Background

As many of you know, the City of Homer owns the land that South Peninsula Hospital is located on. The City leases the property to the Borough for $10.00 per year. The lease is for 55 years and was executed in 1969. It has approximately 21 years remaining. The lease was amended in 1999 to include additional City land that was needed for expansion and development of the long- term care facility.

There have been periodic discussions over the years about whether the City should deed this property to the Borough. The discussions included talks about land trades, purchases, and a simple transfer of the deed. The Borough consistently argued that a transfer of the deed was important and necessary to provide for clear and unclouded title to both the land and the facility and for better management of the property. It has also argued that the City should deed the property because it was receiving a significant investment in return.

This issue has been raised again over the past few months because of the proposed expansion of the hospital. At first, the Borough expressed concern that it would not be able to sell bonds or otherwise raise the necessary construction funds if it did not have ownership or a long- term interest in the land. This issue is no longer a concern. The bonds have been sold. The financial institutions stated that they were not concerned because the lease still had over twenty years remaining and the bonds would be repaid prior to expiration of the lease.

Although the question regarding bonds has been settled, the Borough has other concerns. The first is that the proposed new expansion will cross lot lines. A portion of the new hospital will be on Borough owned lands (see attached site plan). This causes some permitting problems and it further complicates the ownership question. The Borough is also very concerned that the lease contains a provision which says that the land and all improvements on it revert to the City after the lease expires, is terminated, or the Borough builds a new facility elsewhere. The Borough is concerned about making significant investments in a building that it may not ultimately own. It also would like to have the option of selling this asset (SPH) or using it for other purposes if it ever builds a new hospital in another location.

Draft Memorandum of Understanding

Paul Ostrander from the Borough Land Management Office and Bob Garlock, the Borough’s project manager for the Hospital expansion came to visit us on January 5^th. The purpose of the meeting was twofold. The first objective was to discuss some of the outstanding permitting issues (platting, zoning, vacation of a portion of Bartlett St., etc.). The second was to discuss a draft Memorandum of Understanding between the Borough and the City which would facilitate transfer of the title. The draft MOU was written by the Borough. A copy is attached.

We discussed a number of things about the draft MOU and I pointed out several items that I thought would be troubling to the Council. I emphasized the fact that there is no mention at all of possible land trades, something that had been discussed on prior occasions. I also noted that I thought Numbers 1 and 3 under the “Homer Agrees To” Section and Number 3 under the “Borough Agrees To” Section would cause concern.

Review of the History

Since the last meeting, I have looked into the history of this subject as requested by the Council. I have read old minutes, reviewed the Clerk’s extensive files, talked to former mayors and council members, and talked to members of both hospital boards. In short, it became very clear to me that past Councils and the community at large have been very reluctant to transfer the deed to the Borough. The community felt that the lease and provisions contained in it, were the only lever the community had to exert influence over how the hospital was owned and operated. Over the years, the community has been quite concerned about proposals to centralize hospital services and reduce SPH to a clinic or some type of specialized facility. The community has also been concerned about the possibility of the Borough selling the facility to a private, for-profit health corporation. (This is an issue the Borough attempts to address in the MOU. If the MOU were adopted, this language would need to be strengthened).

Based upon what I have learned, I have concluded that the Council and the community probably still feel the same way and that the Council is not inclined to transfer the deed at this time. If you believe that conclusion is incorrect, the Council should vote against this memorandum and direct the manager to continue negotiating and refining the draft MOU. There may be ways to draft a restricted deed or incorporate a right of first refusal that could protect the City’s interests even if it transferred the title to the Borough.

Alternatives / Options

Following is a list of options other than transferring the deed that might satisfy the interests of both Borough and the City.

The Do Nothing Option: A good case could be made for doing nothing. One of the original justifications for transferring the deed was that the Borough would not be able to sell bonds if it did not own the land. As noted above, this concern has evaporated. Second, the planning department can issue a permit for a building that crosses lot lines by using the Planned Urban Development (PUD) process. Finally, it is useful to note that the Hospital Strategic Plan calls for finding a new hospital location after 20 years. The Service Area Board anticipates that the useful life of the existing building is 20 years and that further expansions on this site are not likely for a variety of reasons. The lease has approximately 21 years left on it.
Deeding in Reverse: Instead of the City deeding its property to the Borough, the Borough could deed its two small lots to the City. The City could then replat all three parcels plus the vacated portion of Bartlett Street into one lot. The City could then extend and amend the existing lease for as long a term as the Borough needs. This would make permitting easier, give the Borough a long-term interest in the land, and still protect the City’s interests. Other lease related issues such as the ultimate ownership of the building could be addressed and re-negotiated.
Joint Ownership: Under this option, the City and the Borough could jointly replat the parcels in order to facilitate permitting. The City and Borough could then execute documents that make the parties joint owners of the new, consolidated parcel. This would make us partners. It would give the Borough a long- term ownership interest in the land and still maintain some measure of control for the City.

RECOMMENDATION

Reaffirm the Council’s strong support for SPH, for its continued location at the present site, and for the proposed expansion project. Reject the Draft Memorandum of Understanding and specifically, the Borough’s request that the City deed the property to the Borough. Direct the Manager to work closely with the Borough to facilitate the expansion project and to continue discussions regarding the alternatives listed above.