When Newton Regional Hospital in central Mississippi began shopping for ways to underwrite a replacement facility, the first stop was the Federal Housing Administration's Section 242 Hospital Mortgage Insurance Program.
Yet even though federal officials have streamlined the loan-insurance program to make it easier for rural hospitals to qualify as critical-access facilities, administrators at Newton stumbled onto a far sweeter deal-a long-term, direct loan from the U.S. Department of Agriculture that will reduce debt service by nearly $20,000 per month for the new $6.5 million facility.
The loan, announced six weeks ago, marks the first time the USDA has funded the entire cost of a new hospital in Mississippi, federal officials said. The loan could be an example for financing hospitals in small rural communities like Newton, a town with a population of about 4,000 some 60 miles east of Jackson.
"This is the first one we've ever done where we have built a hospital from the ground up," said Nick Walters, state director for USDA Rural Development in Mississippi.
Newton Regional is a 49-bed not-for-profit hospital built in 1952 with funds provided under the Hill-Burton Act, a nationwide hospital construction program passed by Congress in 1946 that built or modernized about 6,000 hospitals, many in rural areas. The facility has deteriorated to the point where its sewer piping is crumbling underneath concrete slabs, its electrical systems no longer comply with state safety standards and the air-conditioning, heating and ventilating system is obsolete. The half-century-old hospital has rich roots in the Deep South: It sits on the site of a Confederate hospital built in 1863.
Timothy Thomas, the hospital's administrator since 1998, said his first step when officials kicked off plans to build a replacement hospital more than three years ago was to approach the federal loan-insurance program sponsored by the Department of Housing and Urban Development, which has guaranteed more than 300 hospital mortgages worth about $9.3 billion over the last 35 years.
Those HUD-backed loans, however, cannot exceed 90% of the total value of the hospital, so Thomas inquired about financing the other 10% through a grant or a USDA loan. That's when he discovered that the USDA could finance the entire cost of the replacement hospital over 40 years-or 15 more years than under the terms from HUD. Thomas was sold.
The hospital's interest rate on the loan is 4.25%, or about 3 percentage points lower than what Thomas said was available when he approached HUD in 1999. Officials at Newton Regional, which earned about $50,000 last year on approximately $10 million in revenue, hope to break ground in January 2004 on the 30-bed replacement hospital. It is expected to open in mid-2005.
Under the USDA's community facilities program, federal officials provided about $21 million in fiscal 2003 for direct loans to general and surgical hospitals, and another $22 million in loan guarantees to those types of facilities. To qualify, applicants must be in towns with populations of less than 20,000. Only three hospitals, like Newton Regional, were built with 100% USDA financing, said Chris Alsop, deputy administrator of community programs at the USDA's Washington office.
"The project in Newton-a direct loan and 100% financing-is the exception rather than the rule," Alsop said. "But we're quite actively involved now in financing hospital renovations, expansions and replacements."
He said the USDA is anticipating steep increases in the number of applications over the next year or so from hospitals. The USDA, which uses community facilities funds for everything from police stations to public libraries, helped underwrite about $469 million worth of projects of all kinds in fiscal 2003. About $169 million of that went to healthcare facilities, including assisted-living centers, drugstores and pharmacies.
Under the proposed 2004 federal budget Congress is considering, Alsop said, federal funding for the direct loan program could double in fiscal 2004, providing ample opportunity for the financing of major renovations or replacements of rural hospitals. "We think this is going to be an asset to many hospitals."