BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 2414 |Hearing |6/22/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Eduardo Garcia |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |4/18/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Weinberger | |: | | ----------------------------------------------------------------- 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, AB 2414 (Eduardo Garcia) 4/18/16 Page 2 of ? 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. AB 2414 (Eduardo Garcia) 4/18/16 Page 3 of ? 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 AB 2414 (Eduardo Garcia) 4/18/16 Page 4 of ? 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. AB 2414 (Eduardo Garcia) 4/18/16 Page 5 of ? 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. AB 2414 (Eduardo Garcia) 4/18/16 Page 6 of ? 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 AB 2414 (Eduardo Garcia) 4/18/16 Page 7 of ? 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 AB 2414 (Eduardo Garcia) 4/18/16 Page 8 of ? 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. -- END --