Report Title:

Hospital Loan Guarantee Program

 

Description:

Establishes a hospital loan guarantee program to guarantee a portion of a loan by a private financial institution to a hospital that is experiencing short-term financial problems.  Repealed 6/30/20  .

 


HOUSE OF REPRESENTATIVES

H.B. NO.

2756

TWENTY-FOURTH LEGISLATURE, 2008

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

relating to the hospital loan guarantee program.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


Part I

     SECTION 1.  The purpose of this Act is to establish a hospital loan guarantee program.  Under the program, the department of health may guarantee a portion of a loan by a private lender to a hospital that is experiencing short-term financial problems.  The department may make a guarantee only if general funds are appropriated and deposited into the temporary hospital loan guarantee trust fund established under this Act.

Part II

     SECTION 2.  Definitions.  For the purposes of this part, unless the context clearly requires otherwise:

     "Department" means the department of health.

     "Hospital" means an institution, licensed by the department in this State, having an organized medical staff that admits patients for inpatient care, diagnosis, observation, and treatment.

     "Private financial institution" means any private organization authorized to do business under state or federal laws relating to financial institutions, including a bank, savings bank, savings and loan company or association, financial services loan company, or credit union.

     "Program" means the hospital loan guarantee program established under this part.

     "Trust fund" means the temporary hospital loan guarantee trust fund established under section 4.

     SECTION 3.  Loan guarantee by department of health.  (a)  The department of health may guarantee a loan to a hospital pursuant to this section only if there is an unexpended and unencumbered balance in the temporary hospital loan guarantee trust fund.  This section shall not be operative until general funds have been appropriated and deposited into the trust fund.

     The department may guarantee up to ninety per cent of the principal balance of a loan made by a private financial institution to a hospital that is experiencing short-term financial problems.  A hospital shall be deemed to be "experiencing short-term financial problems" if the department determines that, under a reasonable projection, the hospital is expected to generate a negative net income in the hospital's two fiscal years immediately following the date of application for the guarantee.  If two or more hospitals have applications for loan guarantees pending before the department simultaneously, the department shall give the highest preference to the applicant that is located farthest away, by the most direct highway route, from another hospital.

     If the department decides to guarantee a loan to a hospital, the department shall do so in accordance with this part.

     (b)  At no time shall the aggregate amount of the State's liability, contingent or otherwise, on a loan guaranteed under this part exceed the unexpended and unencumbered balance of the trust fund.

     (c)  A loan guaranteed under this part shall be for a term of not more than       years, and the interest rate charged by the lender on the principal balance of the loan shall not exceed       per cent compounded annually.

     (d)  A loan guaranteed under this part shall be collateralized with the department on a basis at least equal to the outstanding principal balance of the guaranteed portion of the loan.  The collateral shall be in the form of cash, real property, or other marketable assets approved by the department.  Any equipment pledged as collateral shall be subject to a buyback or re-stock agreement such that the value of the collateral or method of securing payment from the collateral shall be guaranteed.

     The collateral held by the department shall not be subordinated to any other person.

     (e)  A loan guarantee for a hospital shall be granted by the department only when the department is reasonably satisfied that the loan would not be made by any private financial institution without the guarantee.  To make this determination, the department may require the hospital to provide proof that at least three private financial institutions have refused to make loans to the hospital on a non-guaranteed basis.  The proof of refusal by a private financial institution shall contain the date of application, loan amount and purpose, and the private financial institution's reasons for not making the desired loan.

     (f)  The department shall conduct a due diligence examination of the hospital applying for a loan guarantee under this part.  The department shall not approve a loan guarantee unless the applicant provides assurance satisfactory to the department that the loan can and will be repaid pursuant to its terms.  Reasonable assurance of repayment shall be based on consideration of the applicant's record of past net income or projected future net income.

     (g)  A loan guarantee shall not be granted unless the hospital secures an agreement from its principal creditors that the principal creditors shall withhold any collection actions that may result in the hospital ceasing its operations.

     (h)  Funds provided by the guaranteed loan may be used for working capital; except that a loan guarantee shall not be granted if the direct or indirect purpose or result of granting the loan would be to:

     (1)  Satisfy debts, other than a general excise tax debt, arising prior to the effective date of the guarantee;

     (2)  Provide funds, directly or indirectly, for payment, distribution, or loan to hospital owners, partners, or shareholders;

     (3)  Provide funds for wage or salary increases; or

     (4)  Replenish the funds previously used for any of the purposes enumerated in paragraphs (1) to (3) in anticipation of applying for a loan guarantee under this Act.

     (i)  The department may set additional terms and conditions on the granting of a loan guarantee to a hospital.  Upon approval of a loan guarantee, the department shall issue to the lender a guarantee for a designated percentage of the principal loan balance.  The lender shall collect all payments from the hospital and otherwise service the loan.

     (j)  In return for the department's guarantee of a loan to a hospital, the lender shall remit to the department, out of the interest collected, a guarantee fee on the unpaid principal balance of the guaranteed portion of the loan; provided that the fee shall not be added to any amount that the hospital is obligated to pay.  The department shall determine the amount of the guarantee fee.  The guarantee fee shall be deposited into the general fund.

     (k)  A hospital granted a guaranteed loan shall:

     (1)  Expend the loan funds in a manner consistent with the provisions of this part;

     (2)  Keep the department informed of any change in the security for the loan or any major change in the hospital's operation; and

     (3)  Promptly provide information and documents to the department upon request.

     (l)  During the life of a guaranteed loan, the hospital shall submit to the department audited annual financial statements consisting of a balance sheet, income statement, and cash flow statement.  The reports shall be submitted no later than four months after the close of the hospital's fiscal year.

     The department may require the hospital to file interim financial statements and reports as deemed necessary by the department.

     (m)  When any installment of principal and interest for a loan guaranteed by the department has been due for sixty days and has not been paid by the hospital, the department shall pay to the lender the percentage of the overdue payment guaranteed.  Upon making the payment, the department shall be deemed to have acquired a division of interest in the collateral pledged by the hospital in proportion to the amount of the payment.

     If payment is subsequently collected from the hospital, the lender shall reimburse the department for the amount paid by the department.  Upon receipt of the reimbursement, the department shall relinquish the interest previously acquired in the collateral.

     (n)  If the lender deems that foreclosure proceedings are necessary to collect moneys due from the hospital, the lender shall notify the department.  Within thirty days of the notification, the department may elect to request an assignment of the loan upon payment in full to the lender of the outstanding principal and interest.  Foreclosure proceedings shall be held in abeyance until the lender makes a decision on the request for assignment.

     SECTION 4.  Temporary hospital loan guarantee trust fund.  (a)  There is established within the treasury of the State a temporary hospital loan guarantee trust fund.

     (b)  The following shall be deposited into the trust fund:

     (1)  Appropriations by the legislature;

     (2)  Proceeds from the liquidation of collateral acquired by the department arising from the default of a guaranteed loan;

     (3)  Reimbursements from lenders pursuant to section 3(m) of principal and interest previously paid by the department on a delinquent guaranteed loan; and

     (4)  Interest earned on moneys in the trust fund.

     (c)  The moneys in the trust fund shall be expended only for the following:

     (1)  Payment of principal of and interest on a loan guaranteed under section 3(m) that are delinquent; and

     (2)  Payment of principal and interest to lenders pursuant to section 3(n) for the assignment of a guaranteed loan.

     (d)  When the balance of the trust fund exceeds the outstanding principal and interest of the portions of all loans guaranteed pursuant to this Act, the legislature may enact legislation to transfer the excess to the department for the department's discretionary use.  The transferred excess amount shall not be used to fund any portion of the department's base budget.

Part III

     SECTION 5.  There is appropriated out of the general revenues of the State of Hawaii the sum of $        or so much thereof as may be necessary for fiscal year 2008-2009 for deposit into the temporary hospital loan guarantee trust fund established in part II of this Act.

     SECTION 6.  There is appropriated out of the temporary hospital loan guarantee trust fund the sum of $        or so much thereof as may be necessary for fiscal year 2008-2009 for expenditure as loan guarantees as authorized under part II of this Act.

     The sum appropriated shall be expended by the department of health for the purposes of part II.

     SECTION 7.  There is appropriated out of the general revenues of the State of Hawaii the sum of $        or so much thereof as may be necessary for fiscal year 2008-2009 to conduct due diligence examinations of hospitals applying for loan guarantees and to administer loan guarantees made under part II of this Act.

     The sum appropriated shall be expended by the department of health for the purposes of part II.

Part IV

     SECTION 8.  This Act shall take effect upon its approval; provided that part II shall be repealed on June 30, 20  , and any balance remaining in the temporary hospital loan guarantee trust fund shall be deposited into the general fund.

 

INTRODUCED BY:

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