Tulare moves forward with $9m line of credit to hospital district

The City of Tulare will extend a $9m line of credit to the Tulare Local Healthcare District, after a special Tulare City Council meeting on Tuesday night.

Mayor Jose Sigala and council member Terry Sayre voted to extend the line of credit to the hospital, with Vice-Mayor Dennis Mederos abstaining.

Council member Greg Nunley recused himself from the vote, due to a pending transaction with the district, while council member Carlton Jones did not attend the meeting.

At the same meeting, it was announced the district’s lease agreement with Adventist Health had officially been signed and confirmed on Tuesday; once approved by the state, the lease could come into effect as soon as March 15.

Terms and Conditions

The district is offering the Evolutions Fitness & Wellness Center property — as well as other hospital properties, but excluding the hospital itself — as collateral. According to documents submitted to the United States Bankruptcy Court, Evolutions was most recently valued at $10,910,000, and the remainder of the properties were valued at $3,890,000.

The line of credit has a 60-month term, and the district would only be required to pay against the 6% interest twice annually for the first 36 months. It would pay the principal and interest beginning on the 37th month through the end of the line of credit.

Additionally, each time the district wanted to pull from the line of credit, it would need to provide Tulare’s Director of Finance with supporting documents for the request.

The terms were better than any other lender could provide, according to a declaration submitted to the bankruptcy court by Reed Upson. He’s the Vice President of Business Capital, LLC; his company was tasked with finding lenders for the district.

“Upon being engaged my firm sent out approximately 160 packages to prospects. Twenty lenders requested additional details. Three lenders made actual proposals,” he wrote. “After receipt of the three proposals, the City of Tulare submitted the proposal that the District determined to be most favorable to the District, as the terms are more favorable than any of the proposals solicited by BizCap.”

The December 26, 2018 district agenda showed that at one point, district officials were negotiating with two lenders: Lapis Advisers, LP, and Sandton Capital Partners.

Council, District Board Member Comments

“From an economic standpoint, if we go with a high-interest loan, it’s going to cost us several million in interest that we’re going to pay to the Bay Area or some other big city. With this loan, the city will make eight or nine hundred thousand dollars, and that stays here in the city,” Xavier Avila said.

Avila noted the need for certain seismic upgrades — needed to be completed this year.

“It was said that if we don’t complete these seismic upgrades by this year, we won’t qualify for an extension for the 2030 [seismic deadline],” Avila said, “and the hospital will have to close by 2020. And this loan’s vital for that, too.”

A document from the healthcare district’s last board meeting states that the hospital must be brought up to “NPC-2 compliance” to be able to push more major seismic upgrades to 2030.

Currently, “emergency lighting equipment,” “communications systems” and “fire alarm system” upgrades are needed to receive that rating, the document states. Required emergency power supply and “bulk medical gas system” upgrades have already been completed.

Sayre said that by this meeting, she was ready to make her decision.

“I’ve made many comments and asked many questions — in fact, some of you are probably tired of all the questions that I’ve been asking. Right, Xavier?,” she said. “But I really have done due diligence and talked to many, many people concerning this decision. I was ready to make this decision last week. I am ready to make it tonight. I have no further questions.”

The Vote That Almost Wasn’t

In prior meetings, Mederos had recused himself from considering or voting on the line of credit to the district. If he had recused himself from Tuesday’s meeting, there wouldn’t have been a vote due to a lack of quorum; instead, Mederos chose to stay and abstain from voting.

Before the council considered the loan, Mederos explained his reasons for recusing in prior meetings, and why he chose to simply abstain from voting on Tuesday.

While he had never, to the best of his knowledge, been compensated for legal work for the district, he said that he had actively supported the defeat of the August 2016 hospital bond measure, and had additionally worked on and donated to the election campaigns of hospital board directors Kevin Northcraft, Mike Jamaica, and Senovia Gutierrez.

Mederos also represented Gutierrez in a legal fight to force the hospital district to recognize her as a board member — work that he did on a volunteer basis, he added. Additionally, he owns property adjacent to the hospital, and multiple rental properties within a half-mile of the hospital itself.

He chose to recuse himself previously for those reasons, he said, but the need for the hospital’s continued presence in the community, combined with Jones’ absence, forced his hand.

“On Thursday, February 7, I was told by Mr. Hunt, our interim city manager, that council member Jones would not be available for any special or regular meetings until at least March 5. Notwithstanding, he attended the volunteer recognition ceremony and luncheon on February 8, last Friday, at the Tulare Senior Center. I was there and also sat at the same table with him — on February 8, he appeared to be available for a meeting if necessary,” he said.

“Yesterday morning, February 11, I was told by the City Manager that Mr. Jones said he would attend a special meeting only if today’s item could be for adoption by resolution. Currently, it is on calendar only for approval. A resolution by our charter requires a 3-0 vote, and approval only requires a majority vote of the quorum; yesterday, I also received a copy of a text sent by Mr. Jones to Xavier Avila. This text was apparently sent last Friday, February 8. The text says he will be available at the first meeting in March; however, at that first meeting, he indicated that he would recuse himself from this matter.

“It is abundantly clear from these circumstances and the facts presented to me that Mr. Jones has engaged in conduct to permanently make himself unavailable to consider this matter. Mr. Jones appears to be bargaining as to whether he will appear or not — his actions have caused paralysis of government on this issue, both as it relates to the city and the hospital district,” he said.

Mederos stated that the “rule of necessity” allows a public officer to carry out the “essential duties of a council member’s office, despite a conflict of interest, where it is necessary to proceed when there is no alternative, reasonable way to do otherwise.”

He invoked that rule in choosing not to recuse himself.

The Missing Councilman

While Jones didn’t appear at this meeting, or a prior one, he hasn’t spared his commentary of the situation on Facebook.

In multiple comment threads, Jones has sparred with district board member Xavier Avila over the loan.

“I will not be bullied. You couldn’t scare the banks to make a horrible investment. You will not scare me. You’re one lie after another. You based your ability to pay on a lease that you don’t even have. It was presented to council that the lease would be signed on February 1st. That was another lie. Measure H passed a long time ago. What’s the problem,” Jones wrote on February 7. “The only thing that’s hiding is the truth. What’s the issue with the lease Xavier? I told council and staff that you would not have a signed lease and you said you would. I was right. If you can’t strong arm Adventist, what makes you think you can strong arm city hall? Sigala? People of Tulare are starting to see what he’s about. He turned his back on our community.”

In another comment thread, Jones told Avila that even when he would be able to attend the meetings, he’d recuse himself from the votes — leaving the council without a quorum.

“I’m here for the people. I’m protecting the people. I’m not going to let you rob the city. I suggest you explore other options. Either take the other loan or approach the county. Or better yet stop trying to tax people without a vote. I like how your dead line keeps moving back,” Jones wrote on February 8. “Just the amount you need keeps going up. Still no lease agreement? I would like to see your approval for a loan with a higher interest also. I’m available today. I will be at the first meeting in March FYI. The city already knows that. But when I get back in March I will recuse and join Dennis and Greg. So don’t be surprised.”

Such a move — combined with recusals by Mederos and Nunley — would have resulted in another situation where the council would have been unable to move forward on the line of credit.

Jones declined to comment on this story by hanging up on this reporter.