Memo discusses investment options for hospital proceeds
BY AMY LAVALLEY Post-Tribune correspondent January 27, 2014 10:22PM
VALPARAISO — A confidential memorandum prepared by an Indianapolis law firm evaluates for the Porter County Council investment options for the $159 million in proceeds from the sale of the former county hospital.
The top three choices:
Having the county create its own non-profit community foundation, which is time-consuming but allows the county greater control over its investment.
Using the Porter County Community Foundation, as county officials have already discussed.
Investing in Indiana municipal securities, which could generate a higher rate of return than the county’s current investment strategy.
The law firm Hall, Render, Killian, Heath and Lyman compiled the memo, dated Jan. 10. According to its website, the law firm specializes in health law, and one area of practice is helping establish foundations.
Council members and the Board of Commissioners have discussed looking into a community foundation as a way to reap more interest off the principal from the 2007 hospital sale.
They have discussed investing up to $100 million of the proceeds, hoping to generate about $5 million in annual interest.
A unanimous vote by the council and commissioners is required to use any of the $159 million from the sale.
The topic came up again during budget hearings in the fall, as any additional revenue from a foundation could offset dropping revenue from tax caps. The money, officials have said, could help relieve the burden on the county’s general fund.
The council and the commissioners are reportedly planning a joint meeting in the coming weeks to further discuss the matter.
The best investment strategy, according to the memorandum, is for the county to form its own nonprofit community foundation.
The foundation “would retain all rights to the donation of the Sale Proceeds, including investment powers,” and the foundation “would be required to hold the donations as a permanent endowment.”
Setting up a foundation could take several months, or more than a year.
There also would be legal fees and other costs each year for the foundation, as well as a level of uncertainty.
“We are not aware of any other example of an Indiana county that has transferred the proceeds from the sale of a hospital to a newly formed community foundation,” the memorandum states.
Investing the proceeds with the Porter County Community Foundation also received high marks. The council would control how any income was spent, though it would not have control of managing the endowment.
If for some reason the foundation lost its status as a public charity, there could be a legal dispute over returning the funds to the county.
Another strong possibility is for County Treasurer Mike Bucko to invest the funds in Indiana municipal securities, with up to 25 percent of the funds invested in securities with five-year maturities.
“This option provides the County with an opportunity not only to earn a higher rate of return by investing in municipal securities, but also to encourage local economic development,” the memorandum states.
There are limits in how the funds can be invested and there can be transaction costs, and municipal bonds can be riskier investments than U.S. Treasury bonds.