State denies hospital joint powers agreement

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A letter from a state agency has two local governing entities reconsidering and reviewing a joint powers agreement they signed last fall.

In a letter dated Jan. 24, the New Mexico Department of Finance and Administration issued its response to a JPA between the city of Belen and Valencia County regarding the proposed hospital in the Hub City.

"DFA cannot approve the JPA at this time, since our review has raised several potential issues that require additional analysis by the parties and/or revisions to the JPA," the letter, signed by Secretary of Finance and Administration Thomas Clifford, summarized.

For the city of Belen, the letter from DFA is not a denial, and doesn't hinder its progress on the proposed Belen hospital, said the city's Planning and Zoning Director Steve Tomita.

"It's not a denial. They can't approve (the JPA) until we address these concerns," Tomita said.

The seven-page letter from DFA highlighted five areas of concern it had with the JPA, including failure to clearly identify the common power being exercised by the city and county, the possibility that the agreement authorizes the use of the mill levy for impermissible purposes, the issuance of revenue bonds for the project not allowed under the Hospital Funding Act, inconsistent termination provisions and potential issues with the disposition of property.

"We were hoping it would go through without any comments, but that's unusual. JPA agreements can get very complex and can go back and forth," Tomita said.

However, the county's attorney doesn't see the response from DFA in quite the same light as Tomita does.

"My thought on this — if DFA is saying there is no exercising of a common power, then that would indicate a JPA is not required," said Dave Pato.

Now that the administration has issued the letter saying it will not approve the JPA at this time, Pato said whether the county will still honor the agreement is up to the commissioners.

"I don't think the county is legally obligated since DFA did not approve the JPA," he said.

Commission Chairman Charles Eaton said the DFA letter obviously raises some legal issues and valid concerns the whole commission needs to address.

"It's important we, as a whole commission, make the decision whether we feel the need to continue with this document and partnership with Belen, or look in another direction with our intent for the hospital project and the mill levy funds," Eaton said. "I'm sure there will be a detailed discussion in the near future."

DFA's letter was forwarded to city attorneys at the law firm Rodey, Dickason, Sloan, Akin and Robb, P.A. for clarification, Tomita said.

Through conversations with attorney Jennifer Stone with the firm, Belen Councilor Jerah Cordova said Stone believes her firm will be able to address all of the questions "successfully."

Tomita said he didn't know when attorneys Stone and John Salazar would have answers to the state.

"We just need to turn it around real quick," Tomita said.

Upon receiving the letter, the city notified the county that city officials would be responding to the DFA letter, Cordova said.

"The Rodey law firm has worked directly with us and we will work with Rodey to create a response and send it to DFA," Cordova said. "We welcome any input from the county commission."

This letter does not impact the progress the city is making on its proposed hospital for the Christopher Road site, the councilor said.

"Nothing is on hold," Cordova said. "Everything continues to move forward as planned. This letter does not affect anything whatsoever."

The city is scheduled to receive responses to a request for information and qualifications it released in late November on Friday, Feb. 1, from potential medical providers interested in developing, managing and operating the Belen hospital.

Upon receiving the responses, the city is planning to recommend "the most qualified responder" to the Valencia County Commission in mid-February, said Cordova.

The city will also present a draft of a health care facilities contract between a hospital provider/contractor and the county for management of the hospital in Belen at that time.

The DFA wasn't the only entity that had questions about the JPA. During an update on Miller Architect's Los Lunas hospital project Thursday evening, Village Administrator Gregory Martin said the village had sent a letter on Jan. 15 to DFA expressing concerns about how the agreement was written.

"In order to have a valid JPA, not only do the two governmental entities have to approve it, but then Department of Finance and Administration also has to approve it," said village attorney Larry Guggino. "Without DFA approval, it's not a valid joint powers agreement."

Martin said a request has been made to the county commission for a meeting and presentation on the Los Lunas hospital project by Miller Architect CEO Darin Miller in February.

"The (hospital) is on hold until we have a chance to present to the county commission and request use of the mill levy funds for our project," wrote Miller in an email. "Once we have a direction from the county commission, we can establish a new time line for project activities and move forward with the purchase of the property, design and construction."

The village's concerns with the JPA between the county and Belen include missed deadlines, and the fact that the JPA's start date is earlier than the date the agreement was submitted to DFA.

County commissioners signed the agreement on Sept. 19, even though it contained deadlines for July and August. Those dates were never changed to reflect the later signature date.

"The Belen feasibility study also makes the assumption that the mill levy will be re-enacted," Guggino said. "It's up in 2014. (The study assumes) it will be put to the voters again, and it will be passed again. There's just no evidence for that. It's very speculative."

Another concern is the JPA fails to budget for the expenditure of public money to review the feasibility study to see if it is actually workable, Guggino said.

"There's two ways they can do that," he said. "The county can either do it internally, or hire someone to do it."

But such a review process requires special knowledge and experience in that field, he said, and the JPA does not show there is a budget to allow for the cost of hiring a professional, nor does the JPA specify how any unspent mill levy money would be returned to the county.

"I have no problem with Belen and Los Lunas competing for a hospital in Valencia County on an even playing field — that's the way it should be," said Los Lunas Councilor Richard Lovato. "But for the county commission to commit the mill levy funds to Belen tilted the playing field in their direction."

Whichever municipality gets a hospital built first should get the mill levy funding, Lovato said.

Cordova said he had no doubt "DFA is going to be sure that it does its due diligence and reviews every aspect of the JPA in light of the serious challenges from the village of Los Lunas.

"I think it's right for DFA to do that. DFA has to be sure that it is issuing a good agreement and they've got to look at all aspects of it. They are giving us an opportunity to respond to that."

Cordova said Los Lunas officials are making a concerted effort to "kill the Belen project," while he wishes they would focus on their own hospital project instead.

Before DFA tackled the issues it found in the JPA, it laid out the foundation it relied on for its analysis, as well as a brief summary of the agreement.

In the letter, Clifford summarizes that the ultimate goal of the JPA is for the county to enter into a "health care facilities contract" with a "contracting hospital" that agrees to build a hospital on land owned by Belen.

To do that, once DFA approves the agreement, the county must determine the feasibility of the Belen site, either through its own internal analysis or by hiring an independent consultant. That has not been done to date.

If the county gives the Belen site its approval, then both parties are obligated to jointly issue the Health Care Facilities Contract RFP — a step the city has already completed without input from the county.

If the city and county agree on a proposal received from the RFP, then Belen will enter into an agreement with the offeror for the acquisition and/or use of the site, and the county will enter into a health care facilities contract for the operation and maintenance of the hospital.

The JPA requires the county to transfer mill levy proceeds to the contracting hospital to develop, operate, equip and maintain the hospital, to the extent allowed by law.

Clifford writes that in addition, the agreement contemplates that the city and county may issue revenue bonds to construct, purchase, renovate, remodel, equip or re-equip the hospital.

The letter points out that the Hospital Funding Act differentiates between a "health care facilities contract," a "county hospital" and a "contracting hospital."

A county hospital is "one owned by a county," while a contracting hospital is "a hospital located in the state that enters into a health care facilities contract with a county or counties or another political subdivision …"

The act defines a health care facilities contract as "an agreement between a hospital and a county or counties, or between a hospital and a county or counties and another political subdivision, that provides for the payment by the county or counties of all or a portion of the proceeds of a mill levy to the hospital …"

DFA's first concern is that the agreement does not clearly define which power the city and county will be jointly exercising.

"To be clear, DFA has not concluded that counties and municipalities may not collaborate regarding health care facilities contracts," Clifford writes. "Rather, we are merely saying that the parties must clearly articulate their authority to do so and noting that the Hospital Funding Act is not a model of clarity on this point."

In his letter, Clifford also writes that the act does not appear to authorize mill levy proceeds to be used for "developing or equipping" a county hospital or a contracting hospital.

Going back to a previous county health care facilities contract that was challenged in court, Clifford points out that the court of appeals decision limited use of the Valencia County mill levy proceeds to "the operation and maintenance of a hospital."

Clifford's letter notes that there seems to be a potential conflict between the termination provisions in Section 5(A)(x) and Section 7 of the JPA.

The first section says the health care facilities contract may be terminated for convenience "upon 180 days notice after the first three years of the contract …," while the second provision says either the county or the city can terminate the JPA upon "six months written notice" after Dec. 31, 2014.

DFA also questioned whether the HFA allows the city and/or county to issue revenue bonds for a contracting hospital — an entity which may or may not be a private company.

The letter also asked how equipment purchased with and improvements made with revenue bond proceeds can legally belong to a private, contracting hospital upon termination of the JPA.

The letter closes, saying DFA looks forward to receiving the city and county's analysis of and answers to the issues and questions raised, as well as a revised JPA.

Clifford says DFA is willing to review the revised JPA before it is presented to the governing bodies for their final action.