Leveraging Resources:

Developing a Capital Grant and Loan Program For Health Centers in Hawaii

Dave KleiberWestern Team Leader - Project

ConsultantCapital Link, Inc.

Hawaii PCA Annual MeetingOctober 22, 2007

Can We Agree?

On This Premise“All health centers working together

have more power and influence than any one on its own”

On a Common Goal

“Meet the long-term primary health care needs of Hawaii’s low-income

residents”

Who are we now? Hawaii Community Health Centers – Current Statistics

13+ community health centers providing care through 20+ sites

Over 98,536 individuals served (2006) 29,562 uninsured (30.0%) 39,288 Medicaid (39.9%) 429,286 Medicare, Private or other Public

Insurance (30.1%) 29,686 million are below 200% of

poverty (67%) (19% Unknown)

HI Health Center Patients and Visits 2004-2020

Hawaii Health Centers

149,045128,567110,90384,59578,666 98,536

707,962

610,694

526,790

398,345425,811

471,772

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2004 2005 2006 2010 2015 2020

Users*

Visits**

Visits peruser

* Assumes annual user growth rate of 3%** Assumes Visits per User rate of 4.75

Can You Meet this Demand?

Will you need to grow your capacity? If yes, can you afford to do so at a

pace to meet the demand for primary health care on your own (with your current resources)?

If no, what do you need to accomplish it (access to planning assistance and sources of low- and/or no-cost capital);

Can You Meet this Demand?

Who can you go to for help? (who shares your goal and who benefits from your success – the state, health insurers, hospital systems, foundations)

What do you ask them for? (help to create a means for funding the capital growth of HI HC’s through a grant pool, access to bond financing, low interest loans?)

How do you make the case to them? (demonstrate the need, propose a solution, identify and describe the ultimate benefits to you – AND TO THEM!)

The Proposal

Led by the HPCA, Hawaii safety net primary care providers (incl. Native Hawaiian Health Care clinics) should approach the legislature, health insurers, foundations and/or hospitals to fund a capital pool to be used for clinic capital projects and technical assistance.

What Makes Financing CHC Capital Projects so Difficult?

Limited experience and/or success with fundraising

Lack of cash reserves

No endowments

Lack of Equity: Limited Debt Capacity: Slim profit margins

or losses Low cash reserves Little experience

with debt financing Hard for lenders to

understand & assess risks

High percentage of government payors

Perception vs. Reality: Some CHCs are relatively strong

National Financial Benchmarks

-2%

0%

2%

4%

6%

8%

10%

FY06FY05FY04FY03

Bo

tto

m L

ine M

arg

in

National 75th Percentile National Median

National 25th Percentile

FY03 FY04 FY05 FY06

Sample Size 441 388 280 117

National 75th Percentile 8.12% 9.15% 8.95% 8.28%

National Median 2.80% 3.55% 3.74% 3.57%

National 25th Percentile -0.21% 0.19% 0.54% 0.09%

Which Health Centers Will Be Able to Expand Successfully? CHCs that demonstrate sufficient

organizational capacity to stimulate investments from grantors and lenders Management & Board strength Good internal planning capacity A compelling business case Leveraging community partners /

resources “Staying power”

How Will Health Centers Meet Their Capital Needs?

Health Centers generally need both debt and equity to fund capital projects.

Capital Link’s completed projects show on average a 60% Debt / 40% Equity mix.

But philanthropic funds are always in short supply

Lowering the cost of debt reduces the grant funding amount – and decreases the amount of time needed to complete your capital project.

Leveraged New Markets Tax Credit transactions do the same

Leveraging Capital Resources Where will the $ come from?!

A. Federal grants and loans B. State grants and loans (CDGB, Grants in

Aid)C. Private grants and loans D. Individual donations (Capital Campaign)E. Credit enhancement sources (HRSA,

USDA)F. Tax creditsG. All of the above!

Key Capital Funding Source: New Markets Tax Credit

$15 billion program established in late 2000 Will provide tax-credits to investors that provide capital to

for-profit Community Development Entities CDEs must invest funds in for-profit and nonprofit

businesses that are located in and serve low-income communities

Tax credits will equal 39% over 7 years (5% in first 3 years, 6% for next 4 years)

Represents the largest new federal investment in community-based development in 15 years

Can be used in conjunction with BPHC Loan Guarantee Program to provide low-cost loans

Can We Succeed?

It’s been done before! Washington DC Missouri Indiana Louisiana Arkansas

$145 million investment in primary care to provide low-income people with better access to health care services in their communities Implemented over ten years Clinics to serve 210,000 medically

vulnerable residents For buildings, capacity and quality

What is Medical Homes DC?

Medical Homes DC: Background

Poor health outcomes despite large amounts of dollars spent on health care in District of Columbia

Critical shortages of physicians in neighborhoods with high concentrations of poverty

High levels of avoidable hospital admissions

Medical Homes DC: Solution

Ambitious solution to complex long-standing problem - create primary care infrastructure of Medical Homes

In partnership with Capital Link, Brookings Institute, Rand Corporation and others, DCPCA is leading $145 million 10-year effort to expand primary care capacity in District of Columbia

Capital Link assisting with planning and providing financing assistance for new clinics in underserved areas of DC Since 2005, two rounds of grants approved by DCPCA

to fund the planning, design and development, and/or construction of 15 projects

Collectively, these projects have the potential to create capacity for approximately 200,000 patient visits per year, the majority of which will be new capacity

$145 million investment to “bump up” the system $45 million local: capital funds, CDBG

funding $20 million federal, direct

appropriation over multiple years $5 million federal grants $35 million private grant funding $40 million in private loans to clinics

Medical Homes DC: Funding Goals

$145 million will make the primary care clinics happy Build 200,000 square feet of clinical space Build organizational capacity to thrive in a

rapidly changing health care marketplace Build organizational capacity to achieve

their mission: help people get and stay healthy

Build a primary care constituency in the political arena for long term funding

All Politics is Local:Something for Everyone

$145 million will make the policy makers happy Give political leaders a chance to be a

star Increase economic activity and jobs in

low income communities Accelerate the move from institutional to

community care, saving money for city Ensure an educated voice in the health

care debate

All Politics is Local:Something for Everyone, continued

$145 million will make partners and friends happy Achieve something big and real for

their city Meet with and work with other

successful and powerful people Do something good for the poor Impact national thinking

All Politics is Local:Something for Everyone, continued

Missouri ExperienceInitial Concept: Use $60 million in State funds to leverage an

additional $33 million in funds from other sources (NMTC and USDA) to develop a $93 million pool of capital resources for Missouri FQHCs.

The State of Missouri awards $60 million in grant funding to the Missouri Primary Care Association (MPCA) to be spent over two years to establish and manage a capital development program for Missouri FQHCs.

MPCA contracts with Capital Link to assist with the development and ongoing management of the Program.

Missouri ExperienceThe initial budget: Program Establishment and

Administration (2.5% of State Funds) – PCA &CL

Planning and Pre-Development Grant Pool (17% of State Funds) – CL & CHCs

New Markets Tax Credit-Enhanced Leverage Loan Pool (57% of State Funds) – CL, CDEs & CHCs

Grant Pool to Be Paired with USDA Community Facility Loans or other Financing Sources (24% of State Funds) - CHCs

Missouri ExperienceProjected Sources and Uses of Funds

Program Activities State of

Missouri

Leveraged from Other

Sources

Health Center

Contributions Total

Administrative Costs $1,500,000 $1,500,000 Capital Development Program for FQHCs Planning & Pre-development Grant Pool

$10,000,000 $10,000,000

NMTC Leverage Loan Pool

$33,900,000 $18,300,000 $5,800,000 $58,000,000

Grant Pool to be Paired with other Financing Sources

$14,600,000 $7,900,000 $2,500,000 $25,000,000

Total to Benefit CHCs $58,500,000 $26,200,000 $8,300,000 $93,000,000 Total Including Admin

Costs $60,000,000 $26,200,000 $8,300,000 $94,500,000

% 63% 28% 9% 100%

NMTC-Enhanced Leverage Loan Pool for Missouri FQHCs

Equity Investors

CDE LLC

Tax Credits over 7 years ~$22.4 million (39%)

Eligible MO FQHCs Capital Projects

Fees, Reserves ($5.2 million)

NMTC Fund LLC

$57.4 million investment into CDE

$52.2 million in loans*

MPCAState of Missouri

$60 million grants

Capital Link Conventional Lenders

$33.9 million

$26.1 million for other Program Components

NMTC Equity~$17.2 million $33.9 million

soft loans $6.3 million conventional loans

Loan A: $6.3 million @7-7.5%Loan B: $33.9 million @ 1%Loan C: $12 million @ 2-3%

Contributions from FQHCs$5.8 million

Missouri Program Status Effort started in 2003-4 PCA contracts with CL for CNS/FTA/SEIA – identify HC needs

in order to support a request for a state capital grant pool PCA resurrects data in fall of 2005 to respond to Governor’s

office that reached out because of effects of cuts to Medicaid in August 2005 - PCA made Governor aware of impact on CHC’s

Initial 2006 funding based on sale of assets of MO Health and Education Loan Authority (MOHELA privatization)

To be used for facilities statewide including $60M for HC’s, but legislation falls through on last day of the session; legislature decides it does not want to privatize MOHELA

PCA decides to try again and asks CL for update of CNS/FTA - $93 million capital need identified

PCA asks CL to help put together proposal to Governor’s office in fall of 2006 for same $60 million with NMTC leverage to fill gap

Missouri Program Status PCA and CL sit with Governor’s office and budget office in

spring 2007 – all seems well but then suddenly $ not available for Program Development (usually 3-4%) or to use through NMTCs.

Now PCA will get reimbursement only for its basic program administration costs

DSS asks PCA to aggregate HC requests to be used in following two years and submit to them for approval – based on list from initial CNS.

PCA administers submission of HC invoices – program is designed on invoice reimbursement basis from CL Workplan Manual – HCs have two years to draw down or else balance will be re-allocated and possibly lost.

HC’s can draw money for TA (somewhat ambiguous on how TA dollars spent, but must be project-related) – PCA encourages HC’s to work with CL – PCA reviews invoice requests

Now CL approaches HCs separately - to date CL working with almost half of eligible HC’s

Missouri Program Status Lessons learned –

During the process expect bureaucratic control issues to arise and they may be difficult to overcome

Some legislative pushback as a result of other agendas Issue became a political football – but not due to CHCs (be

careful what you tie your horse to!) No precedent in the State for granting big $ to a non-state

agency for re-distribution so once it was proposed lots of new parties asked for a piece

Figure out the distribution model early – don’t just focus on getting the pool created. Get state acquainted with partners early

HCs need to understand implications – “if you don’t ask you won’t get” – don’t be outrageous but don’t under-estimate

HC’s need to be ready and comfortable doing grass roots advocacy

Indiana Program Development

State has long history of supporting CHCs with operating money

PCA used CL’s CNS to determine the capital needs of HCs (not just 330’s – 41 members- but only 19 330’s)

PCA has always encouraged HCs to educate their representatives – most have good standing relationships already in place – they even encourage patients to communicate with reps

Indiana Program Development

PCA also works with (lobbyist) advocate to work with related agencies (rural health, hospitals) so they are not at cross purposes or competing (encourage all collaborations -one good turn deserves another!)

PCA involved with DoH to structure program but did not try hard to get the money themselves (read political winds and had great relationship with new head of CHC relations at DoH)

Indiana Program Development

PCA also has great relationship with Chair of Ways and Means – so bypassed some of the political issues (recruit powerful champions!)

BUT, PCA advised HCs to keep low profile on capital issue – don’t draw attention to it to avoid conflict with other advocates of worthy causes

Louisiana Capital Development Program In aftermath of Hurricane Katrina, State is

examining ways to restructure its health care system

Growing consensus on need to fix Charity Hospital system and expand access to primary care

Louisiana Primary Care Association has been aggressive in its advocacy for expansion of FQHCs Asks for $55 million based on CL Capital

Needs Survey leveraged by NMTC - as noted on following slide

ACT 203Louisiana Capital Development Fund for Community Primary Care Clinics (FQHCs)

NMTC Equity Investors

NMTC Investment Fund, LLC (CapLink)

Conventional Lenders

Community Development Entity (CDE), LLC (CapLink)

Federally-Qualified Health Centers (FQHCs)

Receive tax credits = 39%

($36.9 million) over 7 years

$94.6 million “Qualified Equity Investment” in CDE

State Contributions

$41.5million

$24.75 million (with pledge of interest in HRSA or USDA guarantees)

$28.4 million private investments

$86.1 million in loans to FQHCs• $30.9 million 1st mortgages at below market rates• $55.2 million in “soft second” mortgages with “equity-like” components

Nonprofit Funding Conduit

LPCA$41.5 million

~$4.7 million for FQHC planning and pre-development costs

~$3.8 million for loan closing fees and loan loss reserves

Louisiana Capital Development Program

Clinic # of Projects State Request

Baton Rouge Collaborative 1 $669,600.00Capitol City 3 $983,475.00

David Raines Community Health Center 4 $1,578,094.45

Eastside Community Health Center 1 $1,255,500.00

EXCELth 9 $17,566,851.38Healthcare for the Homeless 1 $41,850.00

Iberia Comprehensive Community Health Center 4 $3,885,772.50

Innis Community Health Center 1 $464,535.00

Jefferson Community Health Care Centers 3 $2,131,169.40

Outpatient Medical Center 2 $707,552.09Primary Care Providers for a Health Feliciana 1 $2,658,989.97

Primary Health Services Center 4 $5,702,062.50Rapides Primary Health Care Center 1 $1,004,400.00

Southwest LA Center for Health Services 3 $2,866,725.00

Southwest LA Primary Health Care 6 $2,150,566.88St. Charles Community Health Center 1 $1,674,000.00St. Helena Community Health Center 2 $2,259,900.00

Teche Action Clinic 6 $5,566,050.00

Tensas Community Health Center 2 $753,300.00The Medical Center 1 $1,046,250.00

Total Request: $55,000,000

Louisiana ExperienceCL Assistance to LPCA in preparing capital financing

program “Triage” projects to provide a preliminary plan for types

of financing that will likely best serve the needs of the health centers (NMTC, USDA or other) to determine best source of leverage to meet the goals of the program;

Provide advice and assistance in structuring predevelopment loans and/or grants from the LPCA to individual health centers;

Assemble NMTC equity investors, lenders and guarantors (as necessary) to participate in program; educate them on goals of program and needs and capacities of Louisiana FQHCs;

To the extent Capital Link has NMTC allocation available to provide to the program and individual projects are approved by Capital Link’s Loan Review Committee, act as CDE (lender) to the individual health centers;

Louisiana Experience Recruit and educate other CDEs to provide tax credit

allocation and CHC loans for financings as needed; work with these CDEs to structure transactions consistent with program goals;

Act as LPCA’s financial/business (non-legal) advisor in negotiating LPCA’s participation in providing capital to the NMTC Fund(s) to benefit individual health centers;

Provide general advice and assistance on relevant aspects of the program’s development and implementation;

Measure the impact and the success of the overall program to demonstrate the growth in system capacity and the improvement in financial condition of individual health centers for advocacy and other purposes.

Louisiana ExperienceAssistance to individual health centers in

preparing their projects for financing Prepare Preliminary Feasibility Analyses Work Plans Market Assessments Program, Staff and Space Planning Assembling a Project Development Team (architects,

engineers, construction managers, etc.) Developing a Project and Equipment Budget Business Planning and Financial Projections

(incorporating the project budget and proposed financing structure) including completing USDA feasibility studies (if utilizing USDA as financing source)

Financing Assistance, educating staff and Boards regarding NMTC financing structures, and closing transactions.

Louisiana Capital Development Program Update

Katrina offers opportunity for health care system redesign (Charity Hospitals) – PCA makes the case to Governor that HC model works (Medical Home) – CNS/FTA results suggest need for $124M in total capital costs

Governor agrees to include $55 million - included in the Governor’s original budget for health center expansion – but in a budget reduction effort (hit the Cap) it is subsequently moved from Gov’s budget to Legislative budget (usually the kiss of death).

CHC’s, LPCA and key champions (including legislators) put on intense advocacy effort to rescue it – legislature votes expansion of cap using recovery money for non-recurring projects

CHC’s acknowledge competing interests and do not fight $14 million carve-out for Rural Health Coalition & others

Louisiana Capital Development Program Update

Net result is $41.5 million for CHC capital projects Capital Outlay issue – prior grants through this program

can’t be used in conjunction with NMTC’s (bureaucratic resistance) so need special legislative authority to use this funding with NMTC

Solution is to grant $ to LPCA for distribution and provide specific legislative ‘encouragement’ to use grant funds within New Markets structure

LPCA and LA DHH negotiating Cooperative Agreement To be signed October, 2007, final legislative committee

approvals in mid-November then criteria for disbursement to be designed by LPCA (with CL’s help)

The expectation of the program is for new users not just new clinics – how much flexibility in initial HC ask??

Arkansas Activities Capital Link worked with PCA to

design and assemble funding for a Capital Development Program for rural FQHCs in Arkansas

Program was to include: Planning Assistance Grant and Loan Pool

Arkansas Activities, continued

Capital Link and PCA successfully applied for RCDI grant covering 50% of cost of technical assistance up to $30,000 for nine rural AR health centers

Earmark request pending for matching piece – fallback is HC match

CL beginning to provide capital planning TA to health centers through USDA grant

Capital Development Programs: What do they have in common?

Vision Commitment and Leadership Focus not just on $, but also on

technical assistance so that health centers and clinics can effectively make use of the $ available and use the opportunities for strategic advantage

Capital Development Programs: How do they differ?

Each state has different opportunities Political Financial

Each state has different needs Financial and operational strength of the

health centers and clinics as a group affects the strategy for developing a capital program

Philosophical Differences Grants vs. Loans

Strategies for Developing State-Based Grant & Loan Programs

Identify models developed in other states and build upon them (don’t reinvent the wheel where you don’t have to!)

Target existing resources to develop CHC-specific programs

Work to develop new CHC-specific programs with partners and allies - but be ready to compromise and share with allies (and competitors) to get what you want!

Understand the bureaucratic realities

Relentlessly promote primary care, your leadership, your partners, your project

Create a list of CHC friends and communicate with them regularly

Introduce them to one another Hold events, briefings, and meetings Send letters, emails, reports and articles Do it all over again

Tell Your Story

Find, recruit, educate and engage as many people as possible

Make involvement meaningful

Be a window to the community for representatives

Be useful to elected and appointed officials – don’t just ask for favors & funding

Build Political Will

Who has health insurance, who doesn’t? Make clear you understand unique cultural

approaches to providing AND receiving primary care

Political support: Voters, and therefore, elected and appointment officials, support health care for the poor

Cost containment is a driver– Not enough primary care is driving up costs of care at all levels

All Politics is Local - Unique Characteristics of the Islands

Prove You Know YOUR Community

OK, So How Do We Get Started?

Go back to the beginning – to make a compelling case you need:

An accurate assessment of required capacityCapital Link’s Capital Needs Survey

An accurate assessment of financial self-sufficiencyCapital Link’s Financial Trends Analyses creates Financial Information

Database and estimates Debt Service Capacity A compelling case for all audiences “We will:

Create new Community Health Care Resources Leverage state money with private resources Save overall health care dollars through primary care or medical home

model Create Economic engines in low income communities”

Capital Link’s Data Analysis Tools

Capital Needs Surveys and Financial Trends Analysis Uses information from questionnaire and

audited financial statements Assesses overall capital needs of health

centers on a statewide basis Evaluates what health centers can afford to

do on their own Results used to inform development of capital

resources that respond to identified needs

Capital Link’s Data Analysis Tools

Economic Impact Analysis

Macro-economic modeling to demonstrate the role of a community health center as a springboard for economic development within the community.

Health Centers from an Economic Development Perspective

Enhanced health care services Referrals to larger health providers A place for employment training Community-based employment Infusion of spending into the

community Anchor for attracting new businesses

and investments into the community Product of a community effort

CL will not disclose health center-specific financial data to any party other than the health center itself, unless the health center requests such further distribution in writing.

Any reports will include only aggregate data for a group of health centers as a whole.

Importance of Confidentiality

Capital Link’s Data Analysis Tools

Capital Link Background

Mission: Capital Link is a national nonprofit organization We assist health centers in planning and obtaining financing for

building and equipment projects, and We assist Primary Care Associations (PCAs) and other partners in

leveraging capital resources for health centers on a statewide, regional and/or national basis

Founded as a joint effort of NACHC, the Community Health Center Capital Fund, and Primary Care Associations in MA, IL, NC, and TX

Staffed in nine offices (MA, CA, DC, LA, MD, MO, NC, WA, WV) Receives funding through contracts with HRSA, the Tides

Foundation in California and through fee-based contracts to assist health centers and PCAs nationally

Capital Link Track Record Established award-winning tax-exempt bond financing

program in MA (1994) Funding Assistance: assisted health centers in obtaining

almost $317 million for 137 projects totaling $436 million: $128.7 million in bank or other loans (including conventional

lenders, USDA, CDFIs, HUD, NMTC/HTC) for 62 health centers $113.8 million in tax-exempt bond financings for 22 health

centers $53.2 million in grants/equity for 61 health centers 14.4 million in forgivable loans for 6 health centers $3.1 million in equipment loans for 6 health centers $3.4 million in lines of credit for 7 health centers

Allison Coleman, CEO40 Court Street10th FloorBoston, MA 02108Phone: (617) 422-0350 Fax: (617) 542-0191

Dave Kleiber1920 Main StreetSuite 18Ferndale, WA 98248Phone: (360) 312-0481Fax: (360) 312-0489dkleiber@caplink.org

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