BILL ANALYSIS �
SB 644
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Date of Hearing: August 31, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 644 (Hancock) - As Amended: August 29, 2011
SENATE VOTE : Vote not relevant
SUBJECT : Local finance.
SUMMARY : Requires all certificates of participation executed
and delivered by the West Contra Costa Healthcare District
(District) between June 8, 2004, and December 31, 2012, to be
secured by a statutory lien on all the revenues generated from a
parcel tax passed by District voters in 2004. Specifically,
this bill :
1)Requires all certificates of participation (COPs) executed and
delivered by the West Contra Costa Healthcare District between
June 8, 2004, and December 31, 2012, to be secured by a
statutory lien on all the revenues generated from a parcel tax
passed by District voters
in 2004.
2)Requires the lien to arise automatically without the need for
any action or authorization by the District.
3)Specifies that the lien shall be valid and binding from the
time the COPs are executed and delivered.
4)Requires the parcel tax to be immediately subject to this
lien.
5)Requires the lien to immediately attach to the parcel tax
revenue and be effective, binding, and enforceable against the
District, its successors, purchasers of those revenues,
creditors, and all others asserting the rights therein,
irrespective of whether those parties have notice
of the lien.
6)Adds an urgency clause.
EXISTING LAW :
1)Defines "bonds" as any bonds, notes, bond anticipation notes,
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commercial paper, or other evidences of indebtedness, or
lease, installment purchase, or other agreements, or COPs
therein, that are not issued pursuant to statutory authority
containing a provision governing the perfection and priority
of pledges of collateral unless the provision provides that
this chapter shall govern.
2)Defines "pledge" as, and as used in any pledge document shall
be deemed to create, a grant of a lien on and a security
interest in and pledge of the collateral referred to in a
pledge document.
3)Requires a pledge of collateral by any public body to secure,
directly or indirectly, the payment of the principal or
redemption price of, or interest on, any bonds, or any
reimbursement or similar agreement with any provider of credit
enhancement for bonds, which is issued by or entered into by a
public body, to be valid and binding in accordance with the
terms of the pledge document from the time the pledge is made
for the benefit of pledgees and successors thereto.
4)Requires the collateral to immediately be subject to the
pledge, and the pledges constitute a lien and security
interest which shall immediately attach to the collateral and
be effective, binding, and enforceable against the pledgor,
its successors, purchasers of the collateral, creditors, and
all others asserting the rights therein, to the extent set
forth, and in accordance with, the pledge document
irrespective of whether those parties have notice of the
pledge and without the need for any physical delivery,
recordation, filing, or further act.
FISCAL EFFECT : Unknown
COMMENTS : The West Contra Costa Healthcare District operates
Doctors Medical Center (DMC) in San Pablo, California, serving a
disproportionately underprivileged community in the cities of
Richmond, El Cerrito, San Pablo, Pinole, Hercules and portions
of unincorporated Contra Costa County. The District faces
severe financial problems due to the extremely high level of
uninsured and underinsured patients, most of whom access DMC
through its Emergency Room, which receives over 40,000 visits
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annually.
In June of 2004, the District passed a parcel tax that produces
just under $6,000,000 per year in revenues.
The District filed for relief under Chapter 9 bankruptcy in 2006
and emerged from bankruptcy thereafter. The plan of
reorganization under which the District emerged from bankruptcy
was based on a number of factors, including an ongoing funding
by California Medical Assistance Commission ("CMAC") of
$12,000,000 per year by means of inter-governmental transfers.
As a result of a change in the rules governing allocation of
inter-governmental transfers by CMAC, funding for the District
declined by approximately $11,000,000 and the District again
finds itself on the financial brink.
The District has received a property tax advance of
approximately $10,000,000 from Contra Costa County which is
being repaid with 100% of the ad valorem tax allocation to the
District over the next three to four years.
The District has determined that it will need to generate an
additional $10,000,000 in the immediate future in order to
sustain its operations or, in the alternative, meet all of its
financial obligations (largely to its employees in the form of
wages and benefits) in connection with an orderly closure of
DMC.
The District is optimistic that funding from a variety of
sources including CMAC, other regional health care institutions,
an additional parcel tax, and savings from improving operating
efficiencies will be sufficient to insure the continuing
operations of the District. Every plan for continuing
operations of the District includes an infusion of $10,000,000
from new COPs secured by the existing parcel tax and there is no
practical way for DMC to continue in existence without the
$10,000,000 financing.
In addition, the District desires to use the new COPs financing
to accelerate the repayment of the County's $10,000,000 property
tax advance in order to free up the ad valorem revenue for
operations. The ad valorem property tax revenue cannot be
pledged to the COPs in the same secure way that the parcel tax
can be pledged, and therefore, it is more efficient from a
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financing perspective to leverage the parcel tax for both the
county obligations and the $10,000,000 cash infusion. Finally,
the financing of the payment of the County's tax advance over a
number of years will increase overall cash flow for the District
over the critical next few years.
SB 644 would create a statutory lien against the existing parcel
tax revenue which will provide underwriters assurance that the
District's pledge of a portion of its parcel tax revenue to
support the COPs cannot be set aside by a Bankruptcy Court.
According to the District's financial analyst, the addition of a
statutory lien against the parcel tax is necessary to meet the
demands of the market place and give underwriter needed
sureties; without this the financing is unlikely to be
successful. The District needs to complete this financing this
year, as otherwise it is in danger of running out of cash and
not being able to meet its obligations to employees, vendors and
other creditors; thus the measure has an urgency clause.
Support arguments : Supporters could argue that the District
needs to complete this financing this year, as otherwise it is
in danger of running out of cash and not being able to meet its
obligations to employees, vendors and other creditors. A
statutory lien will provide the market with greater assurance
that the debt will be repaid.
Opposition arguments : Opposition could argue that even with the
statutory lien the District could still find issuing the COPs
difficult.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Healthcare Districts
CA Nurses Association
West Contra Costa Healthcare District
Opposition
None on file
Analysis Prepared by : Katie Kolitsos / L. GOV. / (916)
319-3958
SB 644
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