BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 198|
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THIRD READING
Bill No: SB 198
Author: Cogdill (R)
Amended: 4/29/09
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE : 4-0, 5/6/09
AYES: Wiggins, Cox, Kehoe, Wolk
NO VOTE RECORDED: Aanestad
SUBJECT : Health care districts
SOURCE : Author
DIGEST : This bill extends the repayment period for local
health care districts lines of credit from five years to 20
years provided that the line of credit is established on or
after January 1, 2010, and established for the sole purpose
of consolidating debts incurred by a district prior to
January 1, 2010. This bill also imposes a $2 million limit
on the total amount of debt a district can have outstanding
at any one time under the line of credit.
ANALYSIS : Existing law, the Local Health Care District
Law, provides that, by a 4/5 vote of the local health care
district's board, a district can issue securitized limited
obligation notes (SLONs) and borrow up to $2 million to be
paid back from designated revenues, over 10 years (SB 1770,
Senate Local Government Committee, Chapter 114, Statutes of
2004).
CONTINUED
SB 198
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By resolution adopted by a majority of the district board,
local health care districts can issue negotiable promissory
notes, which are debts that are not backed by a guaranteed
source of revenue, to acquire funds for any district
purposes (SB 1956, Maddy, 1986). A district must repay its
notes within ten years. The aggregate value of a
district's notes outstanding at any one time may not exceed
85 percent of all estimated income and revenue for the
current fiscal year.
By resolution adopted by a majority of the district board,
a local health care district may enter into a line of
credit with a commercial lender that is secured, in whole
or in part, by the accounts receivable or other intangible
assets of the district, including anticipated tax revenues,
and thereafter borrow funds against the line of credit to
be used for any district purpose (SB 776, Runner, Chapter
554, Statutes of 2005). Any money borrowed under a line of
credit must be repaid within five years from each separate
borrowing or draw upon the line of credit. A district may
enter into a new and separate line of credit to repay a
previous line of credit.
The John C. Fremont Health Care District operates a
hospital, skilled nursing facility, hospice, and three
clinics that provide vital medical services in Mariposa
County. District officials want to reduce the District's
annual debt load by consolidating and refinancing its
current debts into a long-term line of credit.
This bill extends the repayment period for local health
care districts' lines of credit from five years to 20 years
provided that the line of credit is:
1.Established on or after January 1, 2010, and
2.Established for the sole purpose of consolidating debts
incurred by a district prior to January 1, 2010.
This bill imposes a $2 million limit on the total amount of
debt a district can have outstanding at any one time under
the line of credit.
Comments
SB 198
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Health care districts confront a rapidly changing and
competitive marketplace. In meeting these substantial
challenges, the districts need a variety of financing tools
to maintain their fiscal well-being. By allowing health
care districts to consolidate up to $2 million in debt into
a credit line that can be repaid over 20 years, SB 198
enacts a narrow expansion of health care districts'
existing borrowing powers. Using a 20-year line of credit,
the John C. Fremont Health Care District will be able to
lower its annual debt load, which will make more funds
available to pay for the vital medical services that the
District provides to residents and visitors in Mariposa
County.
The 2005 Runner bill let health care districts establish
lines of credit to borrow money for any district purpose,
including operating expenses, for up to five years.
Generally, public agencies use long-term borrowing to
purchase, construct, or rehabilitate tangible assets that
have a useful life equal to or greater than the terms of
the loans used to finance them. SB 198 lets health care
districts refinance debts, which may have been incurred to
pay for payroll, services, or consumable supplies, over 20
years.
When the 2005 Runner bill allowed health care districts to
establish lines of credit for any purpose, the Legislature
didn't limit the total amount of debt that districts can
finance through a line of credit and didn't put firm limit
on how long such debts can be carried because new lines of
credit can be established to repay previous lines of
credit. The lack of limits invites districts to borrow too
much, for too long, for imprudent purposes. By contrast,
the borrowing authority that this bill creates is for a
narrowly defined purpose and a maximum amount of $2
million. The credit lines authorized by the Runner bill
were apparently intended to allow districts to borrow money
to solve cash-flow problems created by delays in receiving
payments for insurance claims, particularly from Medi-Cal.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/6/09)
SB 198
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John C. Fremont Health Care District
Association of California Healthcare Districts
AGB:nl 5/9/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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