So why would New York hospitals ask for and why would New York State officials even consider having the public authority that does healthcare bonding borrow money and then give it away? Old habits.
Let's start with some context. New York and its healthcare hospitals have gotten themselves into a very tight corner. For starters, here are some key points:
1. For years, most hospitals in New York, and these days a lot of nursing homes, have been financially strained.
2. But New York's policymakers (both Legislative and Executive) have been loathe to let institutions fail. Going back to at least 1977, we have bailed numerous facilities out numerous times. The process is now built into both the law and the politics. Rather than letting some fail so the survivors could prosper, all of them hang on the brink.
3. New York does not allow publically traded stock companies to own and operate hospitals and nursing homes. So the only substantial source of capital is borrowed money. Since most of the facilities are bad risks, the debts have to be guaranteed.
4. The debt is overwhelmingly in the form of bonds issued by New York State public authorities. While strictly speaking, these are not obligations of the State, to think otherwise in reality is foolish. Any default will affect New York State's credit rating and rightly so. As a result, hospitals and some nursing homes have deliberately taken on debt to keep the State on the hook. It's like a third world nation that's taken on too much debt. It's not the debtor that's in trouble; it's the lender.
New York hospitals have been especially reliant on FHA guaranteed debt. In fact as of March of 2004, New York hospitals are responsible for 84 percent of FHA's active porfolio. Out of $4,857,300,468 in FHA guaranteed hospital mortgages, $4,079,016,568 were in New York State. Moreover, many of the outstanding mortgages are for financially shaky institutions.
But while New York hospitals still use a disproportionate share, FHA is no longer the source it was. (It's a wonder it took this long for the Feds to slow the flow. Their risk was enormous.) For the most recently completed federal fiscal years 2000-03, HUD insured $614,436,200 in total mortgage value, but only $130,118,900 or 21.2 percent were in New York.
So if we continue current policy and if we wish to upgrade facilities while avoiding the prospect of closing or cutting back existing hospital resources, then the only source of capital is New York's taxpayers. We've caught ourselves in a vicious cycle.
We proposed alternatives in 1994. We'll come back to them shortly.