BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 130
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          AB 130 (Alejo)
          As Amended  June 3, 2013
          Majority vote
          |ASSEMBLY:  |75-0 |(May 13, 2013)  |SENATE: |39-0 |(June 24,      |
          |           |     |                |        |     |2013)          |
           Original Committee Reference:    L. GOV.  

           SUMMARY  :  Enacts changes to a contract of employment between a  
          healthcare district and a hospital administrator.  

          1)Prohibits a healthcare district from entering into or renewing  
            a contract, on or after January 1, 2014, with a hospital  
            administrator that authorizes retirement plan benefits to be  
            paid prior to his or her retirement.  

          2)Allows a healthcare district to renew a contract before  
            expiration, for a term of no more than four years.  

           The Senate amendments  make minor, technical changes and add  

           EXISTING LAW  :

          1)Establishes the Local Health Care District Law.  

          2)Allows a local hospital district to enter into a contract of  
            employment with a hospital administrator, the duration of  
            which shall not exceed four years, but which may periodically  
            be renewed upon expiration for not more than four years.  

          3)Requires, if a healthcare district and hospital administrator  
            enter into a written employment agreement that the written  
            agreement include specific information regarding all material  
            terms and conditions including compensation, deferred  
            compensation, retirement benefits, severance or continuing  
            compensation after termination of the agreement, vacation,  
            pay, other paid time off for illness or personal reasons, and  
            other employment benefits that differ from those available to  
            other full time employees.  


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           FISCAL EFFECT  :  Unknown.  This bill is keyed non-fiscal by the  
          Legislative Counsel. 

           COMMENTS  :  This bill prohibits contracts, entered into or  
          renewed on or after January 1, 2014, from authorizing the  
          payment of retirement plan benefits to a hospital administrator  
          prior to his or her retirement.  This bill also allows  
          healthcare districts to renew employment contracts with a  
          hospital administrator before expiration, for up to four years.   
          This bill is author-sponsored.

          The Local Hospital District Law (now called the Local Health  
          Care District Law) allows communities to create a new  
          governmental entity - independent of local and county  
          jurisdictions - that have 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  

          According to the Association of California Healthcare Districts,  
          there are currently 78 districts, of which 30 are rural  
          hospitals, 20 are critical access hospitals, 54 are rural  
          districts (with or without hospitals), 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.  The Salinas Valley Memorial Healthcare  
          System, in the County of Monterey, was founded in 1947 under the  
          provisions of the Local Hospital District Law.  

          The author notes that "In recent years, local healthcare  
          districts have come under scrutiny for allegations of  
          administrative waste, wrong doing, and inappropriate spending  
          priorities."  The author sites the Bureau of State Audits' (BSA)  
          examination of Salinas Valley Memorial Health Care System as the  
          justification for the bill.  

          The BSA audit, released in March 2012, concluded the following  
          in the opening letter to the Governor and legislative leaders:

            This report concludes that the [Salinas Valley Memorial]  
            Health Care System's board of directors, when making  
            decisions regarding executive compensation, violated the  


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            Ralph M. Brown Act, which requires legislative bodies of  
            local public agencies to conduct their meetings in an  
            open manner.  In an environment characterized by a lack  
            of an executive compensation policy and limited  
            transparency, the Health Care System granted compensation  
            for its executives at the upper end of the range for the  
            health care industry.  In addition, the former chief  
            executive officer received generous retirement and  
            severance benefits totaling $4.9 million between 2008 and  
            2011, most of which were paid to him before he retired.  

          This bill builds upon similar legislation to address the  
          findings from the BSA audit regarding executive compensation.   
          AB 2115 (Alejo) of 2012 would have required a local healthcare  
          district, if the district employs or contracts for a hospital  
          administrator, to enter into a written employment contract, not  
          to exceed four years.  Current law allows healthcare districts  
          to enter into and renew an employment contract upon expiration  
          for up to four years.  AB 2115 was vetoed by the Governor citing  
          that most healthcare districts already have written contracts,  
          and those that do not should adopt the practice without the  
          state having to pay for it.  Additionally, AB 2180 (Alejo),  
          Chapter 322, Statutes of 2012, requires, if a healthcare  
          district and hospital administrator enter into a written  
          employment agreement, that the written agreement include  
          information regarding retirement benefits and severance or  
          continuing compensation after termination of the agreement.  

          Support arguments:  Supporters argue that in a time of rapid  
          changes within the healthcare industry, healthcare districts  
          should prioritize scarce funds to benefit public health.   
          Prohibiting healthcare districts from giving retirement benefits  
          to its Chief Executive Officers before they retire will improve  
          transparency and accountability for the policies that healthcare  
          districts use to manage retirement benefits to their top  

          Opposition arguments:  None.  

          Analysis Prepared by  :    Misa Yokoi-Shelton / L. GOV. / (916)  
          319-3958                                               FN:  


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