|HUD No. 00-243|
|Further Information:||For Release|
|In the Washington, DC area: 202/708-0685||Thursday|
|Or contact your local HUD office||September 21, 2000|
CUOMO LAUNCHES "HUDíS $1 BILLION HEALTHY
NEW YORK - Housing and Urban Development Secretary Andrew Cuomo today unveiled two new HUD initiatives at a conference of hospital executives in New York that will provide hospitals more than $1 billion in savings and new working capital over the next five years.
The "HUD Healthy Hospitals Plan" will, first, permit hospitals throughout the country to realize significant savings of more than $850 million over the next five years through HUD-insured refinancings of their mortgages and, second, allow hospitals already insured by HUD to reduce excess mortgage reserves, estimated at about $165 million.
"Strong hospitals build strong neighborhoods," Cuomo said. "Their doctors and nurses care for the sick, and the salaries they pay create jobs and economic opportunities in the communities they serve. These two initiatives are a fiscal shot in the arm that will keep our nationís hospitals a competitive and innovative part of the economy."
Cuomo said that HUDís new Section 223(f) program will begin insuring mortgage refinancings for eligible hospitals in a few months. HUD estimates that some 230 hospitals across the country will refinance an estimated $16 billion in mortgages, generating savings of $850 million, or approximately $3.6 million per hospital over 5 years.
The lower debt service costs, Cuomo noted, will also mean savings for federal, state and local governments that reimburse hospitals for a portion of those costs under the Medicaid or Medicare programs.
The proceeds from HUD-insured refinancings may be used by hospitals to retire existing capital debt and cover the costs of the refinancing. Additionally, the proceeds may be used to repair or replace equipment, provided that such capital improvements do not exceed 20 percent of the mortgage amount, and that the debt service following the refinancing is less than the hospitalís current debt service. The savings cannot be used for new construction and the new mortgages must be for at least 10 years but not more than 25 years in duration.
HUDís hospital mortgage insurance program has historically been supported entirely by premium payments and, accordingly, has been operated at no expense to taxpayers. Since the program was initiated in 1968, it has generated net revenues of approximately $300 million.
Since 1995, HUDís 223(f) program has refinanced 278 nursing home mortgages with a total value of some $1.2 billion.
The Secretary also announced that HUD-insured hospitals in good financial condition may also reduce their Depreciation Reserve Funds to an amount equivalent to two yearsí worth of mortgage payments. Some HUD-insured hospitals currently have reserves worth in excess of four years of payments and most have more than two years. This one-time drawdown is expected to generate $165 million in working capital for these HUD-insured hospitals.
HUD will continue to require that insured hospitals maintain reserves equal to two years worth of mortgage payments. A two-year reserve historically has been sufficient to help financially-stressed, but fiscally-sound hospitals to recover from any difficulties.
Funds drawn from reserves may be used by hospitals for the purchase of new medical equipment or for capital improvement projects approved by HUD. These funds cannot be used for ongoing operations or general maintenance of the physical plant.
Since 1969, HUD has insured 311 hospital mortgages with a total value of $9.1 billion and a default rate of less than 3 percent. Currently, HUD insures 69 hospital mortgages worth $4.3 billion, many of them in the New York City metropolitan area.
Hospitals in New York with mortgages insured by HUD have included Montefiore Medical Center; St. Vincentís Catholic Medical Centers of New York; Maimonides Hospital Center, St. Lukeís-Roosevelt Hospital Center, Flushing Hospital, Mount Sinai Hospital, New York Methodist Hospital and Beth Israel.