BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 582
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 582 (Levine and Chesbro)
          As Amended  February 24, 2014
          2/3 vote.  Urgency
           
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          |ASSEMBLY:  |     |(May 29, 2013)  |SENATE: |34-0 |(April 10,     |
          |           |     |                |        |     |2014)          |
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               (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
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          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
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           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
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          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 


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