Jessica McBride/Media Coordinator
$86 million health facility loan contains balloon payment
OKMULGEE, Okla. — In response to the reported budget deficit at the Muscogee (Creek) Nation Department of Health (MCNDH), the ‘Muscogee Nation News’ requested copies of the fiscal year 2013, 2014 and 2015 audits and end of year financial statements for MCNDH. ‘MNN’ also requested information regarding the loan approved March 21 to address the reported deficit and the loans to finance new MCN health facilities.
‘MNN’ obtained copies of the FY 2013 and 2014 audits.
The audits can be viewed at: www.mvskokemedia.com/archives/documents/.
‘The books for 2015 were closed in February and the audit for 2015 will be completed by the end of May,’ former MCN Acting Controller Kathy Guthrie said in a written statement March 30.
Guthrie is no longer acting controller as of April 4. Legislation for her nomination was postponed indefinitely at the April 30 National Council session.
The FY 2014 audit, performed by REDW LLC, is dated as completed June 29, 2015. Throughout the audit, it refers to MCN departments that were audited collectively as ‘The Department.’
The audit defines net position on page 30.
‘The difference between assets and liabilities is “net position” on the department-wide, proprietary, and fiduciary fund statements.’
According to www.businessdictionary.com, an asset is something of value in which an entity owns, benefits or has use of in generating income. A liability is a claim against the assets of the organization.
Page four discusses MCN Department of Health net position.
‘Business type activities reported a decrease in net position of $8.7 million. This decrease is attributable to the Department of Health’s operating expenses exceeding its operating revenues by $65.2 million, while the federal grants and contracts only offset $48.7 million of that operating loss.’
The report attributes the decrease to health department activities.
‘The Department’s (MCN) business-type activities showed substantial increases in operating revenues and operating expenses from the prior year, primarily related to the Department of Health’s acquisition of two new medical facilities in 2014, including a medical center and a rehabilitation center.’
Page 17 shows calculations for the net position of the health department as of Sept. 30, 2014 to be $38,124,146. Page 18 shows the statement of revenues, expenses and changes in net position for the health department.
In an emailed response to ‘MNN’ questions, MCN Council Speaker Lucian Tiger stated that the Council received the FY 2014 audit Aug. 25, 2015.
The audit also discusses MCN budgets and financials.
‘Annually, all funds adopt a budget. Changes to the budgets during a fiscal year are infrequent. Overall, the general fund expenditures were within the total amount budgeted.
‘The expenditures of certain line-items, however, exceeded the amounts budgeted. In contract the expenditures for the entire general fund budget were 16.4 percent less than the budgeted amount.’
The report shows conditions and deficiencies found during the audit.
‘The Department (MCN) does not have a current and up-to-date documented accounting policies and procedures manual. The manual the Department currently works from is severely outdated.’
The management response to this listed in the audit states that a new version of accounting policies and procedures will be written in FY 2015.
Another deficiency detailed in the report describes auditing adjustments after the accounting records were closed at the end of the year.
‘Accounting transactions were not fully analyzed and accurately recorded, and monthly reconciliations were not performed for significant general ledger accounts.’
The management response indicated changes would be made to accounting practices, and described how the current system operates and provides information for accounting purposes.
The report identifies improper use of debit cards previously reported on former MCN Second Chief Roger Barnett’s office.
The audit reports deficiencies in vaccination records maintained.
‘The Department does not maintain copies of immunization records to document controls are in place to prevent the spreading of infectious diseases.’
MCN Public Relations Director Geebon Gouge said this is related to the Child Care and Development Block Grant and not the health department.
The management response indicated immunization records will be requested at the time of application.
Other deficiencies are notated in the report.
Former MCN Principal Chief George Tiger discussed the reported health deficit in an April 27 interview with Mvskoke Media.
The interview can be viewed at: www.mvskokemedia.com/tiger-speaks-former-chief-addresses-reported-health-deficit/.
“I think to some degree there’s been some sensationalism in the theme, if you will, of whatever is going on in health. There hasn’t been a deficit.
“We didn’t know of a deficit when we left. There wasn’t any deficit in terms of what the process or what we knew in terms of what was going on with health,” George Tiger said.
George Tiger said he hopes the Council will look into information they have been presented.
“Well, number one is, I think still yet there’s some people, employees that are jockeying themselves for positions to make sure they keep their positions,” he said. “Maybe providing somethings that really needs to be studied.”
George Tiger said he feels the Nation was left financially stable at the end of his term.
“It was consistent with the growth that we had during my administration. The stability in the finance part of it is pretty well documented in terms of our growth with the so called permanent fund,” he said. “And there were periods of time prior to me coming on there were some deficits. We addressed those issues and turned some of those things around.”
‘MNN’ reached out to former MCN Secretary of Health Seneca Smith for comment March 30, April 7 and April 20, and left voicemails requesting a call back. Smith has not returned any phone calls as of April 30.
George Tiger said he has been in contact with Smith and that Smith is unable to comment on the situation due to his federal employment status.
George Tiger said his office and the Council received all of the financial reports during his administration, and would have addressed any items of concern.
“The one thing that you have to remember is, we basically improved a lot of facets of what was going on in health. So we had to spend money… Some of the things that we presented to the Council and they addressed, we all believed that it needed to be done together, the executive and the legislative,” he said.
Health department loans
According to TR 16-045, a $65.68 million loan will be taken out with Bank of America-Merrill Lynch to reinstate funds to the health department.
The loan will have an adjustable interest rate estimated to be around 1.326 percent, which combines the 30-day London Interbank Offered Rate (LIBOR) plus 0.886 percent.
According to www.bankrate.com, the 30-day LIBOR rate as of April 20 was 0.44 percent.
‘MNN’ requested interviews with MCN health and financial officials for clarification about information obtained through documents, meetings and interviews.
‘MNN’ was granted an interview with MCN Principal Chief James Floyd.
The Public Relations Department requested a list of questions be sent for review prior to the interview.
Floyd said that the loan to fix the reported health deficit is revolving, does not have an end date and does not contain a waiver of sovereign immunity.
According to www.businessdictionary.com, a revolving account, ‘does not have to be paid in full before obtaining goods or services against the available credit limit.’
“We don’t give up any sovereign immunity so there would be nothing in there that would waive sovereign immunity for our tribe,” he said.
According to the unsigned loan agreement obtained by ‘MNN’ from Council, the adjustable interest rate for the yet to be built Okemah and Eufaula health facilities is the LIBOR rate plus 2.05 percent.
‘MNN’ cannot independently verify that the loan agreement signed matches the unsigned copy that was reviewed by Council.
It is unknown which LIBOR rate index is used for the calculation, but the loan agreement states that the rate is to be adjusted monthly.
According to documents provided during a March 21 Council extraordinary session, the combined annual payment for the Okemah hospital and Eufaula clinic is $6.1 million, with a balloon payment of $74 million at the end of the four-year term for the joint loan to construct and start the facilities.
The documents can be viewed at: www.mcnnc.com/images/Attachment%20to%20TR%2016-045.pdf.
According to www.investopedia.com, a balloon payment is, ‘An oversized payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender.’
This means that MCN will be required to pay an estimated $74 million in one lump sum at the end of the four-year period.
Floyd said he is not sure of the exact date of when the four-year period will expire.
The unsigned agreement is dated Nov. 3, 2014 and was approved by Council December 11, 2014.
It states that the maturity date is the 5th anniversary of the closing date, and defines the closing date as the date in which certain outlined conditions such as loan documents and construction information have been satisfied.
Floyd said the plan is to pay the full amount when it becomes due.
“The plan is we pay it at that time. We generate the revenue from the health care system. We’re working on that right now and we’ve increased collections.
“There was a reserve fund previously. That’s been depleted but what we will do is the revenue that would’ve gone to the reserve fund will go to the loan payments to remove that debt because the reserve fund should’ve paid it in the beginning,” Floyd said.
The unsigned loan agreement also includes a waiver of sovereign immunity. The agreement can be viewed at: www.mvskokemedia.com/archives/documents/.
In a March 22 interview, ‘MNN’ asked Lucian Tiger if enough information was provided when the Council voted on the $86 million loan agreement.
“No, because the complete understanding of that was… I didn’t understand the large balloon payments that were going to be at the end,” he said.
George Tiger said he is surprised there are questions regarding the balloon payment.
“…Because every big project this Nation has ever done, whether it is in gaming or other things, there’s always been a standard practice of having balloon payments,” he said.
George Tiger said the loan for the Margaritaville expansion of the River Spirit Casino also has a balloon payment.
“All I know is this, that we got probably one of the best gaming industry syndicated loans in the country on that project,” he said. “And again, it does have a balloon payment on it and of course before I could even sign the contract on it, it went before the Council and they approved it.”
Floyd said that the estimated completion for the Okemah hospital is December 2016, and construction has not began on the Eufaula clinic.
“There’s two portions that we’re working on that need to occur for the construction to start,” he said.
Floyd explained that MCN will need to work with the Indian Health Service for the joint-venture project to determine if the layout fits the approved space and the square footage of the entire facility so that IHS can determine the staff they will fund.
According to ‘MNN’ records, a ground-breaking ceremony was held for the Eufaula clinic May 28, 2015.
In further coverage of the reported health deficit, ‘MNN’ will review other documents and interviews obtained regarding MCN budgets, loans, audits and discussion of the issue by MCN officials.