BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE Senator Dave Cox, Chair BILL NO: SB 1458 HEARING: 4/7/10 AUTHOR: Cogdill FISCAL: No VERSION: 2/19/10 CONSULTANT: Weinberger HEALTHCARE DISTRICTS' BORROWING (URGENCY) Background and Existing Law California's 80 local health care districts find themselves pulled in two different directions. As operators of hospitals, they must survive by competing with profit-oriented companies. As public agencies, they must adhere to the state laws which require specific procedures and which impose limits on their activities. The districts must be aggressive in securing financing. A local health care district may enter into a line of credit with a commercial lender that is secured by the accounts receivable or other intangible assets of the district, including anticipated tax revenues, and thereafter borrow funds against the line of credit for any district purpose (SB 776, Runner, 2005). The district must repay the money borrowed within five years from each separate borrowing or draw upon the line of credit. A district may enter into a new and separate line of credit to repay a previous line of credit. SB 198 (Cogdill, 2009) extended the repayment period for local health care districts' lines of credit from five years to 20 years provided that the line of credit is: Established on or after January 1, 2010, and Established for the sole purpose of consolidating debts incurred by a district prior to January 1, 2010. The Cogdill bill imposed a $2 million limit on the total amount of debt a district can have outstanding at any one time under the line of credit. Some hospital district officials are concerned that the language in last year's Cogdill bill suggests that a district can borrow no more than $2 million total, under all of its lines of credit. They want the Legislature to clarify that the $2 million limit applies only to a 20-year line of credit for debt consolidation. SB 1458 -- 2/19/10 -- Page 2 Proposed Law Senate Bill 1458 repeals and reenacts nearly identical language into a paragraph that is separate from statutory provisions authorizing health care districts to enter into five year lines of credit. The new paragraph authorizes a health care district to enter into a line of credit with a commercial lender for the sole purpose of consolidating debt incurred before January 1, 2010. Debt incurred under that paragraph must be repaid within 20 years of the consolidation borrowing. The total amount of debt that a district may have outstanding at any one time under that paragraph may not exceed $2 million. Comment Let's be clear . Health care districts confront a rapidly changing and competitive marketplace. In meeting these substantial challenges, the districts need a variety of financing tools to maintain their fiscal well-being. SB 1458 clarifies the language enacted by last year's SB 198. By clarifying this provision, SB 1458 helps health care districts to refinance their current debts, thereby reducing their annual debt loads and keeping more of their funds available to pay for vital medical services. Support and Opposition (4/1/10) Support : Unknown. Opposition : Unknown. SB 1458 -- 2/19/10 -- Page 3