BILL ANALYSIS
AB 2731
Page 1
Date of Hearing: May 4, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 2731 (Arambula) - As Amended: April 8, 2010
SUBJECT : Health care districts: federal loans or grants.
SUMMARY : Revises current law to allow a health care district to
secure federal mortgage insurance, federal loans, grants, or
federally insured loans issued by the United States Department
of Agriculture (USDA) pursuant to the federal Consolidated Farm
and Rural Development Act (Con Act) through specified financing
mechanisms.
EXISTING LAW :
1)Provides for the organization, incorporation, and management
of ongoing operations of health care districts.
2)Provides health care districts with access to loans insured by
the United States Department of Housing and Urban Development,
pursuant to the National Housing Act, to ensure that health
care districts are able to finance the construction of new
health facilities, the expansion, modernization, renovation,
remodeling, or alteration of existing health facilities, and
the initial equipping of those health facilities under the
federal mortgage insurance programs as are now or may
hereafter become available to a local hospital district.
3)Allows the board of directors of a health care district,
exclusively for the purpose of securing federally insured
loans issued pursuant to the National Housing Act, to:
a) Borrow money or issue bonds, in addition to other
authorized financing methods; and,
b) Execute, in favor of the United States, appropriate
federal agency, or federally designated mortgagor, first
mortgages, first deeds of trust, or other necessary
security interests as the federal government may reasonably
require with respect to a health facility project property
as security for that insurance.
4)Prohibits payments of principal, interest, insurance premiums,
inspection fees, and all other costs of financing, as
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specified, from being paid from funds derived from the
district's power to tax.
5)Establishes the Legislature's intent that the United States or
appropriate federal agency named as beneficiary of any first
mortgage or other authorized security interest is not a
private person or body within the meaning, as specified.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill
updates a section of the Health Care District Law to enable
eligible health care districts to access loans through the
federal Con Act. The author maintains that this section of
the Health Care District Law was last updated in 2005, before
the Con Act provisions concerning financing for health
facilities were in existence. The author maintains that
providing health care districts with access to additional
financing will assist in protecting the viability of health
care districts and help to maintain healthcare access in rural
communities.
2)HEALTH CARE DISTRICTS . According to the Association of
California Healthcare Districts (ACHD), the Health Care
District Act authorizes communities to form special districts
to construct and operate hospitals and other health care
facilities to meet local needs. Communities are authorized to
impose property tax assessments, with voter approval, to help
subsidize community hospital and health care services.
According to ACHD, the first health care districts were formed
in 1946 and 1947. ACHD maintains that today, there are 72
health care districts, 46 of those 72 districts operate
hospitals within their district boundaries and 11 health care
districts have either leased or sold their hospital facilities
to for-profit or not-for-profit health systems, but still
provide health-related services to the people within their
district boundaries. The remaining 15 districts provide
health-related services directly to those living within their
districts.
According to ACHD, 37 of the 46 hospitals owned and operated by
health care districts are considered rural by the State of
California. This represents over 50% of the rural hospitals
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in the State. These health care districts are the chief
source of inpatient, outpatient, and emergency care to
California's rural residents and employees in the agriculture,
fishing, mining, and timber industries and they provide a
substantial portion of health care related services to the
underserved regions of the state, which includes minority
populations, the underinsured, and the uninsured.
According to ACHD, in fiscal year 2000 a significant majority of
the 48 district hospitals experienced financial losses ranging
from a $100,000 to over $10 million. Over the last ten years,
ACHD states, seven healthcare districts have filed for public
entity bankruptcy reorganization (Chapter 9) and three
healthcare districts have ceased to exist.
3)CON ACT . According to the USDA, the Con Act authorized a
major expansion of USDA lending activities, which at the time
were administered by Farmers Home Administration. The
legislation was originally enacted as the Consolidated Farmers
Home Administration Act of 1961. In 1972, this title was
changed to the Consolidated Farm and Rural Development Act,
and is often referred to as the Con Act. The Con Act, as
amended, currently serves as the authorizing statute for
USDA's agricultural and rural development lending programs.
The Con Act includes current authority for the following three
major Farm Service Agency farm loan programs: farm ownership;
farm operating; and, emergency disaster loans. Also, the Con
Act authorizes rural development loans and grants under which
the lending for rural health facilities falls.
4)SUPPORT . According to ACHD, the California Center for Rural
Policy, and the California Hospital Association, this bill
will ensure health care districts will have better access to
the federal loan and loan guarantee program provided through
the USDA. ACHD asserts, with the current budget and economic
crisis, many hospitals operated by health care districts are
facing huge financial challenges and are increasingly seeking
new tools for sustainability. According to ACHD, this
additional funding source could potentially keep health care
districts in operation when they otherwise would fall victim
to the economic crisis.
5)PREVIOUS LEGISLATION . SB 776 (Ortiz), Chapter 554, Statutes
of 2005, allows a health care district to secure federally
insured loans issued under the National Housing Act through
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specified financing mechanisms. Allows a health care district
to establish a line of credit secured by accounts receivable
or other noncapital assets.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Healthcare Districts
California Hospital Association
California Center for Rural Policy
Opposition
None on file.
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097