Wesley Medical Center ups hospital renovations to $350 million

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Source: Wichita Business Journal
Author: Shelby Kellerman
Date: August 15, 2024

Last forecasted to invest $250 million in a slate of significant hospital upgrades, Wesley Medical Center says that total is now expected to reach $350 million by the end of 2026.

On Tuesday, Wichita’s City Council unanimously approved a modification of a letter of intent, initially approved back in 2018, to issue no more than $350 million in industrial revenue bonds. With the vote, Wesley secures additional savings of approximately $7.5 million from a sales tax exemption on certain expenses tied to the ongoing renovations.

It was the second time the Council has approved an IRB modification for Wesley, after voting in 2022 to cap the maximum to $250 million.

But the projected renovations costs have once again increased, Al Babbitt, president of the consulting firm State Tax Services, LLC, said during Tuesday’s Council meeting.

“The tax savings associated with this incentive provide welcome relief, especially in these times where escalating costs and high interest rates and so forth just really can help the decision-making process that management undertakes in deciding where to allocate capital,” said Babbitt, whose firm has been working closely with Wesley’s parent company, HCA, to administer the bonds..”…The incentives provide here for Wesley directly correlates with management’s decision to allocate capital and investment here in Wichita.”

The initial IRB was approved in 2018 for a seven-year letter of intent to issue up to $100 million in industrial revenue bonds for a sales tax exemption on construction materials, according to the city. In this case, there is no property tax exemption associated with the incentive.

Under its agreement with the city, HCA issues bonds in 2020, 2023 and 2025, with benchmarks during each year for investment and job creation. At the end of 2022, HCA had maxed out the letter of intent and requested an increase of $150 million, along with a one-year extension to 2026, which was approved.

The hospital says it has made significant investments so far:

• Relocation of pediatric support services: $26 million
• Immediate care unit addition: $12 million
• Women’s services upgrades for labor and delivery and waiting areas: $11 million
• Tower renovations: $13 million

With several other projects in progress or approved for funding, including $69 million for operating room renovations and $54 million for a new rehabilitation hospital, HCA requested the new cap at $350 million, though the letter of intent is still on target to close at the end of 2026.

During Tuesday’s meeting, Babbitt said the largest single project will be a complete overhaul of the parking garage, which Babbitt said he thinks is probably around 50 years old. The garage will be demolished and replaced with a “modern garage with all the upgraded features,” he told the Council.

Combined with refreshing the exterior access points, Babbitt said that will a $63 million investment.

As part of the incentive, Wesley is on the hook to hire at least 66 new employees with an average salary of $60,000 by 2026.

“I want to thank Wesley for their continued investment in our community, we not only appreciate that but it provides a great service for those who are in need,” said Council member Brandon Johnson, whose district includes the east-side hospital, during the meeting.

IRBs require no taxpayer commitment and the city acts as a pass-through entity. Using IRB financing can also help companies secure a better interest rate on such expansion projects.