York County made $33.5M on nursing home sale: Where did the money go?
With murmurings about the potential cost of the state mandate to buy new voting machines, York County residents may be asking, "What about the nursing home money?"
Back in July, the York County commissioners voted to sell Pleasant Acres Nursing and Rehabilitation Center for about $33.5 million to Premier Healthcare Management, a private company that operates a number of nursing homes in the region.
But most of that money — $21.9 million — must be used to pay unfunded retirement benefits promised to nursing home employees decades ago, said Mark Derr, county administrator and chief clerk.
OPEB Trust: Back in 1989, the then-Board of Commissioners voted that moving forward, the county would not offer other postemployment benefits to county employees hired after Jan. 1, 1989.
(Other postemployment benefits cover costs such as health insurance, life insurance, dental and vision care for qualifying retired county employees.)
The county was still obligated to provide those retirement benefits to employees hired prior to Jan. 1, 1989, though.
"The county had guaranteed them health care benefits when they retired," Derr said, "but the boards at that time never put any money aside to pay for those benefits."
Past boards of commissioners opted to pay OPEB costs on an as-needed basis out of the general fund budget rather than setting up a dedicated fund.
By the end of 2016, the county's estimated unfunded OPEB liability totaled $135 million.
The current Board of Commissioners established the OPEB trust in December 2016 to help mitigate that cost and to fully fund the OPEB obligations. Money added to the trust is invested based on the projected rate of return, which is currently about 6 percent or 7 percent.
In the two years since the establishment of the trust, the county has reduced its OPEB liability to $85 million, and the additional $21.9 million contribution to the trust from the nursing home sale will bring that number down even further, Derr said.
(The $21.9 million is the calculated OPEB liability for qualifying Pleasant Acres employees.)
The county will hold on to the $21.9 million for the first few months of 2019 in order to pay for the general operating costs of county government, Derr said. When property tax revenue flows into the county coffers in April, the county will replenish whatever it used of the $21.9 million and then invest the total into the OPEB trust.
Voting machines: In February, Gov. Tom Wolf ordered that any county planning to replace its voting machines must buy devices that leave a paper trail. He followed up in April by ordering all counties to have such machines by Dec. 31, 2019, preferably by the 2019 municipal election.
If the state doesn't provide any funding for the new machines, York County Commissioner Chris Reilly estimates the county will have to pay between $6 million and $8 million for the upgrade.
Derr said that if the county takes out a loan to buy the machines, it would likely pay about 3 percent interest on that loan. He explained that it would be better to take out the loan and use the cash on-hand as an investment because the investment return will be greater than the interest rate on the loan.
Other costs: In addition to the $21.9 million that will be invested in the OPEB trust, the county will have to pay the following out of the Pleasant Acres sale proceeds, in approximate amounts:
- $507,000 for the transfer tax.
- $3.13 million to refund the pension contributions of about 250 employees with fewer than eight years of service.
- $1.75 million for land subdivision costs.
- $614,000 to pay out employees' unused paid time off.
- $344,200 to hire a financial consultant to oversee the sale.
- $1.3 million allocated to put toward purchase of a new building to replace county offices housed in the Pleasant Acres annex building.
- $600,000 for the resident welfare fund, which provides basic care needs for indigent residents who would otherwise be unable to pay.
The $33.5 million sale price included an immediate $100,000 contribution from Premier to the resident welfare fund, which was added to the county's contribution of $500,000, making a total of $600,000 immediately contributed to the welfare fund.
In addition to the immediate $100,000, Premier agreed to add an additional $100,000 per year for four more years to the resident welfare fund, making a total of $500,000 from Premier being added to that fund.
These totals leave about $3.8 million in funds from the sale, but that money is also unavailable for voting machines.
Derr said the remaining sale proceeds will be used to settle any outstanding grievances against Pleasant Acres and to fund the severance settlement with the workers' union.
Because the union contract with the county was effective through the end of 2018, the county is responsible to make sure those employees receive the full compensation they were promised in the contract through the final three months of the year, even though the county transferred ownership to Premier Healthcare Management on Oct. 3.
That means that after the union negotiates a new contract with Premier Healthcare Management, the county will have to pay for any difference in compensation that union members receive for the final three months of 2018.
"At this point, we have no idea what that amount is because Premier and the union haven’t come up with a new contract yet," Derr said.
A representative for Premier Healthcare Management was not available to comment on the status of contract negotiations.
The benefit of selling: The financial benefit of selling the nursing home didn't come from the $33.5 million sale proceeds, Derr said, but instead from the county no longer paying millions of dollars annually to subsidize the nursing home's operational costs.
"When we take all the billings that we’ve done for the residents at Pleasant Acres, and all the other revenue that comes in from all sources, we come up with about $26.8 million in revenue," Derr said. "But our expenses add up to $36.2 million."
The county has been subsidizing the nursing home to the tune of about $8 million per year for the last 10 years.
As of Dec. 11, the county had spent $9.3 million in 2018 to keep the nursing home afloat.