BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 72| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 72 Author: Bonta (D), et al. Amended: 9/9/15 in Senate Vote: 27 - Urgency PRIOR VOTES NOT RELEVANT SENATE GOVERNANCE & FIN. COMMITTEE: 4-3, 9/10/15 (pursuant to Senate Rule 29.10) AYES: Beall, Hernandez, Lara, Pavley NOES: Hertzberg, Nguyen, Moorlach SUBJECT: Eden Township Healthcare District: special taxes: authorization SOURCE: Author DIGEST: This bill allows the Eden Township Healthcare District (ETHD) to impose special taxes. Senate Floor Amendments of 9/4/15 delete this bill's contents and instead insert current language allowing the ETHD to impose special taxes pursuant to specified provisions of state law. ANALYSIS: Existing law: 1)Defines a "special tax" as any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. AB 72 Page 2 2)Prohibits a local government from imposing, extending, or increasing any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. 3)Allows a hospital district established pursuant to state law whose hospitals are wholly owned and are operated by the district to impose special taxes, pursuant to specified provisions of state law. 4)Requires that a hospital district's board of directors must determine the basis and nature of any special tax and its manner of collection. 5)Requires that special taxes imposed by a hospital district must apply uniformly to all taxpayers or all real property within the hospital district. This bill: 1)Allows the ETHD, until January 1, 2026, to impose special taxes within the district pursuant to the procedures required by state law. 2)Requires ETHD's board of directors to determine the basis and nature of a special tax and its manner of collection. 3)Requires that special taxes imposed by the ETHD must apply uniformly to all taxpayers or all real property within the district. 4)Declares the Legislature's intent that funds from a tax enacted pursuant to this section must be used to support the purposes of the ETHD, including support of nonprofit and public hospitals and other health care providers in the communities served by the district. AB 72 Page 3 5)Contains a finding and declaration explaining the need for legislation that applies only to the ETHD. Background The 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 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 AB 72 Page 4 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. Comments Purpose of this 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. This bill gives 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. This bill 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. 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. This bill 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 can't Alameda County impose parcel taxes within a county service area established specifically to support San Leandro Hospital? Precedent. ETHD is not the only health care district that continues to exist without actually owning or operating a AB 72 Page 5 hospital. Enacting this bill 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. This bill 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. Good intentions. This bill declares the Legislature's intent to limit the purposes for which ETHD can spend revenues from parcel taxes imposed pursuant to this 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 this bill's current language. Legislators may wish to consider whether this bill 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified9/10/15) Association of California Healthcare Districts OPPOSITION: (Verified9/10/15) Howard Jarvis Taxpayer's Association AB 72 Page 6 ARGUMENTS IN SUPPORT: Supporters argue that this bill allows ETHD to provide vitally-needed financial support to hospitals that serve district residents by seeking voter approval of a parcel tax measure. ARGUMENTS IN OPPOSITION: Opponents question whether a hospital district that doesn't operate its own hospital should have authority to impose special taxes and argue that ETHD may use parcel tax revenues to pay its own substantial debts. ASSEMBLY FLOOR: 78-0, 4/23/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Campos, Salas Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 9/10/15 23:15:34 **** END ****