use such funds to pay for some of the county’s ECMC obligations. With those charges already high and expected to continue increasing, even the $23 million would not go far or last very long.
A county bond issue requires the affirmative vote of two-thirds of the members of the County Legislature. An attempt to approve the $100 million ECMC bond issue failed recently, falling one short of the required eight votes. Four members of the Legislature’s Republican caucus opposed the vote. Majority Leader Joseph Lorigo is leading the opposition. He has suggested that Poloncarz wants to use the savings from a county sale of the hospital bonds to fill a hole in the county budget. He describes the situation as a “self-created budget crisis” that can be “solved with leadership and proper management.” Lorigo goes on to say that the County Executive “has declared a budget crisis because he has spent beyond our means.”
Poloncarz unwisely chose to bring a threat to cultural agencies funding into the discussion about what might happen with the county budget if the ECMC bonding plan he has proposed is not followed. It is not a good idea to hold any one particular portion of the budget, and in this case a rather small portion, as hostage for a budget crisis that hasn’t developed yet.
Unfortunately there have been several examples over the past fifty years that show how an Erie County budget crisis develops, deteriorates and is ultimately resolved. The continuing ECMC funding obligations should certainly encourage developing a plan for what can be done to maintain the county’s fiscal stability. The folks on the ship’s bridge can see that iceberg approaching, but there is time to steer clear.
Lorigo has attempted to lay the blame for a suggested fiscal crisis on Poloncarz, but if you look closely you will see Lorigo’s fingerprints on the budget, along with those of the other members of the Legislature. The most recently approved county budget for the year that began January 1, 2017 received a unanimous vote of the Legislature, including Lorigo and the members of his caucus. If fact, the Republican caucus offered only minor amendments to the budget originally proposed by Poloncarz last October. The Republican-led Legislature has unanimously approved three budgets proposed by Poloncarz since the Republican caucus took control, so there has been shared responsibility for the spending contained in the budgets. There is now a need for some shared responsibility in dealing with some serious budget issues before they become a real “crisis.”
How this might get resolved
The overriding issue here is the need for renovations at ECMC, particularly in the emergency room area. How to finance that work is the challenge.
Enter the Erie County Fiscal Stability Authority (aka, the Control Board). The Authority has previously sold millions of dollars of county bonds. Even though the county’s own bond rating is good and continues to improve, the Authority’s rating is still superior. Borrowing costs through an Authority bond issue can save more money than even the county itself could save. ECMC seems willing to return the savings to the county, which can help with the indigent patient payments.
Procedurally it will be easier for the Legislature to complete a Control Board deal rather than attempt to approve a county bond. The process requires a message from the county executive to the Legislature declaring the need for the Authority bonding. The Legislature can approve that arrangement with a simple six vote majority. Then on to the Authority to approve a bond sale.
There is an issue with the length of the bonds. The hospital would prefer a thirty-year bond, but the Authority only has twenty-two years left before its enabling legislation expires. A shorter term will require higher annual costs for ECMC, but the bonds will be retired sooner than originally planned, saving some interest charges in the long run. Those sorts of things can be worked out. If there is a concern about what the county will do with the revenues it will acquire through the Control Board borrowing, that can be negotiated and codified in a legislative resolution. One option might be to direct the funds into the county fund balance. County Charter procedures are already in place concerning how fund balance moneys can be accessed.
It is only March. The 2018 county budget will not get approved until December. Once the Fiscal Stability Authority approves the bond issue cooler heads should prevail in county government to plan out how the growing indigent patient costs will be handled. Sales tax revenues have been tracking lower than budget, so how to handle that revenue stream, the county budget’s largest, should also figure into the long-term planning. These are the things that the County Executive and the County Legislature are elected to do, together. Let’s get to it.