BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 644 HEARING: 9/2/11
AUTHOR: Hancock FISCAL: No
VERSION: 8/29/11 TAX LEVY: No
CONSULTANT: Weinberger
WEST CONTRA COSTA HEALTHCARE DISTRICT'S
CERTIFICATES OF PARTICIPATION (URGENCY)
Enacts a statutory lien to secure certificates of
participation issued by the West Contra Costa Healthcare
District.
Background and Existing Law
The California Constitution prevents counties and cities
from creating multi-year general obligation debt without
2/3-voter approval. School districts need 55% voter
approval. Because the constitutional ban doesn't mention
special districts, the Legislature has allowed special
districts to use a variety of debt financing tools without
voter approval.
California's 80 local health care districts find themselves
pulled in two different directions. As operators of
hospitals, they must survive by competing with
prof-it-oriented companies. As public agencies, they must
adhere to the state laws which require specific procedures
and which impose limits on their activities. The districts
must be aggressive in securing financing.
The West Contra Costa Healthcare District formed in 1948 to
serve the Contra Costa County communities of Crockett, El
Cerrito, Hercules, Kensington, Pinole, Richmond, Rodeo, and
San Pablo. The District owns and operates Doctors Medical
Center San Pablo (DSP), a hospital that provides a full
range of essential inpatient, outpatient, and emergency
services. The DSP emergency department is the region's
busiest, with over 40,000 annual visits.
In 2004, district voters approved a parcel tax that
generates nearly $6 million in annual revenues. In 2006,
the District filed for bankruptcy protection. The plan of
SB 644 -- 8/29/11 -- Page 2
reorganization under which the District emerged from
bankruptcy was based on a number of factors, including $12
million of annual inter-governmental transfers by the
California Medical Assistance Commission (CMAC). Recent
changes to the allocation of CMAC's inter-government
transfers reduced the District's funding by nearly $11
million. The District is now facing another financial
crisis.
To help the District obtain the financing that it needs to
continue operating or meet its obligations in the event
that it ceases operations, District officials want the
Legislature enact a statutory lien to secure certificates
of participation (COPs) backed by existing parcel tax
revenues.
Proposed Law
Senate Bill 644 requires that all of the West Contra Costa
Healthcare District's obligations in connection with
certificates of participation executed and delivered by or
on behalf of the district between June 8, 2004, and
December 31, 2012 must be secured by a statutory lien on
all of the revenues generated from parcel taxes approved by
District voters in 2004.
SB 644 requires the lien to arise automatically without the
need for any action or authorization by the District or its
board of directors. The bill declares that the lien will be
valid and binding from the time the certificates of
participation are executed and delivered.
SB 644 requires that the parcel tax revenue must
immediately be subject to this lien, and the lien must
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 rights therein, irrespective of
whether those parties have notice of the lien.
State Revenue Impact
No estimate.
SB 644 -- 8/29/11 -- Page 3
Comments
1. Purpose of the bill . The West Contra Costa Healthcare
District's 2006 bankruptcy and recent turmoil in the
municipal debt markets make it challenging for the District
to obtain critically-needed financing. Without SB 644's
statutory lien, it's unlikely that the District will be
able to borrow the money that it needs to survive its
fiscal crisis. Closing Doctors Medical Center San Pablo
would make it more difficult for that hospital's
disproportionately uninsured and underinsured patient
population to obtain vital medical services. The closure
would also create negative ripple-effects for nearby
hospital emergency departments in Contra Costa and Alameda
Counties. The bill does not create a new tax or increase
existing taxes. SB 644 simply pledges the District's
existing parcel tax revenues to support borrowing that will
allow the District to continue providing medical services
to residents in west Contra Costa County.
2. Precedent setting ? The only recent precedent for a
statutory lien securing specific debt instruments issued by
a particular local government is SB 18 x2 (Craven, 1995),
which pledged VLF revenues to secure debt issued by Orange
County. The West Contra Costa Healthcare District is far
from the only local government confronting severe fiscal
challenges resulting from the recent economic downturn and
reductions in state funding. The Committee may wish to
consider whether enacting a statutory lien for the West
Contra Costa Healthcare District's COPs may set a precedent
that will invite similar requests for legislative relief
from other financially struggling local governments.
3. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, �16). SB 644 contains findings and
declarations explaining the need for legislation that
applies only to the West Contra Costa Healthcare District.
4. Urgency clause . Regular statutes take effect on the
January 1 following their enactment; bills passed in 2011
take effect on January 1, 2012. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. SB 644 contains an urgency clause so
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that the West Contra Costa Healthcare District can complete
its financing, and meet its obligations to employees,
vendors, and other creditors in a timely manner.
5. Gut-and-amend . When the Senate passed SB 644 on March
29, 2011, the bill extended the sunset date on the
exemption for volunteers on public works projects by five
years, from January 1, 2012 to January 1, 2017. The August
22 Assembly amendments deleted that language and converted
the bill into a measure creating a statutory lien for the
West Contra Costa Healthcare District's certificates of
participation. Because this topic was never heard in the
Senate, the Senate Rules Committee has referred the amended
bill under Senate Rule 29.10 to the Senate Local Government
Committee for a hearing on the Assembly's amendments. At
its September 2 hearing, the Committee has four choices:
Send the bill back to the Senate Floor, recommending
concurrence.
Send the bill back to the Senate Floor, recommending
nonconcurrence.
Send the bill back to the Senate Floor, without
recommendation.
Hold the bill.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 74-0
Support and Opposition (9/1/11)
Support : West Contra Costa Healthcare District,
Association of California Healthcare Districts, California
Chapter of the American College of Emergency Physicians,
California Nurses Association.
Opposition : Unknown.