A decision by Kingfisher Regional Hospital Board to refinance hospital construction debt is expected to save taxpayers $1.8 million and may retire the debt nearly a decade sooner than expected.

The $27 million facility currently leased by the locally-controlled board to Mercy Hospital Kingfisher was financed by a bond issue backed by a 25-year one-cent sales tax approved by voters in 2009.

The bonds currently carry a 6.5% interest rate and were not slated to be retired until eight years after the designated tax expired in 2034, KRH Board President Pat Cheap told the Times & Free Press.

About a year ago, Cheap began talking with a local banker about the possibility of restructuring the debt to take advantage of lower interest rates, he said.

The board voted to do just that and through its attorney, Steve Bugg, negotiated a loan through F&M Bank at 4.1% interest, which will be used to pay off the remaining bond indebtedness at a savings of approximately $1.8 million.

Loan repayments are conservatively amortized to retire the debt at least by the 2034 expiration date of the designated sales tax.

But depending on the pace of sales tax collections, Bugg told Kingfisher city commissioners Monday night that the debt may actually be paid off 18 months to two years sooner.

If that’s the case, the 1% sales tax will terminate early, under the terms approved by voters.

“It will benefit the taxpayers, save about $1.8 million and hopefully reduce the sales tax term by a year or two,” Cheap said in a Monday phone interview.

As a necessary step in the refinancing process, the city commission voted unanimously to terminate the existing sales tax agreement and adopt a new one.

The existing agreement required the sales tax collected to be paid first to the Kingfiher Hospital Authority, a separate trust under the city’s umbrella, and then to the hospital for the purpose of servicing the debt.

The new agreement removes the hospital trust as intermediary and allows the city to pay the tax proceeds directly to the hospital.

The loan being negotiated by the hospital board may be either a direct loan from the bank or a USDA guaranteed loan.

The refinancing arrangement is expected to be effective about Aug. 4, Bugg told commissioners.