Travis County Commissioners Court
May 31, 2005
Health Facilities Development Corporation
Now let's call to order the Travis County health facilities development korgs, one item. That is to consider and take appropriate action on request to adopt an updated policy guidelines for receiving and approving applications for financial participation in health facilities. Mr. Davis.
>> good afternoon, harvey Davis, manager for the corporation. And this item is to follow up on the discussion we had a couple weeks ago about changing the fees that are being charged on health facility bonds. In your backup I have in legislative style the updated guidelines that reflect the approved -- what you approved last week. But let me go over quickly the policy -- what the policy says, the changes that were made. The application fee is reduced from $10,000 to $9,000, of which the financial adviser receives $3,500 and the general counsel receives $3,500. The application fee instructures the applicant to pay directly the amounts going to the financial adviser and the counsel and then the balance of $2,000 would be paid directly to the corporation. The rationale for doing that is that it saves us from having to write checks. It's a little more efficient. And this fee would -- is so that we can receive the advice from the professionals from the time of the application until closing. And, you know, they can do their work. The annual fee is deleted, and the issuance fee is 10 basis points for the first $50 million and then 5 basis points for amounts of bonds that are issued over $50 million. What is that, and we had a discussion about adding a fee for -- out of county issuers that wanted to issue bonds for health facility in Travis County and have to receive permission from Travis County to issue those bonds. And our recommendation is that the -- that the fee that we charge for the service of processing those requests is the same fee that we would charge for issuing the bonds, which would be the 10 basis points for the first $50 million and then 5 basis for the amount over that. The rationale is that we do have to put -- we do have to put in a fairly -- sometimes a fairly substantial amount of work to process those requests and that the fee of 10 basis points, like for a $20 million bond issue would be just $2,000. So it seems to us that it would be reasonable fees. This, I was told, is what is charged by the bexar county health facilities development corporation and that they have not -- you know, have not had any complaints about this being an unreasonable fee.
>> harvey, would that be paid to the corporation or would there be remittances back to any other persons because they were doing the due diligence.
>> that would be paid to the corporation. If we had professionals that had to advise us, then they would charge the out of county issuer for their service.
>> separate and apart?
>> yes.
>> so what is the policy provide for if an entity or person goes to another financial institution within Travis County? Not another corporation, but another institution like a bank.
>> we just had that come up.
>> well, that would not -- that would not be a chargeable transaction in that they wouldn't -- we wouldn't have to get the county's approval. If they secured private financing.
>> do they have to get our approval if they refinanced bonds issued by one of our corporations? Not just speaking theoretical because there's a letter on my desk, I think, that involves one of these. I kind of wondered why it came to my desk, but --
>> well, in that case, that situation they are using a financing mechanism in which they cannot use a county corporation because there's a $10 million limitation for using that financing mechanism. And so -- and because the county as a whole issues a lot more than $10 million in bonds, then, you know, my thinking would be that this fee would not apply to that situation.
>> somewhere in this letter are the words "due to your financial limitations at this time, we have decided to go to the" one of the local banks in Travis County to get our funding done. To be honest, I quickly read the letter and I either -- you all will get that letter.
>> I have a copy of the letter. I was one of the ccs on the letter.
>> this policy would not come into play for that project.
>> I think our financial adviser --
>> we may have some disagreement on that. Let me clarify for you. The financing you are talking about is a refinancing, and the bank involved only wants to be -- to under write the bonds or to underwrite them for themselves to place in their own portfolio. That's the way I see it. Or to sell on other banks. Under the tax law -- for the record, lad pa till low. Under federal tax law, there's a certain type of issuance we did just now on the refunding for the road district that's called bank qualified obligations. If an issuer has less than $10 million in bonds issued per year, then banks get different tax treatment under i.r.s. Law on their holdings and their reserve accounts or in their reserves, their required reserves. And therefore a identically rated secured and credit rated bond gets probably 3 to 4 basis points better in the market for a qteo. So the theory that the letter is based on, judge, is that if they use -- if they use another issuer where -- that has less than 10 million a year in bonds, that they will save on their financing. And what I’m saying is let's just say if they issued bonds here, it would be 435. If they issue them at some other issuer it would be 431. That's what my market expert colleagues tell me. Therefore, they would like to go and shop around and find another issuer to save that 3 basis points. It's a little curious to me that they've known this refinancing was available to them the last three years almost and have sat on it and paid lots more in interest and now they want to try to save 3 basis points by not going through us to refinance bonds that we've basically had -- they've had with us for many years. But my -- it would be my intention and that's what I thought so I didn't want to argue with my colleague mr. Davis, that if people went and shopped for another issuer and those facilities, and those issuers are in Travis County, that's not something we just should allow to happen without a fee. We've seen in a couple of cases before, but i've been doing this about 30 years and i've watched the entire conduit bond process. I was at the attorney general's office when they first became legal in Texas, and the whole process is that some elected body have responsibility for some of those conduit projects and are accountable to the public. Someone who was elected to office. Well, part of the outgrowth of that in the i.r.s. Code is that you have -- if you are going to have someone in lubbock county, the lubbock county health facilities development corporation finance a health facility in Travis County, you need to get Travis County's approval if they have a similar corporation. But then there's no kind of linking responsibility and accountability for all those people in lubbock for something that's going on down here, and I think, frankly, for public policy, it's better than they go through the entity -- it's legal to go through another entity if you approve it, but for public policy it's probably far better they do it in the county where they are building something.
>> but our approval is required.
>> but your approval is required.
>> so there's not a part of this policy that would cover that example.
>> well --
>> or is there?
>> the policy states that if -- if the -- if a -- I mean --
>> I read that it did.
>> is this the last bullet?
>> it's the last bullet, but I’m looking for the -- yeah, the page -- the corporation shall pay a processing fee equal to the issuance fee for health facility located in Travis County that is financed by an out-of-county issuer that is required to obtain permission of the Travis County Commissioners court.
>> I read that as meaning it would be required under the case you've raised, judge.
>> but the local -- but the financial institution is a local bank.
>> but they are not -- it's not the -- it's not the corporate lending office that's doing it, it's their investment banking arm is the arm that issues bonds just like merrill lynch handles bonds. It's the underwriting side, not the commercial lending. So someone -- for that entity that we're talking about, which we haven't named and I don't think we should at this point, they are going to have to issue bonds through somebody if they want to get tax exempt financing. So if they went out to the bexar county health facilities development corporation and got them -- or they wouldn't qualify, let's say bruce ter county, someone that doesn't issue 10 million, and issued these bonds to refund their old bonds that are issued through this corporation, that's the only way they can do tax exempt. If that bank just makes a loan to them, it's not the same. If they just give them tax exempt rates which most banks don't.
>> does that [inaudible] tax exempt?
>> yes, they would be tax exempt.
>> so you are saying that there is no local financing institution that could issue, to serve as issuer in refunding a corporation issuance?
>> if the bank want to make them a loan rather than bonds, just a loan and voluntaryly give them the same interest rate they would have a tax exempt bonds, frankly i've never seen a bank do that. You know, they usually try to charge them a little closer to what they would charge me or you for our business.
>> let's get more facts about it then. Because if there is a hole that we intentionally leave, so be it. But the thought came to mind because the letter is so resaoepbt right. Right. And let me make a correction. The example I gave you of the fee, the 10 basis points fee on a $20 million bond issue, it's $20,000, not 2,000. Just got one zero --
>> miss add decimal. -- missed a decimal.
>> move approval on this proposed policy.
>> let me ask a question. So on the summary page where it talks about the application fee is lowered from 10,000 to 9,000 with the financial adviser receiving 3500 and general counsel receiving 3500, what is it now? What does --
>> right now the fee is $10,000, and I believe on --
>> how is that divvied up?
>> one of them gets 4500 and I think it's the general counsel, and I think the financial adviser gets 4500.
>> and Commissioner Daugherty, the reason we had a long discussion about this on the phone, about how to do that, and frankly I didn't want to put cliff blunt or myself or our success ores in the position of only seeing -- getting paid for the work they may have to do on an application at closing, which puts you in a position of almost pre-approving things without ever seeing documents. I'd rather have a small fee involved there for us to help you review the application and deny it if you want to. Because if there was not anything up front and we requested -- we did a bunch of work and requested to you to deny it, then we don't get paid for our time.
>> and how many -- how many of these did we do in '03-'04.
>> for this corporation?
>> yes.
>> none. The last application we had was the seton -- the last seton application. I believe. Which was --
>> three years ago?
>> four or five years ago. It's been a long time since this. And of course a lot of parties have come to do health facilities with other issuers.
>> Commissioner Daugherty, as we said the last time we discussed this a couple weeks ago, the rationale was many parties seemed to be going elsewhere because of our annual fee. It seems the developers of the these types of projects would rather pay it up front and capitalize it than to have it in the cash flow and have to pay it every year.
>> anything further? My motion is that we approve the recommended guidelines.
>> second.
>> discussion? All in favor? That passes by unanimous vote. I believe I hear a motion to adjourn.
>> second.
>> all in favor? That passes by unanimous vote.
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Last Modified:
Wednesday, June 1, 2005 9:29 AM