BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2737


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          Date of Hearing:  May 18, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2737 (Bonta) - As Amended April 11, 2016


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          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:









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          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  








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            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  








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            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  








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               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