After more than a year of planning submissions, Northern Arizona Healthcare has abruptly withdrawn its application to the Yavapai County Board of Supervisors for the issuance of $450 million in health care bonds intended to fund construction of NAH’s new Flagstaff campus.
Healthcare Village
The new NAH facility, which the hospital describes as a “health care village,” will be located on 172.6 acres of land southwest of Flagstaff, adjoining Fort Tuthill Community Park. The development will consist of a 1,265,950-square-foot medical center with up to 468 beds — replacing NAH’s current 317-bed Flagstaff hospital — approximately 315 housing units, 382,000 square feet of commercial space including three hotels, 250,000 square feet of research and development space and 30 acres of open space.
Although the new hospital is slated to open in 2027, following groundbreaking in February 2023, full buildout of the project will not be completed until 2045, at the earliest. The expected cost of the project has been repeatedly cited as $750 million, but NAH’s planning application as of Oct. 3 placed the estimated construction costs at $922.7 million.
Revenue Bonds
To fund the new hospital’s construction, NAH applied to the Yavapai County Industrial Development Authority to issue up to $450 million of bonds on its behalf. The issue would have included both fixed-rate and variable-rate bonds underwritten by Bank of America Securities, with maturity dates of forty years or less. Maximum interest rates for the fixed- and variable-rate bonds would have been 5.5% and 12%, respectively.
The IDA was incorporated in 1977 to provide bond financing for community projects and has issued more than $1.5 billion in bond financing so far. After issuing the bonds, the authority would then have loaned the proceeds back to NAH. Issuing the bonds would not have created an obligation of indebtedness for either Yavapai County nor the state of Arizona.
The authority approved NAH’s application for the new bond issue unanimously on Sept. 2, 2021. No public comments either supporting or opposing the flotation, written or in-person, were submitted at public meetings held on Sept. 17 in both Yavapai and Coconino counties.
Five days later, on Sept. 22, NAH treasurer John Cortese asked the authority to defer final approval of the bond issue pending completion of an updated traffic impact study, which he expected to be ready by February 2022. The authority agreed to do so. On Nov. 2, 2021, the Coconino County Board of Supervisors approved the bond issue as well.
The authority attempted to discuss the status of the bond application on March 15, 2022, and again on April 27, but was unable to do so, as they had not received any updates from legal counsel for the applicants.
On Sept. 19, the authority called a special meeting, with public comment, to discuss the bond issue, and subsequently reapproved NAH’s application unanimously. With clearance from the authority in place, the application was scheduled to come before the Yavapai County Board of Supervisors on Oct. 19 for final approval.
“The financing of the project is consistent with the purposes of the Act [Title 35, Chapter 5, Arizona Revised Statutes] and will benefit the people of the county,” the proposed resolution that the authority prepared for the Board of Supervisors stated.
However, on Oct. 12, NAH acting president and CEO Josh Tinkle sent a letter to the Yavapai County Board of Supervisors withdrawing NAH’s application, which read in part, “We are reevaluating our financing options as we proceed with this project.”
“Delays at Yavapai County, combined with market conditions, have decreased the attractiveness of bond financing at this time,” Tinkle later said.
The following day, Oct. 13, the Coconino County IDA considered the possibility of taking over responsibility for the bond issue. Brandon Kavanagh, counsel to the board, informed the members that NAH representatives had already “discussed with him that if they had difficulty with the approval process in Yavapai County, they might need to consider Coconino County IDA as an alternative.”
As the Coconino County Board of Supervisors has already approved the NAH bond issue once, they will likely do so again if the Coconino County IDA decides to handle the flotation.
Michaels Takes Credit
On Oct. 18, Yavapai County District 3 Supervisor Donna Michaels released a statement on Facebook in which she announced that NAH had withdrawn its bond application and took credit for organizing opposition to the application.
“Despite intense pressure from NAH and its affiliates, the collective voice of our community was heard,” Michaels wrote. She referred to “numerous documented missed breast cancer diagnoses that occurred at NAH” and also commented, “This bond investment was intended for NAH’s future campus and would not have benefited our county or my constituents …. I remain committed to putting the needs and safety of my constitutes [sic] before the business interest of NAH corporation.”
Michaels had previously posted a statement on her website on Aug. 18 claiming that “an accelerating number” of medical staff were leaving the Verde Valley and that there was a “direct relationship” between NAH’s campus expansion and “the reduction of medical services to the residents of the Verde Valley region.”
According to a review of NAH procedures conducted by Northern Arizona Radiology, NAH missed 23 breast cancer diagnoses out of 6,344 patients, an error rate of 0.36%.
In addition, Michaels met with Tinkle on Sept. 1, at which time he informed her that, far from reducing its presence in the Verde Valley, NAH planned to invest over $12 million in upgrades to the Verde Valley Medical Center and had hired more than 10 new providers who would be starting work in the area in the coming weeks. Tinkle subsequently confirmed this information in a memo to Michaels on Sept. 23.
Michaels appears to have persuaded two of the other supervisors on the five-member board, including District 2 Supervisor James Gregory, to oppose the bond issue when it was scheduled to appear before the Board of Supervisors.
After Michaels communicated their intent to oppose the measure to NAH, the hospital withdrew its bond application.
It is a violation of Arizona’s open meeting law for members of a public body to discuss that body’s business other than during a public meeting.
Board Chairwoman and District 5 Supervisor Mary Mallory stated that she did not know how she intended to vote on the bond application prior to the scheduled meeting and was waiting to see NAH’s presentation before deciding. District 1 Supervisor Harry Oberg and District 4 Supervisor Craig Brown did not respond to requests for comment on how they intended to vote.
In her Oct. 18 statement, Michaels also thanked “the 100+ community members who committed to speaking in opposition of this bond and to the dozens more who submitted letters.”
The minutes of the Sept. 19 IDA meeting show that two members of the public spoke in opposition to the bond issue and one submitted a written statement, not “100+”. Two of the three were former VVMC and NAH board members.
Michaels’s assistant and Volunteer Director of Community Outreach Susie Fairchild sent out emails to constituents from her personal Gmail address urging them to speak against the bond issue at the board of supervisors meeting.
After the NAH withdrawal, Fairchild wrote, “Please do not show up for the Board of Supervisors meeting that I previously asked you to do since NAH has decided not to pursue their request at this time.”
Michaels has a history of making unsubstantiated claims and asserting decision-making authority based on inaccurate information or personal preference:
- In January 2021, Michaels falsely claimed that every municipality in the county opposed the Verde Connect road improvement project.
- Also in January 2021, Michaels pressured a member of the Planning and Zoning Commission into resigning, in order to replace him with the husband of one of her biggest campaign contributors, by improperly citing a state statute.
- In March 2021, Michaels sent a letter to the mayor of Jerome in which she claimed to waive age-related COVID-19 vaccination requirements for Jerome residents; the following day, Craig Brown, then-chairman of the Board of Supervisors, clarified that she had no authority to do so.
- In September 2021, Michaels moved to approve a special land use permit for her largest campaign contributor instead of recusing herself.
The NAH health care bond issue would have been the largest ever undertaken by the Yavapai County IDA. Since 2005, the authority has issued more than $426 million worth of bonds on behalf of NAH, including a $35 million issue approved in September 2020.
Tinkle stated that due to current fluctuations in the bond market, this delay in issuing the bonds until Coconino County can approve them is likely to cost NAH between $30 million and $40 million.
