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2018 Sales Tax

Vote YES Pay LESS poster.jpg

If you are a citizen of Arkansas City, KS, and a registered voter, on or around August 17, 2018, you will receive a mail-in ballot for the 2018 Health Care Sales Tax. This tax aims to remove the current 1.5% sales tax and replace it with a longer-lasting 1% sales tax — reducing the overall sales tax from 9% to 8.5%. With this longer-lasting sales tax, we hope to be able to refinance, which will lower our debt. We believe voting YES is the best way to pay LESS.

To help you make your most informed decision we have compiled a list of Frequently Asked Questions (FAQs) for your review. We strive to answer your questions as quickly and efficiently as possible, but please look below first to see if your question has already been answered.

Questions about Taxes and Bonds

Questions about Hospital Building

Questions about Hospital Operations

Miscellaneous Questions

 

Questions about Taxes and Bonds

 

Q: Why is it the citizens’ responsibility to pay for the hospital bonds?

A: When the bonds were issued in 2009, the “full faith and credit” of the City of Arkansas City was used to secure the debt. This means that if the hospital is unable to pay its obligations, the City must use every resource it has (property taxes, utility revenues, fees, etc.) to pay for it, even if SCKMC is closed.

 

Q: How will the sales tax monies be used?

A: The sales tax monies will only be used for repayment of the original hospital construction debt.

 

Q: Explain how voting for this sales tax will lower the overall tax. How will this help with the bonds? If the ½-cent tax doesn’t help the hospital, why will the 1-cent be better?

A: The long-term nature of the 1% sales tax would improve the odds for a refinancing of the debt in which the potential savings are far greater than the current revenues from sales tax.

 

Q: Explain why the sales tax has to be general and not special, and how that changes the term of the sales tax? Why no sunset on the sales tax? When will it end?

A: Kansas statute requires that sales taxes that are special in nature (for a specific use) are limited to a maximum of 10 years of collections. General sales taxes, however, are perpetual. In order to try and take the best possible financial approach, this sales tax needs to last long enough to cover the entire length of the debt obligations, which currently stand at 20 more years. A general sales tax is the only way to accomplish this. That is why there cannot be an automatic sunset. The tax will end if and when a future City Commission votes to repeal it and remove it from the tax rolls.

 

Q: With families struggling, do you promise to discontinue the sales tax after the hospital is paid off? The tax is supposed to end when the bonds are paid, but there is nothing to force that to happen. What can the citizens do if the city refuses to end the tax at that time? What can be done to make sure that 20 years from now the people and the City Commission don’t forget that the tax is supposed to end when the bond is paid off? What mechanism can be put in place to ensure this?

A: The current City Commission and City staff have made assurances that there will not be an attempt for another hospital sales tax, if this is approved, and to discontinue it once the original debt has been paid. The City Commission passed Resolution 2018-06-3185, which states their intention is for the sales tax to be repealed at the end of the current debt obligations. There is no binding mechanism to ensure removal of this sales tax, but the Commission feels by documenting their intentions within a resolution, future generations will have tangible evidence to force future commissioners to adhere to this intent.

 

Q: If this tax passes, who is to say in a few years’ time we won’t be taxed more for the hospital? What assurance do we have that we will not also be asked for another tax for the hospital operation costs?

A: If a City Commission wants to increase the sales tax in the future, it would need to have a vote just like we are doing now. If we have this tax, we will have a secure way to pay for the debt from the construction of the building. The construction debt is the part of the hospital expense that the City is required to pay. If the operations of the hospital cannot be fixed, the hospital will have to be shut down. The citizens will not be asked by this particular City Commission for another sales tax for the hospital.

 

Q: If we vote no, what happens? What if the tax does not go through? Will the property tax be raised? How much will my property taxes go up?

A: Yes, you can anticipate anywhere from a 5- to 35-mill increase in property taxes, which equates to about $400 per year on a $100,000 home.

 

Q: Rather than a sales tax, the most regressive tax, the first entry on your federal income tax report is gross income. Since the City Commission can establish a sales tax, can they establish a flat percentage gross income tax?

A: The State of Kansas does not allow local units of government to levy income taxes, so this is not an option.

 

Q: Why are bonds junk if the City has much better credit than it did 10 years ago?

A: The City has not had a bond rating for more than 10 years. Although the financial position of the City has been improving, SCKMC’s poor financial performance, the short-term sales tax outlook and the continued reliance upon the City’s finances have made the hospital bonds decrease in creditworthiness.

 

Q: What guarantee do you have that a new bond can be gotten? If not, do you ask for another 1% tax?

A: There is no guarantee that refinancing the entire debt can take place. However, the long-term 1% sales tax will be sufficient to allow for some, if even partial, refinancing to take place.

 

Questions about Hospital Building

 

Q: Who owns the hospital? Who is responsible for paying for the hospital building?

A: The Public Building Commission of the City of Arkansas City owns the hospital building, which it in turn leases to the South Central Kansas Medical Center Board of Trustees. The City Commissioners are five of the nine members of the Public Building Commission and also currently serve as the hospital trustees. There are four other citizens on the Public Building Commission, all appointed by the City Commission. Ultimately, all of the citizens of Arkansas City are responsible for paying for the building.

 

Q: How/why did we decide to build a new hospital and building?

A: The old facility was badly in need of repairs. The SCKMC Board of Trustees, City Commission and Public Building Commission decided that building a new hospital was the best option. The citizens voted for a ½-cent sales tax to partially fund the project. Profit at the hospital was projected to pay for the $1,900,000 annual construction bond payment by 2019. Those projections have not become a reality. One problem was that the bonds were pledged to be paid by city taxes if the hospital couldn’t pay enough. That is why a long-term, one-cent sales tax is the best way to pay at this point.

 

Q: What would we have to pay today to build a new hospital building?

A: Around $29,000,000, based on 2008 costs when construction began.

 

Questions about Hospital Operations

 

Q: What are the problems at the hospital that it cannot pay this debt without the constant tax strain on the citizens of Ark City?

A: In the current environment, a hospital this size would not be able to create a nearly $2 million profit per year. The hospital would require substantial growth in order to be able to pay for the construction debt. Some of the problems that have led to the large losses in the past include the following:

  • The cost for the current ER service is about $600,000 more per year than it brings in.
  • There are some physicians who are paid more than the revenue that they bring in.
  • The contract for Winfield Medical Arts made it so that the cost to the hospital was more than the revenue realized.
  • We have found that the billing software provider is not efficient.

The list could go on. The Board of Trustees has begun to fix the big items. It is easy to see that this hospital not only could break even, but even create a profit. However, it seems impossible that the hospital would create enough profit to pay for the construction debt payment.

 

Q: I know several people on state health care who go to ER for every little thing. Why is this allowed? If it isn’t an emergency, why treat and get small or no amounts on refunding?

A: Due to EMTALA rules and regulations we are required to see every patient that comes to the ER. EMTALA is a federal law that requires hospital emergency departments to medically screen every patient who seeks emergency care and to stabilize or transfer those with medical emergencies, regardless of health insurance status or ability to pay — this law has been an unfunded mandate since it was enacted in 1986. For information on EMTALA, please visit: https://www.cms.gov/Regulations-and-Guidance/Legislation/EMTALA/

 

Miscellaneous Questions

 

Q: If we continue the status quo, can we choose at any time the other options provided (closure, partnership, selling the hospital, etc.)?

A: We’ve chosen not to continue with the status quo, which is a 1 ½% sales tax and continued financial struggles. The Board of Trustees has chosen to find a path that will make the hospital financially sound and will pay the construction debt.

 

Q: Can the sales tax be used to recruit doctors?

A: No.

 

 

Have a question that hasn't been answered? Please submit it to  kristan@sckrmc.org. Check back as new FAQs are added weekly.