Pratt County PBC authorizes $2.75M escrow to defease bonds; commission directs one-year PRMC rent reprieve

Pratt County’s Public Building Commission approved a plan Sept. 23 to place $2.75 million of surplus sales-tax proceeds into an escrow trust to defease specific hospital-related bonds, and the County Commission directed bond counsel to prepare documents that would apply sales-tax surplus as a rent credit for Pratt Regional Medical Center for one year.

Kevin Cowan, bond counsel with Gilmore Bell, told commissioners the county’s sales-tax surplus reserve had grown to the point it was ‘overfunded for tax purposes’ and that federal arbitrage rules made leaving the funds idle inefficient. “When we were working on that earlier this summer, we realized this reserve fund, the sales tax surplus reserve fund, was overfunded for tax purposes,” Cowan said, describing an escrow invested in U.S. government obligations as the permitted mechanism to ensure the funds are not treated as taxable arbitrage income.

A cash-flow analysis presented by Clayton Kelly with Cypressandler showed the escrowed funds would cover interest and principal payments through the chosen maturities and estimated $213,000 in interest savings by escrowing and redeeming the bonds earlier than scheduled. “By paying this off … you’re saving $213,000 of interest,” Kelly said, summarizing modeled outcomes for the 2026–2029 maturities.

The PBC moved and seconded a resolution (PBC 09-23-2024) to adopt an escrow trust agreement and to set the escrow amount at $2,750,000; the motion passed 3–0. Cowan said the escrow will be invested in U.S. government obligations and, once funded and correctly sized, will be treated as a defeasance so the specified bonds would no longer be considered outstanding for certain legal and accounting purposes.

Commissioners then discussed related lease and sublease provisions that tie Pratt Regional Medical Center’s (PRMC) rent payments to debt-service and two financial covenants: a 3x coverage test and a 75-day cash-on-hand test. Under existing documents, amounts in the surplus sales-tax reserve may be applied as a rent credit to reduce the rent payment when PRMC does not meet those covenants.

Hospital representatives, speaking during the meeting, described ongoing operational costs and recent capital decisions—purchasing clinic space and recruiting physicians—and said the hospital could use short-term relief. “We could use the help,” a hospital representative said, describing recent investments and staffing needs.

After extended deliberation about reserve levels, risks of reducing the surplus and the need to protect taxpayers, the County Commission moved, seconded and directed bond counsel to prepare documents to apply the surplus sales-tax reserve as a rent credit that would effectively waive roughly $1.2 million in PRMC rent for a 12-month period beginning Oct. 1, 2024 (to be reviewed before the next fiscal-year decision). The motion was approved on a voice vote.

County staff and bond counsel noted several guardrails: the escrow addresses federal-arbitrage concerns and must be sized and invested according to the bond documents; the rent-credit mechanism is limited by the bond and lease documents and typically requires written direction to the bond trustee; and commissioners may revisit the question next summer when budgets and updated financial statements are available.

Key clarifying details from the meeting: - Escrow amount adopted by the PBC: $2,750,000 (PBC resolution adopted 3–0). - Earlier technical arithmetic in draft documents referenced an amount near $2,000,005.35; commissioners and counsel amended totals on the floor to reflect a $2.75 million escrow. - County staff and counsel stressed escrow investments must be in U.S. government obligations and sized so interest and principal payments are met through the targeted maturities. - The rent-credit direction discussed by the commission was described as a one-year measure to be revisited; the approximate annual rent figure referenced during discussion was $1,200,000.

What happens next: bond counsel will prepare finalized resolution and escrow trust documents for signature by the PBC and County Commission; the trustee (UNB Bank as referenced in the meeting) will need written direction to accept the escrow and to apply funds according to the escrow agreement. Commissioners said they will revisit the rent-credit approach next summer when PRMC’s fiscal-year results are available.

The County and PBC agendas included several routine items that were handled separately, and the commissions adjourned after approving the minutes and voucher payments.