NATCHEZ — The Mississippi Development Authority has given its blessing to local governments to consider the sale of Natchez Regional Medical Center an economic development project, clearing the way for the bankruptcy court to review the proposed sale structure.

The MDA reviewed the application for the hospital sale to be considered a Regional Economic Development Alliance (REDA) project Friday, and granted its approval in a Certificate of Public Convenience published Monday.

The REDA status will allow the hospital’s potential buyer — Community Health Systems — to pre-pay taxes due starting in February 2015. The taxes can be used per the agreement to pay off the hospital’s bond debt.

The certificate of public convenience says the pre-paid taxes can be paid through July 2031 at a rate of $675,000 a year for taxes owed starting in February 2015.

Adams County Board of Supervisors Attorney Scott Slover said the $675,000 payments — and the time frame — are structured to reflect the bond payments.

Though the buyer will be paying the taxes in advance, Slover said if the hospital property value goes up, the buyer would have to make up the difference each year.

“We certainly expect that to happen,” Slover said. “We anticipate $15-$20 million being spent on the building in the future.”

The certificate notes the approval is pending the approval of a bankruptcy plan, and states the alliance — in this case, Adams County, the City of Natchez and CHS — are not authorized to issue new bonds for the project.

Under most REDA applications, the alliances dedicate a company’s tax dollars to fund new infrastructure. Past REDA projects in Mississippi have included Trustmark Park and Bass Pro Shop in Pearl.

The REDA certificate of public convenience means the hospital can now take its sale structure to the federal bankruptcy court for approval.

The court could review the structure at a status conference in Natchez Thursday, Slover said.

Under the proposal, CHS will pay $10 million in upfront cash in addition to the pre-paid City of Natchez and Adams County ad valorem taxes. At a rate of $675,000 annually over the course of 17 years, the buyer will pre-pay $11,475,000 in taxes.

Under the agreement, CHS will not be exempt from Natchez-Adams School District taxes.

CHS has been negotiating with NRMC to become the so-called “stalking horse” in the sale process. Though a signed asset purchase agreement from CHS would make the sale binding, by law the hospital still has to go to auction.

CHS’ negotiated price would be considered the base bid at the auction, and if no one outbids CHS the sale automatically closes with them.

In the bidding process the county supervisors approved earlier this month, a qualified bidder would have to outbid CHS by at least $1 million, and every subsequent bid would have to outbid the previous bid by $100,000.

The $1 million initial overbid requirement is to cover the cost of the stalking horse. In stalking horse agreements, the stalking horse bidder has a built-in financial incentive in case they are outbid because of the presumed risk they are taking on by being the stalking horse.

Under the adopted rules, qualified bidders will have to be able to demonstrate they can take on the business of operating a hospital and have the capital to bring the NRMC facility up to standard and potentially replace it in the long run.

When the court approves the bidding process, the supervisors can adopt the finalized sale resolution — assuming at that time the asset purchase agreement has been completed — and the sale process can begin with an advertisement for bids.

Once the notice advertising the sale is published, county residents have the option of filing a petition asking to take the sale to a voter referendum for approval. The petition would require 1,500 signatures to take the matter to a vote.

If a successful petition is not filed, the hospital can go to sale without further objection.

NRMC opened in 1960 as Jefferson Davis Memorial Hospital. Its $2.4 million construction was underwritten by an $800,000 local contribution and state and federal funds.

It has been financially independent since 1974 and does not receive tax support, but is backed by a 5-mill standby tax that the Mississippi Development Bank required the hospital to get in 2006 when it asked for the MDB to reissue its revenue bond.

The hospital board of trustees announced in February its intention to declare bankruptcy, citing at the time a $3 million deficit between financial assets and liabilities.

The county supervisors, who have to approve any action to sell the facility, appoint the hospital’s volunteer trustees. The board of trustees includes the Rev. Leroy White, John Serafin, Dr. Linda Godley, Bill Ernst, Lionel Stepter, Lee Martin and Dr. Jennifer Russ.