BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 582|
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THIRD READING
Bill No: AB 582
Author: Levine (D), Chesbro (D), et al.
Amended: 2/24/14 in Senate
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 3/19/14
AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Vidak
SUBJECT : Palm Drive Health Care District: certificates of
participation: lien
SOURCE : Author
DIGEST : This bill requires that the Palm Drive Health Care
District's (PDHCD's) obligations in connection with certificates
of participation (COPs) executed and delivered, or revenue bonds
issued, by or on behalf of PDHCD between January 1, 2005, and
December 31, 2014, must be secured by a statutory lien on all of
the revenues generated from parcel taxes approved by voters in
2004. Specifies that COPs executed and delivered or revenue
bonds issued before 2035 to refund the PDHCD's revenue bonds or
COPs must be secured by a statutory lien on all of the revenues
generated from parcel taxes approved by voters in 2004.
ANALYSIS : The California Constitution prevents counties and
cities from creating multi-year general obligation debt without
2/3-voter approval. School districts need 55% voter approval.
Because the constitutional ban doesn't mention special
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districts, the Legislature has allowed special districts to use
a variety of debt financing tools without voter approval. COPs
are a type of debt instrument that cities, counties, and special
districts can issue without voter approval. A COP entitles the
holder to a share of a pledged revenue stream, which typically
comes from lease payments made by the issuer.
This bill requires that the PDHCD's obligations in connection
with COPs executed and delivered, or revenue bonds issued, by or
on behalf of PDHCD between January 1, 2005, and December 31,
2014, must be secured by a statutory lien on all of the revenues
generated from parcel taxes approved by voters in 2004.
Specifies that COPs executed and delivered or revenue bonds
issued before 2035 to refund PDHCD's revenue bonds or COPs must
be secured by a statutory lien on all of the revenues generated
from parcel taxes approved by voters in 2004.
This bill requires this statutory lien to arise automatically
without the need for any action or authorization by the district
or its board of directors. Declares that the lien will be
valid and binding from the time the COPs are executed and
delivered or the revenue bonds are issued.
This bill requires that the parcel tax revenue must immediately
be subject to this lien, and that the lien must 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 rights
therein, irrespective of whether those parties have notice of
the lien and without the need for any physical delivery,
recordation, filing, or further act.
Background
In 2000, to prevent the closure of the Palm Drive Hospital in
Sebastopol (Sonoma County), voters approved the formation of the
PDHCD. PDHCD owns and operates Palm Drive Hospital, which
provides essential inpatient, outpatient, and emergency services
to residents in western Sonoma County. In November, 2004, more
than 69% of district voters approved Measure W, allowing PDHCD
to impose a parcel tax that generates nearly $4 million in
annual revenues. In 2005, PDHCD issued revenue bonds secured by
the parcel tax. In 2007, PDHCD filed for bankruptcy protection.
The bankruptcy court subsequently approved a plan of adjustment
that required PDHCD to sell COPs and use the proceeds to satisfy
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its obligations under the plan and finance other specified
expenses. PDHCD issued $11 million in COPs in 2010, allowing it
to exit from bankruptcy. However, PDHCD continues to confront
significant fiscal challenges.
Federal bankruptcy law defines a "lien" as a charge against or
interest in property to secure payment of a debt or performance
of an obligation. A "statutory lien" is a distinct type of lien
that arises solely by force of statute, without any prior
consent between the parties or judicial action. Unlike other
types of liens, a statutory lien remains enforceable even after
a bankruptcy filing.
After Orange County filed for bankruptcy protection, the
Legislature enacted a statutory lien that used vehicle license
fee revenues to secure debt issued by the county.
Comments
According to the Senate Governance and Finance Committee
analysis, to help keep PDHCD solvent, district officials need to
refinance PDHCD's existing debt. PDHCD's financial advisor and
legal counsel have opined that the capital markets may not
accept an offering to refinance PDHCD's debt without any
strengthening of the security for the debt. This bill's
statutory lien will provide investors with additional security
that parcel taxes will remain subject to a lien and pledged to
the repayment of COPs, even in the event of a bankruptcy. As a
result, COPs issued pursuant to this bill will receive a higher
rating, which will, in turn, decrease PDHCD's debt service costs
and improve its fiscal condition. This bill does not create a
new tax or increase existing taxes. This bill simply pledges
the PDHCD's existing parcel tax revenues to allow PDHCD to
continue providing vital medical services to residents in
western Sonoma County.
Prior Legislation
SB 644 (Hancock, Chapter 742, Statutes of 2011) authorized the
West Contra Costa Health Care District to sell COPs secured by a
statutory lien on the district's voter-approved property tax
revenues.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
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SUPPORT : (Verified 3/19/14)
Association of California Healthcare Districts
Palm Drive Health Care District
AB:e 3/20/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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