High cost of pension a key factor in Sitka hospital sale

Were the City of Sitka to sell its hospital, pension requirements wouldn’t go away. An outside consultant estimates the city would still be liable for $35 million towards the state pension system, or PERS. (Emily Kwong/KCAW photo)

 

The potential sale of Sitka Community Hospital comes with a catch: $35 million in retirement and benefit obligations.

That’s the estimate of Conduent, an outside consultant, tasked with figuring out how much money the City of Sitka would have to pay into the state’s public employees retirement program, or PERS. 

As a participant in the program, the city would still be obligated to meet the pension liability — even if the hospital were closed or sold.

The hospital currently covers this payment bi-weekly on the city’s behalf. In an e-mail to KCAW, Sitka Community Hospital CFO Cynthia Brandt said the hospital paid a total of $2.2 million last year.

Conduent’s report (SCH Termination Study) is based on a hypothetical sale date of February 1st, 2018. Their analysis estimates the total unfunded pension liability is $35.2 million dollars and would be met in 2040.

The pension liability is not a fixed cost either; it’s re-calculated every year to account for market forces and the decisions of the Alaska Retirement Management board. Conduent estimates the payment for FY18 would be $1.6 million dollars, based on the current salaries of 153 hospital employees.

Sitka Community Hospital CEO Rob Allen called the $35 million a “daunting” figure, bigger than he was expecting. 

“I think it just changes the calculation of any deal. Whoever is going to make an offer is going to have to be very creative in how they deal with that,” Allen said.

Meaning whoever wants to buy the hospital will have to account for the city’s annual pension check. Should the hospital be sold, the city will also have to pay a fee of $645,000 for leaving the PERS system.

In their offer to buy the hospital, the Southeast Alaska Regional Health Consortium said it wouldn’t cover the city’s outstanding pension liability. The city ordered Conduent’s termination study in May and when they received it this week, gave a copy to SEARHC.

“Certainly there’s fairly healthy expenses there that we’re taking a look at,” said Dan Neumeister, Chief Operating Officer at SEARHC. “So at this point I don’t really have much to share, other than that we’re taking a look at it and seeing how that might affect the proposal that we submitted.”

The state’s unfunded pension liability is currently $4 billion.

On Thursday, July 13th, the Sitka Assembly is holding a work session at 6 p.m. with Sitka Community Hospital to review their management proposal. Raven Radio will provide a live broadcast from Harrigan Centennial Hall. We’ll also broadcast the Assembly’s special meeting on Tuesday, July 18th at 6 p.m. as they discuss the future of Sitka Community Hospital.

The city has cancelled a town hall, scheduled for Monday, July 17th.

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