Report Title:

Hospital Capital Loan Program

 

Description:

Establishes a hospital capital loan program under department of health. Requires loan to Hawaii Medical Center, LLC.

 


THE SENATE

S.B. NO.

2704

TWENTY-FOURTH LEGISLATURE, 2008

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

relating to hospitals.

 

 

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 capital loan program. Under the program, the department of health is authorized to make or guarantee loans to hospitals for capital improvements, equipment, supplies, materials, or working capital.

Part II

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

HOSPITAL CAPITAL LOAN PROGRAM

   ‑A Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Department" means the department of health.

"Financial institution" means any 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.

"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.

"Program" means the hospital capital loan program established under this chapter.

   ‑B Hospital capital loan program. There is established a hospital capital loan program to be administered by the department of health in accordance with this chapter.

   ‑C Direct loans, terms, and restrictions. (a) Under the program, the department shall make loans to hospitals for the following:

(1) Financing of hospital plant construction, conversion, and expansion;

(2) Acquisition of land for expansion of the hospital;

(3) Acquisition of equipment, machinery, supplies, or materials for the hospital; and

(4) Supplying of working capital for the hospital.

A loan may be made in conjunction with loans made by other government agencies or financial institutions. If a loan made by the department is secured, the department may subordinate its interest to those of other government agencies or financial institutions when the subordination is necessary for the hospital to obtain loans from these agencies or institutions.

(b) A loan made under the program shall bear simple interest at the rate of three per cent below the prime rate or at a rate of five and one-half per cent a year, whichever is lower. For purposes of this section, the prime rate shall be the rate charged the best commercial customers on the first day of each month by the two largest banks in the State of Hawaii as identified by the department of commerce and consumer affairs. If there is a difference in rates charged by the institutions, the lower of the two shall be used.

(c) The following restrictions shall apply to a loan made under the program:

(1) The principal amount of the loan or loans to any one hospital that is outstanding at any one time shall not exceed $       ;

(2) No loan shall be made for a term exceeding twenty years;

(3) The commencement date for the repayment of the first installment on the principal of a loan may be deferred by the department, but in no event shall the initial payment on the principal be deferred for more than five years from the date of issuance of the loan; and

(4) The payment of interest on the principal of a loan may be deferred by the department, but in no event shall interest payments be deferred for more than two years from the date of issuance of the loan.

(d) The department may contract with a financial institution to service a loan made under the program.

   ‑D Loan guarantee by the department. (a) In lieu of making direct loans pursuant to section    ‑C, the department may guarantee up to ninety per cent of the principal balance of a loan made to a hospital by a financial institution that is unable to otherwise lend the hospital sufficient funds at reasonable rates.

(b) At any time, the outstanding principal of and interest on loans guaranteed by the department shall not exceed $        .

(c) The department shall not guarantee a loan if the interest charged by the lender for the loan exceeds the interest charged by the lender for a similar type of loan.

(d) Upon approval of a loan guarantee, the department shall issue to the lender a guarantee for that percentage of the loan balance on which the department guarantees payment of principal and interest. The lender shall collect all payments from the borrower and otherwise service the loan.

(e) In return for the department's guarantee, the lender shall remit to the department at the time the loan is issued a one-time fee of two per cent on the principal of the guaranteed portion of the loan; except that the rate shall be one per cent for the following:

(1) A loan of not more than $75,000 with a maturity exceeding twelve months; and

(2) A loan with a maturity of not more than twelve months.

In lieu of payment by the lender, the borrower may pay the applicable fee as a cost for the loan.

(f) When any installment of principal and interest on a guaranteed loan to a hospital 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.

(g) 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.

   ‑E Hospital capital loan revolving fund. (a) There is established the hospital capital loan revolving fund within the treasury of the State.

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

(1) Payments by hospitals of the principal and interest on loans made under the program;

(2) Appropriations to the revolving fund by the legislature;

(3) Fees paid by lenders pursuant to section    ‑D(e) for the guarantee of a loan;

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

(5) Reimbursements from lenders pursuant to section    ‑D(f) of principal and interest previously paid by the department on delinquent guaranteed loans; and

(6) Interest earned on moneys in the fund.

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

(1) Making of new loans under the program;

(2) Payment of principal of and interest on loans guaranteed under section    ‑D that are delinquent or have defaulted;

(3) Payment of principal and interest to lenders pursuant to section    ‑D(g) for the assignment of guaranteed loans; and

(4) Payment of administrative costs of the program, including any fee to a financial institution for servicing a loan.

(d) The department shall continuously maintain in the revolving fund a cash reserve equaling at least      per cent of the outstanding principal of and interest on loans made and guaranteed under the program.

   ‑F Rules. To implement this chapter, the department shall adopt rules in accordance with chapter 91 regarding the following:

(1) Qualifications for eligibility of applicants for loans;

(2) Preferences and priorities in determining eligibility for loans;

(3) Conditions consistent with the purposes of this chapter for the making or guaranteeing of loans;

(4) Amount and type of security for loans made or guaranteed;

(5) Inspection at reasonable hours of the plant, books, and records of a hospital applying for or having received a direct loan or loan guarantee; and

(6) Any other terms or conditions deemed necessary to effectuate the purpose of this chapter.

   ‑G Annual report. The department shall submit to the legislature at least twenty days before the convening of each regular session a report on the hospital capital loan program. The report shall cover the activity under the program during the previous fiscal year ending on June 30."

Part III

SECTION 3. Upon verifying that all eligibility and other terms and conditions are in accordance with the requirements of chapter     , Hawaii Revised Statutes, the department of health shall issue the first loan under the hospital capital loan program established under part II of this Act to the Hawaii Medical Center, LLC for working capital. The principal amount of the loan shall not exceed $       .

SECTION 4. 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 hospital capital loan revolving fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 5. There is appropriated out of the hospital capital loan revolving fund the sum of $        or so much thereof as may be necessary for fiscal year 2008-2009 for:

(1) The loan to the Hawaii Medical Center, LLC specified under section 3 of this part; and

(2) Any other loans made pursuant to the hospital capital loan program.

The sum appropriated shall be expended by the department of health for the purposes of this Act.

Part IV

SECTION 6. This Act shall take effect on July 1, 2008.

 

INTRODUCED BY:

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