CHICAGO, May 24 /PRNewswire/ -- AFSCME Council 31 asked Merrill Lynch today to delay a $350 million tax-exempt revenue bond sale in order to investigate the legal vulnerability of Resurrection Health Care Corporation’s (RHC) federal and state tax exemptions, and the adequacy of disclosure in the billion dollar hospital chain’s Official Statement.
“We felt we should communicate directly with Merrill Lynch, the underwriter of the bonds, about the full extent of our concerns before the bond issue comes to market,” said Henry Bayer, Executive Director of AFSCME Council 31. “Short of conducting an independent investigation we do not believe that Merrill Lynch can confidently guarantee the continuation of Resurrection Health Care’s tax-exempt status to bond buyers throughout the United States.”
Resurrection Health Care, the second-largest health care system in the Chicago area, intends to use the proceeds of the bond sale to refinance the debt of its affiliates and fund expansion and renovation projects. The transaction would increase the non-profit health care conglomerate’s long-term debt from $522 to $779 million.
In a letter sent today to Merrill Lynch Managing Director Ken Vallrugo [letter available upon request], AFSCME listed several concerns about Resurrection’s state and federal tax-exempt status and the adequacy of its disclosure to potential bond buyers. AFSCME believes that:
* Resurrection should provide complete information about its ownership of an off-shore insurance entity, the L. Gilbraith Insurance Company. Resurrection does not disclose the fact that it is the owner of the L. Gilbraith Insurance Company (“Gilbraith”). Gilbraith is incorporated in the Cayman Islands and provides umbrella malpractice and general liability insurance to Resurrection and its affiliates. * Resurrection failed to disclose that its level of executive compensation is far above area market averages. The IRS is reviewing the executive compensation levels of non-profit corporations. In 2004, Resurrection compensated Chief Executive Officer Joseph Toomey at a level nearly double the $732,400 national average for hospital system CEOs. The CEOs of Resurrection’s affiliated hospitals are on average, compensated at rates substantially higher than market area averages. * Resurrection should disclose to what extent for-profit businesses operating within its properties will benefit from the bond sale. At least twenty private for-profit businesses appear to be operating within Resurrection’s affiliated hospitals. Private business use of bond-financed properties by parties other than Resurrection may jeopardize the federal tax exemption of the bond issue. * Resurrection has not fully disclosed regulatory and legal threats to its tax exemptions. RHC’s charity care, billing and collections practices, currently under review by a number of regulatory and legislative bodies, are similar to two Illinois hospitals recently stripped of their tax exemptions for uncharitable practices by the Illinois Department of Revenue. Resurrection receives an estimated $72 million annually in tax breaks and fee waivers because of its charitable status. Two pending class action lawsuits make similar claims that were upheld in a lawsuit recently settled by RHC after its motion to dismiss was denied.
“We hope Merrill Lynch and appropriate regulators will agree that there is a substantial amount of significant information meriting a thorough review before this bond issue goes to market,” Bayer concluded.
AFSCME Council 31 is a labor union representing 78,000 workers in the state of Illinois. AFSCME has a long history of advocacy on tax policy and has been working with employees of Resurrection for over two years) in an effort to broadly reform this corporation.
AFSCME Council 31
CONTACT: Shannon Gilson of AFSCME Council 31, +1-773-792-2430,ext. 5335, or +1-202-271-1965
Web site: http://www.afscme.org/