BILL ANALYSIS Ó
SB 644
Page 1
( Without Reference to File )
SENATE THIRD READING
SB 644 (Hancock)
As Amended August 29, 2011
2/3 vote. Urgency
SENATE VOTE : Not relevant
LOCAL GOVERNMENT 9-0
-----------------------------------------------------------------
|Ayes:|Smyth, Alejo, Bradford, | | |
| |Campos, Davis, Gordon, | | |
| |Hueso, Knight, Norby | | |
-----------------------------------------------------------------
SUMMARY : Requires all certificates of participation executed
and delivered by the West Contra Costa Healthcare District
(District) between June 8, 2004, and December 31, 2012, to be
secured by a statutory lien on all the revenues generated from a
parcel tax passed by District voters in 2004. Specifically,
this bill :
1)Requires all certificates of participation executed and
delivered by the West Contra Costa Healthcare District
(District) between June 8, 2004, and December 31, 2012, to be
secured by a statutory lien on all the revenues generated from
a parcel tax passed by District voters in 2004.
2)Requires the lien to arise automatically without the need for
any action or authorization by the District.
3)Specifies that the lien shall be valid and binding from the
time the certificates of participation are executed and
delivered.
4)Requires the parcel tax to be immediately subject to this
lien.
5)Requires the lien to immediately attach to the parcel tax
revenue and be effective, binding, and enforceable against the
District, its successors, purchasers of those revenues,
creditors, and all others asserting the rights therein,
irrespective of whether those parties have notice of the lien.
SB 644
Page 2
6)Adds an urgency clause.
EXISTING LAW :
1)Defines "bonds" as any bonds, notes, bond anticipation notes,
commercial paper, or other evidences of indebtedness, or
lease, installment purchase, or other agreements, or
certificates of participation therein, that are not issued
pursuant to statutory authority containing a provision
governing the perfection and priority of pledges of collateral
unless the provision provides that this chapter shall govern.
2)Defines "pledge" as, and as used in any pledge document shall
be deemed to create, a grant of a lien on and a security
interest in and pledge of the collateral referred to in a
pledge document.
3)Requires a pledge of collateral by any public body to secure,
directly or indirectly, the payment of the principal or
redemption price of, or interest on, any bonds, or any
reimbursement or similar agreement with any provider of credit
enhancement for bonds, which is issued by or entered into by a
public body, to be valid and binding in accordance with the
terms of the pledge document from the time the pledge is made
for the benefit of pledgees and successors thereto.
4)Requires the collateral to immediately be subject to the
pledge, and the pledges constitute a lien and security
interest which shall immediately attach to the collateral and
be effective, binding, and enforceable against the pledgor,
its successors, purchasers of the collateral, creditors, and
all others asserting the rights therein, to the extent set
forth, and in accordance with, the pledge document
irrespective of whether those parties have notice of the
pledge and without the need for any physical delivery,
recordation, filing, or further act.
FISCAL EFFECT : Unknown
COMMENTS : West Contra Costa Healthcare District (District)
operates Doctors Medical Center (DMC) in San Pablo, California,
SB 644
Page 3
serving a disproportionately underprivileged community in the
cities of Richmond, El Cerrito, San Pablo, Pinole, Hercules and
portions of unincorporated Contra Costa County (County). The
District faces severe financial problems due to the extremely
high level of uninsured and underinsured patients, most of whom
access DMC through its emergency room, which receives over
40,000 visits annually.
In June of 2004, the District passed a parcel tax that produces
just under $6,000,000 per year in revenues.
The District filed for relief under Chapter 9 bankruptcy in 2006
and emerged from bankruptcy thereafter. The plan of
reorganization under which the District emerged from bankruptcy
was based on a number of factors, including an ongoing funding
by California Medical Assistance Commission (CMAC) of
$12,000,000 per year by means of inter-governmental transfers.
As a result of a change in the rules governing allocation of
inter-governmental transfers by CMAC, funding for the District
declined by approximately $11,000,000 and the District again
finds itself on the financial brink.
The District has received a property tax advance of
approximately $10,000,000 from Contra Costa County which is
being repaid with 100% of the ad valorem tax allocation to the
District over the next three to four years.
The District has determined that it will need to generate an
additional $10,000,000 in the immediate future in order to
sustain its operations or, in the alternative, meet all of its
financial obligations (largely to its employees in the form of
wages and benefits) in connection with an orderly closure of
DMC.
The District is optimistic that funding from a variety of
sources including CMAC, other regional health care institutions,
an additional parcel tax, and savings from improving operating
efficiencies will be sufficient to insure the continuing
operations of the District. Every plan for continuing
operations of the District includes an infusion of $10,000,000
from new certificates of participation (COPs) secured by the
existing parcel tax and there is no practical way for DMC to
continue in existence without the $10,000,000 financing.
SB 644
Page 4
In addition, the District desires to use the new COP financing
to accelerate the repayment of the County's $10,000,000 property
tax advance in order to free up the ad valorem revenue for
operations. The ad valorem property tax revenue cannot be
pledged to the COPs in the same secure way that the parcel tax
can be pledged, and therefore it is more efficient from a
financing perspective to leverage the parcel tax for both the
county obligations and the $10,000,000 cash infusion. Finally,
the financing of the payment of the County's tax advance over a
number of years will increase overall cash flow for the District
over the critical next few years.
This bill would create a statutory lien against the existing
parcel tax revenue which will provide underwriters assurance
that the District's pledge of a portion of its parcel tax
revenue to support the COPs cannot be set aside by a bankruptcy
court. According to the District's financial the addition of a
statutory lien against the parcel tax is necessary to meet the
demands of the market place and give underwriter needed
sureties; without this the financing is unlikely to be
successful. The District needs to complete this financing this
year, as otherwise it is in danger of running out of cash and
not being able to meet its obligations to employees, vendors and
other creditors; thus the measure has an urgency clause.
Support arguments: Supporters could argue that the District
needs to complete this financing this year, as otherwise it is
in danger of running out of cash and not being able to meet its
obligations to employees, vendors and other creditors. A
statutory lien will provide the market with greater assurance
that the debt will be repaid.
Opposition arguments: Opposition could argue that even with the
statutory lien the District could still find issuing the COPs
difficult.
Analysis Prepared by : Katie Kolitsos / L.GOV. / (916) 319-3958
FN:
0002530
SB 644
Page 5