Measuring The Damage

[Stan Austin]

Very shortly we'll be able to actually visualize the damage as the demolition dump trucks start hauling away the rubble from a sabotaged City asset. Let's have a contest--- how much of the $200 million dollar loss can one dump trailer hold?

[Mark Kindt]

Cosmic Level Dissonance

Despite my most diligent and careful review of the city's own documents, my spreadsheets are off by $51,000,000 (!). Well, I don't think so.

I have attached Exhibit A for your review as a PDF below.

This exemplifies why citizens are so angry and frustrated with the city administration. --Even the courts are swamped with official B.S.

From Exhibit A - 13 October 2016.jpg (129.8 KiB) Viewed 5833 times

[Mark Kindt]

Some Preliminary Conclusions

Before we make our final trudge through the wash transactions, I want to offer a few initial conclusions:

1. The City of Lakewood was paid $7,000,000 to demolish its once award-winning hospital and is doing so now as I write these words.

2. The value of the Lakewood Hospital building itself, the land its sits upon, and the benefit/value of the demolition are being conveyed to the developer for $1.00.

3. All the other reported values by the City represent wash transactions that have no real independent value. As wash transactions, they are illusory accounting artifacts of the reporting of the transfers of "off-book" assets that the city already owned or otherwise transferred under various contracts.

4. The vast value of our publicly-owned hospital was liquidated and transferred to private parties, nearly $200,000,000.

5. The City of Lakewood absolutely did not receive $51,000,000 from CCF and/or LHA.

[Mark Kindt]

What is a Wash Transaction?

A “wash” is a series of transactions that results in a zero net sum gain.

Let's assume XYZ Company sells $1,000 worth of products. If these products cost XYZ Company $1,000 to manufacture, the transaction is considered a “wash”.

Under the Master Agreement, the City of Lakewood is receiving post-closure lease payments for continued use of Lakewood Hospital. However, these lease payments are no greater than the lease payments that would otherwise be due the City under the prior lease agreement(s). Hence, this appears to be a wash transaction.

Example of a Wash Transaction.jpg (160.93 KiB) Viewed 5792 times

[Mark Kindt]

Other Wash Transactions

There are some peculiar accounting possibilities that can occur as assets held “off-book” return to the official accounting. One of those possibilities is that some assets or transfers are nothing more than wash transactions that actually have a net zero value or a near zero net value.

Particularly with respect to the sale of the medical building at 850 Columbia Road and the return of real property assets to the City, there is a high potential for misreporting as positive gain amounts (gains in revenues or capital) that are essentially wash transactions, of no or nominal value.

For example, if the medical building has an appraised fair market value of $8,200,000 as an asset for LHA, then it should also have the same fair market value (“FMV”) as an asset with the respect to the City of Lakewood in the reporting of the lease termination.

I want to keep this simple. It is somewhat more complicated, but you get the picture.

When you’ve leased a garage and the lease ends, you don’t have two garages.

If you lease a $25,000,000 hospital and the lease ends, that $25M capital asset shouldn't come onto the books as new capital. (Though it may actually be reported that way.)

Non-Hospital Wash or Loss Transactions Under MA.jpg (182.84 KiB) Viewed 5787 times

[Mark Kindt]

Value of Lakewood Hospital Charity Care Was Major

Closing Lakewood Hospital resulted in the long-term reduction in hospital-based charity care to its service area--almost $76 million.

Financial Value of Lost Charity Care.jpg (119.75 KiB) Viewed 5740 times

[Mark Kindt]

Nearly All Of The Value Went To Private Parties

While not perfect, this table lets us understand that nearly all of the value of Lakewood Hospital and related assets went to private parties, not the City of Lakewood that actually owned the hospital.

The value for wind-down costs is probably considerably higher. Nor, do I have a value for the equipment and fixtures, such as beds and bed licenses that were transferred to CCF.

Who Got What And How Much -- Private Parties.jpg (262.32 KiB) Viewed 5718 times

[Mark Kindt]

Community Losses vs. Community Gains

Next I will address the argument that their were/are substantial benefits for the general community that outweigh the loss of our community hospital.

We have enough financial data to take a reasonable stab at this.

Stay-tuned.

[Mark Kindt]

Folks -- It's Still A Turkey

I modeled this two different ways.

Does the community gain or lose from closing a hospital and building a mixed-use development?

Even with a $72,000,000 dollar investment from a developer, it's still a loser.

Community Losses -vs- Community Gains.jpg (200.43 KiB) Viewed 5712 times

[Mark Kindt]

The Mayor Understood That There Was No Value To The Community In Closing The Hospital

In a memorandum dated, September 24, 2014, their consultant (Subsidium) advised the LHA negotiating committee (including the mayor) that the offer from the Cleveland Clinic “did not support a finding of material advantage to the community” and that the “value provided to the community could be close to zero”.

In fact, it was considerably worse, it was significantly negative in affect. All the numbers bear this out.

Next, we will double-check whether or not there was any healthcare gain for the community.

[Mark Kindt]

Community Losses vs. Community Gains II

Lest I be accused of failing to make an apples-to-apples comparison, this table again illustrates that our community lost more than it gained.

Never forget, that we had to demolish an award-winning community hospital to achieve even these meager "gains".

As I have said before, this was / is a public policy debacle of the first order.

Community Losses -vs- Community Gains II.jpg (217.78 KiB) Viewed 5640 times

[Meg Ostrowski]

Mark, Thank you for posting your efforts and analysis on the hospital transaction. It is an unfortunate mark on our community's history. Each post here, like each post in the fence that now surrounds the property, feels like a dagger to the heart of morality.

[Stan Austin]

Other than the for hire demolition crew-- who will dare show up for the first swing of the ball, first knockdown of the dozer blade? Politically speaking is this a photo op or a photo dodge?

[Mark Kindt]

I thank you both for your thoughtful and supportive comments!

[Stan Austin]

That the City would have hired competent counsel such as you.