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The tax-exempt obligations would largely finance construction and improvement of parking facilities at Escondido’s Palomar Medical Center. File photo
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Palomar Health District to issue capital improvement bonds

ESCONDIDO — The Palomar Health District Board of Directors finalized approval to issue up to $35 million in capital improvement bonds at its Dec. 15 meeting, but North County municipal taxpayers aren’t on the hook.

The tax-exempt obligations, which trustees could issue in one or more series, would mainly finance construction and improvement of parking facilities at Escondido’s Palomar Medical Center — one of three hospitals the district operates.

Health care districts, public entities governed by an elected board of trustees independent of municipal governments, provide medical services in particular geographic areas. The Palomar Health District covers North County, from part of Vista to as far east as Julian. Its trauma center serves a larger area, including part of Riverside County.

Contrary to what residents sometimes believe, bonds of this sort don’t utilize tax dollars from North County municipalities, said Ben Barker, a financial advisor to the California Municipal Finance Authority, or CMFA, which would issue the bonds on the district’s behalf.

Tax-exempt bonds mean to incentivize private investment in certain qualifying public benefit activities by exempting bondholders’ earned interest from federal tax. This exemption in turn serves to reduce borrowing costs, because “bondholders are willing to accept a lower interest rate than they would accept if the interest was taxable,” according to an IRS publication.

The seven-year bonds would carry a true interest cost of 1.99%, district CEO Diane Hansen told trustees on Tuesday.

The district will pay the debt with revenues it generates, such as through fees for patient care. These may comprise public subsidies indirectly, to the extent Medicare and Medi-Cal (California’s Medicaid program) pay for patient care and tax-exempt bonds are a kind of subsidy to investors. But municipal taxes don’t back the debt.