BILL ANALYSIS Ó AB 582 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 582 (Levine and Chesbro) As Amended February 24, 2014 2/3 vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: | |(May 29, 2013) |SENATE: |34-0 |(April 10, | | | | | | |2014) | ----------------------------------------------------------------- (vote not relevant) Original Committee Reference: HEALTH SUMMARY : Enacts a statutory lien to secure certificates of participation issued by the Palm Drive Healthcare District. The Senate amendments delete the Assembly version of this bill, and instead: 1)Require all certificates of participation (COPs) executed and delivered by the Palm Drive Healthcare District (District) between January 1, 2005, and December 31, 2014, including COPs executed and delivered or revenue bonds issued before 2035 to refund the revenue bonds or COPs, to be secured by a statutory lien on all of the revenue generated from parcel taxes levied pursuant to Measure W, approved by the voters on November 2, 2004. 2)Require the lien to arise automatically without the need for any action or authorization by the District. 3)Specify that the lien shall be valid and binding from the time the COPs are executed and delivered or the revenue bonds are issued. 4)Require the parcel tax to be immediately subject to this lien. 5)Require the lien to immediately attach to the parcel tax revenue to 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. AB 582 Page 2 6)Contain an urgency clause. 7)Find and declare that a special statute is necessary because of the unique circumstances applicable only to the District. 8)Find and declare that in order to enable the District to complete its financing, meet its obligations to employees, vendors, and other creditors in a timely manner it is necessary for this act to take effect immediately. EXISTING LAW : 1)Defines "bonds" as any bonds, note, bond anticipation notes, commercial paper, or other evidences of indebtedness, or lease, installment purchase, or other agreements, or COPs therein, that are not issued pursuant to a 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. AB 582 Page 3 AS PASSED BY THE ASSEMBLY , this bill established, until January 1, 2019, complex rehabilitation technology, such as power wheelchairs, specialized wheelchair electronics, and nonstandard manual wheelchairs as a separate benefit, instead of a component of the durable medical equipment benefit in the Medi-Cal program. FISCAL EFFECT : None COMMENTS : This bill enacts a statutory lien to secure COPs issued by the District. This bill is author-sponsored. The District was formed in 2000 to prevent the closure of the Palm Drive Hospital in Sebastopol (Sonoma County). The District 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 the District to impose a parcel tax that generates nearly $4 million in annual revenues. In 2005, the District issued revenue bonds secured by the parcel tax. In 2007, the District filed for bankruptcy protection. The bankruptcy court subsequently approved a plan of adjustment that required the District to sell COPs and use the proceeds to satisfy its obligations under the plan and finance other specified expenses. The District issued $11 million in COPs in 2010, allowing it to exit from bankruptcy. According to the author, "The interest rate on those outstanding bonds is nearly 5% and 7.5% respectively. With the statutory lien that this bill would put in place it is estimated that the District will save over $6.5 million on the interest payments over the life of the existing bonds, because this will allow the District to refinance its existing bonds at what is estimated to be a 4% interest rate. It is important to point out that the change in law made in the bill does not create a new tax or increase existing taxes. This bill puts in place the necessary assurances that lenders are requiring for the district to refinance the existing bonds allowing the savings on interest to go to paying for care instead of to Wall Street." According to the District's financial advisor and attorneys absent strengthening of the security of the debt, the capital markets will not readily accept an offering by the District to provide for refinancing of its existing debt. AB 582 Page 4 This bill is substantially similar to SB 644 (Hancock), Chapter 742, Statutes of 2011, which required all COPs executed and delivered by the West Contra Costa Healthcare 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 the District voters in 2004. The Legislature may wish to consider if other public agencies that have recently emerged from bankruptcy will also come to the Legislature for a statutory lien, and if a more comprehensive policy is needed. Arguments in support. Supporters argue that this bill will allow the District to refinance its existing debt at a lower interest rate which will lessen the hospital's current financial burdens. Arguments in opposition. Opposition may argue that even with the statutory lien the District could still find issuing the COPs difficult. This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. The subject matter of this bill, as amended in the Senate, has not been heard in any Assembly policy committee this legislative session. Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916) 319-3958 FN: 0003080