SMH finances get another vote of confidence

David Gulliver - posted 8:45 am Tuesday Aug. 18

For the second time in a month, Wall Street firms made it clear: Sarasota Memorial Hospital looks like a good investment -- in part because its board appears to have the political will to raise taxes.

Moody’s Investor Services upgraded the hospital’s bond rating, following a similar action by FitchRatings that Sarasota Health News reported last month. It made Sarasota Memorial the only Florida hospital among 18 reviewed by Moody’s, and 11 reviewed by Fitch, to receive an upgrade so far this year.

The upgrade, to an A2 score, makes Sarasota Memorial an "upper medium grade" investment with low credit risk, but some with some potential long-term questions, according to the firm's definitions.

The hospital announced the ratings upgrade and voted to authorize a $105 million bond issue to finance its new bed tower at a board meeting Monday. The upgrade may save the hospital about $1 million a year in interest costs, administrators said, though that is uncertain until the bonds are issued.

The Moody’s review noted the hospital board has voted for what amounts to a tax rate increase. The rollback rate would keep the hospital’s tax revenue at the same level as last year. Credit rating firms typically like organizations to have leeway to raise revenue in case of shortfalls, and Moody’s staff is no exception.

Board President Dr. Marguerite Malone spoke with Moody’s analysts in a conference call last month. She said they asked specifically about the board’s position on taxes. When she said the board had already voted to hold tax revenue steady, the analysts sounded pleased, said Malone, a consultant and retired college professor.

That took form in the firm’s review.

“The board’s recognition and actions to meet the need for additional revenue by the district is an important consideration for Moody’s, as it demonstrates a willingness to subsidize the increasing amount of charity care and generate additional cash flow even if that decision is politically difficult,” Federbusch wrote.

It’s uncertain how difficult that decision may be, if at all. When the board raised its share of property taxes to the landmark 1-mill level in 2006 -- the fourth straight year of increases -- only two people spoke against it in the two public hearings. No one spoke against the Sarasota County schools’ rate increase at a recent hearing.

Nor are board members likely to fear any political fallout. Incumbents rarely face opposition in elections. The board voted 7-2 for the rollback rate.

The hospital’s tax rate and budget go before the public in two hearings, Sept. 8 and Sept. 21.

In the review, Moody’s praised the hospital’s efforts to expand its revenues with its six outpatient campuses and cost controls that have helped it post operating profits, after including tax revenues. That led to the upgrade, from Moody’s A1 level to A2.

But the firm scaled back the secondary “outlook” measure from “positive” to “stable,” citing concerns over its heavy dependence on low-paying Medicare and Medicaid, competition from Venice Regional Medical Center in high-paying cardiac care, and from Lakewood Ranch Medical Center and Doctors Hospital of Sarasota in other lines.