BILL ANALYSIS �
AB 2418
Page 1
Date of Hearing: May 8, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 2418 (Gordon) - As Amended: May 1, 2012
SUBJECT : Health districts: reporting.
SUMMARY : Requires health care districts (HCDs) to spend 95% of
any property tax revenue on "current community health care
benefits" and limits the annual set-aside of property tax
revenues to reserves at no more than 30%. Specifically, this
bill :
1)Defines "current community health care benefit" to mean the
following:
a) The operation or maintenance of a health care facility
or health services currently allowed by a HCD pursuant to
existing law;
b) The performance of a HCD's powers currently allowed
under existing law;
c) Reserves;
d) Capital outlays pursuant to existing law; or,
e) Any other item approved by a resolution adopted by a
majority vote of the local agency formation commission
(LAFCO) of the "principal county of the district."
2)Excludes from the definition of "current community health care
benefit" salaries paid and benefits provided to staff of the
HCD, benefits provided to the board members of the HCD,
expenses paid to any consultant hired by the HCD, and any
other item not identified in 1) above.
3)Defines "principal county of the district" to mean the county
in which the HCD is located. If a HCD is located in more than
one county, defines "principal county of the district" to mean
the county with the largest share of assessed value of taxable
property within the HCD, as shown on the last equalized
assessment role.
4)Requires a HCD to expend at least 95% of the revenue derived
from the annual general tax levy assessed on real and personal
property within the HCD, pursuant to existing law, after
excluding the amounts for the revenue and expenditures
described in 6) below, on "current community health care
benefits."
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5)Permits a HCD to allocate, within a fiscal year, not more than
30% of the revenue derived from the annual general tax levy,
after excluding the amounts for the revenue and expenditures
described in 6) below, to reserves.
6)Excludes the following from applying to the provisions of this
bill:
a) The portions of the HCD's annual general tax levy that
have, as of April 1, 2014, been obligated by contract or
other legally binding obligation to a specific purpose;
b) The portions of the HCD's general tax levy that are
required to be used for a specified purpose according to
existing law;
c) The HCD's financial reserves in existence as of April 1,
2014;
d) The cost of elections required or authorized by the
provisions in this bill; and,
e) A special assessment approved by the voters pursuant to
existing law.
7)Requires a HCD to annually submit documentation of the HCD's
compliance with the provisions of this bill to the county
auditor-controller, the LAFCO, and the board of supervisors of
the principal county of the HCD.
EXISTING LAW :
1)Establishes the Local Health Care District Law which
authorizes communities to form special districts to construct
and operate hospitals and other health care facilities to meet
local needs.
2)Allows a HCD to include incorporated or unincorporated
territory, or both, or territory in any one or more counties,
and allows the territory comprising the HCD to not be
contiguous, as specified.
3)Enumerates various powers and duties for HCDs, including but
not limited to the following:
a) Operating health care facilities such as hospitals,
clinics, skilled nursing facilities (SNFs), nurses'
training schools, and child care facilities;
b) Operating ambulance services within and outside of the
HCD;
c) Operating programs that provide chemical dependency
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services, health education, wellness and prevention,
rehabilitation, and aftercare;
d) Carrying out activities through corporations, joint
ventures, or partnerships;
e) Establishing or participating in managed care;
f) Contracting with and making grants to provider groups
and clinics in the community; and,
g) Other activities that are necessary for the maintenance
of good physical and mental health in communities served by
the HCD.
4)Permits a HCD's board of directors to establish a fund for
capital outlays with specified conditions.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, HCDs were
first authorized in 1945, to build hospitals. Since then, the
author maintains, several changes in law have been made to
reflect the shift in responsibility of HCDs from hospital
construction and operation to other health care services. The
author asserts that HCDs have few restrictions on how they
spend their share of property taxes, originally intended to
fund hospital construction and operation, and some HCDs have
engaged in activities with no direct or indirect impact on
community health. The author argues, for any type of special
district, one of the greatest priorities is responsible use of
public funds. While all public agencies ultimately answer to
taxpayers and voters, there is a clear State interest in
defining the evolving roles and responsibilities of local
agencies - particularly as it relates to health care services.
The author maintains that HCDs are unique in that some may
not own or operate any physical infrastructure or facilities.
If a HCD does not provide services to all residents within its
boundaries or have a clear physical presence within a
community, it is more likely that residents will be unaware of
its activities.
The author indicates that there is a growing concern that some
HCDs are engaging in non-health related activities, expending
tax dollars in ways that fail to contribute to community
health. The author maintains that this bill strikes a careful
balance of competing interests by providing a statewide
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framework for additional accountability, while retaining
flexibility at the local level. This bill also, according to
the author, maintains HCD' s autonomy, while ensuring that
property tax dollars are actually used for "current community
health care benefits."
2)HCDs . Near the end of World War II, California faced a severe
shortage of hospital beds. To respond to the inadequacy of
acute care services in the non-urban areas of the State, the
Legislature enacted the Local Hospital District Law, with the
intent to give rural, low income areas without ready access to
hospital facilities a source of tax dollars that could be used
to construct and operate community hospitals and health care
institutions, and, in medically underserved areas, to recruit
physicians and support their practices.
The Local Hospital District Law (now called the Local Health
Care District Law) allowed communities to create a new
governmental entity - independent of local and county
jurisdictions - that had the power to impose property taxes,
enter into contracts, purchase property, exercise the power of
eminent domain, issue debt, and hire staff. In general, the
process of creating a HCD started with citizens in a community
identifying the need for improved access to medical care. The
hospital district's boundaries were usually based on the
distance between communities and the closest available acute
care hospital services. A petition for formation was then
filed by the community to the county board of supervisors, and
then residents of the proposed district were needed to vote in
favor of the measure to create the hospital district. In
1963, the Knox-Nisbet Act was passed, which created LAFCOs and
clarified and formalized the process for establishing a HCD.
According to the 2006 California HealthCare Foundation report
(CHCF Report), "California's Health Care Districts," in
response to health care market changes and to allow HCDs to
keep pace and remain competitive, the Legislature began
amending the original law. HCDs' power has been expanded to
do anything that is "necessary for the maintenance of good
physical and mental health in the communities served by the
HCD." Specifically, HCDs can support the following: health
care facilities, including substance abuse and mental health
programs; outpatient services and free clinics; programs for
seniors, including transportation; nurse training; physician
recruitment; ambulance services; health education programs;
and, a variety of wellness and rehabilitation activities. The
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CHCF Report maintains that HCD boards can build buildings for
themselves and for others who serve community health care
needs, even to the point of constructing fitness centers.
According to the Association of California Healthcare
Districts (ACHD), there are currently 74 districts, of which
30 are rural, 20 are critical access, five have stand-alone
clinics, and three have stand-alone skilled nursing
facilities. These institutions provide a significant portion
of the medical care to minority populations and the uninsured
in medically underserved regions of the State and are mainly
funded by Medicare, Medi-Cal, and district tax dollars. HCDs
are typically governed by boards of five elected directors who
are required to serve without compensation except for payments
of $100 per meeting not to exceed five meetings per month.
Directors also may be reimbursed for travel and incidental
expenses incurred in the performance of official business.
Of the 74 HCDs in the State, 30 HCDs do not currently operate
hospitals. Some HCDs have never operated a hospital, while
others that previously operated hospitals, no longer operate
them. Of the HCDs still supporting hospitals, a variety of
arrangements have been made to keep these hospitals solvent
and competitive. Some HCDs continue to operate independent
institutions, governed by the local elected board, while many
have chosen to enter into agreements with both for-profit and
not-for-profit hospital management organizations.
According to the CHCF Report, one of the challenges facing
HCDs without hospitals is the public perception that the HCDs
were formed to operate hospitals, and, once they cease to
operate the hospital, they should be dissolved. Local grand
juries, city council members, boards of supervisors, newspaper
editors, and concerned residents in many of the HCDs have
publicly questioned the continued existence of these tax
collecting entities. Some argue, however, that in many cases,
the HCDs have filled gaps in local health services, resulting
from the funding constraints faced by local public health
departments. It is also argued that HCDs play a vital role in
physician recruitment and nurse training, in light of the
shortages of medical professionals in most regions of
California.
3)HCD FINANCING . According to an April 2012 Legislative
Analyst's Office report (LAO Report) regarding HCDs, HCDs have
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the following revenue streams:
a) Property Taxes - Most HCDs receive a share of local
property taxes. The share of local property tax going to
HCDs varies among districts. For example, according to the
LAO Report, Palomar Health in San Diego County received $13
million in property tax revenue in 2009, accounting for 3%
of the HCD's operating budget.
b) Special Taxes - Some HCDs have received two-thirds voter
approval to levy special "parcel taxes" for each lot or
acre of ground. For example, according to the LAO Report,
the City of Alameda Health Care District was formed in 2002
when voters approved a $296 annual parcel tax to assume
operation of Alameda Hospital.
c) Service Charges - HCDs may run hospitals, clinics, SNFs,
and ambulance services. These activities earn revenue and
are entirely or predominately self-supporting through
service charges. These are sometimes referred to as
"enterprise activities."
d) Other Revenue - Some HCDs generate revenues from HCD
resources, such as property lease income and interest
earnings from investments. They may also receive grants
from public and private sources.
e) Debt Financing - HCDs can create debt to borrow money
needed for capital projects such as hospital construction.
General obligation bonds require two-thirds voter approval
to raise property tax rates for HCD residents to serve as
the mechanism to repay the bonds. Revenue bonds are backed
by user fees. Districts may also issue promissory notes
and receive loans from state and federal governments.
4)HCD CHALLENGES . According to the LAO Report, a few HCDs have
encountered challenges recently. The LAO Report indicates
that grand juries have questioned HCD practices. For example,
El Camino Hospital District in Santa Clara County was the
subject of a civil grand jury report in 2011. The report
raised concerns over whether the HCD had used property tax or
corporation revenues to purchase a healthcare facility outside
its boundaries.
The LAO Report also maintains that seven HCDs have declared
bankruptcy since 2000. There has also been concern regarding
HCDs maintaining reserve balances in the tens of millions of
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dollars. For example, Peninsula Health Care District and
Beach Cities Health District have each reported over $45
million in unrestricted net assets (reserves) at the end of
June 2011.
Additionally, According to the LAO Report, LAFCO has considered
dissolving HCDs. Five HCDs have been dissolved or otherwise
reorganized since 2000. The Contra Costa County LAFCO is
currently considering consolidating Mount Diablo Healthcare
District into the City of Concord. The Contra Costa LAFCO
also considered but did not pursue dissolution of Los Medanos
Community Hospital District in 1999. Both HCDs do not
currently operate hospitals.
5)RELATED LEGISLATION .
a) AB 2115 (Alejo) of 2012, would require a HCD, if
employing a hospital administrator, to enter into a written
contract of employment with the administrator. AB 2115 is
currently on the Assembly Floor.
b) AB 2180 (Alejo) of 2012, would limit specified benefits
for HCD employees unless the same options are available to
all officers and employees. AB 2180 is currently on the
Assembly Floor.
c) SB 804 (Corbett) of 2012, would require HCDs to include,
in an agreement transferring more than 50% of the HCD's
assets, the appraised fair market value of any asset
transferred to a nonprofit corporation, as defined. SB 804
would further require the appraisal of the fair market
value to be performed within the six months preceding the
date on which the district approves the transfer agreement.
6)PREVIOUS LEGISLATION .
a) AB 912 (Gordon) Chapter 109, Statutes of 2011, allows
LAFCOs, with some exceptions, to dissolve special districts
without holding voter elections.
b) SB 1169 (Maddy), Chapter 696, Statutes of 1994, renamed
hospital districts "health care districts," reflecting that
health care was increasingly being provided outside of the
hospital setting.
c) SB 586 (Slater), Chapter 932, Statutes of 1945, enacts
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the California Local Hospital District Law to provide
rural, low-income areas without ready access to hospital
facilities a source of tax dollars that could be used to
construct and operate community hospitals and health care
institutions, and in medically underserved areas, to
recruit physicians, and to support their practices.
7)SUPPORT . San Mateo County Supervisor Don Horsley writes in
support of this bill. According to Supervisor Horsley, the
County of San Mateo has two HCDs - Sequoia and Peninsula HCDs
- that combined cover 50% of the County population and receive
millions of dollars in public funds annually. Despite the
fact that neither HCD currently operates a hospital nor
provides any direct medical care, both currently have the
power to levy taxes and can spend their revenues in ways that
are not always a direct health benefit to the residents of the
HCD. Supervisor Horsley maintains that at a time when funding
to counties for critical, basic health care services continues
to sharply decline, it is vital that HCDs be required to spend
the majority of the public funds they collect on direct
community health benefits. According to Supervisor Horsley,
public funds should not be amassed in outsized amounts and
placed into reserves as some HCDs have done, nor should public
funds be used to acquire and lease property only for the
benefit of the HCD. Supervisor Horsley argues that this bill
ensures that HCDs spend tax dollars for the health benefit of
communities, establishes a prudent reserve limit, and requires
annual reporting ensuring local accountability.
SEIU California writes in support that there is a need for
stricter standards for HCDs, especially those which have shed
their hospitals, and this bill is a major step toward
correcting these abuses. SEIU recommends consideration of the
following further standards as this bill moves forward: a)
Require tax dollars collected for hospital care to be spent on
hospital care regardless of whether a HCD operates a hospital;
b) Establish rules for how HCDs shed their hospitals; and, c)
Establish spending restrictions at the time a HCD sheds its
hospital.
8)OPPOSITION . ACHD and a number of individual HCDs all write in
opposition to this bill. ACHD writes that this bill restricts
the autonomy of HCDs by limiting expenditure revenue streams,
restricting how a HCD defines itself, excluding voter input,
and blurring the autonomous relationships that exist between
various independently-elected boards. Those in opposition
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argue that this bill seeks to find a solution to a problem
that does not exist and that HCDs are locally-controlled and
accountable to their local voters. The opposition maintains
that the restrictions in this bill assume that HCDs are not
operating in a manner that their voters would approve of and
this bill assumes that the voters are unhappy with the
financial stability of HCDs. The opposition asserts that
there is a current process in place, through LAFCO, if the HCD
voters believe that their HCD activities are in violation of
their mission. According to the opposition, this bill adds no
additional substance to the current process, yet proposes to
remove control from voters and local government agencies.
ACHD lists the following concerns with this bill:
a) LAFCOs should not be granted the authority to determine
the health care services provided by each HCD. LAFCOs were
created to provide oversight of services provided by local
agencies within their jurisdiction, not to determine the
services needed in those areas. Further, LAFCOs do not
have expertise in health care issues and may not have any
special district representation on the LAFCO. This bill
places a wedge between the HCDs and their voters by using
LAFCO as the legislatively-appointed representatives of the
voters;
b) Administration costs are not clearly defined by this
bill. HCDs have staff ranging from nurses, technicians,
social workers, adult day care providers, contracted
doctors, etc. in addition to the administrative staff. The
language in this bill would define all staff as
administrative, limiting HCDs ability to pay for services
provided in their communities;
c) It is unprecedented to require local agencies to spend
95% of tax revenues on direct services. While many HCDs
have other revenue sources that could adequately
accommodate this requirement, it is unrealistic to assume
that all 74 HCDs can sustain such high numbers while
operating effectively. This bill severely impacts HCDs
that have limited revenue streams, especially in rural
areas where communities rely on the services that HCDs
provide;
d) While this bill would allow property tax dollars to be
spent on HCD election costs, it does not allow property tax
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dollars to be spent on complying with current state and
federal laws, such as the Brown Act and those of the Fair
Political Practices Commission;
e) The requirement in this bill that each HCD report
annually to the County Board of Supervisors, LAFCO, and the
County Auditor-Controller is unnecessary as HCDs already
report to numerous agencies. These entities can access all
of the HCDs records through the provisions of the Brown
Act;
f) By Law, special district boards are accountable to
voters through the Brown Act, the state Controller, the
Office of Statewide Health Planning and Development, and
the LAFCO process. To require that HCDs have yet another
layer of oversight to another independent board shifts the
balance of power between independently-elected boards.
This will unfairly place oversight of one special district
to another, while belittling the vote of the community and
of the board they elected.
9)POLICY CONCERNS :
a) The proposed requirement for HCDs to spend 95% of any
property tax revenue on "current community health care
benefits" may be cost prohibitive for some HCDs. This
"one-size fits all" approach without considering the
varying activities a HCD may be engaged in or the amount of
property tax revenue that a HCD may receive depending on
where they are located, could disproportionately impact
smaller HCDs. Moving forward the author may wish to adjust
this percentage;
b) The definition for administrative costs is narrow and
needs further clarification. The author may wish, moving
forward, to expand this definition to consider the varying
personnel and administrative costs associated with
providing health care services.
c) HCD boards are voter-elected and have been entrusted to
determine the appropriate health care services to be
provided by the HCD. The author may wish to consider
whether it is appropriate to grant LAFCO the authority to
determine "community health care benefits."
d) It appears that much of the concern about HCDs is in
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regard to those that no longer operate hospitals. The
author may wish to narrow the bill to address those HCDs
that no longer operate hospitals.
10)DOUBLE REFERRAL . This bill has been double-referred. Should
this bill pass out of this committee, it will be referred to
the Assembly Local Government Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
San Mateo County Supervisor Don Horsley
Health Access California
SEIU California
Opposition
Association of California Healthcare Districts
Beach Cities Health District
Corning Healthcare District
Del Norte Healthcare District
Fallbrook Healthcare District
Grossmont Healthcare District
Palomar Health
Pioneers Memorial Healthcare District
Salinas Valley Memorial Healthcare System
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097