Board readies grant program

The new Empire Health Foundation intends to distribute $1 million in grants this year to regional nonprofits.

It will be the foundation’s first charitable action since its formation 19 months ago, after the sale of Deaconess Medical Center and Valley Hospital and Medical Center to a for-profit company.

Even as the foundation seeks to help regional organizations focused on health care, however, its board had to make the difficult decision this month to sink $26 million – nearly a third of its cash – into a pension plan it inherited.

The move will leave the foundation with $50 million, and is designed to help it shed the financial responsibility of running a pension fund and transition into a philanthropy.

Grant proposals will be accepted beginning next month. No one project is expected to reap more than $100,000, said Antony Chiang, who was hired as executive director this year.

The foundation hopes the money can help ease the cash problems faced by nonprofits that have struggled to find enough money in a down economy to fulfill their missions.

“We realize the needs of the community are many,” foundation board Chairman Mike Senske said after a recent public forum. Senske is the chief executive officer of Pearson Packaging.

Next year the foundation intends a more deliberative approach and will dole out $2 million in grants to targeted programs, Chiang said.

Arriving at this juncture has not been easy.

The foundation initially received $79 million from the sale of the former Empire Health Services hospitals to Community Health Systems Inc., of Nashville, Tenn., making it the wealthiest nonprofit in Spokane. The board invested the money in Treasuries and weathered the stock market collapse.

Yet while that money was safe, the foundation could only watch as the stock market hammered the pension fund that provides retirement income for qualifying former and current employees of Deaconess and Valley.

Community Health Systems refused to take ownership of the pension plan as part of its September 2008 purchase of the Spokane hospitals.

At the time, the pension plan had about 3,200 participants and was 90 percent funded with $76.4 million in investment assets, according to reports on file with the Internal Revenue Service. A condition of the sale also required the new foundation to absorb past and future medical malpractice claims that arose from care provided prior to Community Health’s takeover.

These trailing liabilities drew concern from community groups before the sale was final. They said the new foundation should not be exposed to the financial risks of managing a pension plan and defending malpractice claims.

The terms, however, were final, and backers of the sale said the risks were better than the alternative: the possible failure of the cash-strapped hospitals.

As the stock market collapsed in late 2008 and early 2009, the Empire pension fund lost about 40 percent of its value.

Federal pension regulators became concerned and asked the foundation board to bring the funding level back to at least 80 percent.

Even with the more recent market gains, the catastrophic losses required action.

Similar scenarios were playing out across the corporate world, said foundation member Garman Lutz, a former Deaconess executive and now the chief financial officer of Spokane Valley-based Cascade Windows.

Pension plans are federally insured, and thus the government insists that plans maintain adequate funding.

Chiang said the foundation’s board decided to transfer $26 million to the plan and opted for a conservative investment strategy to protect it against a possible “double-dip” recession that could wipe out the foundation’s remaining funds. Such an investment strategy, however, also means that the investments would not benefit the foundation if the financial markets soared.

Chiang called the investment approach an immunization against market swings. Sometime in the next two years the foundation hopes to transfer the pension plan to a major insurance company.

Participants in the pension plan will not notice the changes. The benefits have been frozen for years and are guaranteed by the federal government.

With those plans now in place, the foundation can focus on distributing money to health care causes in Spokane, Stevens, Ferry, Pend Oreille, Lincoln, Adams and Whitman counties.

Dr. Deb Harper, a foundation board member and Group Health physician, said the foundation is eager to make a difference in health care across Eastern Washington.

The board may take bold strokes – investing large sums in projects where progress can be measured and people’s lives can be affected for the better, Harper said.

“We haven’t, as a board, picked which dials we want to move,” she said, “but there are some things we can do to make a difference.”

Lutz said the foundation is committed to the betterment of people’s health.

“These actions are going to preserve the legacy of Deaconess and Valley,” Lutz said. “It’s a legacy of caring for the people in this community.”