Observations all along the line - Kimball & the Southern Panhandle First

Hospital Project Faces Challenges

Project Costs Increase; Less Of Old School To Be Used In Building

The Kimball Health Services hospital building project has run into some unforeseen issues, including financing, construction problems, and rapidly increased pricing that have created a significant increase in cost.

Originally, financing for the project included a $6.4 million country revenue bond to be repaid with hospital revenues, a $2.2 million capital fundraising campaign, and a $23.4 million loan that the U.S. Department of Agriculture approved in July for the project.

At first, announced estimates for the project totaled $32 million, but now the project is estimated to be $43 million, an $11 million increase.

The Observer met with KHS CEO Ken Hunter, CFO Cassie Gasseling, board president Jim Cederburg, and facilities manager Troy Kurz to get an overview of causes associated with the increased need for funding.

Kimball Health Services has resubmitted its application to the USDA for another $11 million loan. If that doesn't come through, then according to Hunter, "We'll make cuts to existing plans."

Hunter said they are committed to not changing other funding sources except for those from the USDA. The hospital anticipates hearing from the national USDA sometime in March. The resubmittal has been through the state level and was sent on to the national level last week.

The USDA loan would still be at a 40-year fixed rate, but Hunter said that amount of time "doesn't do as much as what you might think" to the loan payment.

"The more expensive the hospital is, the more we depreciate," he said. "We estimate that a little more than 50% of it is going to be reimbursed by the government. In dollars, it won't be a heck of a lot more money." One thing in the hospital's favor is that interest rates have not moved much.

One of the reasons that more money is needed is a result of not being able to use much of the existing West Elementary School, which KFS uses as its north campus, as part of the development.

According to Hunter, the $2-3 million that they were going to save by doing that will not happen because they are unable to use the old school building. Hunter stated that the school was "not built to specifications of the blueprints." He said the joint spacing (the structure that holds up the roof) of the original roof was not constructed as original plans indicated.

Hunter explained, "Had we had been able to utilize West Elementary like we originally wanted to, there was about between $2-3 million in saving. When we determined we weren't able to do that, we were a ways into the process. We lost that saving. The cost to reinforce the roof was greater than the saving. There went $2 ½ million."

The hospital discovered the problem with the roof, Kurz said, "After we secured our contractor. Things kept changing structurally, having a constructor on board. They had the ability to say 'OK, here is the design and as the design progresses. Here are the costs associated with that design.' And it came to the point the (needed) structural improvements were offsetting any advantage."

Hunter said, "Our constructor company made real early a recommendation to keep the hospital all on one level to where there are no steps anywhere in the hospital."

The basement of the old school building will be used, as will the gymnasium. The gym was to be used for a facility office, laundry services and storing mechanical and electrical equipment. Plans now indicate that the basement will be used for electrical gear and storage.

According to Hunter, the prices "went up so fast, so perspicaciously." He said KHS had "preliminary bids" but a lot of people would not even bid or guarantee delivery because prices went up so quickly.

Even at this stage of the process, KHS has no final bids but they anticipate to have completed bids early next month.

Hunter said, "We should have the final (bids), where they sign off and say we will build it for this (price) the first week of April."

As for now, Kurz said the only price locked in is for steel.

Most recently, Environmental Services Inc. of Norfolk has completed asbestos removal from the West Elementary School, which was needed to progress with the project.