BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 2414                          |Hearing    |6/22/16  |
          |          |                                 |Date:      |         |
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          |Author:   |Eduardo Garcia                   |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/18/16                          |Fiscal:    |Yes      |
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          |Consultant|Weinberger                                            |
          |:         |                                                      |
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                              Desert Healthcare District



          Establishes an annexation process to expand the Desert  
          Healthcare District's boundaries that is exempt from some  
          statutes that generally govern district annexations.


           Background 

           The Cortese-Knox-Hertzberg Act controls how local officials  
          change the boundaries of cities and special districts, putting  
          local agency formation commissions (LAFCOs) in charge of the  
          proceedings.  LAFCOs' boundary decisions must be consistent with  
          spheres of influence (SOIs) that LAFCOs adopt to show the future  
          boundaries and service areas of the cities and special  
          districts.  Before LAFCOs can adopt their spheres of influence,  
          they must prepare municipal service reviews (MSRs) which analyze  
          population growth, public facilities, and service demands.   
          LAFCOs may also conduct special studies of local governments.

          Most boundary changes begin when a city or special district  
          applies to LAFCO, or when registered voters or landowners file  
          petitions with a LAFCO.  In limited circumstances, LAFCO can  
          initiate some special district boundary changes: consolidations,  
          dissolutions, mergers, subsidiary districts, or reorganizations  
          (AB 1335, Gotch, 1993).  Boundary changes, including  
          annexations, require four (sometimes five) steps:
                 First, there must be a completed application to LAFCO,  







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               including a petition or resolution, an environmental review  
               document, and a property tax exchange agreement between the  
               county and the district.

                 Second, LAFCO must hold a noticed public hearing, take  
               testimony, and may approve the proposed annexation.  LAFCO  
               may impose terms and conditions relating to revenues and  
               other considerations.  If LAFCO disapproves, the proposed  
               annexation stops.

                 Third, LAFCO must hold another public hearing to measure  
               protests.

                 Fourth, if there was sufficient protest, an election  
               must occur.  A successful annexation requires  
               majority-voter approval.

                 Finally, LAFCO's staff files formal documents to  
               complete the annexation.

          The Desert Healthcare District was created in 1948 to provide  
          healthcare services to residents in the Coachella Valley within  
          a 457 square mile area that includes Palm Springs, Desert Hot  
          Springs, Cathedral City, Thousand Palms, Rancho Mirage, Mountain  
          Center, San Gorgonio, and the area of Palm Desert west of Cook  
          Street.  The District built and began operating Desert Hospital,  
          which is now known as Desert Regional Medical Center.  Since  
          1986, the District's Board had leased hospital operations to  
          medical facility providers.  In 1997, the Board voted to lease  
          the hospital to Tenet Health Systems for a 30-year period.  The  
          District continues to own the lease and other assets, including  
          the Las Palmas Medical Plaza, while Tenet runs the operations of  
          the 387-bed acute care hospital.  

          According to the District, with an operating budget of roughly  
          $9 million, the District allocates more than $3 million each  
          year on grants and other programs.  The District has adopted a  
          grant program to invest in non-profits and public agencies whose  
          activities and programs improve the health and wellbeing of  
          District residents.  The District is funded by property tax paid  
          by the residents of the District, revenue for working capital  
          for the hospital in the event the lease with Tenet is  
          terminated, and rental income from the medical plaza.  The  
          District is governed by a five-member Board elected at-large.  








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          Some public officials want to expand the District's boundaries  
          to provide services in communities within the Eastern Coachella  
          Valley that lack adequate access to health care.


           Proposed Law

           Assembly Bill 2414 establishes an annexation process for the  
          District to include the East Coachella Valley region, and  
          provides a new governance structure for the District's Board of  
          Directors, if the District is expanded pursuant to the process  
          established by this bill.  

          AB 2414 requires the Riverside County Board of Supervisors, on  
          or before January 5, 2017, to file a resolution of application  
          with Riverside LAFCO, to initiate proceedings by Riverside LAFCO  
          for the expansion of the District to include the East Coachella  
          Valley region.  The Board of Supervisors must pay any fees  
          associated with the resolution of application.  

          AB 2414 requires the Riverside LAFCO proceeding to be deemed  
          initiated on the date the resolution of application is accepted  
          for filing.  Riverside LAFCO must hold a hearing and provide  
          specified notice. 

          AB 2414 requires the expanded District to include all  
          communities currently served by the District as of the date the  
          resolution of application is filed and the communities of Indian  
          Wells, La Quinta, Indio, and Coachella, and the unincorporated  
          areas of Bermuda Dunes, Mecca, Thermal, Oasis, North Shore, and  
          Vista Santa Rosa.  

          AB 2414 requires Riverside LAFCO to complete the proceeding and  
          direct the election no later than 150 days following receipt of  
          the completed resolution of application.  

          AB 2414 prohibits the resolution of application, filed by the  
          Board of Supervisors, from being subject to any protest  
          proceedings and prohibits Riverside LAFCO from disapproving the  
          resolution of application.  

          AB 2414 requires Riverside LAFCO to order the expansion of the  
          District subject to a vote of the registered voters residing  








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          within the territory to be annexed to the District at an  
          election following the completion of their proceedings.   
          Riverside LAFCO must direct the Board of Supervisors to direct  
          county officials to conduct the election, as specified, for the  
          District's expansion and any necessary funding source that  
          requires voter approval on the ballot at the next countywide  
          election.  













































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          AB 2414 requires the District to be expanded in accordance with  
          this bill, if the following occur:
                 A majority of the voters within the territory proposed  
               to be annexed to the District vote in favor of the  
               expansion; and,

                 A number of voters required under applicable law to  
               approve any necessary funding source that requires voter  
               approval vote in favor of that funding source.  

          AB 2414 requires the District's board, 30 days after the  
          expansion of the District, to adopt a resolution to increase the  
          number of board members from five to seven without the petition  
          or approval of the voters residing within the District.  The  
          Board's resolution must be effective on the date of, and subject  
          to any conditions specified in the resolution.  

          AB 2414 requires the Board to appoint two additional Board  
          members that are registered voters and residents of the  
          territory annexed pursuant to this bill.  

          AB 2414 specifies the manner in which the new board members'  
          term must be staggered and requires a vacancy to be filled  
          pursuant to existing law which provides an appointment process  
          for the Board.  

          AB 2414 provides that the increase to the membership of the  
          Board and appointment of two new members only becomes operative,  
          if the District is expanded in accordance with the annexation  
          process established by this bill.  

          AB 2414 exempts the expansion of the District from the  
          Cortese-Knox-Hertzberg Local Government Reorganization Act,  
          except as specified in this bill.  The bill provides that the  
          Act applies to any other change of organization or  
          reorganization, following the reorganization of the District  
          pursuant to this bill.


           State Revenue Impact

           No estimate.









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           Comments

           1.  Purpose of the bill  .  AB 2414 responds to significant  
          barriers that impede Eastern Coachella Valley residents' access  
          to health care providers and services.  Some of the barriers  
          include shortages in the number of primary care providers,  
          shortages in various medical and surgical specialties, a lack of  
          urgent care services, and a lack of transportation.  Solving  
          these persistent barriers has proven to be challenging.  Even  
          with expanded Medicaid or commercial insurance coverage for  
          eligible residents through the Affordable Care Act, industry  
          analysts remain concerned that the number and capacity of  
          providers will prove inadequate to meet demand.  Expanding  
          Desert Healthcare District will help to address the persistent  
          needs in these underserved communities.

          2.   LAFCO and local control  .  State law makes LAFCOs responsible  
          for encouraging orderly formation and development of local  
          agencies based on local conditions and circumstances.  The local  
          officials who sit on the Riverside County LAFCO, not 120  
          legislators from throughout California, are in the best position  
          to evaluate the local conditions and circumstances that should  
          determine the governance of the Desert Healthcare District.   
          Some complex issues surrounding the District's expansion, such  
          as what revenues will be available to pay for services in the  
          expanded territory, are left unanswered by AB 2414.  The bill  
          requires that the vote to expand the District must also seek  
          voter approval of "any necessary funding source," but does not  
          specify what local entity will determine whether a funding  
          source is "necessary."  Mandating that voters should decide  
          whether to approve the District's expansion without ensuring  
          that adequate revenues will be available could result in voters  
          becoming disillusioned if the expanded District lacks the  
          resources to fulfill public needs and expectations.  Having a  
          public discussion among local stakeholders about these complex  
          issues is one of the many advantages of the LAFCO reorganization  
          process.  The Committee may wish to consider amending AB 2414 to  
          require that LAFCO must approve a proposed revenue source to  
          support the District's expansion.  

          3.   Precedent  .  AB 2414 is one of several bills that the  
          Legislature has considered in recent years that limit the  
          discretion and authority that state law generally grant to  








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          LAFCOs over boundary changes and reorganizations.  For example,  
          AB 1232 (Huffman, 2010) allowed for the consolidation of the  
          Sewerage Agency of Southern Marin and its member districts,  
          after notice and hearing, but without protest hearings, AB 2453  
          (Achadjian, 2014) established a special process for forming the  
          Paso Robles Water District, and AB 3 (Williams, 2015) created a  
          special process for forming the Isla Vista Community Services  
          District.  Continuing to enact special legislation circumventing  
          the LAFCO process for individual local government boundary  
          changes and reorganizations may set a precedent that invites  
          regular legislative involvement in all manner of disputes over  
          local service delivery and boundary issues.

          4.   Expansion  ?  Like several other local healthcare districts  
          throughout California, the Desert Healthcare District no longer  
          owns or operates a hospital and does not provide any direct  
          health care services to its residents.  Instead, the District  
          relies largely on property tax revenues to make grants to  
          support health care-related activities.  According to its most  
          recent audited financial report, the District spent $4.2 million  
          - or 55% of its annual revenues - on grants while spending $2.7  
          million - or 35% of its annual revenues - on administrative  
          costs.  In the past two years, the District has faced criticism  
          for making grants to a foundation that allegedly spent some of  
          the funds on programs that benefitted communities outside of the  
          District's boundaries.  The District has also experienced some  
          recent governance issues, including being sued by one of its own  
          board members and subsequently having its chief executive  
          officer resign.  Expanding a healthcare district that no longer  
          performs its original functions and is the focus of questions  
          about its governance and spending decisions may not be the best  
          way to address the undeniable and important health care needs of  
          communities in the Eastern Coachella Valley.  

          5.   Mandate  .  The California Constitution requires the state to  
          reimburse local governments for the costs of new or expanded  
          state mandated local programs.  Because AB 2414 imposes  
          additional duties on Riverside County officials, Legislative  
          Counsel says that it imposes a new state mandate.  AB 2414  
          requires the state to reimburse local agencies if the Commission  
          on State Mandates determines that the bill imposes a  
          reimbursable mandate.

          6.   Special legislation  .  The California Constitution prohibits  








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          special legislation when a general law can apply (Article IV,  
          §16).  AB2414 contains findings and declarations explaining the  
          need for legislation that applies only to the Desert Health Care  
          District. 


           Assembly Actions

           Assembly Local Government Committee:  7-1
          Assembly Appropriations Committee:15-5
          Assembly Floor:               50-25


           Support and  
          Opposition   (6/16/16)


           Support  : Borrego Community Health Foundation; Clinicas De Salud  
          Del Pueblo; Comite Civico del Valle; Inland Congregations United  
          for Change; La Union Hace La Fuerza.

           Opposition  :  California Association of Local Agency Formation  
          Commissions; Riverside County Local Agency Formation Commission.



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