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  

           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  

           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  

          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.


          Association of California Healthcare Districts
          California Hospital Association
          California Center for Rural Policy

          None on file.
          Analysis Prepared by  :    Tanya Robinson-Taylor / HEALTH / (916)