BILL ANALYSIS �
AB 1394
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Date of Hearing: March 29, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1394 (Committee on Health) - As Amended: March 23, 2011
SUBJECT : Health care facilities: financing.
SUMMARY : Makes a variety of technical, clarifying, and
non-controversial changes to statutes affecting the California
Health Facilities Financing Authority (CHFFA). Specifically,
this bill :
1)Expands the categories of health facilities eligible for
financing under the Healthcare Expansion Loan Program (HELP)
to include entities that provide private educational services
to patients in health facilities, and facilities that provide
ancillary support services, such as information systems,
laundry services, or equipment.
2)Authorizes a participating health facility to undertake
directly, or through a related nonprofit corporation, the
financing and refinancing of a project.
3)Allows CHFFA to enter into bond exchange agreements (BEAs).
4)Specifies when a default is likely to occur and what actually
constitutes a default.
5)Clarifies that participating health institutions, rather than
the physical buildings of health facilities, are the legal
organizations or entities obligated to act, promise, or
demonstrate satisfaction with CHFFA's requirements.
6)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.
7)Permits CHFFA to re-finance a borrower's debt from other
conduit financing providers.
EXISTING LAW :
1)Defines a "conduit financing provider" as any county, city,
city and county, public district, public authority, public
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corporation, nonprofit corporation, joint powers authority
(JPA), or other statutorily constituted public entity that
issues one or more conduit revenue bonds.
2)Defines a "conduit revenue bond" as any municipal security,
the proceeds of which are loaned to any non-governmental
borrower, including, but not limited to, persons, for-profit
corporations, nonprofit 501(c)(3) corporations, partnerships,
and other legal entities, for purposes that are allowed for
qualified private activity bonds under federal law.
3)Establishes CHFFA, consisting of nine members, including the
State Treasurer who serves as chairman, through the CHFFA Act.
4)Expresses legislative intent in enacting the CHFFA Act to
provide financing to health facilities that can demonstrate
the financial feasibility of their projects, as specified.
5)Authorizes CHFFA to make secured or unsecured loans to, or
purchase secured or unsecured loans of, any participating
health institution in connection with the financing of a
project or working capital in accordance with an agreement
between CHFFA and the participating health institution.
6)Specifies, for the purposes of CHFFA's loans, that a
non-profit health institution 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, 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.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
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1)PURPOSE OF THIS BILL . This bill is sponsored by the State
Treasurer's Office (STO) to modernize and update the statutes
affecting CHFFA. According to the 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, BEAs were not prevalent but have since become more
widespread. However, 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. This bill makes technical or non-controversial
changes to CHFFA's statute to ensure that CHFFA is able to
provide financing efficiently to all eligible health entities.
2)BACKGROUND . 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 service
on the bonds.
3)CHFFA . 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, health
facilities can likely obtain lower interest rates than they
would through conventional bonds issued by JPAs and other
conduit authorities.
Generally, nonprofit, licensed health facilities in the state,
including adult day health centers, community clinics, SNFs,
developmentally disabled centers, hospitals, and drug and
alcohol rehabilitation centers are eligible for CHFFA
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financing. 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;
working capital for start-up facilities; costs of bond
issuance; feasibility studies; and, reimbursement of prior
expenses.
From 2005-10, the majority of CHFFA's conduit financing provided
to eligible entities on an annual basis 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 HELP II financing program. CHFFA
initiated this program in 1988 to provide low-interest and
low-cost loans of up to $750,000 to California's non-profit
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.
4)BEAs . This bill would give CHFFA the authority to enter into
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. The STO states that BEA
authority gives CHFFA the flexibility it needs to function in
the modern day health care finance arena and points to data
showing that, in 2010, CHFFA issued $712 million in bonds for
the purpose of health care facilities and hospitals while JPAs
issued $1.3 billion in bonds for similar purposes during this
time period. According to the STO, the changes in this bill
to allow CHFFA to enter into BEAs, to pledge or grant security
interests, and to re-finance debt from other bond issuers are
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intended to make CHFFA more attractive to borrowers and allow
it to fairly compete with JPAs and other bond providers that
are already permitted to do these activities.
5)SUPPORT . State Treasurer Bill Lockyer writes in support that
California's health care scene and economic environment have
evolved dramatically since the enactment of CHFFA's statute in
1979. This bill will modernize the statute to ensure that
CHFFA is better able to serve these rapidly changing needs and
enable it to continue to provide much needed alternative
financing options, through programs like HELP II, to small and
rural health facilities throughout the state.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer Bill Lockyer
Opposition
None on file.
Analysis Prepared by : Cassie Royce / HEALTH / (916) 319-2097