BILL ANALYSIS Ó AB 2737 Page 1 Date of Hearing: May 18, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2737 (Bonta) - As Amended April 11, 2016 ----------------------------------------------------------------- |Policy |Local Government |Vote:|7 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill requires a "nonprovider healthcare district" to spend at least 80% of its annual budget on community grants awarded to organizations that provide direct health services, and prohibits more than 20% of its annual budget to be spent on administrative expenses. The bill contains parameters such that it only applies to the Eden Township Healthcare District (District) in Alameda County. FISCAL EFFECT: AB 2737 Page 2 Unknown costs to the District, likely minor, to comply with the administrative requirements in the bill. Any costs are potentially reimbursable, should the District choose to submit a claim to the Commission on State Mandates and the Commission determines the costs are reimbursable. COMMENTS: 1)Purpose. According to the author, "The Eden Township Healthcare District was established to serve the health needs of Castro Valley, San Leandro, San Lorenzo, Hayward and other nearby communities. At one point, Eden owned and operated a hospital and provided direct healthcare services to the community. Currently, Eden no longer owns or operates a hospital and does not provide any direct health services to the public. Aside from managing buildings they own, Eden primarily serves as a grant making entity with the purpose of providing grants to community non-profits to provide healthcare services to the public. In 2013 and 2014, Eden spent almost twice as much on salaries and benefits for its three employees compared to what it gave out in community grants for healthcare services. The basic foundation for a healthcare district's existence is to provide healthcare services to the community it serves. When that basic premise is not being followed, rules need to be set in place for the benefit of the community." 2)Background. The Eden Township Healthcare 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 AB 2737 Page 3 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 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. 3)Amendment Needed. The District has committed to paying damages claimed by Sutter Health, which was sued by the District. The District currently owes $17 million on the court judgement and pays $2 million annually. This payment does not appear to fit into either side of the 80/20 requirement in the bill. It is not clear that the District can comply with the bill as written. Staff notes that failure to comply with this bill is one of the criteria set forth in AB 2471 (Quirk), currently in the Senate, necessary for dissolution of the District. The Committee may wish to consider amending the bill to clarify how the court judgment payment fits into the 80/20 AB 2737 Page 4 requirement. 4)Arguments in Support. According to the City of San Leandro, "?one of the top priorities for the City of San Leandro is a legislative solution to help address the financial sustainability of San Leandro Hospital. With the resolution of the six-year lawsuit between Eden Township Healthcare District and Sutter regarding San Leandro Hospital, it is imperative to activate Eden's obligation to the San Leandro community and create a sustainable environment for the hospital. The basic foundation for a healthcare district's existence is to provide healthcare services. When a healthcare district isn't following that basic premise, rules need to be put in place. Fortunately, AB 2737 serves to create an appropriate set of rules to address this issue." 5)Arguments in Opposition. According to the Association of California Healthcare Districts, "While we can appreciate that there may be local concerns about the level, type, and cost of services provided, we assert that the best approach to addressing those concerns is through engagement with the duly elected trustees of the district. Statewide measures like AB 2737 have the effect of bypassing an important local discourse and are likely to impose unintended consequences on other local agencies not involved in the controversy." 6)Related Legislation. a) AB 2471 (Quirk), awaiting referral in the Senate, would require LAFCO to order the dissolution of the Eden Township Healthcare District without an election, if the district AB 2737 Page 5 meets specified criteria. b) 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. Analysis Prepared by:Jennifer Swenson / APPR. / (916) 319-2081