BILL ANALYSIS Ó
AB 2418
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Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 2418 (Gordon and Dickinson) - As Amended: May 1, 2012
SUBJECT : Health districts.
SUMMARY : Requires health care districts to expend 95% of any
property tax revenue on current community health care benefits,
as defined. Specifically, this bill :
1)Requires, notwithstanding any other provision of law, a health
care district to expend at least 95% of the revenue derived
from the annual general tax levy assessed on real and personal
property within the district, on current community health care
benefits, as defined, after excluding the amounts for the
revenue and expenditures described in 6) below,
2)Defines "current community health care benefits" to mean any
of the following:
a) The operation or maintenance of a health care facility
or health services allowed under existing law by a health
care district;
b) The performance of the district's powers under existing
law;
c) Reserves;
d) Capital outlays under existing law; and,
e) Any other item approved by a resolution adopted by a
majority vote of the local agency formation commission
(LAFCO) of the principal county of the district.
3)Excludes from the definition of "current community health care
benefit" the salaries paid and benefits provided to staff of
the district, benefits provided to board members of the
district, expenses paid to any consultant hired by the
district, and any other item not identified in 2) above.
4)Defines "principal county of the district" to mean "the county
in which the district is located. If a district is located in
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more than one county, "principal county of the district" means
the county with the largest share of assessed value of taxable
property within the district, as shown on the last equalized
assessment role."
5)Allows a district to allocate, within a fiscal year, not more
than 30% of the revenues derived from the annual general tax
levy, after excluding the amounts for the revenue and
expenditures described in 6) below, to reserves.
6)Provides that the bill's provisions do not apply to the
following:
a) The portions of the district's annual general tax levy
that have, as of April 1, 2014, been obligated by contract
or other legally binding obligation to a specific purpose;
b) The portions of the district's general tax levy that are
required to be used for a specific purpose pursuant to
existing law;
c) The district's financial reserves in existence as of
April 1, 2014;
d) The cost of elections required or authorized by this
division; and,
e) A special assessment approved by the voters pursuant to
existing law.
7)Requires a district to annually submit documentation of the
district's compliance with the bill's provisions to the county
auditor-controller, the LAFCO, and the board of supervisors,
of the principal county of the district.
8)States that reimbursement to local agencies and school
districts shall be made, if the Commission on State Mandates
determines that this measure contains costs mandated by the
state.
EXISTING LAW :
1)Establishes the Local Health Care District Law.
2)Allows a local health care district to be organized,
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incorporated and managed, as specified under the Local Health
Care District Law.
3)Allows a health care district to include incorporated or
unincorporated territory, or both, or territory in any one or
more counties, and allows the territory comprising the
district to not be contiguous, as specified.
4)Enumerates various powers and duties for health care
districts, including but not limited to the following:
a) Operating health care facilities such as hospitals,
clinics, skilled nursing facilities (SNFs), nurses'
training schools, and child care facilities;
b) Operating ambulance services within and outside of the
district;
c) Operating programs that provide chemical dependency
services, health education, wellness and prevention,
rehabilitation, and aftercare;
d) Carrying out activities through corporations, joint
ventures, or partnerships;
e) Establishing or participating in managed care;
f) Contracting with and making grants to provider groups
and clinics in the community; and,
g) Other activities that are necessary for the maintenance
of good physical and mental health in communities served by
the district.
5)Authorizes a local health care district to generate revenue
through an annual assessment on real and personal property
within the district.
FISCAL EFFECT : This bill is keyed fiscal and contains a
state-mandated local program.
COMMENTS :
1)Near the end of World War II, California faced a severe
shortage of hospital beds. To respond to the inadequacy of
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acute care services in the non-urban areas of the state, the
Legislature enacted the Local Hospital District Law, with the
intent to give rural, low income areas without ready access to
hospital facilities a source of tax dollars that could be used
to construct and operate community hospitals and health care
institutions, and, in medically underserved areas, to recruit
physicians and support their practices.
The Local Hospital District Law (now called the Local Health
Care District Law) allowed communities to create a new
governmental entity - independent of local and county
jurisdictions - that had the power to impose property taxes,
enter into contracts, purchase property, exercise the power of
eminent domain, issue debt, and hire staff. In general, the
process of creating a hospital district started with citizens
in a community identifying the need for improved access to
medical care. The hospital district's boundaries were usually
based on the distance between communities and the closest
available acute care hospital services. A petition for
formation was then filed by the community to the county board
of supervisors, and then residents of the proposed district
were needed to vote in favor of the measure to create the
hospital district. In 1963, the Knox Nisbet Act was passed,
which created LAFCOs and clarified and formalized the process
for establishing a hospital district.
According to the Association of California Healthcare
Districts, there are currently 74 districts, of which 30 are
rural, 20 are critical access, five have stand-alone clinics,
and three have stand-alone skilled nursing facilities. These
institutions provide a significant portion of the medical care
to minority populations and the uninsured in medically
underserved regions of the state and are mainly funded by
Medicare, Medi-Cal, and district tax dollars.
2)Since the establishment of health care districts, the author
maintains, several changes in law have been made to reflect
the shift in responsibility of districts from hospital
construction and operation to other health care services. The
author asserts that districts have few restrictions on how
they spend their share of property taxes, originally intended
to fund hospital construction and operation, and some
districts have engaged in activities with no direct or
indirect impact on community health.
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The author argues, for any type of special district, one of
the greatest priorities is responsible use of public funds.
While all public agencies ultimately answer to taxpayers and
voters, there is a clear state interest in defining the
evolving roles and responsibilities of local agencies -
particularly as it relates to health care services. The
author maintains that healthcare districts are unique in that
some may not own or operate any physical infrastructure or
facilities. If a district does not provide services to all
residents within its boundaries or have a clear physical
presence within a community, it is more likely that residents
will be unaware of its activities.
The author indicates that there is a growing concern that some
districts are engaging in non-health related activities,
expending tax dollars in ways that fail to contribute to
community health. The author maintains that this bill strikes
a careful balance of competing interests by providing a
statewide framework for additional accountability, while
retaining flexibility at the local level. This bill also,
according to the author, maintains a district's autonomy,
while ensuring that property tax dollars are actually used for
"current community health care benefits."
3)According to an April 2012 Legislative Analyst's Office report
(LAO report), health care districts can have the following
revenue streams:
a) Property Taxes - Most districts receive a share of local
property taxes. The share of local property tax going to
districts varies among districts. For example, according
to the LAO Report, Palomar Health in San Diego County
received $13 million in property tax revenue in 2009,
accounting for 3% of the district's operating budget.
b) Special Taxes - Some health care districts have received
two-thirds voter approval to levy special "parcel taxes"
for each lot or acre of ground. For example, according to
the LAO Report, the City of Alameda Health Care District
was formed in 2002 when voters approved a $296 annual
parcel tax to assume operation of Alameda Hospital.
c) Service Charges - Health care districts may run
hospitals, clinics, SNFs, and ambulance services. These
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activities earn revenue and are entirely or predominately
self-supporting through service charges. These are
sometimes referred to as enterprise activities.
d) Other Revenue - Some health care districts generate
revenues from district resources, such as property lease
income and interest earnings from investments. They may
also receive grants from public and private sources.
e) Debt Financing - Health care districts can create debt
to borrow money needed for capital projects such as
hospital construction. General obligation bonds require
two-thirds voter approval to raise property tax rates for
district residents to serve as the mechanism to repay the
bonds. Revenue bonds are backed by user fees. Districts
may also issue promissory notes and receive loans from
state and federal governments.
4)According to the LAO report, a few health care districts have
encountered challenges recently. The LAO report indicates
that grand juries have questioned district practices. For
example, El Camino Hospital District in Santa Clara County was
the subject of a civil grand jury report in 2011. The report
raised concerns over whether the district had used property
tax or corporation revenues to purchase a healthcare facility
outside its boundaries.
The LAO report also maintains that seven health care districts
have declared bankruptcy since 2000. There has also been
concern regarding districts maintaining reserve balances in
the tens of millions of dollars. For example, Peninsula
Health Care District and Beach Cities Health District have
each reported over $45 million in unrestricted net assets
(reserves) at the end of June 2011.
Additionally, according to the LAO report, several LAFCOs have
considered dissolving districts. Five districts have been
dissolved or otherwise reorganized since 2000. The Contra
Costa County LAFCO is currently considering consolidating
Mount Diablo Healthcare District into the City of Concord.
The Contra Costa LAFCO also considered but did not pursue
dissolution of Los Medanos Community Hospital District in
1999. Both districts do not currently operate hospitals.
5)The Association of California Healthcare Districts (ACHD)
lists the following concerns with this bill:
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a) LAFCOs should not be granted the authority to determine
the health care services provided by each health care
district. LAFCOs were created to provide oversight of
services provided by local agencies within their
jurisdiction, not to determine the services needed in those
areas. Further, LAFCOs do not have expertise in health
care issues and may not have any special district
representation on the LAFCO. This bill places a wedge
between the districts and their voters by using LAFCO as
the legislatively-appointed representatives of the voters;
b) Administration costs are not clearly defined by this
bill. Health care districts have staff ranging from
nurses, technicians, social workers, adult day care
providers, contracted doctors, etc. in addition to the
administrative staff. The language in this bill would
define all staff as administrative, limiting health care
districts' ability to pay for services provided in their
communities;
c) It is unprecedented to require local agencies to spend
95% of tax revenues on direct services. While many
districts have other revenue sources that could adequately
accommodate this requirement, it is unrealistic to assume
that all 74 health care districts can sustain such high
numbers while operating effectively. This bill severely
impacts districts that have limited revenue streams,
especially in rural areas where communities rely on the
services that health care districts provide;
d) While this bill would allow property tax dollars to be
spent on district election costs, it does not allow
property tax dollars to be spent on complying with current
state and federal laws, such as the Brown Act and those of
the Fair Political Practices Commission;
e) The requirement in this bill that each district report
annually to the county Board of Supervisors, LAFCO, and the
county Auditor-Controller is unnecessary as districts
already report to numerous agencies. These entities can
access all of the health care district records through the
provisions of the Brown Act;
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f) By law, special district boards are accountable to
voters through the Brown Act, the state Controller, the
Office of Statewide Health Planning and Development, and
the LAFCO process. To require that districts have yet
another layer of oversight to another independent board
shifts the balance of power between independently-elected
boards. This will unfairly place oversight of one special
district to another, while belittling the vote of the
community and of the board they elected.
6)The Committee may wish to consider the following:
a) The proposed requirement for healthcare districts to
spend 95% of any property tax revenue on "current community
health care benefits" may be cost prohibitive for some
districts. This "one-size fits all" approach without
considering the varying activities a district may be
engaged in or the amount of property tax revenue that a
district may receive depending on where they are located,
could disproportionately impact smaller districts.
b) The definition for administrative costs is narrow and
needs further clarification. The author may wish to expand
this definition to consider the varying personnel and
administrative costs associated with providing health care
services.
c) District boards are voter-elected and have been
entrusted to determine the appropriate health care services
to be provided by the health care district. The author may
wish to consider whether it is appropriate to grant LAFCO
the authority to determine "community health care
benefits."
d) It appears that much of the recent concern and
controversy about health care districts is with respect to
those that no longer operate hospitals. The author may
wish to narrow the bill to address those health care
districts that no longer operate hospitals.
7)SEIU, in support, notes that "the need for stricter standards
for these districts, especially those which have shed their
hospitals, was presented at a recent oversight hearing by the
Assembly Committee on Accountability and Administrative
Review." SEIU has suggested that the bill be amended going
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forward to address three specific issues. First, SEIU
proposes that districts created for hospital purposes should
be required to spend taxpayer dollars they continue to collect
on hospital care, should they shed their hospitals. Second,
SEIU believes that there should be set rules in state law for
how hospital districts can shed their hospitals. And third,
SEIU believes that that state law should establish spending
restrictions at the time a district sheds its hospital.
8)To illustrate further the variety of health care districts in
California, the Committee may wish to consider how this bill
may affect the following districts and their financial
situations:
a) The Cambria Community Healthcare District relies
primarily on three sources of funding: property tax
proceeds, special assessment proceeds, and use fees. The
District's staffing of two paramedic ambulances 24/7
accounts for 83% of the District's budget in personnel
costs. The District notes that insurance, fuel, and
maintenance of the ambulances and advanced life support
equipment are expensive and are not areas where costs can
be reduced.
b) Fallbrook Healthcare District does not currently operate
its hospital; however, for the last 14 years it has
partnered with Tennessee-based Community Health Systems, as
part of a 30-year facility lease and operating agreement.
The District continues to fund an account which will allow
it to resume operational responsibilities for the hospital
in 2028, when the existing lease expires. The District
notes that it does not provide health benefits for current
or former directors, and functions with an administrative
staff of two full-time employees.
c) Grossmont Healthcare District notes that it is one of
the few districts with voter-approved bonds financing the
construction of significant improvements at its
publicly-owned hospital (Grossmont has a public-private
partnership with Sharp Healthcare). As a result of the
successful bond measure (77.8% approval), significant
portions of Grossmont Healthcare District's general fund
revenues are being used to administer bond-related
activities, including the bond sale process, management and
investment of the bond proceeds, and oversight of the
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design, construction and project management of the hospital
improvements.
d) Peninsula Health Care District is concerned with the
implications that this bill would have in restricting the
board's ability to engage consulting experts to carry out
the planning and development of district land adjacent to
the new hospital in the heart of San Mateo County. The
District notes that under this bill, tax revenue funding
for this critically important activity would be essentially
eliminated.
e) Marin Healthcare District notes that Marin General
Hospital is leased by the District to a non-profit
corporation, and the Marin Healthcare District is the sole
corporate member of the non-profit corporation. This
arrangement has been in place since July 2010, when Sutter
Health transferred control of Marin General Hospital to the
District. The District's status as a "parent" organization
is reflected in its status of the owner of the hospital
bricks and mortar, and as the sole corporate "member" of
the private, non-profit 501 (c)(3) corporation licensed to
operate the hospital.
9)The California Special Districts Association (CSDA) writes
that "AB 2418 imposes a state formula on Ýhealth care]
districts and then suggests that the countywide Local Agency
Formation Commission - which may include a city councilmember
or water district board member - should get into the business
of healthcare management by approving or disapproving
budgetary request from locally elected healthcare district
boards."
Given the concerns of ACHD and CSDA, the Committee may wish to
consider the role of LAFCO in this legislation. Should the
goal be to provide greater transparency in health care
district matters? Or should there be greater attention by
county officials or increased scrutiny of district spending?
The Committee may wish to discuss whether the current
provisions that give LAFCO more authority over health care
districts are appropriate.
10)There are currently several other bills that would make
changes to health care district law. This Committee heard AB
2115 (Alejo), which would require a health care district, if
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employing a hospital administrator, to enter into a written
contract of employment with the administrator. AB 2115 is
pending on the Assembly Floor. The Committee also heard
AB 2180 (Alejo), which would limit benefits for district
employees unless those options are available to all employees.
AB 2180 is also pending on the Assembly Floor.
11)Support arguments: Health Access California writes that this
bill "assures that revenues are spent on current community
health benefits rather than simply on salaries of district
officials in districts that do not operate health facilities
or provide health services."
Opposition arguments: Opponents argue that this bill is
detrimental to the nature and purpose of health care districts
within California. The one-size-fits-all nature of the bill
could create many problems in that health care districts were
designed to be responsive to their surrounding communities,
resulting in a wide variation of how districts operate, how
they are funded, and the services they provide.
12)This bill is double-referred and scheduled to be heard by the
Health Committee on May 8, 2012. Should it pass, it will be
heard by this Committee on May 9, 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California
SEIU
Supervisor Don Horsley, Board of Supervisors, County of San
Mateo
Opposition
Association of California Healthcare Districts (ACHD)
Beach Cities Health District
California Special Districts Association (CSDA)
Cambria Community Healthcare District
Corning Medical Associates
Del Norte Healthcare District
Fallbrook Healthcare District
Grossmont Healthcare District
Los Medanos Community Healthcare District
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Marin Healthcare District
Mono Healthcare District
Palomar Health
Peninsula Health Care District
Pioneers Memorial Healthcare District
Salinas Valley Memorial Healthcare System
Sequoia Healthcare District
Tri-City Healthcare District
Individual letters (2)
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958