When the Carroll County General Hospital board of directors agreed last week to pay the county an overdue bill for a $7 million loan, it did more than ease concern over the hospital's financial health.
The decision prevented a widening of the county's $3 million budget hole and buoyed confidence in the hospital's ability to handle paymentson the more than $9.4 million in loans it took out from the county this fall.
"We view ourselves as very financially solid," Kevin Kelby, the hospital's vice president for finance, said Friday after the board announced it would remit the $563,300 payment it has owed the county since January.
Until Friday morning, that payment -- under the terms of a 1980 loan agreement between the county and the hospital -- was the subject of confusion in county and hospital budget offices.
The installment is the 11th on a $7 million loan the hospital took out from the county in 1980 to pay for construction and renovation. The hospital still owes about $3.4 million of that loan and was scheduled to make annual payments until 2000.
However, under a new loan arrangement forged with the county last November, the hospital was to lumppayment of that balance with a monthly schedule of payments for its recent $9.4 million loan. Those monthly payments, which were to beginthis year after the $563,300 January payment was made, amount to about $100,000 each and continue until 2005.
The rescheduled paymentsamount to $1.2 million a year, $400,000 of which goes to repayment of the 1980 loan.
The hospital's decision to make the full payment was good news to an already cash-strapped county.
But an underlying concern for the hospital's financial well-being has the county budget office slightly worried about $12.8 million in county money tied up in Carroll County General.
"I don't think this means that they are in trouble," said Steven D. Powell, county management and budget director. "I just think they misunderstood what their financial adviser told them about when the new payment schedule goes into effect. About the only way this affects us is that it counts against our total amount of indebtedness."
The county's long-term debt load stands at$51 million, and is expected to increase by nearly $25 million in fiscal 1992. Even at that level, the county still can legally borrow about $225 million more.
As long as the hospital continues to make its scheduled payments -- as it had until the January deadline -- the county will see no adverse effect on its cash flow, Powell and other financial administrators said.
The idea all along, Kelby said, hasbeen to pay back those loans through increased revenue from patientsusing new services. Much of the November loan is going to construction of buildings and new programs.
But during the two weeks in which the county wondered whether the hospital would make its January payment, the county was talking about a possible cash shortage of nearly$300,000 in the next budget year.
For the last decade, the countycommissioners have decided to help finance construction and expansion at the hospital in hopes of making it more appealing to residents.
"The county does have an interest in seeing the hospital succeed,"former Commissioner Jeff Griffith said. "I don't see our investment in it as a problem. What the goal of the investment in it is is to help it provide service to the community."
The hospital -- a private, non-profit organization -- rarely operates under budgets that have more revenues than expenses. Between 1987 and 1990, the hospital tookin $92.31 million and spent $94.6 million.
The county, on the other hand, must always balance its budgets. In the current fiscal year,which ends June 30, the county faces a $3 million shortfall in its $116.3 million budget. Next fiscal year, the county expects revenue tofall $1 million below this year's level.
With such cash constraints, the county is relying more than ever on the bond market. The $9.4million it lent to the hospital was part of last November's $15 million bond issue. The county expects to have to borrow $25 million during fiscal 1992.
"Whenever we go to the bond market, that hospital loan will show up," Powell said. "It will raise questions from the ratings houses."
Carroll's AA rating from Moody's Investors ServiceInc. has remained unchanged for several years. That rating -- average for the Baltimore metropolitan area -- allows the county to borrow money at relatively affordable interest rates.