BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 130 HEARING: 6/12/13 AUTHOR: Alejo FISCAL: No VERSION: 6/3/13 TAX LEVY: No CONSULTANT: Weinberger HEALTH CARE DISTRICTS' EMPLOYMENT CONTRACTS Prohibits a local health care district's employment contract with a hospital administrator from providing retirement benefits to the administrator before he or she retires. Background and Existing Law California's local health care districts are governed by 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, public contracting laws, and other statutory restrictions. State law allows a local health care district to enter into an employment contract with a hospital administrator, the duration of which cannot exceed four years, but which may periodically be renewed upon expiration for not more than four years (SB 2460, Bradley, 1974). The Salinas Valley Memorial Healthcare District was formed more than 60 years ago to serve the City of Salinas and other nearby Monterey County communities. In 1953, the District opened Salinas Valley Memorial Hospital. A 2012 State Auditor's report found many shortcomings in the transparency of the District's compensation decisions. The audit found that a "former chief executive officer (CEO) received generous retirement and severance benefits totaling $4.9 million between 2008 and 2011, most of which were paid to him before he retired." In light of the multi-million dollar severance package provided to the Salinas Valley District's CEO, some public officials want legislators to amend the Local Health Care AB 130 -- 6/3/13 -- Page 2 District Law to prohibit a district executive's employment contract from providing retirement benefits before the executive retires. Proposed Law Assembly Bill 130 prohibits an employment contract between a health care district and a hospital administrator, which is entered into, or renewed, on or after January 1, 2014, from authorizing retirement plan benefits to be paid to the administrator before his or her retirement. AB 130 repeals a requirement that a health care district's employment contract with a hospital administrator can only be renewed upon expiration. The bill specifies that its provisions apply to a hospital administrator who is designated as Chief Executive Officer. State Revenue Impact No estimate. Comment Purpose of the bill . Health care districts confront the dual challenges of competing in a rapidly changing health care marketplace while managing the pressures that escalating retiree costs impose on public agencies' budgets. Prompted by the findings of a state audit of the Salinas Valley Healthcare District, AB 130 imposes new restrictions on health care districts' executive compensation practices. By prohibiting contracts with administrators from promising inappropriately generous retirement benefits, AB 130 will help local health care districts control employee retirement costs, preserving scarce funds for the districts' health programs. Assembly Actions Assembly Local Government Committee: 9-0 Assembly Health Committee: 18-0 AB 130 -- 6/3/13 -- Page 3 Assembly Floor: 75-0 Support and Opposition (6/6/13) Support : Association of California Healthcare Districts; California Nurses Association; California Teamsters Public Affairs Council; Camarillo Health Care District; National Union of Healthcare Workers. Opposition : Unknown.