City Attorney: Phoenix Owes City $500,000 in Loan Payments, Utility Expenses

May 6th, 2014

(Carmi)-Phoenix Nursing & Rehab owes the City of Carmi approximately half a million dollars in revolving loan fund payments and utility expenses. 

City Attorney Greg Stewart spoke to the city council on Monday about the delinquencies.  He also shed light on several tax liens and a federal court judgment against Phoenix. 

The skilled nursing facility was opened in 2008 as a forerunner to the hospital project.  After obtaining a grant from the state, the City of Carmi loaned Phoenix Nursing $727,500 in two distributions.  The Phoenix Foundation pledged the property on Plum Street for the loan. 

By October 2010, Phoenix was 10 months behind on its payments and owed $135,000.  The city sent a letter to Phoenix, declaring the loan to be in default.  Stewart says then-Mayor David Port expressed a desire to work with Phoenix.  The healthcare provider did make a few loan payments but the bills continued to pile up.  

By May 2012, Phoenix was 22 months behind and owed $300,000 on the revolving loan.  Stewart sent a letter to the skilled nursing facility but received no response. 

When Jeff Pollard took office, the city began demanding Phoenix turn over records.  Stewart says he wanted to see where Phoenix was spending money in the general ledger.  The city received income tax returns and balance sheets but no general ledger, as requested. 

Stewart did not receive a reply to two additional letters he sent in July and August 2013.  Arrears on the note in July 2014 will mark four years since the last payment. 

Meanwhile, the utilities at the nursing home and hospital properties have gone unpaid.  Past due bills total approximately $85,000 at the Webb and Plum Street properties.

Stewart also addressed the growing number of federal tax liens against Phoenix.  The amount of unpaid taxes on the first lien, recorded February 7th, 2014, was just under $72,000.  In another filing on November 12, 2013, the IRS claimed an unpaid balance of $123,500. 

Two new liens were filed Monday.  The first claim totaled $28,700.  Stewart said the IRS had “upped the game” with the second filing.  The agency submitted a claim for personal penalty against Administrator Lil Fortner for $57,192.32.

“That was disturbing to see that now it has gotten to the level they are going after individuals for the tax liability.”

Stewart also informed the council of a $305,000 federal court judgment against Phoenix.  An attorney for Badger Acquisition of Kentucky, LLC filed a citation to discover assets on April 3rd

“Now what I’m seeing based upon what I’ve observed in court filings over the past months is that the creditors of Phoenix are starting to lineup to come after them for unpaid tax withholdings.”

“I don’t know what this case was about with Badger, it may be a vendor that wasn’t paid or just a dispute that ended up in court.  But they are lining up.  I saw the same thing happen when Carmi Township (Hospital) went under.  If you will recall, there was a dispute with a 24 hour E-Room doc service.  They sued us in Carmi for a lot of money.  They were owed.  That was the downfall of Carmi hospital.  I was there.  I watched it.”

“We have a similar situation aligning here with Phoenix.  I wish them the best but I am also realistic.  But I wanted to come in front of you in an open session and tell you what I’ve been seeing.”

Stewart has not been asked by the mayor or any member of the city council to shut off utilities at Phoenix.  But he said the city needs to decide a course of action for the future. 

The city attorney says other entities have expressed interest in establishing a medical care facility in Carmi.  But they are hesitant with Phoenix in the picture.

“They don’t want to be seen as trying to kill Phoenix and the job they are trying to do.”

Mayor Jeff Pollard says the community does need a hospital.  But the city must meet its obligations with the state on the loan.  The administration had nothing to show for the outstanding balance in last year’s audit. 

Pollard has been told the likelihood of the city receiving funds for future projects is “slim to none” if no action is taken.      

Fortner told the council she was “disturbed and apologetic” for the situation. 

“I would be as concerned as anyone in this room, if it wasn’t for the fact that the state owes us more money than we owe everybody collectively.  We would have money left over to do improvements on the facility and hospital.”

Fortner believes the skilled nursing facility is owed $1.4 million in delayed Medicaid payments from the state.  She says the state intends to make Phoenix whole. 

“We are in payment plans.  We are negotiating with the IRS for payment plans as well.  They are working with us.  If it wasn’t for what we are trying to accomplish for this community, it would be an entirely different story.  We’ve come way too far on the facility to not finish the job.”

Fortner estimated the hospital project was 85-90 percent complete.  The Phoenix Foundation had its certificate of need extended to December 2015.  She expects construction will be done by the end of spring.

The Phoenix Foundation Board of Directors voted to dissolve two management positions three months ago.  Fortner said progress on the building needed to come first.  She expected that Phoenix would rehire those employees when the hospital was ready to launch.

Fortner was asked why no attempt was made to pay down the loan or utility expenses.  She said Phoenix has focused on obtaining supplies such as medications and food with its present cash flow.  Fortner did express a desire to restructure the loan payments.

The council wished to obtain a letter from the state, outlining its promise to Phoenix.  Aldermen also wanted the facility to turn over requested records to the city attorney. 

Alderman Kenny Carter came up with a rough tally of $1.1 million for the unpaid taxes, federal judgment, revolving loan fund payments, and outstanding utilities. 

“If the state paid $1.4 million in a timely fashion...I still don’t know much faith we have in that.” 

Stewart asked Fortner if Phoenix was contesting the IRS liens.  She said the negotiations were both a workout and a contest. 

“Is there any amount that you agree is owed on the IRS lien?” Stewart asked.

“Yes,” replied Fortner.

“How much,” Stewart inquired

“I can’t say that number because I’m not sure how it will end up coming down,” Fortner said.

“Over $50,000?” asked Stewart.

“I’d say so,” said Fortner

Stewart also asked Fortner if Phoenix has been utilizing monies that should have been tendered to the US treasury for cash flow.  Fortner said she couldn’t say at this point. 

“So you don’t know if withholdings are used to fund day to day operations of the facility?” Stewart asked.

“I don’t believe they have,” replied Fortner.  “But I cannot say that for sure.  I will have to research that.  I’m not handling those transactions each day.”

Stewart asked Fortner about the status of its relationship with vendors.  Are they on credit or do they request to be paid before supplies are left with the facility?  She said it was “not routine” for vendors to demand cash.

Fortner also said that Phoenix has never missed payroll in six years, adding that employees and residents come first.

“Have any been funded by any local bank,” Stewart inquired.

“It depends…first out, first in or last in, last out,” Fortner replied.

“Has a bank had to cover payroll checks in the last year,” Stewart reiterated.

“I don’t believe so,” Fortner said.

Alderman Keith Davis wondered if the state would withhold the $1.4 million until unpaid taxes are resolved or keep its portion.  Fortner said that action has not been indicated to her.  Phoenix has been working with the state to negotiate the payments.   

The city council will receive an update on the situation at the May 19th meeting.