By Elon Glucklich

The Bulletin

St. Charles Health System officials want to issue $75 million in bonds to finance major construction projects in Bend, Redmond, Prineville and Madras over the next three years.

To do it, they plan to take advantage of Deschutes County’s tax-exempt status, minimizing the interest they’ll owe from the bond sales.

Cities and counties have been able to issue tax-exempt municipal bonds for more than a century, mostly to finance construction and capital improvement projects.

But the hospital can tap into the county’s tax-exempt position for its own projects through a quasi-governmental entity called the Hospital Facility Authority, set up in 2002 for just this purpose. The facility authority is made up of hospital staff and one member of the Deschutes County Board of Commissioners. Many hospitals set up similar agreements — Multnomah and Washington counties have their own facility authorities.

The $75 million would essentially be a direct loan from a bank, St. Charles Accounting Director Jennifer Welander said.

“We enter into a lending agreement with the bank for the full amount they’re funding,” Welander said. “Then we draw on down that fund for construction projects as needed.”

The hospital has big plans for the funds. St. Charles wants to use pieces of the $75 million for a new, 60,000-square-foot Prineville hospital, a new cancer center in Bend and other improvements to its Bend, Redmond and Madras facilities.

They’re all part of a 10-year construction plan hospital officials have drawn up to meet local needs. Welander said they hope to complete all the projects by the end of 2016.

St. Charles has used the facility authority twice before, issuing another $75 million in bonds back in 2002 for Bend and Redmond improvements, and $124 million in 2005.

The hospital repaid the bondholders over time.

The maneuver isn’t totally without risk. The 2008 financial collapse caused interest rates to skyrocket, and the hospital had to scramble to refinance nearly half of its 2005 amount to cushion itself from the higher rates.

Welander said the market has improved enough since the economic recession for the hospital to take another shot at bond financing. And financing this time around would come straight from a bank, instead of from numerous investors, potentially lowering the risk.

The Hospital Facility Authority is meeting Tuesday to decide whether to move forward, and county commissioners are expected to discuss the bond proposal Wednesday. They have to approve the proposal before hospital officials can move forward. But no opposition is expected, and the bond sale could start soon after the approval.

Commissioner Alan Unger, the county member of the facility authority, favors the bond move. The county won’t bear any liability for the bond issuance or repayment, while the hospital will gain access to funding for critical projects.

“We don’t really have any control or say over what St. Charles wants to do,” he said. “This just gives them an opportunity to take advantage of this tax-free status. I think that saves money for everybody involved.”

— Reporter: 541-617-7820,