With limited options to close funding gap, SCHD to approach county
PINEDALE – Having depleted nearly all viable options to cover a shortfall in the cost to construct a critical access hospital and long-term care facility, the Sublette County Hospital District (SCHD) Board of Trustees plans to go before the Board of Sublette County Commissioners on Feb. 7 and request the county’s assistance.
Trustees passed a unanimous motion to present their case to the commissioners following a lengthy executive session on Wednesday, Jan. 25.
Requesting financial support from the county was a difficult decision for trustees to make, said SCHD Board chairwoman Tonia Hoffman.
“The last thing we ever wanted to do was go before the commissioners,” she added. “We have exhausted every possibility we can come up with (to close the shortfall) and looked in every corner.”
The district is facing a projected deficit of $9.2 million, roughly 12 percent of the total estimated project cost of $75.2 million.
The district has already raised $66 million, or 88 percent of the project cost, through grants, loans, a pledge from the county and other sources of revenue – an achievement to take pride in, said Hoffman.
“When we stand back and look at our successes so far, we raised a lot of money to get from point A to point B,” she added.
A perfect storm
The shortfall is primarily the result of rampant inflation in prices for construction materials and equipment, compounded by rising labor costs due to chronic worker shortages following the COVID-19 pandemic, explained Hoffman and Dave Doorn, SCHD administrator.
The expenditure to build a hospital increased by approximately 37 percent from pre-pandemic projections in 2019 to the post-pandemic economy of 2022, SCHD administration calculated.
“A 37-percent inflation rate confounded us,” said Hoffman. “We did not anticipate or plan for (COVID-19 and high inflation). We have to roll with it, though, and find creative ways to make this project work.”
The inflation rate experienced by the district is in line with a sharp hike in construction prices felt across the state.
Lawmakers on the Joint Appropriations Committee noted that costs for projects funded by the state, or agencies affiliated with the state like the University of Wyoming, underwent inflation of between 30 and 40 percent in 2022, said House Speaker Rep. Albert Sommers.
Inflation is forcing the legislature to consider budgeting additional money to cover the spike in capital project expenditures, he added.
“This is a tough time to build,” Sommers told the Examiner.
The hospital district is also under intense time pressure to reconcile its estimated $9.2-million shortfall. District administration must come up with the money to cover the full $74.2-million project price tag in order to close on its $32-million U.S. Department of Agriculture (USDA) loan to proceed with construction, Hoffman said.
The district is working to avoid delaying construction. Putting construction on hold with the unrealistic hope that prices might drop is a gamble the SCHD is unwilling to risk, Hoffman said. The possibility that prices will only continue to rise is probable, she added.
Layton Construction, the SCHD’s construction manager and general contractor, hopes to have a gross maximum price locked in for the project in February, Doorn said. Once a gross maximum price is established by Layton, subcontractors cannot raise their fees, Doorn remarked.
The SCHD intends to begin substantial construction as scheduled this spring.
“We have no intention of holding off on the project,” said Doorn. “Building a hospital and long-term care facility is what we want to do.”
Crunching the numbers
When the Sublette County Rural Health Care District began the USDA loan application process to fund a hospital in 2019, the price tag for both a critical access hospital and long-term care facility stood at approximately $54 million. The figure was calculated by Cummins and Associates, a national firm specializing in project cost estimates, said Doorn.
On Feb. 21, 2020, the Board of Sublette County Commissioners pledged $20 million to build a new Sublette Center adjacent to the critical access hospital. The USDA approved a $32-million loan for the SCHD at a fixed rate of 2.5 percent in June 2022.
The COVID-19 pandemic struck the United States in March 2020, wreaking havoc on the global economy, labor market and supply chain.
In December 2021, the consumer price index in the United States rose 5.5 percent, according to the federal Bureau of Labor Statistics, the highest spike since 1991. By September 2022, inflation reached 6.6 percent nationwide, the highest rate since the “Great Inflation” of the 1970s and early 1980s. During the second half of 2022, inflation in Wyoming topped off at 10.1 percent, based on figures supplied by the Wyoming Economic Analysis Division.
Layton put the critical access hospital and long-term care facility project out to bid in in July 2022, as prices began to spiral. Layton solicited bids for all aspects of construction, from excavation to foundation work and mechanical systems. The bids came in at $80.2 million, resulting in a $24.2-million deficit for the SCHD.
The bids Layton received for HVAC and plumbing supplies and labor were “stunningly high,” said Hoffman. While the SCHD intends to rely on local contractors wherever possible, Layton was forced to look nationwide for tradesmen skilled in installing mechanical systems, Doorn noted. With certified tradesmen few and far between, the cost to bring them to Sublette County and pay and house the workers were especially elevated, he added.
SCHD staff, Layton, Lueschow Project Management and Davis Architects launched an aggressive round of value-added engineering in August, shaving a substantial $5 million from the project cost and reducing the district’s shortfall to $19.2 million.
Layton put significant effort into trimming back bids from subcontractors, said Doorn. The company reexamined each bid to ensure accurate quotes, negotiated with subcontractors for lower fees and traveled the country to solicit additional bids to drive down prices, he added.
In December, the Wyoming State Loan and Investment Board awarded the SCHD a $10-million grant in federal American Recovery Plan Act (ARPA) dollars for health-care infrastructure, substantially cutting the district’s deficit to around $9 million.
Running out of options
The SCHD cannot simply walk into a bank and request a loan because it is an elected government entity. The SCHD’s organizational bylaws make private loans virtually impossible to obtain without going through extensive hoops, including voter approval – a time- and money-consuming prospect, Hoffman explained.
The USDA is offering additional loans for rural development projects to help cover inflation costs, Doorn said. If approved, the loan would be a supplement to the $32-million loan already approved by the USDA at an interest rate of 2.5 percent, Doorn added.
The district has submitted an application for additional loan money from the USDA and is actively working with the USDA’s state representative in Wyoming to “expedite the process,” Hoffman told the Examiner.
An additional loan from the USDA is not guaranteed, however.
Grant monies available through ARPA have largely been exhausted by the district, Doorn remarked.
“We have already capitalized on (ARPA) grants,” he added.
The SCHD is also kicking off fundraising efforts. The Sublette County Health Foundation is up and running and trustees appointed three members to the foundation’s board – Sharon Rutsch, Louann Heydt and Joan Mitchell – at its Jan. 25 meeting.
On Jan. 4, SCHD trustees voted to hire the Goettler Group, a company with expertise in organizing large capital fundraising campaigns. John Goettler, the firm’s owner, previously served as president of the St. John’s Health Foundation and spearheaded a campaign that raised $19 million to bring the Sage Living long-term care facility in Jackson to fruition. Goettler’s contract with the hospital district is for six months with a fee of $8,000 per month.
The Sublette County Health Foundation, with Goettler’s help, has already raised some funds for the critical access hospital and is in the process of identifying donors, said Doorn.
Reaching a fundraising goal of $10 million to close the district’s shortfall will take time, certainly much longer than the three or four months available before the construction season begins, Hoffman said.
With its options severely limited, the SCHD decided to appear at the Feb. 7 commissioners’ meeting to seek the county’s assistance.