BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 134 HEARING: 3/16/11
AUTHOR: Corbett FISCAL: No
VERSION: 3/9/11 TAX LEVY: No
CONSULTANT: Weinberger
HEALTHCARE DISTRICTS' ASSETS
Requires healthcare districts to appraise the fair market
value of assets that they transfer to nonprofit
corporations for less than fair market value.
Background and Existing Law
California's 80 local health care districts are governed by
directly elected boards of directors. As hospitals, they
face market pressures to compete with other health care
providers. As local governments, they must follow the
Brown Act, the Public Records Act, the Political Reform
Act, the public contracting laws, and other statutory
restrictions.
Responding to changes in health care delivery, public
hospitals explore economic and organizational alternatives,
including leasing or selling their assets to nonprofit
corporations or even to for-profit companies. If a local
health care district wants to transfer 50% or more of its
assets to any corporation, the transfer needs
majority-voter approval (SB 1771, Russell & Kopp, 1992).
A health care district may transfer its assets, for the
benefit of the communities it serves, to one or more
nonprofit corporations at less than fair market value. For
a transfer of 50% or more of a district's assets to be
deemed to benefit a district's communities, a district
must:
Fully discuss the transfer agreement in at least
five properly noticed public meetings before the
district board's decision to transfer the assets.
Provide, in the transfer agreement, that the
district must approve all initial board members of the
nonprofit corporation and any subsequent board members
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as may be specified in the transfer agreement.
Provide, in the transfer agreement, that specified
assets are to be transferred back to the district upon
termination of the transfer agreement.
Commit the nonprofit corporation, in the transfer
agreement, to operate and maintain the district's
health care facilities and its assets for the benefit
of the communities served by the district.
Require, in the transfer agreement, that any funds
a corporation receives from the district be used only
for specified activities that would further a valid
public purpose if undertaken directly by the district.
The Eden Township Healthcare District formed in 1948 to
serve the Alameda County communities of Castro Valley,
Hayward, San Leandro, and San Lorenzo. In 1954, the
District opened Eden Medical Center (EMC) hospital. In
1997, the District's voters approved a merger agreement
between the District and Sutter Health. Under the 1997
agreement, the District sold EMC to Sutter Health. In
2004, the District purchased San Leandro Hospital and
leased it to EMC to operate. In 2008, the District entered
into an agreement with Sutter Health to replace EMC with a
newly-constructed hospital that would comply with the
state's seismic safety law. The 2008 agreement also gave
Sutter the option to purchase San Leandro Hospital. The
purchase option allowed Sutter to deduct specified losses
and capital expenditures from the hospital's net book value
and, if the deductions exceeded the net book value, allowed
Sutter to exercise its purchase option with no balance due.
The District and Sutter are currently litigating the terms
of the 2008 agreement.
In response to concerns about transfers of publicly-owned
assets for significantly less than fair market value, some
elected officials want the state to require health care
districts to appraise the fair market value of their assets
before transferring those assets for less than fair market
value.
Proposed Law
Senate Bill 134 provides that, when a health care district
transfers more than 50% of the district's assets at less
than fair market value to one or more nonprofit
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corporations, the transfer is deemed to be for the benefit
of the communities served by the district only if the
transfer agreement includes the appraised fair market value
of any asset transferred.
SB 134 requires that the appraised fair market value must
come from an independent consultant with expertise in
methods of appraisal and valuation and must be in
accordance with applicable governmental and industry
standards for appraisal and valuation. SB 134 also
requires that a resolution to submit a proposed asset
transfer to a health care district's voters must identify
the asset proposed to be transferred, its appraised fair
market value, and the amount of consideration that the
district is to receive in exchange for the transfer.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . SB 134 gives the public important
information about the value of public assets that a health
care district prepares to sell or transfer to corporations.
Health care districts' assets are the product of
taxpayers' investing billions of dollars statewide to
support vital community health services. Over the years,
the Legislature has enacted a series of voter-approval
requirements and other oversight mechanisms to protect the
public's interest in these publicly-owned assets. In
response to concerns about some recent transfers of assets
between health care districts and private corporations, SB
134 makes more information available to help district
officials and voters evaluate health care districts'
proposed transfers of assets to private corporations.
2. Timing is everything . Appraising the value of a health
care district's assets when a district enters into a
transfer agreement or seeks voter approval to transfer
assets does not ensure that district officials and
residents will know the assets' fair market value when the
transfer occurs. Health care districts can enter into
transfer agreements and seek voter approval many years
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before they actually transfer ownership of their assets.
This lag in time makes it difficult to accurately evaluate
the consideration that a district receives from a
corporation in comparison to the assets' true value. The
Committee may wish to consider amending SB 134 to require a
health care district to get an appraisal of its assets'
fair market value not more than 120 days before
transferring title to the assets.
Support and Opposition (3/10/11)
Support : Unknown.
Opposition : Unknown.