BILL ANALYSIS Ó
AB 2471
Page 1
ASSEMBLY THIRD READING
AB
2471 (Quirk)
As Amended May 10, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |8-0 |Eggman, Waldron, | |
|Government | |Mullin, Bonilla, | |
| | |Chiu, Cooley, Gordon, | |
| | |Linder | |
| | | | |
| | | | |
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SUMMARY: Requires the Alameda County local agency formation
commission (Alameda LAFCO) to order the dissolution of the Eden
Township Healthcare District (District), if the District meets
specified criteria. Specifically, this bill:
1)Requires Alameda LAFCO to order the dissolution of the Eden
Township Healthcare District, if the healthcare district meets
all of the following criteria:
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a) The District does not currently receive a property tax
allocation;
b) The District has substantial net assets;
c) The District does not provide a direct healthcare
service; and,
d) The District fails to comply with the specified
provisions of AB 2737 (Bonta) of the current legislative
session.
2)Requires Alameda LAFCO to review the compliance of the
District with the criteria in 1) above.
3)Requires the dissolution, if Alameda LAFCO orders the
dissolution of the District subject to 1) above, to be subject
to the provisions for the expedited dissolution process,
pursuant to existing law.
4)Defines "Direct healthcare service" to mean the ownership or
operation of a hospital, medical clinic, wellness center, or
ambulance service.
EXISTING LAW:
1)Establishes the procedures for the organization and
reorganization of cities, counties, and special districts
under the Cortese-Knox-Hertzberg Local Reorganization Act of
2000 (Act).
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2)Defines "dissolution" to mean the dissolution,
disincorporation, extinguishment, and termination of the
existence of a district and the cessation of all its corporate
powers, except as the LAFCO may otherwise provide, pursuant to
existing law, or for the purpose of winding up the affairs of
the district.
3)Defines "sphere of influence" to mean a plan for the probable
physical boundaries and service area of a local agency, as
determined by LAFCO.
4)Provides any resolution adopted by LAFCO on or after January
1, 1986, ordering the dissolution of a healthcare district is
subject to confirmation by the voters.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Healthcare Districts. Near the end of World War II,
California faced a severe shortage of hospital beds. To
respond to the inadequacy of acute care services in the
non-urban areas of the state, the Legislature enacted the
Local Hospital District Law, with the intent to give rural,
low-income areas without ready access to hospital facilities,
a source of tax dollars that could be used to construct and
operate community hospitals and health care institutions in
medically underserved areas, to recruit physicians and support
their practices. The Local Hospital District Law (now called
the Local Health Care District Law) allowed communities to
create a new governmental entity, independent of local and
county jurisdictions that had the power to impose property
taxes, enter into contracts, purchase property, issue debt,
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and hire staff. In general, the process of creating a
hospital district started with citizens in a community
identifying the need for improved access to medical care.
According to the Association of California Healthcare
Districts, there are currently 78 districts, of which three
have stand-alone skilled nursing facilities; 54 are rural; 34
hospitals, 20 of which are critical access; and, five have
stand-alone clinics. These institutions provide a significant
portion of the medical care to minority populations and the
uninsured in medically underserved regions of the state and
are mainly funded by Medicare, Medi-Cal, and district tax
dollars.
2)LAFCOs and District Dissolution. LAFCOs are responsible for
coordinating logical and timely changes in local governmental
boundaries, conducting special studies that review ways to
reorganize, simplify, and streamline governmental structures,
and preparing a sphere of influence for each city and special
district within each county. The courts refer to LAFCOs as
the Legislature's "watchdog" over local boundary changes. The
Act establishes procedures for local government changes of
organization, including special district dissolution. LAFCOs
regulate boundary changes through the approval or denial of
proposals by other public agencies or individuals for these
procedures.
The Act prescribes a process for the dissolution of special
districts, which is similar to most boundary changes that
require numerous steps: a) Initiation of LAFCO process, by
petition of property owners or registered voters in the
district or resolution of an affected agency; b) Noticed
public hearing, testimony, and approval or disapproval by
LAFCO; c) Additional public hearing for protests and in
specified cases LAFCO must order an election on the proposed
dissolution; d) Dissolution election, if required, among
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district's voters, which requires a majority vote approval;
and, e) LAFCO staff files documents to complete the
dissolution.
AB 912 (Gordon), Chapter 109, Statutes of 2011, created an
expedited process for the dissolution of special districts.
Under this expedited process, if the proposed dissolution is
initiated by the special district's board and dissolution is
consistent with a prior action of LAFCO regarding a special
study, sphere of influence, or municipal service review, LAFCO
can order dissolution without protest or election. If the
dissolution was initiated by an affected local agency, LAFCO,
or petition, LAFCO must hold a public hearing to consider
protest, and if there is no majority protest LAFCO, must order
the dissolution without an election. Existing law also
requires that a resolution adopted by LAFCO ordering the
dissolution of a healthcare district to be subject to
confirmation by the voters. Due to this provision and the
expedited dissolution process put in place by AB 912, there is
some ambiguity in existing law about a LAFCO's ability to
order the dissolution of a healthcare district without an
election.
3)Bill Summary. This bill requires Alameda LAFCO to order the
dissolution of the District, if the healthcare district meets
specified criteria. The criteria established by this bill
would require the expedited dissolution of the District if the
District: a) does not currently receive property tax; b) has
substantial net assets; c) does not own or operate a hospital,
medical clinic, wellness center, or ambulance service; and, d)
fails to comply with the provisions of AB 2737 (Bonta). If
Alameda LAFCO orders the dissolution of the District, the
expedited dissolution process pursuant to AB 912 (Gordon),
would require Alameda LAFCO to hold at least one noticed
public hearing, and after conducting protest proceedings,
order an election only if majority protest is registered.
This bill is sponsored by Alameda County.
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4)Author's Statement. According to the author, "?in Alameda
County, Eden Township Healthcare District (ETHD) does not
provide any direct healthcare services. Their revenue source
is mostly derived from commercial property rental income
which, along with cash and securities, has a net value of
$45.6 million. In 2015, ETHD spent 85% of its budget on
administrative expenditures, such as salaries, benefits,
utilities and other professional services, while only
disbursing 15% of their budget on grants to service providers
and sponsorships. Furthermore, ETHD pays less than half of 1%
of its annual net assets towards charitable activities."
5)Eden Township Healthcare District. According to Alameda
County Local Agency Formation Commission's (LAFCO) 2012
municipal service review (MSR), the District was established
by the voters in 1948 to finance construction of Eden
Hospital, which opened in 1954. In 1998, the District
transferred all of the net operating assets and operations of
the hospital to Sutter Health. In 2004, the District
purchased San Leandro Hospital and leased it to Sutter Health.
In order to comply with seismic safety laws, the District
entered into an agreement with Sutter Health to replace Eden
Medical Center. The 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.
Currently, the District provides grant funding to
health-related organizations through a Community Health Fund
and owns three office buildings, where it leases office space
to healthcare providers. The District does not receive any
property tax, special tax, or benefit assessments. The main
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source of revenue is rental income. The District consists of
130 square miles and includes the City of San Leandro, most of
the City of Hayward, and the unincorporated areas of Castro
Valley and San Lorenzo, and is governed by a five-member board
of directors elected to four-year terms.
Alameda LAFCO's MSR identified three governance structure
options for the District:
a) annexation of the City of Dublin by the District; b)
dissolution; or, c) consolidation with Washington Township
Healthcare District. The MSR found that while the District no
longer owns and operates a hospital, it is premature to
dissolve the District, pointing to the grant funding, leased
office space, and an indication from the District of their
willingness to provide direct services in the future.
6)Controversy and Subsequent Legislation. Recent controversy
surrounding several healthcare districts has brought greater
media and legislative scrutiny on several issues, including
their fiscal management. The Assembly Committee on
Accountability and Administrative Review conducted several
hearings regarding healthcare districts, and focused
specifically on healthcare districts that do not operate
hospitals. Additionally, the Legislative Analyst Office (LAO)
produced a report entitled, "Overview of Health Care
Districts", in April 2012 in response to several healthcare
districts that have declared bankruptcy since 2000. There
have also been concerns regarding districts maintaining
reserve balances in the tens of millions of dollars. For
example, Peninsula Health Care District and Beach Cities
Health District have each reported over $45 million in
unrestricted net assets (reserves) at the end of June 2011.
Additionally, according to the LAO report, several LAFCOs have
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considered dissolving districts. Five districts have been
dissolved or otherwise reorganized since 2000. Since that
time, the Contra Costa County LAFCO consolidated Mount Diablo
Healthcare District into the City of Concord. The Mount
Diablo Healthcare District did not operate a hospital and
similar concerns were expressed about the amount of revenue
spent on administrative costs, instead of on grant funding for
community health needs. Contra Costa LAFCO is currently
undertaking a special study to examine governance options,
including dissolution, for West Contra Costa Healthcare
District. Sonoma LAFCO is also in receipt of an application
to begin the dissolution process for a healthcare district.
A Bureau of State Audits' (BSA) audit of Salinas Valley
Memorial Health Care System found that the District's Board
violated open meeting laws to grant overly generous
compensation, retirement, and benefits to the chief executive
officer. This Committee heard several bills addressing the
employment contract between a healthcare district and hospital
administrator, including AB 2115 (Alejo) of 2012; AB 2180
(Alejo), Chapter 322, Statutes of 2012; and AB 130 (Alejo),
Chapter 92, Statutes of 2013.
AB 2418 (Gordon) of 2012 would have required healthcare
districts to expend 95% of any property tax revenue on current
community healthcare benefits.
7)Prior Bills that Established a Modified LAFCO Process. In the
past several years, the Legislature has established a modified
LAFCO process or exempted specified requirements in the LAFCO
process for the formation and consolidation of several special
districts following a history of failed attempts at the local
level including, AB 2453 (Achadjian), Chapter 350, Statutes of
2014, for the creation of the Paso Robles Water District; AB 3
(Williams), Chapter 548, Statutes of 2015, for the formation
of the Isla Vista Community Services District; and, AB 1232
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(Huffman), Chapter 518, Statutes of 2010, for the
consolidation of the Sewerage Agency of Southern Marin and its
member districts, after notice and hearing, but without
protest hearings.
8)Related Legislation. AB 72 (Bonta) of 2015, on the Senate
Inactive File, would have authorized the District, until
January 1, 2026, to impose special taxes within the District,
subject to the approval of two-thirds of the District's
voters.
AB 2737 (Bonta) of the current legislative session, pending in
the Assembly, would require specified healthcare districts to
spend at least 80% of their annual budget on community grants
awarded to organizations that provide direct health services,
and would prohibit more than 20% of their annual budget to be
spent on administrative expenses. The parameters of AB 2737
were also established to address the District.
9)Policy Considerations. The Legislature may wish to consider
the following:
a) Limiting LAFCO Powers. The Legislature has delegated
the power to control local boundaries to the 58 LAFCOs.
This bill bypasses LAFCO, and does not require the usual
dissolution process to occur. The Legislature has seen an
increasing number of bills seeking to bypass the LAFCO
process, therefore, they may wish to consider if this bill
is going against prior directives from the Legislature that
designated fundamental powers to LAFCOs to make these types
of decisions. The Legislature may also wish to ask the
author why the current LAFCO process is not a viable option
for the dissolution of the District and why this bill is
necessary.
Opposition argues that this bill disregards prior actions taken
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by Alameda LAFCO pertaining to the District. Alameda LAFCO
determined the District still has an indirect role in the
provision of healthcare services within its existing boundaries.
If the author does not agree with prior LAFCO actions or
determinations regarding the District, the Committee may wish to
consider if the LAFCO should be reexamined and altered as
opposed to eliminating LAFCOs discretion outright.
b) Healthcare Districts and LAFCO. The relationship
between LAFCOs and healthcare districts is unique in
comparison to other special districts. The Local
Healthcare District Law and the formation of some
healthcare districts predate the Knox Nisbet Act, which
created LAFCOs and formalized the process for establishing
a hospital district. Due to the unique nature of
healthcare services and the long history of healthcare
district's principal act, the Legislature may wish to
consider if there is a need to more clearly define the
relationship between LAFCOs and healthcare districts, and
undertake a closer examination of healthcare districts'
service boundaries, the process of dissolution for
healthcare districts, and the considerations LAFCOs are
required to make when doing an MSR and determining the
sphere of influence for healthcare districts.
c) Net Assets. Opposition argues that the bill does not
define "substantial net assets" and leaves open the
opportunity for wide interpretation.
10)Arguments in Support. Supporters argue that many healthcare
districts still exist that no longer own a hospital or provide
direct healthcare services to the community and therefore may
not be fulfilling their original intent.
11)Arguments in Opposition. Opposition argues that the existing
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local process should be fully utilized before resorting to
state action.
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0002944