1. Leveraging Resources: Developing a Capital Grant and Loan Program For Health Centers in Hawaii Dave Kleiber Western Team Leader - Project Consultant Capital Link, Inc. Hawaii PCA Annual Meeting October 22, 2007

2. Can We Agree? On This Premise All health centers working together have more power and influence than any one on its own On a Common Goal Meet the long-term primary health care needs of Hawaiis low-income residents

3. Who are we now? Hawaii Community Health Centers – Current Statistics 13+ community health centers providing care through 20+ sites Over 98,536 individuals served (2006) 29,562 uninsured (30.0%) 39,288 Medicaid (39.9%) 429,286 Medicare, Private or other Public Insurance (30.1%) 29,686 million are below 200% of poverty (67%) (19% Unknown)

4. HI Health Center Patients and Visits 2004-2020 * Assumes annual user growth rate of 3% ** Assumes Visits per User rate of 4.75

5. Can You Meet this Demand? Will you need to grow your capacity? If yes, can you afford to do so at a pace to meet the demand for primary health care on your own (with your current resources)? If no, what do you need to accomplish it (access to planning assistance and sources of low- and/or no-cost capital);

6. Can You Meet this Demand? Who can you go to for help? (who shares your goal and who benefits from your success – the state, health insurers, hospital systems, foundations) What do you ask them for? (help to create a means for funding the capital growth of HI HCs through a grant pool, access to bond financing, low interest loans?) How do you make the case to them? (demonstrate the need, propose a solution, identify and describe the ultimate benefits to you – AND TO THEM!)

7. The Proposal Led by the HPCA, Hawaii safety net primary care providers (incl. Native Hawaiian Health Care clinics) should approach the legislature, health insurers, foundations and/or hospitals to fund a capital pool to be used for clinic capital projects and technical assistance.

8. What Makes Financing CHC Capital Projects so Difficult? Limited experience and/or success with fundraising Lack of cash reserves No endowments Lack of Equity: Limited Debt Capacity: Slim profit margins or losses Low cash reserves Little experience with debt financing Hard for lenders to understand & assess risks High percentage of government payors

9. Perception vs. Reality: Some CHCs are relatively strong

10. Which Health Centers Will Be Able to Expand Successfully? CHCs that demonstrate sufficient organizational capacity to stimulate investments from grantors and lenders Management & Board strength Good internal planning capacity A compelling business case Leveraging community partners / resources Staying power

11. How Will Health Centers Meet Their Capital Needs? Health Centers generally need both debt and equity to fund capital projects. Capital Links completed projects show on average a 60% Debt / 40% Equity mix. But philanthropic funds are always in short supply Lowering the cost of debt reduces the grant funding amount – and decreases the amount of time needed to complete your capital project. Leveraged New Markets Tax Credit transactions do the same

12. Leveraging Capital Resources Where will the $ come from?! A. Federal grants and loans B. State grants and loans (CDGB, Grants in Aid) C. Private grants and loans D. Individual donations (Capital Campaign) E. Credit enhancement sources (HRSA, USDA) F. Tax credits G. All of the above!

13. Key Capital Funding Source: New Markets Tax Credit $15 billion program established in late 2000 Will provide tax-credits to investors that provide capital to for-profit Community Development Entities CDEs must invest funds in for-profit and nonprofit businesses that are located in and serve low-income communities Tax credits will equal 39% over 7 years (5% in first 3 years, 6% for next 4 years) Represents the largest new federal investment in community-based development in 15 years Can be used in conjunction with BPHC Loan Guarantee Program to provide low-cost loans

14. Can We Succeed? Its been done before! Washington DC Missouri Indiana Louisiana Arkansas

15. $145 million investment in primary care to provide low-income people with better access to health care services in their communities Implemented over ten years Clinics to serve 210,000 medically vulnerable residents For buildings, capacity and quality What is Medical Homes DC?

16. Medical Homes DC: Background Poor health outcomes despite large amounts of dollars spent on health care in District of Columbia Critical shortages of physicians in neighborhoods with high concentrations of poverty High levels of avoidable hospital admissions

17. Medical Homes DC: Solution Ambitious solution to complex long-standing problem - create primary care infrastructure of Medical Homes In partnership with Capital Link, Brookings Institute, Rand Corporation and others, DCPCA is leading $145 million 10- year effort to expand primary care capacity in District of Columbia Capital Link assisting with planning and providing financing assistance for new clinics in underserved areas of DC Since 2005, two rounds of grants approved by DCPCA to fund the planning, design and development, and/or construction of 15 projects Collectively, these projects have the potential to create capacity for approximately 200,000 patient visits per year, the majority of which will be new capacity

18. $145 million investment to bump up the system $45 million local: capital funds, CDBG funding $20 million federal, direct appropriation over multiple years $5 million federal grants $35 million private grant funding $40 million in private loans to clinics Medical Homes DC: Funding Goals

19. $145 million will make the primary care clinics happy Build 200,000 square feet of clinical space Build organizational capacity to thrive in a rapidly changing health care marketplace Build organizational capacity to achieve their mission: help people get and stay healthy Build a primary care constituency in the political arena for long term funding All Politics is Local: Something for Everyone

20. $145 million will make the policy makers happy Give political leaders a chance to be a star Increase economic activity and jobs in low income communities Accelerate the move from institutional to community care, saving money for city Ensure an educated voice in the health care debate All Politics is Local: Something for Everyone, continued

21. $145 million will make partners and friends happy Achieve something big and real for their city Meet with and work with other successful and powerful people Do something good for the poor Impact national thinking All Politics is Local: Something for Everyone, continued

22. Missouri Experience Initial Concept: Use $60 million in State funds to leverage an additional $33 million in funds from other sources (NMTC and USDA) to develop a $93 million pool of capital resources for Missouri FQHCs. The State of Missouri awards $60 million in grant funding to the Missouri Primary Care Association (MPCA) to be spent over two years to establish and manage a capital development program for Missouri FQHCs. MPCA contracts with Capital Link to assist with the development and ongoing management of the Program.

23. Missouri Experience The initial budget: Program Establishment and Administration (2.5% of State Funds) – PCA &CL Planning and Pre-Development Grant Pool (17% of State Funds) – CL & CHCs New Markets Tax Credit-Enhanced Leverage Loan Pool (57% of State Funds) – CL, CDEs & CHCs Grant Pool to Be Paired with USDA Community Facility Loans or other Financing Sources (24% of State Funds) - CHCs

24. Missouri Experience

25. NMTC-Enhanced Leverage Loan Pool for Missouri FQHCs Equity Investors CDE LLC Tax Credits over 7 years ~$22.4 million (39%) Eligible MO FQHCs Capital Projects Fees, Reserves ($5.2 million) NMTC Fund LLC $57.4 million investment into CDE $ 52.2 million in loans* MPCA State of Missouri $60 million grants Capital LinkConventional Lenders $33.9 million $26.1 million for other Program Components NMTC Equity ~$17.2 million $33.9 million soft loans $6.3 million conventional loans Loan A: $6.3 million @7-7.5% Loan B: $33.9 million @ 1% Loan C: $12 million @ 2-3% Contributions from FQHCs $5.8 million

26. Missouri Program Status Effort started in 2003-4 PCA contracts with CL for CNS/FTA/SEIA – identify HC needs in order to support a request for a state capital grant pool PCA resurrects data in fall of 2005 to respond to Governors office that reached out because of effects of cuts to Medicaid in August 2005 - PCA made Governor aware of impact on CHCs Initial 2006 funding based on sale of assets of MO Health and Education Loan Authority (MOHELA privatization) To be used for facilities statewide including $60M for HCs, but legislation falls through on last day of the session; legislature decides it does not want to privatize MOHELA PCA decides to try again and asks CL for update of CNS/FTA - $93 million capital need identified PCA asks CL to help put together proposal to Governors office in fall of 2006 for same $60 million with NMTC leverage to fill gap

27. Missouri Program Status PCA and CL sit with Governors office and budget office in spring 2007 – all seems well but then suddenly $ not available for Program Development (usually 3-4%) or to use through NMTCs. Now PCA will get reimbursement only for its basic program administration costs DSS asks PCA to aggregate HC requests to be used in following two years and submit to them for approval – based on list from initial CNS. PCA administers submission of HC invoices – program is designed on invoice reimbursement basis from CL Workplan Manual – HCs have two years to draw down or else balance will be re-allocated and possibly lost. HCs can draw money for TA (somewhat ambiguous on how TA dollars spent, but must be project-related) – PCA encourages HCs to work with CL – PCA reviews invoice requests Now CL approaches HCs separately - to date CL working with almost half of eligible HCs

28. Missouri Program Status Lessons learned – During the process expect bureaucratic control issues to arise and they may be difficult to overcome Some legislative pushback as a result of other agendas Issue became a political football – but not due to CHCs (be careful what you tie your horse to!) No precedent in the State for granting big $ to a non-state agency for re-distribution so once it was proposed lots of new parties asked for a piece Figure out the distribution model early – dont just focus on getting the pool created. Get state acquainted with partners early HCs need to understand implications – if you dont ask you wont get – dont be outrageous but dont under-estimate HCs need to be ready and comfortable doing grass roots advocacy

29. Indiana Program Development State has long history of supporting CHCs with operating money PCA used CLs CNS to determine the capital needs of HCs (not just 330s – 41 members- but only 19 330s) PCA has always encouraged HCs to educate their representatives – most have good standing relationships already in place – they even encourage patients to communicate with reps

30. Indiana Program Development PCA also works with (lobbyist) advocate to work with related agencies (rural health, hospitals) so they are not at cross purposes or competing (encourage all collaborations -one good turn deserves another!) PCA involved with DoH to structure program but did not try hard to get the money themselves (read political winds and had great relationship with new head of CHC relations at DoH)

31. Indiana Program Development PCA also has great relationship with Chair of Ways and Means – so bypassed some of the political issues (recruit powerful champions!) BUT, PCA advised HCs to keep low profile on capital issue – dont draw attention to it to avoid conflict with other advocates of worthy causes

32. Louisiana Capital Development Program In aftermath of Hurricane Katrina, State is examining ways to restructure its health care system Growing consensus on need to fix Charity Hospital system and expand access to primary care Louisiana Primary Care Association has been aggressive in its advocacy for expansion of FQHCs Asks for $55 million based on CL Capital Needs Survey leveraged by NMTC - as noted on following slide

33. ACT 203 Louisiana Capital Development Fund for Community Primary Care Clinics (FQHCs) NMTC Equity Investors NMTC Investment Fund, LLC (CapLink) Conventional Lenders Community Development Entity (CDE), LLC (CapLink) Federally-Qualified Health Centers (FQHCs) Receive tax credits = 39% ($36.9 million) over 7 years $94.6 million Qualified Equity Investment in CDE State Contributions $41.5million $24.75 million (with pledge of interest in HRSA or USDA guarantees) $28.4 million private investments $86.1 million in loans to FQHCs $30.9 million 1 st mortgages at below market rates $55.2 million in soft second mortgages with equity-like components Nonprofit Funding Conduit LPCA $41.5 million ~$4.7 million for FQHC planning and pre-development costs ~$3.8 million for loan closing fees and loan loss reserves

34. Louisiana Capital Development Program

35. Louisiana Experience CL Assistance to LPCA in preparing capital financing program Triage projects to provide a preliminary plan for types of financing that will likely best serve the needs of the health centers (NMTC, USDA or other) to determine best source of leverage to meet the goals of the program; Provide advice and assistance in structuring predevelopment loans and/or grants from the LPCA to individual health centers; Assemble NMTC equity investors, lenders and guarantors (as necessary) to participate in program; educate them on goals of program and needs and capacities of Louisiana FQHCs; To the extent Capital Link has NMTC allocation available to provide to the program and individual projects are approved by Capital Links Loan Review Committee, act as CDE (lender) to the individual health centers;

36. Louisiana Experience Recruit and educate other CDEs to provide tax credit allocation and CHC loans for financings as needed; work with these CDEs to structure transactions consistent with program goals; Act as LPCAs financial/business (non-legal) advisor in negotiating LPCAs participation in providing capital to the NMTC Fund(s) to benefit individual health centers; Provide general advice and assistance on relevant aspects of the programs development and implementation; Measure the impact and the success of the overall program to demonstrate the growth in system capacity and the improvement in financial condition of individual health centers for advocacy and other purposes.

37. Louisiana Experience Assistance to individual health centers in preparing their projects for financing Prepare Preliminary Feasibility Analyses Work Plans Market Assessments Program, Staff and Space Planning Assembling a Project Development Team (architects, engineers, construction managers, etc.) Developing a Project and Equipment Budget Business Planning and Financial Projections (incorporating the project budget and proposed financing structure) including completing USDA feasibility studies (if utilizing USDA as financing source) Financing Assistance, educating staff and Boards regarding NMTC financing structures, and closing transactions.

38. Louisiana Capital Development Program Update Katrina offers opportunity for health care system redesign (Charity Hospitals) – PCA makes the case to Governor that HC model works (Medical Home) – CNS/FTA results suggest need for $124M in total capital costs Governor agrees to include $55 million - included in the Governors original budget for health center expansion – but in a budget reduction effort (hit the Cap) it is subsequently moved from Govs budget to Legislative budget (usually the kiss of death). CHCs, LPCA and key champions (including legislators) put on intense advocacy effort to rescue it – legislature votes expansion of cap using recovery money for non-recurring projects CHCs acknowledge competing interests and do not fight $14 million carve-out for Rural Health Coalition & others

39. Louisiana Capital Development Program Update Net result is $41.5 million for CHC capital projects Capital Outlay issue – prior grants through this program cant be used in conjunction with NMTCs (bureaucratic resistance) so need special legislative authority to use this funding with NMTC Solution is to grant $ to LPCA for distribution and provide specific legislative encouragement to use grant funds within New Markets structure LPCA and LA DHH negotiating Cooperative Agreement To be signed October, 2007, final legislative committee approvals in mid-November then criteria for disbursement to be designed by LPCA (with CLs help) The expectation of the program is for new users not just new clinics – how much flexibility in initial HC ask??

40. Arkansas Activities Capital Link worked with PCA to design and assemble funding for a Capital Development Program for rural FQHCs in Arkansas Program was to include: Planning Assistance Grant and Loan Pool

41. Arkansas Activities, continued Capital Link and PCA successfully applied for RCDI grant covering 50% of cost of technical assistance up to $30,000 for nine rural AR health centers Earmark request pending for matching piece – fallback is HC match CL beginning to provide capital planning TA to health centers through USDA grant

42. Capital Development Programs: What do they have in common? Vision Commitment and Leadership Focus not just on $, but also on technical assistance so that health centers and clinics can effectively make use of the $ available and use the opportunities for strategic advantage

43. Capital Development Programs: How do they differ? Each state has different opportunities Political Financial Each state has different needs Financial and operational strength of the health centers and clinics as a group affects the strategy for developing a capital program Philosophical Differences Grants vs. Loans

44. Strategies for Developing State- Based Grant & Loan Programs Identify models developed in other states and build upon them (dont reinvent the wheel where you dont have to!) Target existing resources to develop CHC-specific programs Work to develop new CHC-specific programs with partners and allies - but be ready to compromise and share with allies (and competitors) to get what you want! Understand the bureaucratic realities

45. Relentlessly promote primary care, your leadership, your partners, your project Create a list of CHC friends and communicate with them regularly Introduce them to one another Hold events, briefings, and meetings Send letters, emails, reports and articles Do it all over again Tell Your Story

46. Find, recruit, educate and engage as many people as possible Make involvement meaningful Be a window to the community for representatives Be useful to elected and appointed officials – dont just ask for favors & funding Build Political Will

47. Who has health insurance, who doesnt? Make clear you understand unique cultural approaches to providing AND receiving primary care Political support: Voters, and therefore, elected and appointment officials, support health care for the poor Cost containment is a driver– Not enough primary care is driving up costs of care at all levels All Politics is Local - Unique Characteristics of the Islands Prove You Know YOUR Community

48. OK, So How Do We Get Started? Go back to the beginning – to make a compelling case you need: An accurate assessment of required capacity Capital Links Capital Needs Survey An accurate assessment of financial self-sufficiency Capital Links Financial Trends Analyses creates Financial Information Database and estimates Debt Service Capacity A compelling case for all audiences We will: Create new Community Health Care Resources Leverage state money with private resources Save overall health care dollars through primary care or medical home model Create Economic engines in low income communities

49. Capital Links Data Analysis Tools Capital Needs Surveys and Financial Trends Analysis Uses information from questionnaire and audited financial statements Assesses overall capital needs of health centers on a statewide basis Evaluates what health centers can afford to do on their own Results used to inform development of capital resources that respond to identified needs

50. Capital Links Data Analysis Tools Economic Impact Analysis Macro-economic modeling to demonstrate the role of a community health center as a springboard for economic development within the community.

51. Health Centers from an Economic Development Perspective z Enhanced health care services z Referrals to larger health providers z A place for employment training z Community-based employment z Infusion of spending into the community z Anchor for attracting new businesses and investments into the community z Product of a community effort

52. CL will not disclose health center-specific financial data to any party other than the health center itself, unless the health center requests such further distribution in writing. Any reports will include only aggregate data for a group of health centers as a whole. Importance of Confidentiality Capital Links Data Analysis Tools

53. Capital Link Background Mission: Capital Link is a national nonprofit organization We assist health centers in planning and obtaining financing for building and equipment projects, and We assist Primary Care Associations (PCAs) and other partners in leveraging capital resources for health centers on a statewide, regional and/or national basis Founded as a joint effort of NACHC, the Community Health Center Capital Fund, and Primary Care Associations in MA, IL, NC, and TX Staffed in nine offices (MA, CA, DC, LA, MD, MO, NC, WA, WV) Receives funding through contracts with HRSA, the Tides Foundation in California and through fee-based contracts to assist health centers and PCAs nationally

54. Capital Link Track Record Established award-winning tax-exempt bond financing program in MA (1994) Funding Assistance: assisted health centers in obtaining almost $317 million for 137 projects totaling $436 million: $128.7 million in bank or other loans (including conventional lenders, USDA, CDFIs, HUD, NMTC/HTC) for 62 health centers $113.8 million in tax-exempt bond financings for 22 health centers $53.2 million in grants/equity for 61 health centers 14.4 million in forgivable loans for 6 health centers $3.1 million in equipment loans for 6 health centers $3.4 million in lines of credit for 7 health centers

55. Allison Coleman, CEO 40 Court Street 10 th Floor Boston, MA 02108 Phone: (617) 422-0350 Fax: (617) 542-0191 Dave Kleiber 1920 Main Street Suite 18 Ferndale, WA 98248 Phone: (360) 312-0481 Fax: (360) 312-0489 dkleiber@caplink.org Main Office www.caplink.org My Office