BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2471|
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THIRD READING
Bill No: AB 2471
Author: Quirk (D), et al.
Amended: 8/1/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 4-1, 6/22/16
AYES: Hertzberg, Nguyen, Beall, Pavley
NOES: Moorlach
NO VOTE RECORDED: Hernandez, Lara
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 69-0, 5/12/16 - See last page for vote
SUBJECT: Health care districts: dissolution
SOURCE: Author
DIGEST: This bill requires the Alameda County Local Agency
Formation Commission (LAFCO) to order the Eden Township
Healthcare District's (ETHD's) dissolution if the District meets
specified criteria.
ANALYSIS:
Existing law:
1)Establishes the procedures for the organization and
reorganization of cities, counties, and special districts
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under the Cortese-Knox-Hertzberg Local Reorganization Act of
2000.
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 a 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.
This bill:
1)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.
2)Specifies four criteria that, if they are all met, would
require the Alameda County LAFOC to order ETHD's dissolution:
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 health care
service, which this bill defines as the ownership or
operation of a hospital, medical clinic, wellness center,
or ambulance service.
d) The District fails to comply with a requirement that it
must spend at least 80% of its annual budget on community
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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).
3)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.
Background
The Cortese-Knox-Hertzberg Act controls how local officials
change the boundaries of cities and special districts, putting
local agency formation commissions 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 SOIs, 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, Chapter 1307, Statutes of 1993). Boundary
changes, including district dissolutions, require four
(sometimes five) steps:
First, there must be a completed application to LAFCO,
including a petition or resolution, an environmental review
document, and a property tax exchange agreement between the
county and the district.
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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, Chapter 109,
Statutes of 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.
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The 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 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
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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.
Comments
Purpose of the bill. This bill 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
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.
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
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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,
legislators may wish to consider whether it is appropriate for
the Legislature to override local control by inserting itself
into this local boundary dispute.
Precedent. This bill 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, Chapter 518, Statutes of 2009) 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, Chapter 350, Statutes of 2014)
established a special process for forming the Paso Robles Water
District, and AB 3 (Williams, Chapter 548, Statutes of 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.
Mandate. The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because this bill imposes
additional duties on Alameda County LAFCO officials, Legislative
Counsel says that it imposes a new state mandate. This bill
requires the state to reimburse local agencies if the Commission
on State Mandates determines that the bill imposes a
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reimbursable mandate.
Special legislation. The California Constitution prohibits
special legislation when a general law can apply (Article IV,
§16). This bill contains findings and declarations explaining
the need for legislation that applies only to ETHD.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified8/2/16)
Alameda County
OPPOSITION: (Verified8/2/16)
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
ARGUMENTS IN SUPPORT: Supporters argue that ETHD is no
longer fulfilling the public health purposes for which it was
originally established and 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
ARGUMENTS IN OPPOSITION: Opponents argue that the
Legislature should not override local control by inserting
itself into this local boundary dispute and that this bill may
set a precedent that invites regular legislative involvement in
all manner of disputes over local service delivery and boundary
issues.
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ASSEMBLY FLOOR: 69-0, 5/12/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Baker, Bigelow,
Bloom, Bonilla, Bonta, Brown, Calderon, Campos, Chau, Chávez,
Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman,
Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Quirk, Ridley-Thomas,
Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond,
Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Atkins, Brough, Burke, Chang, Dahle, Beth
Gaines, Harper, Jones-Sawyer, Mathis, Mayes, Patterson
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
8/3/16 19:36:08
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