Commissioners for Grays Harbor Community Hospital District voted Tuesday night to borrow up to $38.2 million, most of which will be used to pay off old debt, including a loan against the hospital itself. This will retire all of the district’s longterm debt, essentially refinancing and creating a new debt.

The new funds would provide between $35 million and $36 million to pay off the old debt. About $2 million would be left to invest in business areas the hospital’s consultants say will bring in more money. Cardiology services is one area that would get an infusion of funds. Imaging services would get some of the money and some would be used to catch up with current bills.

The new funds will come from the issuance of general obligation bonds and obligate residents of the district to pay the new debt over a 30-year period. More favorable interest rates on the new debt would likely mean a savings of between $4 million and $5 million in the first two years alone, said Niall Foley, recently named chief financial officer. Foley has been with the hospital for about two years, previously as comptroller and executive director of finance.

The vote this week authorizes Foley and hospital CEO Tom Jensen to negotiate with bond underwriters, with Piper Jaffray and Co. being the likely choice to handle the bond issue.

Commissioner Miles Longenbaugh pointed out that although the debt service costs are lower on the front end of the bond issue, meaning more cash available to the district, it would get more expensive in the last 10 years of the bond, which is essentially where the district is now with its old debt. The old debt includes several bond issues or lines of credit dating from 2007 forward.

A major difference in the way the old and new debt is repaid is that under the new debt, the obligation to pay will be on residents of the district, not the hospital as a separate borrower. Under the old debt, incurred before the hospital became publicly owned, if the district defaulted, creditors would be left to get what they could from the hospital’s assets, including the hospital itself. Under the new debt, a sale of general obligation bonds, if the hospital defaults, borrowers would get what they could by foreclosing on the assets, but if that wasn’t enough, property taxes would continue to be collected until the debt is paid.

The district currently taxes property owners 50 cents per thousand dollars of assessed value, which is $50 a year on a home valued at $100,000. The property tax rate won’t be affected by the latest bond issue.

The resolution approving administrators to negotiate the terms of the bond sale passed on a voice vote with no naysayers. It caps interest the district would have to pay at 7 percent, but Foley said a more likely rate is between 5 and 5.5 percent.