BILL ANALYSIS SB 1458 Page 1 Date of Hearing: June 16, 2010 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Cameron Smyth, Chair SB 1458 (Cogdill) - As Introduced: February 19, 2010 SENATE VOTE : 35-0 SUBJECT : Hospital districts. SUMMARY : Clarifies provisions of existing law that authorize a health care district (district) to enter into a line of credit with a commercial lender for the sole purpose of consolidating debt incurred before January 1, 2010. Specifically, this bill : 1)Clarifies provisions of existing law that authorize a district to enter into a line of credit with a commercial lender for the sole purpose of consolidating debt incurred before January 1, 2010. 2)Specifies that debt incurred for the consolidation must be repaid within 20 years of the consolidation borrowing. 3)Specifies that the total amount of debt that a district may have outstanding at any one time for the consolidation may not exceed $2 million. 4)Contains an urgency clause. EXISTING LAW : 1)Provides for the organization, incorporation and management of ongoing operations of districts. 2)Allows a district to issue a line of credit for up to 20 years provided that the line of credit is established on or after January 1, 2010, for the sole purpose of consolidating debt created prior to January 1, 2010. 3)Authorizes a district, with a 4/5 vote of the district's board, to issue securitized limited obligation notes (SLONs) and borrow up to $2 million to be paid back from designated revenues, over 10 years. SB 1458 Page 2 4)Authorizes districts to enter into a secured line of credit with a commercial lender, as specified, and requires any money borrowed under this line of credit to be repaid within five years from each separate borrowing or draw. 5)Allows a district, when authorized by a resolution adopted by a majority of the board of directors, to issue negotiable promissory notes, which are debts that are not backed by a guaranteed source of revenue, to acquire funds for any district purposes, if the notes are repaid within ten years, and the aggregate value of a district's notes outstanding at any one time does not exceed 85% of all estimated income and revenue for the current fiscal year. FISCAL EFFECT : None COMMENTS : 1)Today in California there are 80 health care districts around the state and 45 of those districts still operate hospitals. Many of those hospitals serve rural communities. Any additional funding or ability to obtain credit may enable a hospital or a health care district to survive through tough times and continue to serve communities that would otherwise have no easy access to health services. 2)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. By allowing health care districts to consolidate up to $2 million in debt into a credit line that can be repaid over 20 years, this bill enacts a narrow expansion of health care districts' existing borrowing powers. 3)Last year, the Legislature passed SB 198 (Cogdill), Chapter 37, Statutes of 2009, which allows a district to issue a line of credit for up to 20 years provided that the line of credit is established on or after January 1, 2010, for the sole purpose of consolidating debt created prior to January 1, 2010. Some district officials are concerned that the language in SB 198 suggests that a district can borrow no more than $2 million total, under all of its lines of credit. Districts SB 1458 Page 3 are requesting that the language be amended to clarify that the $2 million limit applies only to a 20-year line of credit for debt consolidation. 4)Support Arguments : This measure will clarify the process for allowing district officials to reduce a district's annual debt load by consolidating and refinancing current debts into a long-term line of credit. Opposition Arguments : None at this time. REGISTERED SUPPORT / OPPOSITION : Support Association of CA Healthcare Districts Tri-City Medical Center Opposition None on file Analysis Prepared by : Katie Kolitsos / L. GOV. / (916) 319-3958