Citizens/Montevue Facts Behind The Spin
(Editor’s Note: County Councilman Delauter piece is quite lengthy, which was brought on by the detailed facts he presents. It is well worth the read.)
After reading the outright lies that County Executive Jan Gardner wrote in The Emmitsburg News Journal last month, I couldn’t help but respond in an effort to set the record straight.
She called selling the Citizens Nursing Home and Montevue Assisted Living a “bad deal” for the taxpayer. I will provide you with the factual data and let you decide what happened. Then you can put all these pieces together and decide for yourself.
Executive Gardner has stated, and has put in writing, that Aurora, the firm that now operates the two facilities, guarantees a minimum profit to the county of $2.5 million on an annual basis. This is false and shows a lack of understanding of basic financial principals. Profit = Total Revenues minus Total Expenses.
A. Aurora has guaranteed nothing.
B. The management agreement (that Executive Gardner agreed to) states that the county may terminate the management agreement, upon 90 days’ notice, if the trailing 12 months EBITDAR (Earnings Before Interest Taxes Depreciation Amortization and Rent) for Citizens only falls below $2.5 million. This is not a guaranty. This is only for Citizens, and has nothing to do with Montevue. The financial performance of Montevue is not addressed or considered anywhere in the Settlement Documents. EBITDAR does not equal profit. The interest on the bonds alone is over $2 million per year. Best case, after paying debt service, Citizens breaks even. Any loss from Montevue will be a dollar for dollar expense to the taxpayers.
Executive Gardner states the former Board of County Commissioners did not allow enough time for the new Citizens and Montevue to operate to make a profit and prove sustainability. Under county control, Citizens and Montevue operated from July 2012 to April 2014. For the month of March, 2014, Citizens lost $332,204, and Montevue lost $193,532, for a total loss for one month of $515,736. This number coincides with the previous county operated (10) years, or over $54 million in taxpayer funded losses under the terms of the agreement negotiated by then President of the Board of County Commissioners Jan Gardner. In May, 2014 (Aurora’s first month of operations), Aurora made money. This is because it is impossible to be profitable under county ownership, with county benefits, policies, and procedures.
In 22 months of operations with the new building, the county could not make a profit. I sat in on meeting after meeting with the nursing home (Jan Gardner appointed) Board of Directors where time and time again they could not explain the losses, and they had no plan to right the ship.
You didn’t have to be a Senior Fellow at the Wharton Business School to come to the conclusion that this boondoggle had to come to an end. The Board of County Commissioners comprised of Blaine Young, Billy Shreve, C. Paul Smith, David Gray and I, voted 4:1 to discontinue operations and sell the nursing home. Mr. Gray was the only vote to continue operations at over $5 million in taxpayer losses annually.
Jan Gardner falsely claims the following Value of Assets: (and has put this in writing).
Building $38 Million
7.5 Acres Parcel of Land $7.5 Million
Accounts Receivable $4.5 Million
Facts: Per the Contractor’s Application and Certificate for Payment, dated December 10, 2012, the total cost to build the new Citizens Nursing Home was $29,292,752.47. Ms. Gardner’s value of $38 million is fictitious. Further, the State Department of Assessments and Taxation (SDAT) shows the assessed value of the building to be $27,613,200. The assessed value of the land is $1,980,300.
The actual amount of the Accounts Receivable we received on May 1, 2014, was $3,714,957.64. Executive Gardner stated “accounts receivable are like cash.” Again, this is false and shows her complete lack of understanding of basic business. I was in those meetings with the Board of Directors who continued to write off millions of dollars of accounts receivable prior to May 1, 2014. They wrote it off because they had no idea how to collect the outstanding receivables.
Why did they do this? The answer is because of the poor business practices of the county prior to Aurora’s involvement. Aurora did not collect nearly $3.7 million, (AR Receivables that the county neglected) and they spent months collecting on these accounts receivable using hundreds of man hours. Again, Ms. Gardner’s value of $4.5 million is overstated and fictitious.
If you use the SDAT assessed values for building and land, you have $29,593,500, not $45.5 million Executive Gardener claims. Aurora was paying $30 million, which is more than the assessed value. There would have been no loss on assets. Matter of fact, we’d have been $5.4 million ahead by stopping the annual bleeding campaign. Ms. Gardner claims she looked at the assessed value of nearby properties to make the comparison and her argument that the facility was worth $45.5 million. Why wouldn’t she look at the assessed value of this property? That is the one she so desperately wants to buyback, with your money. Again, she skewing the facts with half-truths.
Jan claims the following closing costs:
Realtor Commission $750,000
Taxes, Legal Fees, Closing Costs $750,000
Mortgage Payoff $6,700,000
It is true, the county has stiffed another honest business, which performed a service for the county. The broker did a tremendous amount of work, and was paid nothing by Jan Gardner. This is another lesson to beware of doing business with Frederick County with Jan Gardner at the helm.
The county still has legal fees and closing costs associated with this transaction. I am certain the legal fees to Venable LLC are well in excess of $750,000. In addition, the county paid approximately $200,000 to the mediator, a cost Ms. Gardner likes to forget about. Citing this as a savings is dishonest at best and just a simple reminder of how Jan Gardner does business.
My understanding is the debt was refinanced in 2014, and we now show in the FY16 budget $38 Million in taxable bond debt allocated to the nursing home. Regardless, the county still has this debt, so citing a savings of $6.7 million is also incorrect and dishonest.
Jan also claims other costs as follows:
Continuing Care Agreement $10,700,000
Accrued Employee Benefits $367,000
2 years of Taxes and Maintenance $1.6 million
The Continuing Care Agreement (CCCA) is for the care of certain subsidized residents of Montevue for as long as they are medically appropriate for assisted living services. $3.5 million of this was paid, so including this $3.5 million in Ms. Gardner’s calculation of savings is again false and blatantly dishonest.
Today, there are 27 subsidized residents at Montevue. This number has remained constant since mid-March. Based on the age and physical condition of these 27 residents, we believe the rate of attrition will remain very slow in the coming years.
Under the CCCA, (Continuing Care Agreement) Aurora would have been responsible for the care of these subsidized residents for years following the last payment from the county. As it stands now, the county will again be paying for the care of these residents as of September 1, 2016.
The net cost to the county (actually the tax payers) for the care of these 27 residents for one day will be $2,970, which equates to $1,084,050. The math for this cost of care is as follows:
$150 per day (cost of care) less $40 per day (approximately the amount of social security paid by subsidized residents. This varies per resident).
$110 per day per resident net cost multiplied by 27 residents.
Ms. Gardner wants to add 13 more subsidized resident, for a total of 40. The net cost for 40 residents will be $1,606,000, at today’s expenses. As we all know, the cost of care goes up every year. Executive Gardner also ignores the fact that Aurora was taking care of many more subsidized residents for the 22 months prior to March, 2016. She has said many times the CCCA was a bad deal.The only way to really know the cost of caring for the subsidized residents under the CCCA is to look back after the last subsidized resident is no longer at Montevue. This will not happen for many, many years to come.
The county had a legal obligation to pay the Accrued Employee Benefits regardless of whether there was a sale or not. The $367,000 would have been paid to the employees either way.
This is not a savings to the county. As of September 1, 2016, the county will again be responsible for the payment of all employee benefits at Citizens and Montevue. I’m sure the Human Resources department at the county is just thrilled about this.
Ms. Gardner also stated that the county will have $1.6 million for taxes and maintenance over two years, which is a made up number. The Real Estate Tax paid for the period July 1, 2015, to June 30, 2016 is $536,228.53. A large percentage of that goes back to Frederick County.
Further, the County spent far less than $263,772 per year on maintenance. Ms. Gardner failed to mention that Aurora would be paying 50% of the real estate tax in year three of the lease, and that if the sale went through, Aurora would pay 100% of the real estate tax.
So now, we can scrap over half a million dollars in real estate taxes once the county takes over the facility. It will be exempt from paying because it is government-owned. Ms. Gardner ignores this, as well as the $1,440,000 in rent that Aurora has been paying the county. I really think she should go back to Notre Dame and ask for a refund; they cheated her on her finance degree.
If the sale had gone through: