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Bevin Administration's Proposed Bailout Of Jewish Hospital Unprecedented

Ervins Strauhmanis/Creative Commons

The University of Louisville has announced plans to purchase the KentuckyOne hospital system with the assistance of a $50 million loan from the state’s Economic Development Cabinet.

The deal is contingent upon state lawmakers authorizing it during next year’s legislative session and would amount to the largest loan administered by the cabinet, according to a review of records.

Jack Mazurak, communications director for the Kentucky Economic Development Cabinet, said the state is pursuing the deal because “it’s important that these institutions not be allowed to fail.”

“The state has, through the governor’s leadership, stepped in to work with U of L and our partners there to make sure that it has a bright future and those jobs and economic vitality are not only preserved but leveraged for the betterment of Kentuckians who rely on them,” Mazurak said.

But the loan goes outside the guidelines of what the cabinet is supposed to approve, according to a draft report of the project obtained by Kentucky Public Radio.

The report summarizes the basics of the deal — that the University of Louisville will receive a $50 million, 20 year loan to buy the struggling Jewish Hospital and affiliated KentuckyOne health facilities in Louisville and that half of the loan will be forgivable as long as the hospital system meets certain conditions.

The document then details several ways in which the loan goes outside of what the direct loan program run by the Kentucky Economic Development Finance Authority (KEDFA)  is supposed to approve:

  • The loan amount exceeds the maximum KEDFA guideline of $500,000;
  • The interest rate is lower than the established rates in the KEDFA guidelines;
  • The term and matching participation are outside the scope of the guidelines;
  • The healthcare industry is not included in the KEDFA guidelines;
  • Additionally, upfront financing will occur instead of the guideline to fund when the project is complete;
  • The 1 percent commitment fee will be waived, but the approved company will be required to pay all closing costs.

The report goes on to say “Staff recommends exceptions to all the policies/guidelines listed.”

Mazurak said that the state was stepping up to help resolve “an unprecedented situation.”

“It’s not every day that you have a major hospital complex about to go out of business. It’s not every month that you’ve got a 5,000-employee organization in this kind of situation,” Mazurak said.

The deal is contingent upon lawmakers approving $50 million in funds to the Economic Development Cabinet during next year’s legislative session.

The Kentucky Economic Development Finance Authority would then have to approve the terms of the loan.

A review of KEDFA’s direct loan and small business loan program shows that since 1977, the most money awarded to an entity was $10.95 million, a little more than 20 percent of the loan granted to U of L.

Between 1977 and 2019, there have been 54 loans awarded to organizations ranging from businesses to county governments and local chambers of commerce.

There were 22 loans made above $500,000, most of them in the range of $1 million to $2 million.

Final approval of the loan is contingent on state lawmakers approving the deal during next year’s legislative session, which begins in January.

Kentucky House Speaker David Osborne and Senate President Robert Stivers have said they support the deal.

“The thought of the loss of Jewish Hospital is immeasurable. The economic toll is pretty readily identifiable,” Osborne said. “Let’s think about the number of men, women and children that have traveled here from all over the state broken, only to return home to their communities to be productive.”

Osborne said he had not counted how many lawmakers support the proposal, but that he was “quite confident we will have the votes necessary.”

Sen. Chris McDaniel, chair of the Senate Appropriations and Revenue Committee, said he had reservations about the proposed deal during an interview on Tuesday.

“There’s a private sector solution for this and if the University of Louisville is wrong on this, it’s ultimately going to fall to the state,” McDaniel said. “If we go and loan them all this money and it fails, it’s on the University of Louisville’s books. And we have seen time and again that they will come back and request more money from the General Assembly.”

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