BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2471 |Hearing |6/22/16 |
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|Author: |Quirk |Tax Levy: |No |
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|Version: |5/10/16 |Fiscal: |Yes |
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|Consultant|Weinberger |
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Health care districts: dissolution
Requires the Alameda County Local Agency Formation Commission to
order the Eden Township Healthcare District's dissolution if the
District meets specified criteria.
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 district
dissolutions, 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 district
dissolution. LAFCO may impose terms and conditions that
spell out what happens to the district's assets and
liabilities. If LAFCO disapproves, the proposed
dissolution stops.
Third, LAFCO must hold another public hearing to measure
protests. In general, LAFCO must order an election on the
proposed dissolution, but there are many statutory
exemptions. For example, if a district has been inactive
for three years, no election is required.
Fourth, if state law requires an election, it occurs
among the district's voters. A successful dissolution
requires majority-voter approval.
Finally, LAFCO's staff files formal documents to
complete the dissolution.
In response to concerns that these complex procedures posed an
obstacle to dissolving special districts that have outlived
their usefulness, the Legislature enacted an expedited process
for dissolving special districts (AB 912, Gordon, 2011). If a
proposed dissolution of a special district is consistent with a
LAFCO's prior action regarding a special study, SOI, or MSR, the
expedited process allows LAFCO to order the dissolution either:
Without an election or protest proceedings if the
dissolution was initiated by the district's board, or
After holding a noticed public hearing and protest
proceedings if the dissolution was initiated by an affected
local agency, LAFCO, or a petition. If a majority-protest
exists at the hearing, LAFCO must stop the dissolution.
Absent a majority-protest, LAFCO must order the dissolution
without an election.
The Eden Township Healthcare District (ETHD) was established by
the voters in 1948 to finance construction of Eden Hospital,
which opened in 1954. ETHD is governed by a five-member board
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of directors elected to four-year terms and serves a 130 square
mile area that includes the City of San Leandro, most of the
City of Hayward, and the unincorporated areas of Castro Valley
and San Lorenzo. In 1998, ETHD transferred all of the net
operating assets and operations of Eden 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 ETHD 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.
ETHD 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. ETHD does
not receive any property tax, special tax, or benefit
assessments. The main source of revenue is rental income.
ETHD's 2016 budget allocates $340,000 for salaries and benefits
provided to district employees, while allocating $250,000 to
grants to health service providers. The $219,000 that ETHD has
budgeted in 2016 for consulting legal, accounting, and public
relations costs is nearly as much as it budgeted for grants.
Alameda County LAFCO's 2012 MSR identified three governance
structure options for ETHD: annexation of the City of Dublin by
ETHD; dissolution; or, consolidation with Washington Township
Healthcare District. The MSR found that while ETHD no longer
owns and operates a hospital, it is premature to dissolve it,
pointing to the grant funding, leased office space, and an
indication from ETHD of their willingness to provide direct
services in the future.
Because ETHD provides no direct services, receives no property
tax revenues, and devotes a relatively small share of its
expenditures towards funding for health care providers, some
Alameda County officials want to require LAFCO to order ETHD's
dissolution through an expedited dissolution process.
Proposed Law
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Assembly Bill 2471 requires the Alameda County LAFCO to review
ETHD's compliance with specified criteria and, if all of the
criteria are met, order ETHD's dissolution.
AB 2471 specifies four criteria that, if they are all met, would
require the Alameda County LAFOC to order ETHD's dissolution:
The district does not currently receive a property tax
allocation.
The district has substantial net assets.
The district does not provide a direct health care
service, which the bill defines as the ownership or
operation of a hospital, medical clinic, wellness center,
or ambulance service.
The district fails to comply with a requirement that it
must spend at least 80% of its annual budget on community
grants awarded to organizations that provide direct health
services and must not spend more than 20% of its annual
budget on administrative expenses, if that requirement is
enacted by AB 2737 (Bonta, 2016).
AB 2471 requires that, if LAFCO orders the district's
dissolution pursuant to the bill's provisions, the dissolution
must be subject to the expedited dissolution process, set forth
in a specified statute, which requires the commission to order a
dissolution after holding at least one noticed public hearing,
and after conducting protest proceedings.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 2471 narrowly requires Alameda County
LAFCO to order the dissolution of a single healthcare district
that meets criteria that strongly suggest it is no longer
fulfilling the public health purposes for which it was
originally established. ETHD provides no direct health care
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services. According to ETHD's 2015 audited financial
statements, all of its operating revenues were derived from
rental income and tenant reimbursements associated with leasing
of district-owned properties. ETHD has been criticized for the
high proportion of its spending that goes towards salaries,
administrative, and overhead costs in comparison to the amount
that it directly spends on community health needs.
Additionally, some of the ETHD's community spending raises
questions about the district's priorities and purpose. For
example, in recent years ETHD has spent district funds on
sponsorships of community organizations and events that appear
to have relatively tenuous connections to community health care
needs, including the Hayward Area Historical Society's
"Martini-Madness Gala," a Rotary Club "Lobsters for Literacy"
fundraiser, charity golf tournaments, and a community rodeo
parade. By eliminating high salaries, inefficient overhead
costs, and questionable spending, dissolving ETHD could allow
more of its financial resources to be focused on providing
direct health benefits to residents within the area it currently
serves.
2. Premature ? 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 Alameda 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 ETHD. Recent experience
demonstrates that LAFCOs can act decisively to reorganize
disfunctional special districts without legislative
interference. For example, the Contra Costa LAFCO's successful
reorganization of the Mount Diablo Healthcare District in 2012
was initiated at the local level and involved circumstances that
have some parallels to ETHD's. At its June 14, 2016 meeting,
the Hayward City Council approved a resolution authorizing the
City Manager to make application to Alameda County LAFCO asking
the Commission to consider the question of the possible
dissolution of ETHD. The staff report accompanying that
resolution noted that bypassing LAFCO by pursuing dissolution
through state legislation had disadvantages and stated that,
"Legislation may have a role in the process should the community
decision be made to dissolve the District, but it appears
premature at this point." In light of these efforts to evaluate
dissolution through the existing LAFCO process, the Committee
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may wish to consider whether it is appropriate for the
Legislature to override local control by inserting itself into
this local boundary dispute.
3. Precedent . AB 2471 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
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. Definition . One of the criteria that AB 2471 requires
Alameda LAFCO to review is whether ETHD has "substantial net
assets." However, the bill provides no guidance for what
constitutes a "substantial" amount of net assets. This
ambiguity may make it difficult for LAFCO to make a
determination about this criterion that would not be subject to
challenge. The Committee may wish to consider amending AB 2471
to specify a threshold amount of net assets or a ratio of net
assets to expenditures on health services that would meet the
definition of "substantial net assets."
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 2471 imposes
additional duties on Alameda County LAFCO officials, Legislative
Counsel says that it imposes a new state mandate. AB 2471
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
special legislation when a general law can apply (Article IV,
§16). AB 2471 contains findings and declarations explaining the
need for legislation that applies only to Eden Township
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Healthcare District.
7. Related legislation . AB 2737 (Bonta), which is awaiting a
hearing in the Senate Health Committee, 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 spending more than
20% of their annual budgets on administrative expenses. AB 2910
(Assembly Local Government Committee, 2016) adds a statutory
cross-reference to clarify that the expedited dissolution
process for special districts enacted by AB 912 (Gordon, 2011)
applies to all special districts, including health care
districts. AB 2414 would require Riverside County LAFCO to
submit to voters a proposal to expand the Desert Healthcare
District.
Assembly Actions
Assembly Local Government Committee:8-0
Assembly Floor: 69-0
Support and
Opposition (6/16/16)
Support : Alameda County.
Opposition : Alameda Local Agency Formation Commission;
Association of California Healthcare Districts; California
Association of Local Agency Formation Commissions; California
Special Districts Association; Eden Township Healthcare
District.
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