On September 21, 2000, at GNYHA's symposium on capital formation, Andrew M. Cuomo, Secretary of the U.S. Department of Housing and Urban Development (HUD), announced two significant initiatives that will free up capital for many New York hospitals as well as facilitate refinancings across the country, resulting in substantial interest savings for providers. Other speakers at the symposium included William C. Apgar, Commissioner of HUD's Federal Housing Administration (FHA); Spencer Foreman, M.D., President of Montefiore Medical Center; and David Rosen, President and Chief Executive Officer of Jamaica Hospital Medical Center.

Release of Excess DRF Funds: The first initiative permits hospitals participating in HUD's FHA mortgage insurance program and meeting certain good-standing criteria to obtain release of any funds held in their FHA depreciation reserve funds (DRFs) in excess of an amount equal to two times their annual mortgage payments. HUD estimates that this change in policy will permit hospitals to obtain a one-time release of $165 million for capital projects approved by HUD in addition to reducing future funding requirements. HUD's new policy is premised on its experience that a two-year reserve is sufficient to protect the FHA program, particularly in the case of a "financially challenged but fundamentally sound hospital." In addition, in making the change, HUD noted that one of the purposes of the DRF was to require hospitals to put aside the relatively large payments they had historically been receiving from payers under old capital reimbursement systems for depreciation during the early years of a loan, in order to help them make the mortgage payments that are due later in the term of the loan, when nonreimbursable principal payments typically exceed reimbursable depreciation. HUD's revised policy, therefore, also recognizes the elimination of capital reimbursement by many payers. All hospitals participating in the FHA program will receive letters from HUD explaining the revised policy and the mechanism for securing release of excess funds. Hospitals not yet meeting the two-times debt service test will receive a revised funding schedule that takes into account the reduced funding levels.

New HUD Refinancing Program: The second initiative may have less applicability in NY but will provide savings to hospitals across the country. Referred to as the 223(f) program, it permits HUD to insure mortgage refinancings for hospitals not currently participating in the FHA program, which will result in significant interest savings for those hospitals that decide to refinance. HUD estimates that approximately 230 hospitals would refinance under this program, thereby generating interest savings of $850 million over five years.

Secretary's Commitment to Health Care: Secretary Cuomo's announcement underscored the importance of health care facilities as valued community assets as well as local economic engines. As a result, Secretary Cuomo stated that HUD's most significant goal -- community development -- hinges on the long-term health of America's hospitals, and he confirmed HUD's commitment to work with New York's health care community to provide capital to ensure that providers can meet the needs of their communities.