SALEM — The city of Salem will be backing an approximately $110 million conduit bond for Shepherd of the Valley to fund the construction of its new Salem campus.

Mayor Cyndi Baronzzi Dickey told the Salem City Council committee of the whole that Shepherd of the Valley had previously requested to apply for the conduit bond through the Columbiana County Port Authority; however, the Port Authority wanted to administer the bond directly and charge additional fees. In contrast, the city would charge a single administration fee of $40,000, and that like when the city supported a $65 million bond for the Salem Regional Medical Center in 2022, that Shepherd of the Valley would be looking to roll some of its existing debt from the construction of prior facilities into the new bond.

Dickey also stressed that the city would not have any financial liability for the bond, meaning that the city would not be obliged to repay the bond, nor would its credit be affected if Shepherd of the Valley were to go out of business or otherwise fail to repay the balance. Dickey also noted that she felt very confident” that non-payment would not be an issue even if the city did have liability as Shepherd of the Valley has a very good bond rating.

City Council President Evan Newman asked if the money from the fee would be designated to a specific purpose or fund and Dickey said that it would go to the city’s general fund, but that she suggested it be reinvested for future economic development payments.

Shepherd of the Valley Corporate Executive Officer Rich Limongi said that the company was pursuing a total bond of approximately $110 million, of which $45 million will retire Shephard of the Valley’s outstanding balance from of the construction of facilities in Trumbull and Mahoning counties. The remainder of the funds would be to cover the approximately $64 million price tag of building the Salem campus.

Shepherd of the Valley’s Bond Council Attorney Aubrey Searcy said that Ohio Revised Code permits municipalities to issue bonds on behalf of nonprofits like Shepherd of the Valley for the construction of hospital facilities, noting that the definition of hospital facilities was broad and included assisted living and in-patient care facilities. He explained that when a bond is issued through a municipality in this way, the balance was tax exempt, which nets the non-profit a more favorable interest rate on their repayment.

This provision of Ohio law allows the city to lend its ability to issue tax exempt debt to the nonprofit, which allows the nonprofit to borrow money at a lower interest rate than it

would if it had to go and get a loan in the taxable market. They’re called conduit bonds, so essentially the city is just acting as a conduit for the money to flow from the purchase of the bonds to Shepherd of the Valley,” said Searcy.

Searcy also re-emphasized that if the city council approved the bond, that Salem would have no financial obligation to its repayment and would only act as a conduit by law.

Probably the most important piece of all of this is that the bonds being issued are not an obligation of the city in any way. No taxes are being pledged to repay the bonds. It’s simply an obligation of Shepherd of the valley,” said Searcy.

Councilman Jim Harrington asked what the approximate difference in interest rate was between a bond issued through the city and a private bond like a corporation would use. Searcy said that while he could not give exact figures that typically being issued through a municipality reduced the interest rate by 2% or more, which can amount to upwards of $20 million or more in savings over the life of a 30-year bond. Harrington asked why there was such a major difference if the city had no obligation to repay the bond and Searcy explained that by being issued through a municipality the bonds could be issued tax free and that tax free bonds are issued at a lower rate of interest.

The committee ultimately voted unanimously to forward the question of whether or not to support the bond to the city council for review in their meeting later that evening, where the council voted unanimously to authorize the issuance of not to exceed $120 million City of Salem, Ohio Hospital Facilities Revenue Bonds” for the project.