As a result of the recently certified petitions for the recall of 8 members of Wrangell Medical Center’s Board of Directors, the United States Department of Agriculture (USDA) is unsure it will provide its current financing to build the city’s new hospital.

A special election for the recall of 8 of the 9 members of Wrangell Medical Center’s Board of Directors is scheduled for June 19th. This election could affect Wrangell’s new hospital project.  Main financer USDA says due to the potential instability of the hospital board, they are forced to reconsider their current loan agreement signed last year for the construction of the new hospital.

USDA’s State Director of Rural Development Jim Nordlund.

“The terms of the original loan assume that there is stable management of the hospital. A wholesale turnover of the hospital board would cause concern. Just like any other lender we feel that under those circumstances, that instead of just a revenue bond to provide security for the loan we would require a general obligation bond, so in other words it would be full faith in credit of all the citizens of Wrangell,” he says.

USDA’s loan is for approximately $25 million. Currently their loan agreement is that of a revenue bond, which would be paid back by money generated by the hospital.  A general obligation bond on the other hand can be based on revenue but stipulates that in an event that there is a short fall in hospital revenues; city property taxes would make up the difference in the payment.

A general obligation bond would need to be approved by the voters of Wrangell. Borough Manager Timothy Rooney says at this time city staff is looking at possible limitations of that loan.

“We are restricted as a community on how much of a general obligation bond we can make, and it may be that the limitation is smaller than $24.7 million,” he says.

He says if there’s a change in the loan agreement, that requires a vote of the people, there could be delays to the project in the fall.

“If the result is that the loan is no longer a revenue bond and requires a vote of the people, this could cause a delay certainly,” he says.

Rooney says some financial institutions that would provide financing until construction is complete have expressed concern over the recall petitions. One is First Bank that notified the city last week that they will not be submitting a bid to finance interim work on the project.

The city was concerned with securing construction financing by early next month, per the USDA loan agreement. However, Nordlund says the USDA will wait until after the special election June 19th to decide on the terms of the loan.