BILL ANALYSIS                                                                                                                                                                                                    

                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

          |Bill No:  |AB 72                            |Hearing    | 9/10/15 |
          |          |                                 |Date:      |         |
          |Author:   |Bonta                            |Tax Levy:  |No       |
          |Version:  |9/9/15                           |Fiscal:    |No       |
          |Consultant|Weinberger                                            |
          |:         |                                                      |


          Allows the Eden Township Healthcare District to impose special  

           Background and Existing Law

           The Eden Township Healthcare District (ETHD) formed in 1948 to  
          serve the Alameda County communities of Castro Valley, Hayward,  
          San Leandro, and San Lorenzo.  In 1954, ETHD opened Eden Medical  
          Center (EMC) hospital.  In 1997, ETHD's voters approved a merger  
          agreement between ETHD and Sutter Health, which allowed the ETHD  
          to sell EMC to Sutter Health.  In 2004, the ETHD purchased San  
          Leandro Hospital and leased it to EMC to operate.  In 2008, ETHD  
          entered into an agreement with Sutter Health to replace EMC with  
          a newly-constructed hospital that would comply with the state's  
          seismic safety law.  The 2008 agreement also gave Sutter the  
          option to purchase San Leandro Hospital.  On December 21, 2011,  
          an appellate court ruled in favor of Sutter in litigation over  
          the terms of the 2008 agreement.  On October 31, 2013, Sutter  
          transferred San Leandro Hospital to the Alameda Health System,  
          the public health authority that operates Alameda County's  
          health care system.

          San Leandro Hospital is a 93-bed facility that provides a wide  


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          range of medical services, including 24-hour emergency services,  
          critical care, a full complement of skilled surgeons,  
          rehabilitation services, and ancillary services to a population  
          of 265,000 people.  St. Rose Hospital is a 150-bed independent  
          community hospital in Hayward, which provides a range of  
          services including cardiology, emergency, diagnostics, and  
          women's services to residents of Hayward and the surrounding  
          community.  Both San Leandro Hospital and St. Rose Hospital are  
          located within ETHD's jurisdictional boundaries.

          Some Alameda County officials are concerned that fiscal  
          challenges confronting San Leandro Hospital and St. Rose  
          Hospital threaten their ability to continue providing vital  
          health care services to their surrounding communities.  As  
          officials struggle to find additional financial support for  
          those two hospitals, ETHD is considering seeking voter-approval  
          of a parcel tax to generate some of that additional funding.   
          However, state law allows a health care district to impose  
          special taxes, with two-thirds voter approval, only if the  
          district owns and operates its own hospitals (AB 3596, Hauser,  
          Chapter 1345, Statutes of 1988).  Because ETHD no longer owns  
          and operates its former hospitals, it cannot impose special  
          taxes under current law.  ETHD officials want the Legislature to  
          allow the district to impose special taxes regardless of whether  
          it owns or operates a hospital.

           Proposed Law

           Assembly Bill 72 allows the Eden Township Healthcare District,  
          until January 1, 2026, to impose special taxes within the  
          district, pursuant to procedures established in state law.

          AB 72 requires the district's board of directors to determine  
          the basis and nature of a special tax and its manner of  

          AB 72 defines "special taxes," for purposes of the bill's  
          provisions, as special taxes that apply uniformly to all  
          taxpayers or all real property within the district.


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          This bill declares the Legislature's intent that funds from a  
          tax enacted pursuant to this section must be used to support the  
          purposes of the district, including support of nonprofit and  
          public hospitals and other health care providers in the  
          communities served by the district.

           State Revenue Impact

           No estimate.


           1.  Purpose of the bill  .  The 1988 statute authorizing local  
          health care districts to impose parcel taxes within a district's  
          boundaries taxes limited the special tax power only to those  
          districts that own and operate a hospital.  Despite having  
          recently owned San Leandro Hospital, ETHD is prohibited by state  
          law from imposing a parcel tax to support that hospital, which  
          provides vital medical services, including emergency room care,  
          to district residents.  ETHD has provided financial support from  
          its existing revenues to St. Rose hospital, but is prohibited  
          from imposing a parcel tax to help keep that hospital open.  AB  
          72 would give ETHD the same taxing authority that state law  
          already grants to many other local health care districts.  This  
          bill does not require ETHD to seek approval for a parcel tax and  
          leaves the ultimate decision in the hand of district voters, who  
          must approve any proposed parcel tax by a two-thirds vote.  AB  
          72 simply provides ETHD officials with another tool to use to  
          support hospitals and health facilities that serve district  
          residents and are confronting severe fiscal challenges.

          2.   Revenues and responsibilities  .  Principles of efficient  
          public administration suggest that the power to raise revenues  
          should be exercised by the same governing body that has the  
          responsibility for deciding how those revenues are going to be  
          spent.  AB 72 allows parcel taxes for the support of community  
          hospitals to be imposed by local governments that are not  
          directly responsible for those hospitals.  If Alameda County  
          officials want to use parcel tax revenues to support San Leandro  
          Hospital, why not amend state law to allow Alameda County or  
          Alameda Health System to impose the parcel tax, rather than  
          having the revenues pass through ETHD?  Or, alternatively, why  


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          can't Alameda County impose parcel taxes within a county service  
          area established specifically to support San Leandro Hospital?

          3.   Precedent  .  ETHD is not the only health care district that  
          continues to exist without actually owning or operating a  
          hospital.  Enacting AB 72 may invite similar requests from some  
          of the dozens of other healthcare districts throughout  
          California that do not own or operate hospitals.  The continued  
          operation of these healthcare districts without hospitals raises  
          broader policy questions about the need for such districts, and  
          whether they should be dissolved or merged into other local  
          governments.  AB 72 appears to move in a different direction by  
          establishing a precedent that those districts should be granted  
          the power to collect new voter-approved taxes.

          4.   Good intentions  .  AB 72 declares the Legislature's intent to  
          limit the purposes for which ETHD can spend revenues from parcel  
          taxes imposed pursuant to the bill's provisions.  However, this  
          statement of intent, which directs that the district must spend  
          parcel tax revenues "to support the purposes of the district,"  
          may be too broad to have any practical effect on the district's  
          use of revenues.  ETHD faces its own fiscal challenges,  
          including more than $40 million in outstanding bank loans and  
          more than $17 million in obligations resulting from the legal  
          dispute with Sutter Health.  Repaying existing indebtedness or  
          paying for ongoing district expenses appear to be allowable uses  
          for the parcel tax revenues under the bill's current language.   
          The Committee may wish to consider whether AB 72 should more  
          narrowly declare the legislature's intent that ETHD must use  
          parcel tax revenues only to support nonprofit and public  
          hospitals and other health care providers in the communities  
          served by the district.

          5.   Urgency  .  Regular statutes take effect on January 1  
          following their enactment; bills passed in 2014 take effect on  
          January 1, 2015.  The California Constitution allows bills with  
          urgency clauses to take effect immediately if they're needed for  
          the public peace, health, and safety.  AB 72 contains an urgency  
          clause declaring that it is necessary for its provisions to go  
          into effect immediately to ensure that residents of the Eden  
          Township Healthcare District have continued access to critical  
          health care services. 

          6.   Special legislation  .  The California Constitution prohibits  


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          special legislation when a general law can apply (Article IV,  
          16).  AB 72 contains findings and declarations explaining the  
          need for legislation that applies only to the Eden Township  
          Healthcare District. 

          7.   Legislative history  .  As passed by the Assembly, AB 72  
          contained provisions requiring the Department of Health Care  
          Services to submit an application to the federal government for  
          a waiver of federal law, to allow the state to make changes to  
          the operation of the Medi-Cal program.  The Senate Governance &  
          Finance Committee never heard that version of the bill.  The  
          September 4 amendments deleted AB 72's contents and inserted the  
          current language relating to the ETHD's parcel tax powers.   
          Because the new version of the bill falls within the Senate  
          Governance & Finance Committee's policy jurisdiction, the Senate  
          Rules Committee referred the bill to the Governance & Finance  
          Committee for a hearing.   

          Assembly Actions

           Not relevant to the September 9, 2015 version of the bill

           Support and  
          Opposition   (9/9/15)

           Support  : Association of California Healthcare Districts

           Opposition  :  Howard Jarvis Taxpayers Association.

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