BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1221|
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UNFINISHED BUSINESS
Bill No: SB 1221
Author: Kuehl (D)
Amended: 8/18/08
Vote: 21
SENATE HEALTH COMMITTEE : 6-2, 4/23/08
AYES: Kuehl, Alquist, Cedillo, Negrete McLeod, Steinberg,
Yee
NOES: Aanestad, Cox
NO VOTE RECORDED: Maldonado, Ridley-Thomas, Wyland
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 25-13, 5/27/08
AYES: Alquist, Calderon, Cedillo, Corbett, Correa,
Ducheny, Florez, Kehoe, Kuehl, Lowenthal, Machado,
Maldonado, Migden, Negrete McLeod, Oropeza, Padilla,
Perata, Romero, Scott, Simitian, Steinberg, Torlakson,
Vincent, Wiggins, Yee
NOES: Aanestad, Ackerman, Ashburn, Cogdill, Cox, Denham,
Dutton, Harman, Hollingsworth, Margett, McClintock,
Runner, Wyland
NO VOTE RECORDED: Battin, Ridley-Thomas
ASSEMBLY FLOOR : 47-32, 8/20/08 - See last page for vote
SUBJECT : Health facility financing
SOURCE : California State Treasurer Bill Lockyer
CONTINUED
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DIGEST : This bill requires health facilities seeking
financing from the California Health Facilities Financing
Authority (CHFFA), a local government, or a joint powers
authority (JPA), to demonstrate to the satisfaction of
CHFFA, the local government, or the JPA, the performance of
community service, as specified.
Assembly Amendments revised existing legislative intent to
state that the Legislature intends for the CHFFA to assist
in providing tax-exempt financing based on the
creditworthiness of the obligors regarding financing,
revises existing legislative intent language to state that
the Legislature intends for savings passed on for the
benefit of the public is in the form of community services
as provided in the bill, required participating health
institutions to demonstrate specified actions, and required
participating health institutions that are not non-hospital
affiliates or hospitals subject to the community benefit
requirement to demonstrate to CHFFA the performance of
community service by other means, including, but not
limited to, certifying that it is a primary care clinic,
Indian health clinic, or clinic operated by a primary care
community or free clinic that is open for no more than 20
hours a week.
ANALYSIS :
Existing Law
1. Permits CHFFA to make secured or unsecured loans to, or
purchase secured or unsecured loans of, a public or
non-profit health institution in connection with the
financing of a project or of working capital.
2. Specifies that, for the purposes of CHFFA's loans, a
non-profit health institution includes, but is not
limited to, a general acute care hospital; an acute
psychiatric hospital; a skilled nursing facility (SNF);
an intermediate care facility; a special health care
facility that provides medical, nursing, rehabilitation,
dental, or maternity services; a clinic; an adult day
health center; a county-operated health facility; a
residential facility for the elderly that is operated as
a part of, or in conjunction with, an intermediate care
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facility, a SNF, or a general acute care hospital; a
child day care facility operated in conjunction with a
health facility; an intermediate care
facility/developmentally disabled habilitative, that is
a health facility; a community care facility; an
accredited community work-activity program; a community
mental health center; and a speech and hearing center,
or a blood bank.
3. States legislative intent that CHFFA provide financing
to health facilities that can demonstrate the financial
feasibility of their projects, with specified
exceptions.
4. States legislative intent that all or part of any
savings realized by a health institution as a result of
that tax-exempt revenue bond funding, be passed on to
the consuming public either through lower charges or
through containment of the rate of increase in hospital
rates.
5. Requires hospitals to maintain an understandable written
policy regarding discounted payments and charity care to
financially qualified patients, as specified.
6. Requires non-profit hospitals to annually adopt and
update a community benefits plan for providing community
benefits, as specified, and to submit the plan to the
Office of Statewide Health Planning and Development.
This bill:
1.Requires a participating health institution seeking
financing for a project from CHFFA, a local government
entity or JPA to demonstrate, for each project location,
the performance of community service, by submitting all
of the following:
A. A copy of its policy of treating all patients
without regard to ability to pay, in accordance
with existing law. If the applicant is not subject
to that provision of law, they must submit a copy
of its policy for providing emergency services
without regard to a patient's ability to pay.
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B. Confirmation that the applicant maintains a
California Medical Assistance Commission contract,
otherwise provides for the treatment of Medi-Cal
eligible patients, or otherwise provides services
to low-income individuals.
C. A copy of its charity care policy required
pursuant to existing law.
D. Confirmation that it maintains a mechanism for
tracking and reporting its costs, charges, and
clinical quality data, to the extent required by
state and federal agencies.
E. A copy of the most recent community benefits
plan, as defined in existing law, including an
implementation schedule and economic valuation of
the community benefits.
2.Exempts from the community service requirement a health
facility that operates as a children's hospital.
3.Requires a hospital that does not submit the information
described in # 1 above to demonstrate the performance of
community service by submitting is most recent community
benefits plan, to identify its priorities, as determined
by the community needs assessment, and demonstrate that
it has taken action on most of these priorities.
4.Requires a non-hospital affiliate of a participating
health institution to demonstrate the performance of
community service by submitting any item of information
described in # 1 above, or by other means, as described
in # 5 below.
5.Requires a participating health institution that is
neither a hospital subject to the community benefits
requirements or a non-hospital affiliate, and does not
submit any of the items of information described in # 3
above, to demonstrate the performance of community
service by other means, including, but not limited to,
providing a certification that the participating health
institution is a federally qualified health center, a
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primary care clinic, free clinic, or a clinic that is
open for no more than 20 hours a week.
6.Prohibits this bill or any enforcement proceeding
brought under this bill or the CHFFA statute from
affecting the validity or enforceability of any bonds
issued by CHFFA, a JPA, or local government under this
bill.
7.Requires the remedies and sanctions available to the
local government or JPA against a borrower for failure
to adhere to the assurance given under this bill to
include referring the violation to the office of the
Attorney General for legal action authorized under
existing law or other remedy at law or equity.
8.Repeals the existing authority of CHFFA to give special
consideration on a case-by-case basis to financing
health facility projects that do not meet CHFFA bond
rating guidelines.
9.Modifies existing CHFFA legislative intent language
stating that all or part of any savings experienced by
CHFFA participating health institutions as a result of
tax-exempt financing (instead of tax-exempt revenue bond
financing in current law) be passed on to the consuming
public by deleting the language that the pass-through be
through lower charges or containment of the rate of
increase in hospital rates, and instead states
legislative intent that the pass-through be passed
through for the benefit of the public in the form of
community service as provided in this bill.
10.Revise existing legislative intent to state the
Legislature intends for CHFFA to assist in providing tax
exempt financing based on the creditworthiness of the
obligors with request to the requested financing,
instead of only assisting health facilities that can
demonstrate the financial feasibility of their projects.
11.Applies the legislative intent language (as modified by
this bill) to local financing of health facilities by
JPAs and local governments.
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Background
In January of 2008, the Senate Office of Research (SOR)
released a report comparing procedures used by authorities
issuing state bonds to procedures used by authorities
issuing bonds under non-state JPAs. Both types of entities
provide tax-exempt bonds for schools, hospitals, affordable
housing, and pollution control facilities. The SOR
analysis highlighted several conditions placed on state
bond issuing authorities, such as the CHFFA, that are not
placed on JPAs.
CHFFA commissioned an analysis, released in March 2008, to
evaluate the impact of its pass-through public benefit
savings requirement. The report notes that, when it was
created in 1979, CHFFA was the primary organization
providing non-profit health facilities with access to the
tax-exempt bond market. Through CHFFA, non-profit
hospitals were able to obtain lower interest rates than
they would by using traditional taxable vehicle bonds.
Recognizing the benefit derived by obtaining CHFFA's
tax-exempt financing, the Legislature expressed its intent
that "all or part of" the resulting savings be "passed on
to the consuming public through lower charges or
containment of the rate of increase in hospital rates." In
the ensuing 25 years, several JPAs in California began
offering non-profit health facilities access to the
tax-exempt bond market. However, these JPAs are not
subject to the legislative intent language in current law
to pass-on "all or part" of the savings generated from
financing through CHFFA.
The Sjoberg-Evashenk report states that the pass-through
requirement has created a chilling effect on CHFFA's tax
exempt bond financing activity. In the 11 months since the
Sutter Health transaction, CHFFA has only provided $27
million of tax-exempt bond financing, in stark contrast to
the $1.1 billion per year it had averaged since 2002. In a
more striking contrast, as bond issuance continued on a
declining trend for CHFFA, the volume generated by its
primary competitor rose to $2.2 billion in 2007.
Sjoberg-Evashenk conducted interviews with hospitals,
health care associations, underwriters, bond counsel, and
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key stakeholders as part of their study. Through those
interviews, it was made clear that hospitals and other
health care providers will not return to CHFFA for
tax-exempt bond financing unless CHFFA clearly defines the
pass-through provision. The report went on to recommend
that a legislative solution, that does not place CHFFA at a
competitive disadvantage with alternative issuers, be
crafted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/20/08)
California State Treasurer Bill Lockyer (source)
ARGUMENTS IN SUPPORT : Treasurer Bill Lockyer writes that
there have been many changes over the last 29 years since
the statutes that created CHFFA were drafted and that the
current legislative intent language was crafted before the
advent of managed care, capitated rates, and JPA issuance
of tax-exempt financing. The Treasurer further states that
there is no single agreed-upon methodology or convention
for calculating savings, particularly in the context of
recent market fluctuations, and that hospitals have
significantly changed their business practices since 1979,
providing varied and valuable community benefits, which are
funded wholly or in part by the savings which inure them
from tax-exempt financing.
The Treasurer contends that the vague and discretionary
intent language currently in statute, unique to CHFFA,
raises expectations on the part of consumers and advocates
who harbor an unwarranted hope that health care costs can,
and should, be controlled by conduit issuers, who otherwise
have no statutory or regulatory role to develop or apply
policy in this area. Conversely, the language
unnecessarily repels potential borrowers from doing
business with the only state-run conduit issuer of
tax-exempt status, so much so that CHFFA's borrower base
has taken their business to other conduit issuers who are
not required to operate under this vague intent language.
Borrowers fear that this broad language allows the
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authority to impose costly conditions on their transactions
that are not required elsewhere.
ASSEMBLY FLOOR :
AYES: Arambula, Beall, Berg, Blakeslee, Brownley,
Caballero, Charles Calderon, Carter, Coto, Davis, De La
Torre, De Leon, DeSaulnier, Dymally, Eng, Evans, Feuer,
Fuentes, Furutani, Galgiani, Hancock, Hayashi, Hernandez,
Huffman, Jones, Karnette, Krekorian, Laird, Leno, Levine,
Lieber, Lieu, Ma, Mendoza, Mullin, Nava, Nunez,
Portantino, Price, Ruskin, Salas, Saldana, Solorio,
Swanson, Torrico, Wolk, Bass
NOES: Adams, Aghazarian, Anderson, Benoit, Berryhill,
Cook, DeVore, Duvall, Emmerson, Fuller, Gaines, Garcia,
Garrick, Horton, Houston, Huff, Jeffries, Keene, La
Malfa, Maze, Nakanishi, Niello, Parra, Plescia, Sharon
Runner, Silva, Smyth, Spitzer, Strickland, Tran,
Villines, Walters
NO VOTE RECORDED: Soto
CTW:do 8/23/08 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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