BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 804 HEARING: 1/11/12
AUTHOR: Corbett FISCAL: No
VERSION: 1/4/12 TAX LEVY: No
CONSULTANT: Weinberger
HEALTHCARE DISTRICT ASSETS
Requires healthcare districts to appraise the fair market
value of assets that they transfer to nonprofit
corporations for less than fair market value.
Background and Existing Law
California's 80 local health care districts are governed by
directly elected boards of directors. As hospitals, they
face market pressures to compete with other health care
providers. As local governments, they must follow the
Brown Act, the Public Records Act, the Political Reform
Act, the public contracting laws, and other statutory
restrictions.
Responding to changes in health care delivery, public
hospitals explore economic and organizational alternatives,
including leasing or selling their assets to nonprofit
corporations or even to for-profit companies. If a local
health care district wants to transfer 50% or more of its
assets to any corporation, the transfer needs
majority-voter approval (SB 1771, Russell & Kopp, 1992).
A health care district may transfer its assets, for the
benefit of the communities it serves, to one or more
nonprofit corporations at less than fair market value. For
a transfer of 50% or more of a district's assets to be
deemed to benefit a district's communities, a district
must:
Fully discuss the transfer agreement in at least
five properly noticed public meetings before the
district board decides to transfer the assets.
Provide, in the transfer agreement, that the
district must approve all initial board members of the
nonprofit corporation and any subsequent board members
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as may be specified in the transfer agreement.
Provide, in the transfer agreement, that specified
assets are to be transferred back to the district upon
termination of the transfer agreement.
Commit the nonprofit corporation, in the transfer
agreement, to operate and maintain the district's
health care facilities and its assets for the benefit
of the communities served by the district.
Require, in the transfer agreement, that any funds
a corporation receives from the district be used only
for specified activities that would further a valid
public purpose if undertaken directly by the district.
The Eden Township Healthcare District formed in 1948 to
serve the Alameda County communities of Castro Valley,
Hayward, San Leandro, and San Lorenzo. In 1954, the
District opened Eden Medical Center (EMC) hospital. In
1997, the District's voters approved a merger agreement
between the District and Sutter Health. Under the 1997
agreement, the District sold EMC to Sutter Health. In
2004, the District purchased San Leandro Hospital and
leased it to EMC to operate. In 2008, the District entered
into an agreement with Sutter Health to replace EMC with a
newly-constructed hospital that would comply with the
state's seismic safety law. The 2008 agreement also gave
Sutter the option to purchase San Leandro Hospital. The
purchase option allowed Sutter to deduct specified losses
and capital expenditures from the hospital's net book value
and, if the deductions exceeded the net book value, allowed
Sutter to exercise its purchase option with no balance due.
On December 21, 2011, an appellate court ruled in favor of
Sutter in litigation over the terms of the 2008 agreement.
In response to concerns about transfers of publicly-owned
assets for significantly less than fair market value, some
elected officials want the state to require health care
districts to appraise the fair market value of their assets
before transferring those assets for less than fair market
value.
Proposed Law
Senate Bill 804 provides that, when a health care district
transfers more than 50% of the district's assets at less
than fair market value to one or more nonprofit
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corporations, the transfer is deemed to be for the benefit
of the communities served by the district only if the
transfer agreement includes the appraised fair market value
of any asset transferred. SB 804 requires that the
appraised fair market value must come from an independent
consultant with expertise in methods of appraisal and
valuation and must be in accordance with applicable
governmental and industry standards for appraisal and
valuation. SB 804 requires that the appraisal that is
included within the transfer agreement must be performed
within the six months preceding the date on which the
district approves the transfer agreement.
SB 804 also requires that a resolution to submit a proposed
asset transfer to a health care district's voters must
identify the asset proposed to be transferred, its
appraised fair market value, and the amount of
consideration that the district is to receive in exchange
for the transfer. SB 804 requires that the appraisal must
be performed by an independent consultant with expertise in
methods of appraisal and valuation and in accordance with
applicable governmental and industry standards for
appraisal and valuation within the six months preceding the
date on which the district approves the resolution.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . SB 804 gives the public important
information about the value of public assets that a health
care district prepares to sell or transfer. Health care
districts' assets are the product of taxpayers' investing
billions of dollars statewide to support vital community
health services. Over the years, the Legislature has
enacted a series of voter-approval requirements and other
oversight mechanisms to protect the public's interest in
these publicly-owned assets. In response to concerns about
some recent transfers of assets between health care
districts and private corporations, SB 804 makes more
information available to help district officials and voters
evaluate health care districts' proposed transfers of
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assets to private corporations.
2. Local discretion . The responsibility for protecting the
public's interest in a health care district's assets lies
with the district's elected board of directors. Health
care districts must confront a rapidly changing and
competitive marketplace. They also must make costly
investments to comply with the state's seismic safety
standards for hospitals by 2013. In meeting these
substantial challenges, district directors need the
discretion to determine whether transfers or leases of
district assets serve the best interests of the residents
they represent. The Committee may wish to consider whether
SB 804 imposes new requirements on health care district
directors that will unnecessarily constrain their
discretion in allocating district assets to respond to
district residents' health care needs.
3. Related legislation . SB 804 is similar to SB 134
(Corbett, 2011), which the Senate Governance and Finance
Committee passed by a 5-3 vote at its March 16, 2011
hearing. SB 134 was later amended to delete its contents
and insert language relating to state contracts for
installing solar photovoltaic systems.
4. Double-referral . Because SB 804 affects local health
care districts' assets, the Senate Rules Committee has
ordered a double-referral of the bill - first to the Senate
Governance & Finance Committee which has policy
jurisdiction over the statutes governing health care
districts' exercise of governmental powers, and then to the
Senate Health Committee, which has jurisdiction over
statutes governing health institutions.
Support and Opposition (1/5/12)
Support : Unknown.
Opposition : Unknown.