By Jonathan D. Silver and Karamagi Rujumba, Pittsburgh Post-Gazette
County Council will vote Tuesday on the University of Pittsburgh
Medical Center's request to refinance more than $1 billion in bonds
through the county's hospital authority.
But even as the hospital system is seeking the county's help to cut
its borrowing costs, UPMC has spurned county Chief Executive Dan
Onorato's entreaties to keep open its Braddock facility -- a focal point
for redevelopment in a distressed community and a boon for local
At first glance, the county might appear to wield some sort of
leverage over the medical juggernaut in the battle of Braddock by making
the low-interest bond issue dependent on keeping the hospital open.
But in reality, it is UPMC that holds all the sway in this relationship, a point that Mr. Onorato begrudgingly acknowledges.
"I can't say that I am happy [with UPMC] right now. Do we have a
good, solid relationship? I can't say that. But they are the largest
employer in this region and that is a reality I have to deal with," said
And the pending closure of UPMC Braddock on Jan. 31, is yet another
reality facing Mr. Onorato, he said, adding that he cannot afford "to
burn all possible bridges with UPMC," by insisting on a quid pro quo.
"When they close that hospital, I am going to be the one who goes
back to them to ask for a list of things that they can do to help the
community deal with this devastation," he said.
The behind-the-scenes logistics of the UPMC bond issue highlight an
unbalanced power relationship between Allegheny County and the region's
"There's no doubt -- we have no say," said Dennis M. Davin, director of Allegheny County Economic Development.
In short, UPMC has nothing to lose if the county rejects its bond issue, while the county has everything to lose.
The county knows that if it refuses to float new bonds through the
Allegheny County Hospital Development Authority, not only will the move
engender ill will, but the hospital system will simply go elsewhere to
refinance its debt.
One option is the Pennsylvania Higher Educational Facilities
Authority, a state entity that floats bonds for universities and
nonprofit hospitals related to universities. UPMC spokesman Paul Wood
said there are about 10 other authorities in the state that UPMC could
With that in mind, UPMC makes a conscious decision to do the lion's
share of its bond business with Allegheny County, Mr. Wood said.
"... The fees across all of these are all about comparable. So it is a
choice, and the reason we do it is to allow the county to redeploy the
dollars as they see fit throughout the county," Mr. Wood said.
The bottom line is that even if the county wanted to attach strings
to its approval of a bond issue, it is not negotiating from a position
of strength. All the county can do is ask UPMC for concessions; it
cannot demand them.
"Our job isn't to have leverage," Mr. Davin said. "Our job is to
assist businesses, to create jobs, to help to stabilize communities, to
put money into communities that are struggling, like Braddock, which
What's more, roughly 10 percent of the $3.5 million annual budget for
Mr. Davin's agency comes from revenue generated by fees assessed on
UPMC for its bonds.
If the new bond issue is approved, that contribution will climb by $40,000 a year.
"The folks in Braddock would look at that and say, 'Look, don't help them. Don't do anything to help them,' " Mr. Davin said.
"The reality is ... the fees that are coming in help our department
and in essence will help our department work better in Braddock on the
eventual reuse of Braddock hospital and all the other economic
development activities we're doing in Braddock."
David Hughes, executive director of the group Citizen Power and one
of many residents of the Mon Valley involved in a public relations
battle with UPMC over closing the hospital, agrees with Mr. Davin's
sentiment about how people in Braddock feel.
Mr. Onorato and his economic development team, said Mr. Hughes,
"claim that he will do whatever he can to try to keep that hospital
open. This is one clear place where he has leverage. And instead of
sponsoring this legislation, he should be encouraging the council to
hold up on it until UPMC decides to negotiate in good faith on [keeping
Braddock hospital open.]"
"There's got to be some quid pro quo here," said Mr. Hughes.
But Mr. Onorato's predecessor Jim Roddey -- who has dealt with UPMC
on previous bond issues-- said it borders on economic development
suicide for the county to set preconditions about any aspect of its
relationship with the hospital system.
"The county doesn't have any leverage at all. UPMC can do pretty much
what they want to and that is why in this Braddock case, they have
exhibited a certain arrogance in the way they handled their decision,"
said Mr. Roddey.
Asked about the dynamic between UPMC and the county, Mr. Wood declined comment.
However, he said, "It's instructive to look back and look at the
myriad of what we do for the city of Pittsburgh, Allegheny County and
the entire region of Western Pennsylvania."
Mr. Wood noted the tax base provided by UPMC's 50,000 employees; the
$500 million the system provides in charity care and donations to other
nonprofits; the new Children's Hospital of Pittsburgh of UPMC; and its
contribution to the Pittsburgh Promise program that provides tuition aid
to public school graduates.
Despite a long-standing working relationship between the county and
UPMC, Mr. Onorato said he was notified only six hours before UPMC's
official Oct. 16 announcement of the decision to close the hospital in
On Nov. 6, UPMC filed its application with the county Hospital Development Authority to refinance $1.175 billion in bonds.
The application stated that clients and patients of UPMC would
benefit from the low-interest bonds because a "reduced interest expense
will provide more funds for patient-focused programs."
Mr. Davin acknowledged that the timing of the bond request was less
than perfect, but said it reflected nothing more than an analysis by
UPMC of market conditions.
"It was incredibly bad timing. But again, it is what it is. Their
financial people looked at this and said, 'Now's the time to do this.'
What can we do?"
Formed in 1971, the obscure but powerful authority floats low-interest, tax-exempt bonds on behalf of nonprofit hospitals.
Since 2005, the authority has issued almost $3.2 billion in bonds for
UPMC, Allegheny General Hospital, Jefferson Regional Medical Center and
others. Of that amount, nearly $2.2 billion was floated for UPMC.
By comparison, the state has conducted three bond issues for UPMC totaling $605 million.
Hospitals can use the authority to either refinance other bond issues
at lower costs or to embark on capital projects, such as construction.
Under federal tax law, the only way such entities can float
tax-exempt bonds -- which carry a lower cost to the borrower -- is
through an authority, which acts as nothing more than a conduit.
Although the bonds are actually issued by the authority, the borrower
-- in this case UPMC -- bears all the risk. If UPMC can't make its
payments, it is supposed to be ultimately responsible, not the county.
The first step in the approval process for a bond issue is the authority's board, which currently has eight members.
Mr. Davin and his assistant, Darnell Moses, said they could not
recall the board rejecting a bond issue or approving it by anything
other than a unanimous vote in at least the past seven years.
Mr. Davin praised the board and said members ask "some pretty hard questions."
The board chairman is James M. Edwards, who is also chairman of the
McCune Foundation and has been an authority board member since the early
Mr. Edwards said the board had never rejected a UPMC bond issue but had "tailored them." He declined to elaborate.
Enabling UPMC to access tax-exempt bonds provides broad benefits, according to Mr. Edwards.
"We view that as in the interests of the people that the institutions
have an avenue for tax-exempt financing" because it lowers UPMC's
costs, Mr. Edwards said.
"And I think that's a good thing," Mr. Edwards said. "It makes the services rendered in the interests of the public cheaper."
The final step before bonds are issued is approval from County Council.
Council President Rich Fitzgerald, D-Squirrel Hill, said there was
discussion during another UPMC bond issue last year among members of his
body about whether they could pressure the hospital system as part of a
strategy to tax nonprofits.
"UPMC did one about a year ago and people had that question: 'What if
we said, 'No?' Or 'Can we get more fees?' People were wondering if
there was leverage on the bond issue."
Council sought the opinion of Mr. Davin, who explained the reality of the situation.
"What they've said is that if we can't get approval from Allegheny
County Council they're gonna go somewhere else. Yes, they said that
because they have to go somewhere else, OK? And that's a problem for us
because we don't get the revenue. If it happens, it happens. We've got
to deal with it," Mr. Davin said.
"UPMC is saying, 'Could you please do this just like you've always
done this?' And we're saying, 'Yeah, we're going to try.' We're gonna
put it through council like we've always done it. There's nothing
different right now.
"The only difference right now is UPMC ... is closing Braddock hospital."