BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE Senator Dave Cox, Chair BILL NO: AB 2731 HEARING: 6/9/10 AUTHOR: Arambula FISCAL: No VERSION: 4/8/10 CONSULTANT: Weinberger HEALTH CARE DISTRICTS' BORROWING Background and Existing Law California's 80 local health care districts are governed by directly elected boards of directors. As hospitals, they face market pressures to compete with other health care providers. As local governments, they must follow the Brown Act, the Public Records Act, the Political Reform Act, the public contracting laws, and other statutory restrictions. Health care districts can borrow money, issue debt, and use their assets as collateral for federal mortgage insurance loans, federal loans, or federally insured loans issued under the National Housing Act for construction, reconstruction, or the initial equipping of facilities. Districts cannot use their tax revenues to pay for the principal, interest, insurance premiums, inspection fees, and other financing costs. The United States Department of Agriculture (USDA) offers financial help for rural health care facilities and essential equipment through the Community Facilities program authorized by the federal Consolidated Farm and Rural Development Act, commonly known as the Con Act. The USDA's Community Facilities program offers financing as loans, both direct and guaranteed, and grants to eligible participants in rural areas. Although health care districts can secure loans issued under the federal National Housing Act (SB 776, Runner, 2005), state law does not mention loans or grants issued pursuant to the federal Con Act. Health care district officials want to clarify their authority to secure those federal loans. Proposed Law AB 2731 -- 4/8/10 -- Page 2 To secure federal loans or grants or guaranteed loans issued under the federal Consolidated Farm and Rural Development Act for financing or refinancing 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, Assembly Bill 2731 authorizes a health care district's board of directors to either: Borrow money or issue bonds, in addition to other financing methods, or 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. Comment Vital financing for vital facilities . Health care districts provide vital health services to residents in many rural communities. Faced with a rapidly changing and competitive marketplace, state budget cuts, and the recent recession, health care districts confront severe fiscal challenges. As a result, districts need a variety of financing tools to remain solvent. By authorizing health care districts to use federal financing available through the USDA's Community Facilities program, AB 2731 helps rural health care districts maintain financial sustainability, thereby ensuring that residents in rural communities retain access to much-needed medical care. Assembly Actions Assembly Health Committee:19-0 Assembly Floor: 76-0 Support and Opposition (6/3/10) Support : Association of California Healthcare Districts, California Hospital Association, California State Rural AB 2731 -- 4/8/10 -- Page 3 Health Association. Opposition : Unknown.