Existing law, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, provides the authority and procedures for the initiation, conduct, and completion of changes of organization and reorganization of cities and districts by local agency formation commissions. Existing law establishes the procedures for the dissolution of the existence of a district and sets forth provisions for winding up the affairs of a dissolved district, as specified. Existing law generally authorizes the dissolution of a district without voter approval, except as specified. Notwithstanding those provisions, existing law subjects the dissolution of a health care district to voter approval.

This bill would require the Alameda County local agency formation commission to order the dissolution of the Eden Township Healthcare District if that health care district meets certain criteria, as specified. The bill would subject a dissolution under these provisions to specified provisions of the act that require dissolution by voter approval only if a majority protest exists, as specified. By requiring a higher level of service from the Alameda County local agency formation commission to analyze the criteria described above, the bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Eden Township Healthcare District in Alameda County.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

Existing law, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, provides the authority and procedures for the initiation, conduct, and completion of changes of organization and reorganization of cities and districts by local agency formation commissions. Existing law establishes the procedures for the dissolution of the existence of a district and sets forth provisions for winding up the affairs of a dissolved district, as specified. Existing law generally authorizes the dissolution of a district without voter approval, except as specified. Notwithstanding those provisions, existing law subjects the dissolution of a health care district to voter approval.

This bill would require a the Alameda County local agency formation commission to order the dissolution of a health care district without an election if the the Eden Township Healthcare District if that health care district meets certain criteria, as specified. The bill would subject a dissolution under these provisions to the specified provisions of the act for winding up the affairs of a dissolved district. that require dissolution by voter approval only if a majority protest exists, as specified. By requiring a higher level of service from the Alameda County local agency formation commission to analyze the criteria described above, the bill would impose a state-mandated local program.

Existing law, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, provides the authority and procedures for the initiation, conduct, and completion of changes of organization and reorganization of cities and districts by local agency formation commissions. Existing law establishes the procedures for the dissolution of the existence of a district and sets forth provisions for winding up the affairs of a dissolved district, as specified. Existing law generally authorizes the dissolution of a district without voter approval, except as specified. Notwithstanding those provisions, existing law subjects the dissolution of a health care district to voter approval.

This bill would require a local agency formation commission to order the dissolution of a health care district without an election if the health care district meets certain criteria, as specified. The bill would subject a dissolution under these provisions to the provisions of the act for winding up the affairs of a dissolved district.

 THIRD READING  

Bill No: AB 2471

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 4-1, 6/22/16

AYES: Hertzberg, Nguyen, Beall, Pavley

NOES: Moorlach

NO VOTE RECORDED: Hernandez, Lara

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 69-0, 5/12/16 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST: This bill requires the Alameda County Local Agency Formation Commission (LAFCO) to order the Eden Township Healthcare District’s (ETHD’s) dissolution if the District meets specified criteria.

ANALYSIS:

Existing law:

1. Establishes the procedures for the organization and reorganization of cities, counties, and special districts under the Cortese-Knox-Hertzberg Local Reorganization Act of 2000.
2. Defines "dissolution" to mean the dissolution, disincorporation, extinguishment, and termination of the existence of a district and the cessation of all its corporate powers, except as a LAFCO may otherwise provide, pursuant to existing law, or for the purpose of winding up the affairs of the district.
3. Defines "sphere of influence" to mean a plan for the probable physical boundaries and service area of a local agency, as determined by LAFCO.

This bill:

1. Requires the Alameda County LAFCO to review ETHD’s compliance with specified criteria and, if all of the criteria are met, order ETHD’s dissolution.
2. Specifies four criteria that, if they are all met, would require the Alameda County LAFOC to order ETHD’s dissolution:
   1. The District does not currently receive a property tax allocation.
   2. The District has substantial net assets.
   3. The District does not provide a direct health care service, which this bill defines as the ownership or operation of a hospital, medical clinic, wellness center, or ambulance service.
   4. The District fails to comply with a requirement that it must spend at least 80% of its annual budget on community grants awarded to organizations that provide direct health services and must not spend more than 20% of its annual budget on administrative expenses, if that requirement is enacted by AB 2737 (Bonta, 2016).
3. Requires that, if LAFCO orders the District’s dissolution pursuant to the bill’s provisions, the dissolution must be subject to the expedited dissolution process, set forth in a specified statute, which requires the commission to order a dissolution after holding at least one noticed public hearing, and after conducting protest proceedings.

Background

The Cortese-Knox-Hertzberg Act controls how local officials change the boundaries of cities and special districts, putting local agency formation commissions in charge of the proceedings. LAFCOs’ boundary decisions must be consistent with spheres of influence (SOIs) that LAFCOs adopt to show the future boundaries and service areas of the cities and special districts. Before LAFCOs can adopt their SOIs, they must prepare municipal service reviews (MSRs) which analyze population growth, public facilities, and service demands. LAFCOs may also conduct special studies of local governments.

Most boundary changes begin when a city or special district applies to LAFCO, or when registered voters or landowners file petitions with a LAFCO. In limited circumstances, LAFCO can initiate some special district boundary changes: consolidations, dissolutions, mergers, subsidiary districts, or reorganizations (AB 1335, Gotch, Chapter 1307, Statutes of 1993). Boundary changes, including district dissolutions, require four (sometimes five) steps:

• First, there must be a completed application to LAFCO, including a petition or resolution, an environmental review document, and a property tax exchange agreement between the county and the district.
• Second, LAFCO must hold a noticed public hearing, take testimony, and may approve the proposed district dissolution. LAFCO may impose terms and conditions that spell out what happens to the district’s assets and liabilities. If LAFCO disapproves, the proposed dissolution stops.
• Third, LAFCO must hold another public hearing to measure protests. In general, LAFCO must order an election on the proposed dissolution, but there are many statutory exemptions. For example, if a district has been inactive for three years, no election is required.
• Fourth, if state law requires an election, it occurs among the district’s voters. A successful dissolution requires majority-voter approval.
• Finally, LAFCO’s staff files formal documents to complete the dissolution.

In response to concerns that these complex procedures posed an obstacle to dissolving special districts that have outlived their usefulness, the Legislature enacted an expedited process for dissolving special districts (AB 912, Gordon, Chapter 109, Statutes of 2011). If a proposed dissolution of a special district is consistent with a LAFCO’s prior action regarding a special study, SOI, or MSR, the expedited process allows LAFCO to order the dissolution either:

• Without an election or protest proceedings if the dissolution was initiated by the district’s board, or
• After holding a noticed public hearing and protest proceedings if the dissolution was initiated by an affected local agency, LAFCO, or a petition. If a majority-protest exists at the hearing, LAFCO must stop the dissolution. Absent a majority-protest, LAFCO must order the dissolution without an election.

The ETHD was established by the voters in 1948 to finance construction of Eden Hospital, which opened in 1954. ETHD is governed by a five-member board of directors elected to four-year terms and serves a 130 square mile area that includes the City of San Leandro, most of the City of Hayward, and the unincorporated areas of Castro Valley and San Lorenzo. In 1998, ETHD transferred all of the net operating assets and operations of Eden Hospital to Sutter Health. In 2004, the District purchased San Leandro Hospital and leased it to Sutter Health. In order to comply with seismic safety laws, the ETHD entered into an agreement with Sutter Health to replace Eden Medical Center. The agreement also gave Sutter the option to purchase San Leandro Hospital. On December 21, 2011, an appellate court ruled in favor of Sutter in litigation over the terms of the 2008 agreement. On October 31, 2013, Sutter transferred San Leandro Hospital to the Alameda Health System, the public health authority that operates Alameda County’s health care system.

ETHD provides grant funding to health-related organizations through a Community Health Fund and owns three office buildings, where it leases office space to healthcare providers. ETHD does not receive any property tax, special tax, or benefit assessments. The main source of revenue is rental income. ETHD’s 2016 budget allocates $340,000 for salaries and benefits provided to district employees, while allocating $250,000 to grants to health service providers. The $219,000 that ETHD has budgeted in 2016 for consulting legal, accounting, and public relations costs is nearly as much as it budgeted for grants.

Alameda County LAFCO's 2012 MSR identified three governance structure options for ETHD: annexation of the City of Dublin by ETHD; dissolution; or, consolidation with Washington Township Healthcare District. The MSR found that while ETHD no longer owns and operates a hospital, it is premature to dissolve it, pointing to the grant funding, leased office space, and an indication from ETHD of their willingness to provide direct services in the future.

Because ETHD provides no direct services, receives no property tax revenues, and devotes a relatively small share of its expenditures towards funding for health care providers, some Alameda County officials want to require LAFCO to order ETHD’s dissolution through an expedited dissolution process.

Comments

Purpose of the bill. This bill narrowly requires Alameda County LAFCO to order the dissolution of a single healthcare district that meets criteria that strongly suggest it is no longer fulfilling the public health purposes for which it was originally established. ETHD provides no direct health care services. According to ETHD’s 2015 audited financial statements, all of its operating revenues were derived from rental income and tenant reimbursements associated with leasing of district-owned properties. ETHD has been criticized for the high proportion of its spending that goes towards salaries, administrative, and overhead costs in comparison to the amount that it directly spends on community health needs. Additionally, some of the ETHD’s community spending raises questions about the district’s priorities and purpose. For example, in recent years ETHD has spent district funds on sponsorships of community organizations and events that appear to have relatively tenuous connections to community health care needs, including the Hayward Area Historical Society’s “Martini-Madness Gala,” a Rotary Club “Lobsters for Literacy” fundraiser, charity golf tournaments, and a community rodeo parade. By eliminating high salaries, inefficient overhead costs, and questionable spending, dissolving ETHD could allow more of its financial resources to be focused on providing direct health benefits to residents within the area it currently serves.

Premature? State law makes LAFCOs responsible for encouraging orderly formation and development of local agencies based on local conditions and circumstances. The local officials who sit on the Alameda County LAFCO, not 120 legislators from throughout California, are in the best position to evaluate the local conditions and circumstances that should determine the governance of ETHD. Recent experience demonstrates that LAFCOs can act decisively to reorganize disfunctional special districts without legislative interference. For example, the Contra Costa LAFCO’s successful reorganization of the Mount Diablo Healthcare District in 2012 was initiated at the local level and involved circumstances that have some parallels to ETHD’s. At its June 14, 2016 meeting, the Hayward City Council approved a resolution authorizing the City Manager to make application to Alameda County LAFCO asking the Commission to consider the question of the possible dissolution of ETHD. The staff report accompanying that resolution noted that bypassing LAFCO by pursuing dissolution through state legislation had disadvantages and stated that, “Legislation may have a role in the process should the community decision be made to dissolve the District, but it appears premature at this point.” In light of these efforts to evaluate dissolution through the existing LAFCO process, legislators may wish to consider whether it is appropriate for the Legislature to override local control by inserting itself into this local boundary dispute.

Precedent. This bill is one of several bills that the Legislature has considered in recent years that limit the discretion and authority that state law generally grant to LAFCOs over boundary changes and reorganizations. For example, AB 1232 (Huffman, Chapter 518, Statutes of 2009) allowed for the consolidation of the Sewerage Agency of Southern Marin and its member districts, after notice and hearing, but without protest hearings, AB 2453 (Achadjian, Chapter 350, Statutes of 2014) established a special process for forming the Paso Robles Water District, and AB 3 (Williams, Chapter 548, Statutes of 2015) created a special process for forming the Isla Vista Community Services District. Continuing to enact special legislation circumventing the LAFCO process for individual local government boundary changes and reorganizations may set a precedent that invites regular legislative involvement in all manner of disputes over local service delivery and boundary issues.

Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because this bill imposes additional duties on Alameda County LAFCO officials, Legislative Counsel says that it imposes a new state mandate. This bill requires the state to reimburse local agencies if the Commission on State Mandates determines that the bill imposes a reimbursable mandate.

Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). This bill contains findings and declarations explaining the need for legislation that applies only to ETHD.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/2/16)

Alameda County

OPPOSITION: (Verified 8/2/16)

Alameda Local Agency Formation Commission

Association of California Healthcare Districts

California Association of Local Agency Formation Commissions

California Special Districts Association

Eden Township Healthcare District

ARGUMENTS IN SUPPORT: Supporters argue that ETHD is no longer fulfilling the public health purposes for which it was originally established and dissolving ETHD could allow more of its financial resources to be focused on providing direct health benefits to residents within the area it currently serves

ARGUMENTS IN OPPOSITION: Opponents argue that the Legislature should not override local control by inserting itself into this local boundary dispute and that this bill may set a precedent that invites regular legislative involvement in all manner of disputes over local service delivery and boundary issues.

ASSEMBLY FLOOR: 69-0, 5/12/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Calderon, Campos, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Atkins, Brough, Burke, Chang, Dahle, Beth Gaines, Harper, Jones-Sawyer, Mathis, Mayes, Patterson

Prepared by:

8/3/16 19:36:08

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Health care districts: dissolution

Requires the Alameda County Local Agency Formation Commission to order the Eden Township Healthcare District’s dissolution if the District meets specified criteria.

Background

The Cortese-Knox-Hertzberg Act controls how local officials change the boundaries of cities and special districts, putting local agency formation commissions (LAFCOs) in charge of the proceedings. LAFCOs’ boundary decisions must be consistent with spheres of influence (SOIs) that LAFCOs adopt to show the future boundaries and service areas of the cities and special districts. Before LAFCOs can adopt their spheres of influence, they must prepare municipal service reviews (MSRs) which analyze population growth, public facilities, and service demands. LAFCOs may also conduct special studies of local governments.

Most boundary changes begin when a city or special district applies to LAFCO, or when registered voters or landowners file petitions with a LAFCO. In limited circumstances, LAFCO can initiate some special district boundary changes: consolidations, dissolutions, mergers, subsidiary districts, or reorganizations (AB 1335, Gotch, 1993). Boundary changes, including district dissolutions, require four (sometimes five) steps:

• First, there must be a completed application to LAFCO, including a petition or resolution, an environmental review document, and a property tax exchange agreement between the county and the district.
• Second, LAFCO must hold a noticed public hearing, take testimony, and may approve the proposed district dissolution. LAFCO may impose terms and conditions that spell out what happens to the district’s assets and liabilities. If LAFCO disapproves, the proposed dissolution stops.
• Third, LAFCO must hold another public hearing to measure protests. In general, LAFCO must order an election on the proposed dissolution, but there are many statutory exemptions. For example, if a district has been inactive for three years, no election is required.
• Fourth, if state law requires an election, it occurs among the district’s voters. A successful dissolution requires majority-voter approval.
• Finally, LAFCO’s staff files formal documents to complete the dissolution.

In response to concerns that these complex procedures posed an obstacle to dissolving special districts that have outlived their usefulness, the Legislature enacted an expedited process for dissolving special districts (AB 912, Gordon, 2011). If a proposed dissolution of a special district is consistent with a LAFCO’s prior action regarding a special study, SOI, or MSR, the expedited process allows LAFCO to order the dissolution either:

• Without an election or protest proceedings if the dissolution was initiated by the district’s board, or
• After holding a noticed public hearing and protest proceedings if the dissolution was initiated by an affected local agency, LAFCO, or a petition. If a majority-protest exists at the hearing, LAFCO must stop the dissolution. Absent a majority-protest, LAFCO must order the dissolution without an election.

The Eden Township Healthcare District (ETHD) was established by the voters in 1948 to finance construction of Eden Hospital, which opened in 1954. ETHD is governed by a five-member board of directors elected to four-year terms and serves a 130 square mile area that includes the City of San Leandro, most of the City of Hayward, and the unincorporated areas of Castro Valley and San Lorenzo. In 1998, ETHD transferred all of the net operating assets and operations of Eden Hospital to Sutter Health. In 2004, the District purchased San Leandro Hospital and leased it to Sutter Health. In order to comply with seismic safety laws, the ETHD entered into an agreement with Sutter Health to replace Eden Medical Center. The agreement also gave Sutter the option to purchase San Leandro Hospital. On December 21, 2011, an appellate court ruled in favor of Sutter in litigation over the terms of the 2008 agreement. On October 31, 2013, Sutter transferred San Leandro Hospital to the Alameda Health System, the public health authority that operates Alameda County’s health care system.

ETHD provides grant funding to health-related organizations through a Community Health Fund and owns three office buildings, where it leases office space to healthcare providers. ETHD does not receive any property tax, special tax, or benefit assessments. The main source of revenue is rental income. ETHD’s 2016 budget allocates $340,000 for salaries and benefits provided to district employees, while allocating $250,000 to grants to health service providers. The $219,000 that ETHD has budgeted in 2016 for consulting legal, accounting, and public relations costs is nearly as much as it budgeted for grants.

Alameda County LAFCO's 2012 MSR identified three governance structure options for ETHD: annexation of the City of Dublin by ETHD; dissolution; or, consolidation with Washington Township Healthcare District. The MSR found that while ETHD no longer owns and operates a hospital, it is premature to dissolve it, pointing to the grant funding, leased office space, and an indication from ETHD of their willingness to provide direct services in the future.

Because ETHD provides no direct services, receives no property tax revenues, and devotes a relatively small share of its expenditures towards funding for health care providers, some Alameda County officials want to require LAFCO to order ETHD’s dissolution through an expedited dissolution process.

Proposed Law

Assembly Bill 2471 requires the Alameda County LAFCO to review ETHD’s compliance with specified criteria and, if all of the criteria are met, order ETHD’s dissolution.

AB 2471 specifies four criteria that, if they are all met, would require the Alameda County LAFOC to order ETHD’s dissolution:

• The district does not currently receive a property tax allocation.
• The district has substantial net assets.
• The district does not provide a direct health care service, which the bill defines as the ownership or operation of a hospital, medical clinic, wellness center, or ambulance service.
• The district fails to comply with a requirement that it must spend at least 80% of its annual budget on community grants awarded to organizations that provide direct health services and must not spend more than 20% of its annual budget on administrative expenses, if that requirement is enacted by AB 2737 (Bonta, 2016).

AB 2471 requires that, if LAFCO orders the district’s dissolution pursuant to the bill’s provisions, the dissolution must be subject to the expedited dissolution process, set forth in a specified statute, which requires the commission to order a dissolution after holding at least one noticed public hearing, and after conducting protest proceedings.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. AB 2471 narrowly requires Alameda County LAFCO to order the dissolution of a single healthcare district that meets criteria that strongly suggest it is no longer fulfilling the public health purposes for which it was originally established. ETHD provides no direct health care services. According to ETHD’s 2015 audited financial statements, all of its operating revenues were derived from rental income and tenant reimbursements associated with leasing of district-owned properties. ETHD has been criticized for the high proportion of its spending that goes towards salaries, administrative, and overhead costs in comparison to the amount that it directly spends on community health needs. Additionally, some of the ETHD’s community spending raises questions about the district’s priorities and purpose. For example, in recent years ETHD has spent district funds on sponsorships of community organizations and events that appear to have relatively tenuous connections to community health care needs, including the Hayward Area Historical Society’s “Martini-Madness Gala,” a Rotary Club “Lobsters for Literacy” fundraiser, charity golf tournaments, and a community rodeo parade. By eliminating high salaries, inefficient overhead costs, and questionable spending, dissolving ETHD could allow more of its financial resources to be focused on providing direct health benefits to residents within the area it currently serves.

2. Premature? State law makes LAFCOs responsible for encouraging orderly formation and development of local agencies based on local conditions and circumstances. The local officials who sit on the Alameda County LAFCO, not 120 legislators from throughout California, are in the best position to evaluate the local conditions and circumstances that should determine the governance of ETHD. Recent experience demonstrates that LAFCOs can act decisively to reorganize disfunctional special districts without legislative interference. For example, the Contra Costa LAFCO’s successful reorganization of the Mount Diablo Healthcare District in 2012 was initiated at the local level and involved circumstances that have some parallels to ETHD’s. At its June 14, 2016 meeting, the Hayward City Council approved a resolution authorizing the City Manager to make application to Alameda County LAFCO asking the Commission to consider the question of the possible dissolution of ETHD. The staff report accompanying that resolution noted that bypassing LAFCO by pursuing dissolution through state legislation had disadvantages and stated that, “Legislation may have a role in the process should the community decision be made to dissolve the District, but it appears premature at this point.” In light of these efforts to evaluate dissolution through the existing LAFCO process, the Committee may wish to consider whether it is appropriate for the Legislature to override local control by inserting itself into this local boundary dispute.

3. Precedent. AB 2471 is one of several bills that the Legislature has considered in recent years that limit the discretion and authority that state law generally grant to LAFCOs over boundary changes and reorganizations. For example, AB 1232 (Huffman, 2010) allowed for the consolidation of the Sewerage Agency of Southern Marin and its member districts, after notice and hearing, but without protest hearings, AB 2453 (Achadjian, 2014) established a special process for forming the Paso Robles Water District, and AB 3 (Williams, 2015) created a special process for forming the Isla Vista Community Services District. Continuing to enact special legislation circumventing the LAFCO process for individual local government boundary changes and reorganizations may set a precedent that invites regular legislative involvement in all manner of disputes over local service delivery and boundary issues.

4. Definition. One of the criteria that AB 2471 requires Alameda LAFCO to review is whether ETHD has “substantial net assets.” However, the bill provides no guidance for what constitutes a “substantial” amount of net assets. This ambiguity may make it difficult for LAFCO to make a determination about this criterion that would not be subject to challenge. The Committee may wish to consider amending AB 2471 to specify a threshold amount of net assets or a ratio of net assets to expenditures on health services that would meet the definition of “substantial net assets.”

5. Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because AB 2471 imposes additional duties on Alameda County LAFCO officials, Legislative Counsel says that it imposes a new state mandate. AB 2471 requires the state to reimburse local agencies if the Commission on State Mandates determines that the bill imposes a reimbursable mandate.

6. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). AB 2471 contains findings and declarations explaining the need for legislation that applies only to Eden Township Healthcare District.

7. Related legislation. AB 2737 (Bonta), which is awaiting a hearing in the Senate Health Committee, would require specified healthcare districts to spend at least 80% of their annual budget on community grants awarded to organizations that provide direct health services, and would prohibit spending more than 20% of their annual budgets on administrative expenses. AB 2910 (Assembly Local Government Committee, 2016) adds a statutory cross-reference to clarify that the expedited dissolution process for special districts enacted by AB 912 (Gordon, 2011) applies to all special districts, including health care districts. AB 2414 would require Riverside County LAFCO to submit to voters a proposal to expand the Desert Healthcare District.

Assembly Actions

Assembly Local Government Committee: 8-0

Assembly Floor: 69-0

Support and Opposition

(6/16/16)

Support: Alameda County.

Opposition: Alameda Local Agency Formation Commission; Association of California Healthcare Districts; California Association of Local Agency Formation Commissions; California Special Districts Association; Eden Township Healthcare District.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2471

Author:(Quirk)

As Amended Ver:May 10, 2016

Majority vote

SUMMARY: Requires the Alameda County local agency formation commission (Alameda LAFCO) to order the dissolution of the Eden Township Healthcare District (District), if the District meets specified criteria. Specifically, this bill:

1. Requires Alameda LAFCO to order the dissolution of the Eden Township Healthcare District, if the healthcare district meets all of the following criteria:
   1. The District does not currently receive a property tax allocation;
   2. The District has substantial net assets;
   3. The District does not provide a direct healthcare service; and,
   4. The District fails to comply with the specified provisions of AB 2737 (Bonta) of the current legislative session.
2. Requires Alameda LAFCO to review the compliance of the District with the criteria in 1) above.
3. Requires the dissolution, if Alameda LAFCO orders the dissolution of the District subject to 1) above, to be subject to the provisions for the expedited dissolution process, pursuant to existing law.
4. Defines "Direct healthcare service" to mean the ownership or operation of a hospital, medical clinic, wellness center, or ambulance service.

EXISTING LAW:

1. Establishes the procedures for the organization and reorganization of cities, counties, and special districts under the Cortese-Knox-Hertzberg Local Reorganization Act of 2000 (Act).
2. Defines "dissolution" to mean the dissolution, disincorporation, extinguishment, and termination of the existence of a district and the cessation of all its corporate powers, except as the LAFCO may otherwise provide, pursuant to existing law, or for the purpose of winding up the affairs of the district.
3. Defines "sphere of influence" to mean a plan for the probable physical boundaries and service area of a local agency, as determined by LAFCO.
4. Provides any resolution adopted by LAFCO on or after January 1, 1986, ordering the dissolution of a healthcare district is subject to confirmation by the voters.

FISCAL EFFECT: This bill is keyed fiscal.

COMMENTS:

1. Healthcare Districts. 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 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, issue debt, and hire staff. In general, the process of creating a hospital district started with citizens in a community identifying the need for improved access to medical care.

According to the Association of California Healthcare Districts, there are currently 78 districts, of which three have stand-alone skilled nursing facilities; 54 are rural; 34 hospitals, 20 of which are critical access; and, five have stand-alone clinics. 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.

1. LAFCOs and District Dissolution. LAFCOs are responsible for coordinating logical and timely changes in local governmental boundaries, conducting special studies that review ways to reorganize, simplify, and streamline governmental structures, and preparing a sphere of influence for each city and special district within each county. The courts refer to LAFCOs as the Legislature's "watchdog" over local boundary changes. The Act establishes procedures for local government changes of organization, including special district dissolution. LAFCOs regulate boundary changes through the approval or denial of proposals by other public agencies or individuals for these procedures.

The Act prescribes a process for the dissolution of special districts, which is similar to most boundary changes that require numerous steps: a) Initiation of LAFCO process, by petition of property owners or registered voters in the district or resolution of an affected agency; b) Noticed public hearing, testimony, and approval or disapproval by LAFCO; c) Additional public hearing for protests and in specified cases LAFCO must order an election on the proposed dissolution; d) Dissolution election, if required, among district's voters, which requires a majority vote approval; and, e) LAFCO staff files documents to complete the dissolution.

AB 912 (Gordon), Chapter 109, Statutes of 2011, created an expedited process for the dissolution of special districts. Under this expedited process, if the proposed dissolution is initiated by the special district's board and dissolution is consistent with a prior action of LAFCO regarding a special study, sphere of influence, or municipal service review, LAFCO can order dissolution without protest or election. If the dissolution was initiated by an affected local agency, LAFCO, or petition, LAFCO must hold a public hearing to consider protest, and if there is no majority protest LAFCO, must order the dissolution without an election. Existing law also requires that a resolution adopted by LAFCO ordering the dissolution of a healthcare district to be subject to confirmation by the voters. Due to this provision and the expedited dissolution process put in place by AB 912, there is some ambiguity in existing law about a LAFCO's ability to order the dissolution of a healthcare district without an election.

1. Bill Summary. This bill requires Alameda LAFCO to order the dissolution of the District, if the healthcare district meets specified criteria. The criteria established by this bill would require the expedited dissolution of the District if the District: a) does not currently receive property tax; b) has substantial net assets; c) does not own or operate a hospital, medical clinic, wellness center, or ambulance service; and, d) fails to comply with the provisions of AB 2737 (Bonta). If Alameda LAFCO orders the dissolution of the District, the expedited dissolution process pursuant to AB 912 (Gordon), would require Alameda LAFCO to hold at least one noticed public hearing, and after conducting protest proceedings, order an election only if majority protest is registered. This bill is sponsored by Alameda County.
2. Author's Statement. According to the author, "…in Alameda County, Eden Township Healthcare District (ETHD) does not provide any direct healthcare services. Their revenue source is mostly derived from commercial property rental income which, along with cash and securities, has a net value of $45.6 million. In 2015, ETHD spent 85% of its budget on administrative expenditures, such as salaries, benefits, utilities and other professional services, while only disbursing 15% of their budget on grants to service providers and sponsorships. Furthermore, ETHD pays less than half of 1% of its annual net assets towards charitable activities."
3. Eden Township Healthcare District. According to Alameda County Local Agency Formation Commission's (LAFCO) 2012 municipal service review (MSR), the District was established by the voters in 1948 to finance construction of Eden Hospital, which opened in 1954. In 1998, the District transferred all of the net operating assets and operations of the hospital to Sutter Health. In 2004, the District purchased San Leandro Hospital and leased it to Sutter Health. In order to comply with seismic safety laws, the District entered into an agreement with Sutter Health to replace Eden Medical Center. The agreement also gave Sutter the option to purchase San Leandro Hospital. On December 21, 2011, an appellate court ruled in favor of Sutter in litigation over the terms of the 2008 agreement. On October 31, 2013, Sutter transferred San Leandro Hospital to the Alameda Health System, the public health authority that operates Alameda County's health care system.

Currently, the District provides grant funding to health-related organizations through a Community Health Fund and owns three office buildings, where it leases office space to healthcare providers. The District does not receive any property tax, special tax, or benefit assessments. The main source of revenue is rental income. The District consists of 130 square miles and includes the City of San Leandro, most of the City of Hayward, and the unincorporated areas of Castro Valley and San Lorenzo, and is governed by a five-member board of directors elected to four-year terms.

Alameda LAFCO's MSR identified three governance structure options for the District:

a) annexation of the City of Dublin by the District; b) dissolution; or, c) consolidation with Washington Township Healthcare District. The MSR found that while the District no longer owns and operates a hospital, it is premature to dissolve the District, pointing to the grant funding, leased office space, and an indication from the District of their willingness to provide direct services in the future.

1. Controversy and Subsequent Legislation. Recent controversy surrounding several healthcare districts has brought greater media and legislative scrutiny on several issues, including their fiscal management. The Assembly Committee on Accountability and Administrative Review conducted several hearings regarding healthcare districts, and focused specifically on healthcare districts that do not operate hospitals. Additionally, the Legislative Analyst Office (LAO) produced a report entitled, "Overview of Health Care Districts", in April 2012 in response to several healthcare districts that have declared bankruptcy since 2000. There have also been concerns regarding districts maintaining reserve balances in the tens of millions of 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, several LAFCOs have considered dissolving districts. Five districts have been dissolved or otherwise reorganized since 2000. Since that time, the Contra Costa County LAFCO consolidated Mount Diablo Healthcare District into the City of Concord. The Mount Diablo Healthcare District did not operate a hospital and similar concerns were expressed about the amount of revenue spent on administrative costs, instead of on grant funding for community health needs. Contra Costa LAFCO is currently undertaking a special study to examine governance options, including dissolution, for West Contra Costa Healthcare District. Sonoma LAFCO is also in receipt of an application to begin the dissolution process for a healthcare district.

A Bureau of State Audits' (BSA) audit of Salinas Valley Memorial Health Care System found that the District's Board violated open meeting laws to grant overly generous compensation, retirement, and benefits to the chief executive officer. This Committee heard several bills addressing the employment contract between a healthcare district and hospital administrator, including AB 2115 (Alejo) of 2012; AB 2180 (Alejo), Chapter 322, Statutes of 2012; and AB 130 (Alejo), Chapter 92, Statutes of 2013.

AB 2418 (Gordon) of 2012 would have required healthcare districts to expend 95% of any property tax revenue on current community healthcare benefits.

1. Prior Bills that Established a Modified LAFCO Process. In the past several years, the Legislature has established a modified LAFCO process or exempted specified requirements in the LAFCO process for the formation and consolidation of several special districts following a history of failed attempts at the local level including, AB 2453 (Achadjian), Chapter 350, Statutes of 2014, for the creation of the Paso Robles Water District; AB 3 (Williams), Chapter 548, Statutes of 2015, for the formation of the Isla Vista Community Services District; and, AB 1232 (Huffman), Chapter 518, Statutes of 2010, for the consolidation of the Sewerage Agency of Southern Marin and its member districts, after notice and hearing, but without protest hearings.
2. Related Legislation. AB 72 (Bonta) of 2015, on the Senate Inactive File, would have authorized the District, until January 1, 2026, to impose special taxes within the District, subject to the approval of two-thirds of the District's voters.

AB 2737 (Bonta) of the current legislative session, pending in the Assembly, would require specified healthcare districts to spend at least 80% of their annual budget on community grants awarded to organizations that provide direct health services, and would prohibit more than 20% of their annual budget to be spent on administrative expenses. The parameters of AB 2737 were also established to address the District.

1. Policy Considerations. The Legislature may wish to consider the following:
   1. Limiting LAFCO Powers. The Legislature has delegated the power to control local boundaries to the 58 LAFCOs. This bill bypasses LAFCO, and does not require the usual dissolution process to occur. The Legislature has seen an increasing number of bills seeking to bypass the LAFCO process, therefore, they may wish to consider if this bill is going against prior directives from the Legislature that designated fundamental powers to LAFCOs to make these types of decisions. The Legislature may also wish to ask the author why the current LAFCO process is not a viable option for the dissolution of the District and why this bill is necessary.

Opposition argues that this bill disregards prior actions taken by Alameda LAFCO pertaining to the District. Alameda LAFCO determined the District still has an indirect role in the provision of healthcare services within its existing boundaries. If the author does not agree with prior LAFCO actions or determinations regarding the District, the Committee may wish to consider if the LAFCO should be reexamined and altered as opposed to eliminating LAFCOs discretion outright.

• 1. Healthcare Districts and LAFCO. The relationship between LAFCOs and healthcare districts is unique in comparison to other special districts. The Local Healthcare District Law and the formation of some healthcare districts predate the Knox Nisbet Act, which created LAFCOs and formalized the process for establishing a hospital district. Due to the unique nature of healthcare services and the long history of healthcare district's principal act, the Legislature may wish to consider if there is a need to more clearly define the relationship between LAFCOs and healthcare districts, and undertake a closer examination of healthcare districts' service boundaries, the process of dissolution for healthcare districts, and the considerations LAFCOs are required to make when doing an MSR and determining the sphere of influence for healthcare districts.
  2. Net Assets. Opposition argues that the bill does not define "substantial net assets" and leaves open the opportunity for wide interpretation.

1. Arguments in Support. Supporters argue that many healthcare districts still exist that no longer own a hospital or provide direct healthcare services to the community and therefore may not be fulfilling their original intent.
2. Arguments in Opposition. Opposition argues that the existing local process should be fully utilized before resorting to state action.

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958 FN: 0002944

Date of Hearing: May 4, 2016

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Susan Talamantes Eggman, Chair

ABPCA Bill Id:AB 2471 (

Author:Quirk) – As Introduced Ver:February 19, 2016

SUBJECT: Health care districts: dissolution.

SUMMARY: Requires a local agency formation commission (LAFCO) to order the dissolution of a healthcare district without an election, if the healthcare district meets specified criteria. Specifically, this bill:

1. Requires a LAFCO to order the dissolution of a healthcare district without an election, if the healthcare district meets all of the following criteria:
   1. The healthcare district does not currently receive a property tax allocation;
   2. The healthcare district has substantial net assets; and,
   3. The healthcare district does not provide a direct healthcare service.
2. Requires the dissolution, if a LAFCO orders the dissolution of a healthcare district subject to 1) above, to be subject to the provisions for winding up the affairs of a dissolved district, pursuant to existing law.
3. Provides the following definitions:
   1. "Direct healthcare service" to mean the ownership or operation of a hospital, medical clinic, wellness center, or ambulance service.
   2. "LAFCO" to mean the commission in whose sphere of influence the healthcare district exists.

EXISTING LAW:

1. Establishes the procedures for the organization and reorganization of cities, counties, and special districts under the Cortese-Knox-Hertzberg Local Reorganization Act of 2000 (Act).
2. Defines "dissolution" to mean the dissolution, disincorporation, extinguishment, and termination of the existence of a district and the cessation of all its corporate powers, except as the LAFCO may otherwise provide, pursuant to existing law, or for the purpose of winding up the affairs of the district.
3. Defines "sphere of influence" to mean a plan for the probable physical boundaries and service area of a local agency, as determined by LAFCO.
4. Provides any resolution adopted by LAFCO on or after January 1, 1986, ordering the dissolution of a healthcare district is subject to confirmation by the voters.

FISCAL EFFECT: None

COMMENTS:

1. Healthcare Districts. 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 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, issue debt, and hire staff. In general, the process of creating a hospital district started with citizens in a community identifying the need for improved access to medical care.

According to the Association of California Healthcare Districts, there are currently 78 districts, of which three have stand-alone skilled nursing facilities; 54 are rural; 34 hospitals, 20 of which are critical access; and, five have stand-alone clinics. 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.

1. LAFCOs and District Dissolution. LAFCOs are responsible for coordinating logical and timely changes in local governmental boundaries, conducting special studies that review ways to reorganize, simplify, and streamline governmental structures, and preparing a sphere of influence for each city and special district within each county. The courts refer to LAFCOs as the Legislature's "watchdog" over local boundary changes. The Act establishes procedures for local government changes of organization, including special district dissolution. LAFCOs regulate boundary changes through the approval or denial of proposals by other public agencies or individuals for these procedures.

The Act prescribes a process for the dissolution of special districts, which is similar to most boundary changes that require numerous steps: a) Initiation of LAFCO process, by petition
of property owners or registered voters in the district or resolution of an affected agency;
b) Noticed public hearing, testimony, and approval or disapproval by LAFCO; c) Additional public hearing for protests and in specified cases LAFCO must order an election on the proposed dissolution; d) Dissolution election, if required, among district's voters, which requires a majority vote approval; and, e) LAFCO staff files documents to complete the dissolution.

AB 912 (Gordon), Chapter 109, Statutes of 2011, created an expedited process for the dissolution of special districts. Under this expedited process, if the proposed dissolution is initiated by the special district's board and dissolution is consistent with a prior action of LAFCO regarding a special study, sphere of influence, or municipal service review, LAFCO can order dissolution without protest or election. If the dissolution was initiated by an affected local agency, LAFCO, or petition, LAFCO must hold a public hearing to consider protest, and if there is no majority protest LAFCO, must order the dissolution without an election. Existing law also requires that a resolution adopted by LAFCO ordering the dissolution of a healthcare district to be subject to confirmation by the voters. Due to this provision and the expedited dissolution process put in place by AB 912, there is some ambiguity in existing law about a LAFCO's ability to order the dissolution of a healthcare district without an election.

1. Bill Summary. This bill requires a LAFCO to order the dissolution of a healthcare district without an election, if the healthcare district meets specified criteria. The criteria established by this bill would require the dissolution of a healthcare district that a) does not currently receive property tax; b) has substantial net assets; and, c) does not own or operate a hospital, medical clinic, wellness center, or ambulance service. The criteria established by this bill only currently apply to one district – Eden Township Healthcare District (District). This bill is sponsored by Alameda County.
2. Author's Statement. According to the author, "With the right focus of delivering direct health services and/or providing substantial financial support to various healthcare providers and organizations in a community, healthcare districts have the potential to improve and promote the health status of underserved communities. Yet, there are significant variations in the way healthcare districts operate and the rules that govern them. Due to this, many healthcare districts still exist that no longer own a hospital or provide any direct healthcare services to the community and therefore, may not be fulfilling their original intent and commitment to the residents of the district.

"For example, in Alameda County, Eden Township Healthcare District (ETHD) does not provide any direct healthcare services. Their revenue source is mostly derived from commercial property rental income which, along with cash and securities, has a net value of $45.6 million. In 2015, ETHD spent 85% of its budget on administrative expenditures, such as salaries, benefits, utilities and other professional services, while only disbursing 15% of their budget on grants to service providers and sponsorships. Furthermore, ETHD pays less than half of 1% of its annual net assets towards charitable activities. AB 2471 will order the dissolution of a health care district without an election when it meets all of the following criteria... Currently ETHD in Alameda County is the only healthcare district that meets these criteria."

1. Eden Township Healthcare District. According to Alameda County Local Agency Formation Commission's (LAFCO) 2012 municipal service review (MSR), the District was established by the voters in 1948 to finance construction of Eden Hospital, which opened in 1954. In 1998, the District transferred all of the net operating assets and operations of the hospital to Sutter Health. In 2004, the District purchased San Leandro Hospital and leased it to Sutter Health. In order to comply with seismic safety laws, the District entered into an agreement with Sutter Health to replace Eden Medical Center. The agreement also gave Sutter the option to purchase San Leandro Hospital. On December 21, 2011, an appellate court ruled in favor of Sutter in litigation over the terms of the 2008 agreement. On October 31, 2013, Sutter transferred San Leandro Hospital to the Alameda Health System, the public health authority that operates Alameda County’s health care system.

Currently, the District provides grant funding to health-related organizations through a Community Health Fund and owns three office buildings, where it leases office space to healthcare providers. The District does not receive any property tax, special tax, or benefit assessments. The main source of revenue is rental income. The District consists of 130 square miles and includes the City of San Leandro, most of the City of Hayward, and the unincorporated areas of Castro Valley and San Lorenzo, and is governed by a five-member board of directors elected to four-year terms.

Alameda LAFCO's MSR identified three governance structure options for the District:

a) Annexation of the City of Dublin by the District; b) dissolution; or, c) consolidation with Washington Township Healthcare District. The MSR found that while the District no longer owns and operates a hospital, it is premature to dissolve the District, pointing to the grant funding, leased office space, and an indication from the District of their willingness to provide direct services in the future.

1. Controversy and Subsequent Legislation. Recent controversy surrounding several healthcare districts has brought greater media and legislative scrutiny on several issues, including their fiscal management. The Assembly Committee on Accountability and Administrative Review conducted several hearings regarding healthcare districts, and focused specifically on healthcare districts that do not operate hospitals. Additionally, the Legislative Analyst Office (LAO) produced a report entitled, "Overview of Health Care Districts", in April 2012 in response to several healthcare districts that have declared bankruptcy since 2000. There have also been concerns regarding districts maintaining reserve balances in the tens of millions of 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, several LAFCOs have considered dissolving districts. Five districts have been dissolved or otherwise reorganized since 2000. Since that time, the Contra Costa County LAFCO consolidated Mount Diablo Healthcare District into the City of Concord. The Mount Diablo Healthcare District did not operate a hospital and similar concerns were expressed about the amount of revenue spent on administrative costs, instead of on grant funding for community health needs. Contra Costa LAFCO is currently undertaking a special study to examine governance options, including dissolution, for West Contra Costa Healthcare District. Sonoma LAFCO is also in receipt of an application to begin the dissolution process for a healthcare district.

A Bureau of State Audits' (BSA) audit of Salinas Valley Memorial Health Care System found that the District's Board violated open meeting laws to grant overly generous compensation, retirement, and benefits to the chief executive officer. This Committee heard several bills addressing the employment contract between a healthcare district and hospital administrator, including AB 2115 (Alejo) of 2012; AB 2180 (Alejo), Chapter 322, Statutes

of 2012; and, AB 130 (Alejo), Chapter 92, Statutes of 2013.

AB 2418 (Gordon and Dickinson) of 2012 would have required healthcare districts to expend 95% of any property tax revenue on current community healthcare benefits.

1. Prior Bills that Established a Modified LAFCO Process. In the past several years, the Legislature has established a modified LAFCO process or exempted specified requirements in the LAFCO process for the formation and consolidation of several special districts following a history of failed attempts at the local level including, AB 2453 (Achadjian), Chapter 350, Statutes of 2014, for the creation of the Paso Robles Water District; AB 3 (Williams), Chapter 548, Statutes of 2015, for the formation of the Isla Vista Community Services District; and, AB 1232 (Huffman), Chapter 518, Statutes of 2010, for the consolidation of the Sewerage Agency of Southern Marin and its member districts, after notice and hearing, but without protest hearings.
2. Related Legislation. AB 72 (Bonta) of 2015, on the Senate Inactive File, would have authorized the District, until January 1, 2026, to impose special taxes within the District, subject to the approval of two-thirds of the District's voters.

AB 2737 (Bonta), pending in the Assembly Appropriations Committee, would require specified healthcare districts to spend at least 80% of their annual budget on community grants awarded to organizations that provide direct health services, and would prohibit more than 20% of their annual budget to be spent on administrative expenses. The parameters of AB 2737 were also established to address the District.

1. Policy Considerations. The Committee may wish to consider the following:
   1. Limiting LAFCO Powers. The Legislature has delegated the power to control local boundaries to the 58 LAFCOs. This bill bypasses LAFCO, and does not require the usual dissolution process to occur. This Committee has seen an increasing number of bills seeking to bypass the LAFCO process, therefore, the Committee may wish to consider if this bill is going against prior directives from the Legislature that designated fundamental powers to LAFCOs to make these types of decisions. The Committee may wish to ask the author why the current LAFCO process is not a viable option for the dissolution of the District and why this bill is necessary.

Opposition argues that this bill disregards prior actions taken by Alameda LAFCO pertaining to the District. Alameda LAFCO determined the District still has an indirect role in the provision of healthcare services within its existing boundaries. If the author does not agree with prior LAFCO actions or determinations regarding the District, the Committee may wish to consider if the LAFCO should be reexamined and altered as opposed to eliminating LAFCOs discretion outright.

• 1. Voter Involvement. The dissolution process under LAFCO contains a number of required steps that allow for public involvement. For example, the voters have the opportunity to weigh in at a publicly noticed hearing, register their protest, and when enough protest is received, vote in an election. The Committee may wish to consider that this bill denies the voters the opportunity to weigh in on the dissolution of a district that was created by the voters.
  2. Statewide Approach. The Committee may wish to consider, while the criteria established by the bill is aimed at Eden Township Healthcare District, this bill applies statewide to any healthcare district that fits the criteria established by this bill. Because this bill prevents LAFCO and the public from weighing in on the question of dissolution, the Committee may wish to consider if statewide application is appropriate.
  3. Healthcare Districts and LAFCO. The relationship between LAFCOs and healthcare districts is unique in comparison to other special districts. The Local Healthcare District Law and the formation of some healthcare districts predate the Knox Nisbet Act, which created LAFCOs and formalized the process for establishing a hospital district. Due to the unique nature of healthcare services and the long history of healthcare district's principal act, the Committee may wish to consider if there is a need to more clearly define the relationship between LAFCOs and healthcare districts, and undertake a closer examination of healthcare districts' service boundaries, the process of dissolution for healthcare districts, and the considerations LAFCOs are required to make when doing an MSR and determining the sphere of influence for healthcare districts.
  4. Definitions. Local agencies, not LAFCOs, have a sphere of influence; therefore, the Committee may wish to encourage the author to correct the definition in the bill for LAFCOs. Further, opposition argues that the bill does not define "substantial net assets" and leaves open the opportunity for wide interpretation.

1. Committee Amendments. In light of the considerations raised above, the Committee may wish to ask the author to take the following amendments:
   1. Narrow the scope of the bill down to Eden Township Healthcare District.
   2. Specify that the bill's provisions apply to Alameda LAFCO to order the dissolution of Eden Township Healthcare District if specified criteria in the bill are met.
   3. Require Alameda LAFCO to review compliance with AB 2737 (Bonta) and with all criteria in the bill.
   4. Add to the list of criteria that the District does not comply with AB 2737 (Bonta).
   5. Insert the expedited dissolution process pursuant to AB 912 (Gordon), if the criteria established by the bill are met, which would require Alameda LAFCO to hold at least one noticed public hearing, and after conducting protest proceedings, order an election only if majority protest is registered.
2. Arguments in Support. Supporters argue that the criteria for dissolution included in
   AB 2471 will dissolve healthcare districts in California that are no longer serving their original purpose when approved by the voters of the district. Supporters argue that this bill is very narrow, and therefore, would not affect the vast majority of healthcare districts in California who are continuing to service their communities, as promised.
3. Arguments in Opposition. Opposition argues that the existing local process should be fully utilized before resorting to state action. Opposition suggests amendments to address the process of dissolving a healthcare district without voter approval, but incorporates a local LAFCO process that provides an opportunity for community input.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda County [SPONSOR]

Opposition

Alameda Local Agency Formation Commission

Association of California Healthcare Districts (unless amended)

California Association of Local Agency Formation Commissions (unless amended)

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958