BILL ANALYSIS �
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1394
A
AUTHOR: Committee on Health
B
AMENDED: June 1, 2011
HEARING DATE: June 8, 2011
1
CONSULTANT:
3
Trueworthy
9
4
SUBJECT
Health care facilities: financing
SUMMARY
Makes changes to the California Health Facility Financing
Authority (CHFFA) Act, including expanding the definition
of health facilities that are eligible for financing and
expanding CHFFA's authority to participate in bond exchange
agreements.
CHANGES TO EXISTING LAW
Existing law:
Establishes the California Health Facilities Financing
Authority Act (Act) to authorize California Health
Facilities Financing Authority (CHFFA) to make loans from
the continuously appropriated California Health Facilities
Financing Authority Fund to participating health
institutions for financing or refinancing the acquisition,
construction, or remodeling of health facilities.
Defines health facilities, for purposes of CHFFA loans, as
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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facilities, places, or buildings that are licensed,
accredited, or certified and organized, maintained, and
operated for the diagnosis, care, prevention, and treatment
of human illness, or physical, mental, or developmental
disability, including but not limited to, general acute
care hospitals, acute psychiatric hospitals, and skilled
and intermediate care nursing facilities.
Defines a participating health institution that is eligible
for financing as a city, city and county, or county, a
district hospital, the University of California, or a
private nonprofit corporation or association authorized by
law to provide or operate a health facility.
Provides that the CHFFA shall consist of nine members,
including the state Treasurer who serves as chairman.
Requires borrowers to meet various community service
obligations as a condition of receiving financing,
including passing through savings resulting from the
low-interest loans to the public; providing assurances that
the services of the health facility will be made available
to all persons residing or employed in the area served by
the facility; advising patients of their potential
eligibility for Medi-Cal, Medicare, or other
government programs; making available a list of physicians
with staff privileges with information on languages spoken
and whether the physician accepts Medi-Cal and Medicare
patients; informing all providers who have staff
privileges of the facility's community service obligation;
and posting notices stating that the facility has agreed to
make its services available to all persons residing or
employed in the area served by the
facility and is prohibited from discriminating against
Medi-Cal and Medicare patients.
Specifies the powers of authority for CHFFA to include the
entering into agreements for liquidity and credit
enhancement.
Specifies, for the purposes of CHFFA's loans, that a health
facility includes, but is not limited to: a general acute
care hospital; an acute psychiatric hospital; a skilled
nursing facility (SNF); an intermediate care facility; a
special health care facility that provides medical,
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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nursing, rehabilitation, dental, or maternity services; a
clinic; an adult day health center; a county-operated
health facility; a residential facility for the elderly
that is operated as a part of, or in conjunction with, an
intermediate care facility, a SNF, or a general acute care
hospital; a child day care facility operated in conjunction
with a health facility; an intermediate care
facility/developmentally disabled habilitative, that is a
health facility; a community care facility; an accredited
community work-activity program; a community mental health
center; a speech and hearing center; or, a blood bank.
This bill:
Expands the definition of health facility entities eligible
for financing to include specified private schools and
information systems equipment and facilities operated to
support the services provided in the facilities, such as
information systems, laundry services, or equipment.
Expands the powers of the CHFFA to include the power to
enter into bond exchange agreements.
Clarifies that a participating health institution by itself
or through a related nonprofit corporation is the legal
organization or entity that is obligated to act, promise,
or demonstrate satisfaction with CHFFA's requirements.
Further authorizes a participating health facility to
undertake directly, or through a related nonprofit
corporation, the financing and refinancing of a project.
Defines default to be whether or not the participating
health institution has defaulted on any of the terms of
agreement with CHFFA. Clarifies legislative intent to only
authorize control or participation in the operation of a
hospital when default occurs under the agreement with
CHFFA.
Authorizes CHFFA to pledge or grant security interests to
banks and other large institutions that act as letters of
credit providers and providers of liquidity support.
Permits CHFFA to refinance a borrower's debt from other
conduit financing providers.
FISCAL IMPACT
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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The Assembly Appropriations Committee analysis of AB 1394
states that there are negligible direct state costs and
potential minor state administrative savings, to the extent
that these clarifying changes reduce administrative
workload in CHFFA and other state agencies. The State
Treasurer's Office (STO) indicates that there is a
potential for greater fee revenue that would increase
funding available for other CHFFA projects, such as
low-cost loans to small and rural health centers, to the
extent that these technical changes allow CHFFA to compete
more effectively in the bond marketplace against Joint
Powers Authorities (JPAs) and other bond issuers.
BACKGROUND AND DISCUSSION
According to the author, AB 1394 seeks to modernize and
update the statutes governing the California Health
Facility Financing Authority (CHFFA). Among other things,
this bill clarifies CHFFA's authority to participate in
bond exchange agreements to enable it to be more
competitive, expands entities eligible for financing to
include new types of health facilities and those that
provide auxiliary support services, such as information
systems facilities and equipment, and clarifies various
financial technical terms, to reduce confusion. According
to the author, the bill makes technical or noncontroversial
changes to CHFFA's statute that are consistent with the
goals of the Authority.
Certain types of non-governmental borrowers can take
advantage of tax-exempt financing through conduit revenue
bonds issued by many types of governmental entities,
including state financing authorities, such as CHFFA,
chartered cities, counties, JPAs, redevelopment agencies,
and local housing and industrial development authorities.
These bonds may be issued for various purposes including
health and educational facilities, economic development,
and multi-family housing. The issuing agency loans the
funds obtained from the financing to a non-governmental
borrower, who builds and operates the project. A conduit
revenue bond is payable solely from the loan payments
received from the non-governmental party, so the
governmental issuer normally has no liability for debt
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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service on the bonds.
The sponsor of this bill, STO, administers CHFFA.
According to STO, new types of health care facilities that
are consistent with the legislative intent of CHFFA's
statute have begun to seek funding for expansions in
response to changes to the delivery of health care services
in California. Additionally, a rapidly evolving economic
system has made various types of economic agreements more
widespread. When CHFFA's statute was initially enacted in
1979, "bond exchange agreements" were not prevalent but
have become readily common in recent times. STO states
that the omission of these types of agreements and
facilities in CHFFA's statute hinders its ability to
provide bond funds to a diversity of health care
institutions.
The California Health Facilities Financing Authority
CHFFA was created to be the state's vehicle for providing
financial assistance to public and nonprofit health care
providers through loans funded by the issuance of
tax-exempt bonds. By borrowing through CHFFA,
participating institutions that operate health facilities
can obtain lower interest rates than they would through
conventional bonds issued by JPAs and other conduit
authorities.
In order to meet the requirements for CHFFA financing, a
health facility must be a public hospital, a private
nonprofit corporation, or an association authorized by
state law to provide or operate a health facility and
undertake the financing or refinancing of a project.
Health facilities eligible for financial assistance by
CHFFA include adult day health centers, community clinics,
intermediate care facility for the developmentally
disabled, and drug and alcohol rehabilitation centers,
among others.
Proceeds from CHFFA bonds may be used for project-related
costs, including: construction, remodeling, and renovation;
land acquisition (as part of the proposed project);
acquisition of existing health facilities; purchase or
lease of equipment; refinancing or refunding of prior debt;
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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working capital for start-up facilities; costs of bond
issuance; feasibility studies; and, reimbursement of prior
expenses.
From 2005 to 2010, the majority of CHFFA's conduit
financing has been conveyed through tax-exempt revenue
bonds. Large multi-hospital systems have been CHFFA's
primary borrowers over the last five years, with 10
hospital systems borrowing more than $3.3 billion of the
total $8.7 billion in tax-exempt revenue bonds issued.
CHFFA utilizes fees paid by borrowers of its tax-exempt
bond program to fund its Healthcare Expansion Loan Program
financing program. CHFFA initiated this program in 1988 to
provide low-interest and low-cost loans of up to $750,000
to California's nonprofit small and rural health facilities
that might not otherwise have alternative financing options
to address their capital needs. Since 2005, CHFFA has
loaned nearly $35 million to small and rural health
clinics.
Bond Exchange Authority
This bill would give CHFFA the authority to enter into bond
exchange authority (BEAs) through a process that, according
to the STO, is similar to when a homeowner re-finances a
home. BEAs enable borrowers to alter various terms and
rates of their prior bonds in order to make conditions more
favorable for borrowers, or acceptable to investors,
without having to issue new bonds. The prior bonds are then
replaced or "exchanged" for bonds with the new terms. The
seller (underwriter) and purchaser (bondholder) agree to
"exchange" the bonds under these new terms. BEAs did not
exist when CHFFA's statute was initially enacted in 1979
but are somewhat commonplace now.
Expansion of eligible health facilities
According to the author, AB 1394 will clarify the CHFFA
statute includes entities that provide private educational
services, such as services to autistic children, in
conjunction with a health-related facility. A small number
of facilities, such as multi-level skilled nursing and
residential care facilities for the elderly, and group
homes or community mental health centers for adolescent
children, cater to adults and children with physical,
mental, or developmental disabilities and provide other
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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wraparound services, such as educational services.
However, CHFFA's statute is not specific with regard to
whether it can finance these types of facilities. AB 1394
will clarify the facilities covered under CHFFA's statute
to reduce confusion and expedite the process for future
applicants.
Prior legislation
AB 844 (Thomson), Chapter 842, Statutes of 1999, authorizes
CHFFA to make or purchase secured health facility loans to
small or rural health facilities using funds from the
California Health Facilities Financing Fund (CHFFF).
SB 1672 (Maldonado) of 2006 would have required CHFFA to
establish a low-interest loan program to provide financing
for the costs of health care information technology systems
for health institutions, facilities and providers. SB 1672
died in the Senate Appropriations Committee.
Arguments in support
The sponsor of AB 1394, Treasurer Bill Lockyer, writes that
this bill makes important updates to the CHFFA statute in
order to ensure that CHFFA is able to provide financing
efficiently to all eligible health facilities. Supporters
contend that CHFFA has evolved to provide a variety of
financing opportunities to a broad range of hospitals
throughout the state, ranging from rural and sole community
hospitals to large, multi-hospital health systems.
Supporters write that AB 1394 will modernize and update
CHFFA to meet California's rapidly changing health care
needs.
PRIOR ACTIONS
Assembly Health: 19- 0
Assembly Appropriations:16- 0
Assembly Floor: 60- 0
COMMENTS
1. Facility definition. As amended on June 1, 2011, AB
1394 references a facility that will meet the need for
"individuals with exceptional needs." Committee staff
STAFF ANALYSIS OF ASSEMBLY BILL 1394 (Committee on Health)
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recommend amending the definition on Page 6, Lines 25 to 32
as follows:
(20) A nonpublic, nonsectarian school that provides
educational services in conjunction with a
multidisciplinary health facility, as defined in
paragraphs (1) to (19), inclusive, that otherwise
qualifies for financing pursuant to this part, if the
nonpublic , nonsectarian school is certified pursuant to
Section 56366 of the Education Code as meeting standards
relating to the required special education and specified
related services and facilities for individuals with
exceptional needs. certified to meet the needs of
individuals with physical, mental, or developmental
disabilities.
POSITIONS
Support: Treasurer Bill Lockyer (sponsor)
California Hospital Association
Cedars-Sinai Health System
Providence Health & Services
Oppose: None on file.
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