BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1394|
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THIRD READING
Bill No: AB 1394
Author: Assembly Health Committee
Amended: 6/14/11 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 9-0, 6/8/11
AYES: Hernandez, Strickland, Alquist, Anderson, Blakeslee,
De León, DeSaulnier, Rubio, Wolk
SENATE APPROPRIATIONS COMMITTEE : 8-0, 8/15/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Steinberg
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : 60-0, 4/14/11 (Consent) - See last page
for vote
SUBJECT : Health care facilities: financing
SOURCE : State Treasurer Bill Lockyer
DIGEST : This bill makes a variety of clarifying changes
to the California Health Facilities Financing Authority
(CHFFA) Act, including expanding the definition of health
facilities, projects, and not-for-profit entities that are
eligible for financing and expanding CHFFA's authority to
participate in bond exchange agreements.
ANALYSIS :
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Existing law:
1. Defines a "conduit financing provider" as any county,
city, city and county, public district, public
authority, public corporation, nonprofit corporation,
joint powers authority (JPA), or other statutorily
constituted public entity that issues one or more
conduit revenue bonds.
2. Defines a "conduit revenue bond" as any municipal
security, the proceeds of which are loaned to any
non-governmental borrower, including, but not limited
to, persons, for-profit corporations, nonprofit
501(c)(3) corporations, partnerships, and other legal
entities, for purposes that are allowed for qualified
private activity bonds under federal law.
3. Establishes CHFFA, consisting of nine members, including
the State Treasurer who serves as chairman, through the
CHFFA Act.
4. Expresses legislative intent in enacting the CHFFA Act
to provide financing to health facilities that can
demonstrate the financial feasibility of their projects,
as specified.
5. Authorizes CHFFA to make secured or unsecured loans to,
or purchase secured or unsecured loans of, any
participating health institution in connection with the
financing of a project or working capital in accordance
with an agreement between CHFFA and the participating
health institution.
6. Specifies, for the purposes of CHFFA's loans, that a
non-profit health institution includes, but is not
limited to: a general acute care hospital; an acute
psychiatric hospital; a skilled nursing facility (SNF);
an intermediate care facility; a special health care
facility that provides medical, nursing, rehabilitation,
dental, or maternity services; a clinic; an adult day
health center; a county-operated health facility; a
residential facility for the elderly that is operated as
a part of, or in conjunction with, an intermediate care
facility, a SNF, or a general acute care hospital; a
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child day care facility operated in conjunction with a
health facility; an intermediate care
facility/developmentally disabled habilitative, that is
a health facility; a community care facility; an
accredited community work-activity program; a community
mental health center; a speech and hearing center; or, a
blood bank.
This bill:
1. Adds entities that provide private educational services
to the definition of health facilities. CHFFA would
then be able to finance these types of facilities.
CHFFA indicates that this would clarify that those
facilities are included in their statute and would
expedite the processing of future applications.
2. Clarifies that information system facilities or
equipment are included under the definition of health
facilities; information systems would join a list of
facilities that are operated in conjunction with a
health facility, such as a laboratory, laundry facility,
and housing for staff.
3. Permits a health facility to undertake financing with
CHFFA through a "related nonprofit corporation" in
addition to its ability to seek financing as a sole
facility. Many major hospital systems operate as parent
organizations and run several campuses. This provision
would permit a parent organization to apply for
financing on behalf of its affiliates.
4. Allows CHFFA to enter into bond exchange agreements, in
addition to the other types of agreements they currently
make. Bond exchange agreements allow borrowers to alter
various terms and rates of their bonds in order to make
conditions more favorable to borrowers or acceptable to
investors without having to issue new bonds.
5. Permits CHFFA to pledge or grant security interests to
letters of credit providers and providers of liquidity
support. CHFFA must routinely do this in order to act
as the passive payment conduit.
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6. Allows CHFFA to purchase its bonds with any moneys
available to the authority and to exchange bonds with
its bonds.
7. Clarifies CHFFA's authority to refund bonds issued by
another conduit authority such as a joint powers
authority, a redevelopment agency, or a county. This
provision would enable CHFFA to refinance an applicant's
debt from another conduit authority.
Background
The California Health Facilities Financing Authority .
CHFFA was created to be the state's vehicle for providing
financial assistance to public and nonprofit health care
providers through loans funded by the issuance of
tax-exempt bonds. By borrowing through CHFFA,
participating institutions that operate health facilities
can obtain lower interest rates than they would through
conventional bonds issued by JPAs and other conduit
authorities.
In order to meet the requirements for CHFFA financing, a
health facility must be a public hospital, a private
nonprofit corporation, or an association authorized by
state law to provide or operate a health facility and
undertake the financing or refinancing of a project.
Health facilities eligible for financial assistance by
CHFFA include adult day health centers, community clinics,
intermediate care facility for the developmentally
disabled, and drug and alcohol rehabilitation centers,
among others.
Proceeds from CHFFA bonds may be used for project-related
costs, including: construction, remodeling, and renovation;
land acquisition (as part of the proposed project);
acquisition of existing health facilities; purchase or
lease of equipment; refinancing or refunding of prior debt;
working capital for start-up facilities; costs of bond
issuance; feasibility studies; and, reimbursement of prior
expenses.
From 2005 to 2010, the majority of CHFFA's conduit
financing has been conveyed through tax-exempt revenue
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bonds. Large multi-hospital systems have been CHFFA's
primary borrowers over the last five years, with 10
hospital systems borrowing more than $3.3 billion of the
total $8.7 billion in tax-exempt revenue bonds issued.
CHFFA utilizes fees paid by borrowers of its tax-exempt
bond program to fund its Healthcare Expansion Loan Program
financing program. CHFFA initiated this program in 1988 to
provide low-interest and low-cost loans of up to $750,000
to California's nonprofit small and rural health facilities
that might not otherwise have alternative financing options
to address their capital needs. Since 2005, CHFFA has
loaned nearly $35 million to small and rural health
clinics.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Potential increased likely minor, but
potentially significant, Special*
number of projects fully covered by fees
charged to entities
* California Health Facilities Financial Authority Fund
SUPPORT : (Verified 8/15/11)
State Treasurer Bill Lockyer (source)
California Hospital Association
Cedars-Sinai Health System
Providence Health & Services
ARGUMENTS IN SUPPORT : The sponsor of this bill, State
Treasurer Bill Lockyer, writes that this bill makes
important updates to the CHFFA statute in order to ensure
that CHFFA is able to provide financing efficiently to all
eligible health facilities. Supporters contend that CHFFA
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has evolved to provide a variety of financing opportunities
to a broad range of hospitals throughout the state, ranging
from rural and sole community hospitals to large,
multi-hospital health systems. Supporters write that this
bill will modernize and update CHFFA to meet California's
rapidly changing health care needs.
ASSEMBLY FLOOR :
AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Campos, Carter, Cedillo, Chesbro,
Cook, Davis, Dickinson, Donnelly, Eng, Fletcher, Fong,
Fuentes, Furutani, Gatto, Gordon, Hagman, Halderman,
Hall, Hayashi, Roger Hernández, Hill, Huber, Hueso,
Huffman, Jeffries, Lara, Bonnie Lowenthal, Ma, Miller,
Mitchell, Monning, Nestande, Nielsen, Norby, Pan, Perea,
V. Manuel Pérez, Portantino, Silva, Skinner, Smyth,
Solorio, Swanson, Torres, Valadao, Wieckowski, Yamada,
John A. Pérez
NO VOTE RECORDED: Alejo, Butler, Charles Calderon, Conway,
Feuer, Galgiani, Garrick, Gorell, Grove, Harkey, Jones,
Knight, Logue, Mansoor, Mendoza, Morrell, Olsen, Wagner,
Williams, Vacancy
CTW:do 8/17/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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