The Local Health Care District Law authorizes health care districts in the state to provide for various forms of financing for the purpose of carrying out their duties under the law, including financing secured by public revenues.

This bill would require that all obligations of the City of Alameda Health Care District in connection with specified certificates of participation be secured by a statutory lien on all of the revenues generated from certain dedicated parcel taxes, according to specified criteria. The bill would require the proceeds of the certificates of participation to be used only to finance construction projects and would prohibit their use to cover operational costs. The bill would also make related findings and declarations.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Alameda Health Care District.

This bill would declare that it is to take effect immediately as an urgency statute.

The Local Health Care District Law authorizes health care districts in the state to provide for various forms of financing for the purpose of carrying out their duties under the law, including financing secured by public revenues.

This bill would require that all obligations of the City of Alameda Health Care District in connection with specified certificates of participation be secured by a statutory lien on all of the revenues generated from certain dedicated parcel taxes, according to specified criteria. The bill would require the proceeds of the certificates of participation to be used only to finance construction projects and would prohibit their use to cover operational costs. The bill would also make related findings and declarations.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Alameda Health Care District.

This bill would declare that it is to take effect immediately as an urgency statute.

The Local Health Care District Law authorizes health care districts in the state to provide for various forms of financing for the purpose of carrying out their duties under the law, including financing secured by public revenues.

This bill would require that all obligations of the City of Alameda Health Care District in connection with specified certificates of participation be secured by a statutory lien on all of the revenues generated from certain dedicated parcel taxes, according to specified criteria. The bill would require the proceeds of the certificates of participation to be used only to finance construction projects and would prohibit their use to cover operational costs. The bill would also make related findings and declarations.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Alameda Health Care District.

This bill would declare that it is to take effect immediately as an urgency statute.

The Local Health Care District Law authorizes health care districts in the state to provide for various forms of financing for the purpose of carrying out their duties under the law, including financing secured by public revenues.

This bill would require that all obligations of the City of Alameda Health Care District in connection with specified certificates of participation be secured by a statutory lien on all of the revenues generated from certain dedicated parcel taxes, according to specified criteria. The bill would require the proceeds of the certificates of participation to be used only to finance construction projects and would prohibit their use to cover operational costs.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Alameda Health Care District.

This bill would declare that it is to take effect immediately as an urgency statute.

The Local Health Care District Law authorizes health care districts in the state to provide for various forms of financing for the purpose of carrying out their duties under the law, including financing secured by public revenues.

This bill would require that all obligations of the City of Alameda Health Care District in connection with specified certificates of participation be secured by a statutory lien on all of the revenues generated from certain dedicated parcel taxes, according to specified criteria.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Alameda Health Care District.

This bill would declare that it is to take effect immediately as an urgency statute.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2157

Author:(Bonta)

As Amended Ver:June 24, 2024

2/3 vote. Urgency

SUMMARY

Enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (District).

Senate Amendments

1. Add findings and declarations.
2. Specify that the proceeds of the COPs shall only be used to finance construction projects and shall not be used to cover operational costs.

COMMENTS

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 rural areas, the Legislature enacted the Local Hospital District Law, to provide medically underserved areas without access to hospital facilities a source of tax dollars that could be used to construct and operate community hospitals. SB 1169 (Maddy), Chapter 696, Statutes of 1994, changed the name of the principal act to "The Local Healthcare District Law" to better reflect the shift in the provision of healthcare services outside hospital settings.

The powers and duties granted to healthcare districts under existing law have remained largely unchanged while the demographics of areas being served by the districts, access and provision of healthcare services, and the districts themselves have vastly changed. For example, following the change in law in 1994, at least 14 healthcare districts have filed for bankruptcy, and over one-third of the healthcare districts in California have either closed or sold their hospital.

State law allows healthcare districts to exercise various powers, including to lease or own property; build and operate healthcare facilities and services, including emergency services, free clinics, diagnostic and testing centers, health education programs, wellness and prevention programs, rehabilitation, and aftercare; to provide assistance to other entities to carry out those services; and to sell their assets.

Generally, a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms with the remaining three serving four-year terms.

Many healthcare districts receive a share of local property taxes. Some levy special parcel taxes, and some charge for services. Some healthcare districts generate revenues from district resources, such as property lease income, and some districts receive grants from public and private sources.

Seismic Safety Requirements. In 1973, the Legislature passed the Alquist Act, which required all new hospital construction to meet stringent seismic safety standards. The original Alquist Act did not apply to existing buildings, partly because of the expectation that older hospital buildings would be replaced with conforming buildings over time. However, by the time the 1994 Northridge earthquake occurred more than 20 years later, 80% of hospital beds were still in pre-1973 non-conforming buildings. The Northridge earthquake experience prompted the Legislature to update the Alquist Act in 1994 to bring older hospital buildings into compliance with structural requirements by 2008 (which was subsequently delayed through various bills over the years), and to adopt additional requirements that would ensure hospitals, by January 1, 2030, would not only remain standing, but would also remain operational following a major earthquake (referred to as "2030 compliance").

Statutory Liens. Federal bankruptcy law defines a "lien" as a charge against or interest in property to secure payment of a debt or performance of an obligation. A "statutory lien" is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien likely remains enforceable even after a bankruptcy filing.

There have been a few recent examples of statutory liens for local agencies. The Legislature authorized the West Contra Costa Health Care District (WCCHCD) to sell COPs secured by a statutory lien on the district's voter-approved parcel tax revenues [SB 644 (Hancock), Chapter 742, Statutes of 2011). WCCHCD filed for relief under Chapter 9 bankruptcy in 2006, and emerged from bankruptcy thereafter. However, it never managed to regain financial solvency and fell further into debt. The WCCHCD shut its hospital, a full-service acute care facility in 2015. WCCHCD again filed for bankruptcy in 2018, and SB 522 (Glazer), Chapter 133, Statutes of 2018 subsequently dissolved the WCCHCD Board of Directors and required the Board of Supervisors of Contra Costa County to either serve as or appoint the district board.

Additionally, AB 582 (Levine), Chapter 23, Statutes of 2013, enacted a statutory lien to secure COPs issued by the Palm Drive Healthcare District (PDHCD). In 2007, PDHCD filed for bankruptcy protection. The bankruptcy court subsequently approved a plan of adjustment that required the PDHCD to sell COPs and use the proceeds to satisfy its obligations under the plan and finance other specified expenses. PDHCD issued $11 million in COPs in 2010, allowing it to exit from bankruptcy. According to a Sonoma Local Agency Formation Commission Report, "PDHCD sold the health care facility to the American Advanced Management Group in 2019, after seeking approval from voters within the PDHCD's territory. At that time, the PDHCD no longer provided emergency or acute care services, directly or through a management agreement. The District has continued to provide limited community health services through grants to community organizations, an activity that could fall under the 'other medical services' authorized power.

"Whether the District could continue to operate, without exercising the powers to provide emergency and acute care services, has been variously discussed, but no determination on the matter has been entertained by Sonoma LAFCO to date. Generally there is some consensus within the community that the primary if not sole activity of the District was to support the provision of emergency and acute care services at the facility in Sebastopol.

"Perhaps of most import however, is that the District Board has determined that the District should be dissolved, with a successor agency (the County) assigned to wrap up the financial affairs of the District. Fundamentally, this means managing the continued collection of tax assessments in order to pay off debt." PDHCD officially dissolved on August 7, 2020.

City of Alameda Health Care District. According to the Alameda LAFCO, the District was formed on July 1, 2002 after approval by over two-thirds (69%) of voters. The District was formed to take on operations of the Alameda Hospital, which was at the time operated as a nonprofit and was facing ongoing operating losses. At the time of formation, the voters also approved a parcel tax of $298 per parcel on the property owners of Alameda to defray operating costs and capital needs of the Alameda Hospital. The parcel tax exists in perpetuity and raises approximately $6 million in revenue annually.

According to the District, Alameda Hospital began negotiations in late 2012 with Alameda County Medical Center, now known as Alameda Health System (AHS). As a result, an affiliation agreement was finalized in the form of a Joint Powers Agreement (JPA). By the joint exercise of the common statutory powers of these two public organizations to operate health care facilities, the JPA facilitated the preservation of Alameda Hospital as a health care resource for Alameda County. The JPA was approved by both the District and AHS Boards in 2013 and the affiliation was implemented in 2014. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the District Board of Directors. The District maintains responsibility for collection of the parcel tax revenue and for ensuring that it is used only to support hospital and health care services and facilities in the City of Alameda. Under the Joint Powers Agreement, AHS was obligated to:

1. Maintain at least 50 acute care beds.
2. Maintain an emergency department in Alameda.
3. Ensure completion of the State seismic standards for hospitals under SB 90 and SB 2190, which must be started in 2020 and completed in 2022.

In 2022, AB 2904 (Bonta) of 2022 would have required the HCAI to grant Alameda Hospital a seven-year extension of the 2030 seismic safety deadline for buildings housing specified service. The Governor vetoed AB 2904 saying, "I commend the author for responding to their district's facility-specific needs, as well as the commensurate planning necessary to meet the 2030 deadline. However, any consideration of an extension must be contemplated across all communities and across all types of facilities, in a holistic manner. Only with a comprehensive strategy can we begin the discussion that will ensure that patients and their families, as well as the communities that these facilities serve, can be protected in a seismic or emergency event."

According to the Author

According to the author, "Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state's 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap."

Arguments in Support

According to the District, "The Hospital has achieved total compliance with the 2020 seismic retrofit requirement which were designed to prevent collapse of hospital structures. Alameda Hospital has served Alameda and neighboring communities for over one hundred years and is the only acute care facility on the island of over 70,0000 residents.

"In addition to 66 licensed acute beds and an emergency department with a certified stroke program, the Hospital also operates 181 distinct part skilled nursing and subacute beds, most of which are always of needy long term care residents. The threat of losing its acute license by 2030 would threaten all the services with closure.

"The Hospital has spent the last four years planning an approach to compliance with the 2030 standards, only to find estimates may run as much as $53 million, an amount that a hospital the size of Alameda cannot afford, especially in the wake of the pandemic, which has caused widespread financial hardship on the healthcare industry.

"AB 2157 would allow district officials to execute and deliver the certificates of participation, secured via statutory lien, needed to initiate the financing required to meet seismic standards as required by state law. Alameda Hospital is an essential service on an island separated from Oakland by two tunnels and three bridges and needs this critical legislation to limit major disruptions to healthcare services for our community."

Arguments in Opposition

None on file.

FISCAL COMMENTS

None.

VOTES:

ASM LOCAL GOVERNMENT: 8-0-1

YES: Juan Carrillo, Waldron, Haney, Kalra, Pacheco, Ramos, Ward, Wilson

ABS, ABST OR NV: Essayli

ASSEMBLY FLOOR: 72-0-8

YES: Addis, Aguiar-Curry, Alanis, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Alvarez, Wendy Carrillo, Megan Dahle, Essayli, Gallagher, Low, Mathis, Soria

SENATE FLOOR: 40-0-0

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

UPDATED

VERSION: June 24, 2024

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0003696

 THIRD READING  

Bill No: AB 2157

Author: Bonta (D)

Introduced: 2/6/24

Vote: 27 - Urgency

SENATE LOCAL GOVERNMENT COMMITTEE: 7-0, 5/29/24

AYES: Durazo, Seyarto, Dahle, Glazer, Skinner, Wahab, Wiener

ASSEMBLY FLOOR: 72-0, 4/15/24 - See last page for vote

SUBJECT: City of Alameda Health Care District: certificates of participation: lien

SOURCE: Alameda Health Care District

DIGEST:

This bill enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (AHCD).

ANALYSIS:

Existing law:

1. Enacts the Local Healthcare District Law, which:
   1. Controls how healthcare districts can be formed according to specified procedures, the District Organization Law, and Local Agency Formation Commission (LAFCO) Law. These procedures include: an impartial analysis by the LAFCO of the proposed formation; a determination that the district is “feasible, economically sound, and for the public interest,” and a requirement that a majority of voters approve of the formation of the district.
   2. Allows healthcare districts to exercise various powers, including to lease or own property, build and operate healthcare facilities and services, to provide assistance to other entities to carry out those services, and to sell their assets.
2. Provides that a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms.
3. Establishes the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983 (Alquist Act), to ensure that hospital buildings are designed and constructed to resist the forces generated by earthquakes and requires the Department of Health Care Access and Information (HCAI), formerly the Office of Statewide Health Planning and Development (OSHPD), to propose building standards for earthquake resistance and to provide independent review of the design and construction of hospital buildings.
4. Establishes timelines for hospital compliance with seismic safety standards, including a requirement that buildings posing a significant risk of collapse and a danger to the public be rebuilt or retrofitted to be capable of withstanding an earthquake, or removed from acute care service, by January 1, 2008 and a requirement that a hospital must also be capable of continued operation by January 1, 2030.

This bill:

1. Specifies that all obligations of the AHCD in connection with any and all COPs executed and delivered by or on behalf of AHCD between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, must be secured by a statutory lien on all of the revenues generated from parcel taxes AHCD levied pursuant to its 2002 special tax.
2. Provides this lien must arise automatically without the need for any action or authorization by AHCD or its board of directors. The lien must be valid and binding from the time the COPs are executed and delivered.
3. Specifies the parcel tax revenue must immediately be subject to this lien, and the lien must be immediately attached to the parcel tax revenue and be effective, binding, and enforceable against AHCD, its successors, creditors, or anyone else asserting rights to AHCD’s property tax revenue, without further action.
4. Specifies that proceeds of the COPs must only be used to finance construction projects and shall not be used to cover operational costs.

Background

Certificates of Participation. The California Constitution prevents counties and cities from creating multi-year general obligation debt without 2/3 voter approval. School districts need 55 percent voter approval. Because the constitutional ban does not mention special districts, the Legislature has allowed special districts to use a variety of debt financing tools without voter approval. COPs are a type of debt instrument that cities, counties, and special districts can issue without voter approval. COPs can take different forms. A COP entitles the holder to a share of a pledged revenue stream, which typically comes from lease payments made by the issuer. Since COPs are structured as lease payments, they do not typically require voter approval.

Some COPs are secured by statutory liens on the property. Federal bankruptcy law defines a “lien” as a charge against or interest in property to secure payment of a debt or performance of an obligation. A “statutory lien” is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien can remain enforceable even after a bankruptcy filing. As a result, they often receive higher ratings than similar debt instruments not secured by statutory liens on the municipal bond market, making them less costly to the issuing agency.

Alameda hospitals. In 2002, 69 percent of voters elected to form the City of AHCD to operate Alameda Hospital after the nonprofit operating the hospital was facing operating losses. Concurrently, voters approved a parcel tax of $298 per parcel to defray operating and capital needs of the hospital. The parcel tax continues to exist, and raises approximately $6 million annually.

Special legislation allowed Alameda County to form a public hospital authority, now known as the Alameda Health System (AHS), to manage, administer, and control the Alameda County Medical Center (AB 2374, Bates, Chapter 816, Statutes of 1996). AHS is governed by a board of trustees appointed by the Alameda County Board of Supervisors and employs about 5,000 people, including 700 physicians across the several hospitals, wellness centers, and other health facilities it operates throughout Alameda County.

In 2013, AHCD and AHS entered into a JPA to jointly exercise their powers to operate Alameda Hospital. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the AHCD Board of Directors. AHCD maintains responsibility for collection of the parcel tax revenue and ensuring the revenue goes to support hospital and health care services and facilities in the City of Alameda. AHS must:

• Maintain at least 50 acute care beds;
• Maintain an emergency department in the City of Alameda; and
• Ensure compliance with state seismic standards.

While Alameda Hospital is compliant with 2020 seismic standards, it has not become 2030 compliant. AHCD estimates the 2030 upgrades will cost approximately $28 million. Additionally, it plans to construct an additional 18 skilled nursing facility beds for approximately $24 million to build, not including staffing costs. Combined, the AHCD estimates that financing this $52 million using COPs secured by statutory lien will save the district $2.8 million compared to using COPs not explicitly secured by statutory lien due in part to the higher municipal bond rating AHCD expects to receive.

Comments

1. Purpose of the bill. According to the author, “Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state’s 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap.”
2. Winners and losers. Creating a statutory lien securing specific debt instruments issued by a particular local government gives investors greater confidence their investment will be repaid, even if AHCD files for bankruptcy in the future. However, by protecting investors holding COPs from becoming creditors if AHCD files for bankruptcy protection, AB 2157 may increase the risks borne by vendors, employees, and other potential creditors in a municipal bankruptcy proceeding. This is because shielding some potential creditors in a bankruptcy proceeding (in this case investors that purchased COPs) leaves a smaller pool of remaining creditors to bear the costs of restructuring. Should state law shield certain investors at the expense of increasing risk—and potential costs—for other potential creditors in a bankruptcy proceeding?

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 5/29/24)

California State Council of Service Employees International Union
City of Alameda Health Care District

OPPOSITION: (Verified 5/29/24)

None received

ASSEMBLY FLOOR: 72-0, 4/15/24

AYES: Addis, Aguiar-Curry, Alanis, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Alvarez, Wendy Carrillo, Megan Dahle, Essayli, Gallagher, Low, Mathis, Soria

Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119

6/25/24 15:59:37

**** END ****

 THIRD READING  

Bill No: AB 2157

Author: Bonta (D)

Amended: 6/24/24 in Senate

Vote: 27 - Urgency

SENATE LOCAL GOVERNMENT COMMITTEE: 7-0, 5/29/24

AYES: Durazo, Seyarto, Dahle, Glazer, Skinner, Wahab, Wiener

ASSEMBLY FLOOR: 72-0, 4/15/24 - See last page for vote

SUBJECT: City of Alameda Health Care District: certificates of participation: lien

SOURCE: Alameda Health Care District

DIGEST:

This bill enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (AHCD).

Senate Floor Amendments of 6/24/24 make related findings and declarations.

ANALYSIS:

Existing law:

1. Enacts the Local Healthcare District Law, which:
   1. Controls how healthcare districts can be formed according to specified procedures, the District Organization Law, and Local Agency Formation Commission (LAFCO) Law. These procedures include: an impartial analysis by the LAFCO of the proposed formation; a determination that the district is “feasible, economically sound, and for the public interest,” and a requirement that a majority of voters approve of the formation of the district.
   2. Allows healthcare districts to exercise various powers, including to lease or own property, build and operate healthcare facilities and services, to provide assistance to other entities to carry out those services, and to sell their assets.
2. Provides that a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms.
3. Establishes the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983 (Alquist Act), to ensure that hospital buildings are designed and constructed to resist the forces generated by earthquakes and requires the Department of Health Care Access and Information (HCAI), formerly the Office of Statewide Health Planning and Development (OSHPD), to propose building standards for earthquake resistance and to provide independent review of the design and construction of hospital buildings.
4. Establishes timelines for hospital compliance with seismic safety standards, including a requirement that buildings posing a significant risk of collapse and a danger to the public be rebuilt or retrofitted to be capable of withstanding an earthquake, or removed from acute care service, by January 1, 2008 and a requirement that a hospital must also be capable of continued operation by January 1, 2030.

This bill:

1. Specifies that all obligations of the AHCD in connection with any and all COPs executed and delivered by or on behalf of AHCD between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, must be secured by a statutory lien on all of the revenues generated from parcel taxes AHCD levied pursuant to its 2002 special tax.
2. Provides this lien must arise automatically without the need for any action or authorization by AHCD or its board of directors. The lien must be valid and binding from the time the COPs are executed and delivered.
3. Specifies the parcel tax revenue must immediately be subject to this lien, and the lien must be immediately attached to the parcel tax revenue and be effective, binding, and enforceable against AHCD, its successors, creditors, or anyone else asserting rights to AHCD’s property tax revenue, without further action.
4. Specifies that proceeds of the COPs must only be used to finance construction projects and shall not be used to cover operational costs.
5. Makes related findings and declarations.

Background

1. Certificates of Participation. The California Constitution prevents counties and cities from creating multi-year general obligation debt without 2/3 voter approval. School districts need 55 percent voter approval. Because the constitutional ban does not mention special districts, the Legislature has allowed special districts to use a variety of debt financing tools without voter approval. COPs are a type of debt instrument that cities, counties, and special districts can issue without voter approval. COPs can take different forms. A COP entitles the holder to a share of a pledged revenue stream, which typically comes from lease payments made by the issuer. Since COPs are structured as lease payments, they do not typically require voter approval.

Some COPs are secured by statutory liens on the property. Federal bankruptcy law defines a “lien” as a charge against or interest in property to secure payment of a debt or performance of an obligation. A “statutory lien” is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien can remain enforceable even after a bankruptcy filing. As a result, they often receive higher ratings than similar debt instruments not secured by statutory liens on the municipal bond market, making them less costly to the issuing agency.

1. Alameda hospitals. In 2002, 69 percent of voters elected to form the City of AHCD to operate Alameda Hospital after the nonprofit operating the hospital was facing operating losses. Concurrently, voters approved a parcel tax of $298 per parcel to defray operating and capital needs of the hospital. The parcel tax continues to exist, and raises approximately $6 million annually.

Special legislation allowed Alameda County to form a public hospital authority, now known as the Alameda Health System (AHS), to manage, administer, and control the Alameda County Medical Center (AB 2374, Bates, Chapter 816, Statutes of 1996). AHS is governed by a board of trustees appointed by the Alameda County Board of Supervisors and employs about 5,000 people, including 700 physicians across the several hospitals, wellness centers, and other health facilities it operates throughout Alameda County.

In 2013, AHCD and AHS entered into a Joint Powers Aagreement (JPA) to jointly exercise their powers to operate Alameda Hospital. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the AHCD Board of Directors. AHCD maintains responsibility for collection of the parcel tax revenue and ensuring the revenue goes to support hospital and health care services and facilities in the City of Alameda. AHS must:

1. Maintain at least 50 acute care beds;
2. Maintain an emergency department in the City of Alameda; and
3. Ensure compliance with state seismic standards.

While Alameda Hospital is compliant with 2020 seismic standards, it has not become 2030 compliant. AHCD estimates the 2030 upgrades will cost approximately $28 million. Additionally, it plans to construct an additional 18 skilled nursing facility beds for approximately $24 million to build, not including staffing costs. Combined, the AHCD estimates that financing this $52 million using COPs secured by statutory lien will save the district $2.8 million compared to using COPs not explicitly secured by statutory lien due in part to the higher municipal bond rating AHCD expects to receive.

Comments

1. Purpose of the bill. According to the author, “Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state’s 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap.”
2. Winners and losers. Creating a statutory lien securing specific debt instruments issued by a particular local government gives investors greater confidence their investment will be repaid, even if AHCD files for bankruptcy in the future. However, by protecting investors holding COPs from becoming creditors if AHCD files for bankruptcy protection, this bill may increase the risks borne by vendors, employees, and other potential creditors in a municipal bankruptcy proceeding. This is because shielding some potential creditors in a bankruptcy proceeding (in this case investors that purchased COPs) leaves a smaller pool of remaining creditors to bear the costs of restructuring. Should state law shield certain investors at the expense of increasing risk—and potential costs—for other potential creditors in a bankruptcy proceeding?

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/24/24)

Alameda Health System (source)

California State Council of Service Employees International Union
City of Alameda Health Care District

OPPOSITION: (Verified 6/24/24)

None received

ASSEMBLY FLOOR: 72-0, 4/15/24

AYES: Addis, Aguiar-Curry, Alanis, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Alvarez, Wendy Carrillo, Megan Dahle, Essayli, Gallagher, Low, Mathis, Soria

Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119

6/25/24 16:03:46

**** END ****

 THIRD READING  

Bill No: AB 2157

Author: Bonta (D)

Introduced: 2/6/24

Vote: 27 - Urgency

SENATE LOCAL GOVERNMENT COMMITTEE: 7-0, 5/29/24

AYES: Durazo, Seyarto, Dahle, Glazer, Skinner, Wahab, Wiener

ASSEMBLY FLOOR: 72-0, 4/15/24 - See last page for vote

SUBJECT: City of Alameda Health Care District: certificates of participation: lien

SOURCE: Alameda Health Care District

DIGEST:

This bill enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (AHCD).

ANALYSIS:

Existing law:

1. Enacts the Local Healthcare District Law, which:
   1. Controls how healthcare districts can be formed according to specified procedures, the District Organization Law, and Local Agency Formation Commission (LAFCO) Law. These procedures include: an impartial analysis by the LAFCO of the proposed formation; a determination that the district is “feasible, economically sound, and for the public interest,” and a requirement that a majority of voters approve of the formation of the district.
   2. Allows healthcare districts to exercise various powers, including to lease or own property, build and operate healthcare facilities and services, to provide assistance to other entities to carry out those services, and to sell their assets.
2. Provides that a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms.
3. Establishes the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983 (Alquist Act), to ensure that hospital buildings are designed and constructed to resist the forces generated by earthquakes and requires the Department of Health Care Access and Information (HCAI), formerly the Office of Statewide Health Planning and Development (OSHPD), to propose building standards for earthquake resistance and to provide independent review of the design and construction of hospital buildings.
4. Establishes timelines for hospital compliance with seismic safety standards, including a requirement that buildings posing a significant risk of collapse and a danger to the public be rebuilt or retrofitted to be capable of withstanding an earthquake, or removed from acute care service, by January 1, 2008 and a requirement that a hospital must also be capable of continued operation by January 1, 2030.

This bill:

1. Specifies that all obligations of the AHCD in connection with any and all COPs executed and delivered by or on behalf of AHCD between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, must be secured by a statutory lien on all of the revenues generated from parcel taxes AHCD levied pursuant to its 2002 special tax.
2. Provides this lien must arise automatically without the need for any action or authorization by AHCD or its board of directors. The lien must be valid and binding from the time the COPs are executed and delivered.
3. Specifies the parcel tax revenue must immediately be subject to this lien, and the lien must be immediately attached to the parcel tax revenue and be effective, binding, and enforceable against AHCD, its successors, creditors, or anyone else asserting rights to AHCD’s property tax revenue, without further action.
4. Specifies that proceeds of the COPs must only be used to finance construction projects and shall not be used to cover operational costs.

Background

Certificates of Participation. The California Constitution prevents counties and cities from creating multi-year general obligation debt without 2/3 voter approval. School districts need 55 percent voter approval. Because the constitutional ban does not mention special districts, the Legislature has allowed special districts to use a variety of debt financing tools without voter approval. COPs are a type of debt instrument that cities, counties, and special districts can issue without voter approval. COPs can take different forms. A COP entitles the holder to a share of a pledged revenue stream, which typically comes from lease payments made by the issuer. Since COPs are structured as lease payments, they do not typically require voter approval.

Some COPs are secured by statutory liens on the property. Federal bankruptcy law defines a “lien” as a charge against or interest in property to secure payment of a debt or performance of an obligation. A “statutory lien” is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien can remain enforceable even after a bankruptcy filing. As a result, they often receive higher ratings than similar debt instruments not secured by statutory liens on the municipal bond market, making them less costly to the issuing agency.

Alameda hospitals. In 2002, 69 percent of voters elected to form the City of AHCD to operate Alameda Hospital after the nonprofit operating the hospital was facing operating losses. Concurrently, voters approved a parcel tax of $298 per parcel to defray operating and capital needs of the hospital. The parcel tax continues to exist, and raises approximately $6 million annually.

Special legislation allowed Alameda County to form a public hospital authority, now known as the Alameda Health System (AHS), to manage, administer, and control the Alameda County Medical Center (AB 2374, Bates, Chapter 816, Statutes of 1996). AHS is governed by a board of trustees appointed by the Alameda County Board of Supervisors and employs about 5,000 people, including 700 physicians across the several hospitals, wellness centers, and other health facilities it operates throughout Alameda County.

In 2013, AHCD and AHS entered into a JPA to jointly exercise their powers to operate Alameda Hospital. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the AHCD Board of Directors. AHCD maintains responsibility for collection of the parcel tax revenue and ensuring the revenue goes to support hospital and health care services and facilities in the City of Alameda. AHS must:

• Maintain at least 50 acute care beds;
• Maintain an emergency department in the City of Alameda; and
• Ensure compliance with state seismic standards.

While Alameda Hospital is compliant with 2020 seismic standards, it has not become 2030 compliant. AHCD estimates the 2030 upgrades will cost approximately $28 million. Additionally, it plans to construct an additional 18 skilled nursing facility beds for approximately $24 million to build, not including staffing costs. Combined, the AHCD estimates that financing this $52 million using COPs secured by statutory lien will save the district $2.8 million compared to using COPs not explicitly secured by statutory lien due in part to the higher municipal bond rating AHCD expects to receive.

Comments

1. Purpose of the bill. According to the author, “Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state’s 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap.”
2. Winners and losers. Creating a statutory lien securing specific debt instruments issued by a particular local government gives investors greater confidence their investment will be repaid, even if AHCD files for bankruptcy in the future. However, by protecting investors holding COPs from becoming creditors if AHCD files for bankruptcy protection, AB 2157 may increase the risks borne by vendors, employees, and other potential creditors in a municipal bankruptcy proceeding. This is because shielding some potential creditors in a bankruptcy proceeding (in this case investors that purchased COPs) leaves a smaller pool of remaining creditors to bear the costs of restructuring. Should state law shield certain investors at the expense of increasing risk—and potential costs—for other potential creditors in a bankruptcy proceeding?

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 5/29/24)

California State Council of Service Employees International Union
City of Alameda Health Care District

OPPOSITION: (Verified 5/29/24)

None received

ASSEMBLY FLOOR: 72-0, 4/15/24

AYES: Addis, Aguiar-Curry, Alanis, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Cervantes, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Alvarez, Wendy Carrillo, Megan Dahle, Essayli, Gallagher, Low, Mathis, Soria

Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119

5/30/24 11:45:15

**** END ****

SENATE COMMITTEE ON LOCAL GOVERNMENT

Senator María Elena Durazo, Chair

2023 - 2024 Regular

City of Alameda Health Care District: certificates of participation: lien

Enacts a statutory lien to secure certificates of participation issued by the City of Alameda Health Care District.

Background

Joint Exercise of Powers. The Joint Exercise of Powers Act allows two or more public agencies to enter an agreement to jointly exercise any power held in common by the parties to the agreement. Each public agency must independently possess the authority to perform the activity that is to be performed jointly pursuant to a joint powers agreement. Sometimes an agreement creates a new, separate government called a joint powers authority (JPA).

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 rural areas, the Legislature enacted the Local Hospital District Law to provide medically underserved areas without access to hospital facilities the ability to form special districts that could be a source of tax dollars for constructing and operating community hospitals. SB 1169 (Maddy, 1994) changed the name of the law to “The Local Healthcare District Law” to better reflect the shift in the provision of healthcare services outside hospital settings.

The powers and duties granted to healthcare districts under existing law have remained largely unchanged while the demographics of areas the districts serve, as well as access to and provision of healthcare services, and the districts themselves have vastly changed. For example, following the change in law in 1994, 14 healthcare districts have filed for bankruptcy, and over one-third of the healthcare districts in California have either closed or sold their hospital, thus moving away from the original legislative intent of “hospital districts.”

State law allows healthcare districts to exercise various powers, including to lease or own property; build and operate healthcare facilities and services, including emergency services, free clinics, diagnostic and testing centers, health education programs, wellness and prevention programs, rehabilitation, and aftercare; to provide assistance to other entities to carry out those services; and to sell their assets.

A five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms with the remaining three serving four-year terms.

Most healthcare districts receive a share of local property taxes; some levy special parcel taxes, and some charge for services. Some healthcare districts generate revenues from district resources, such as property lease income; and some districts receive grants from public and private sources.

Certificates of Participation. The California Constitution prevents counties and cities from creating multi-year general obligation debt without 2/3 voter approval. School districts need 55 percent voter approval. Because the constitutional ban does not mention special districts, the Legislature has allowed special districts to use a variety of debt financing tools without voter approval. Certificates of Participation (COPs) are a type of debt instrument that cities, counties, and special districts can issue without voter approval. COPs can take different forms. A COP entitles the holder to a share of a pledged revenue stream, which typically comes from lease payments made by the issuer. Since COPs are structured as lease payments, they do not typically require voter approval.

Some COPs are secured by statutory liens on the property. Federal bankruptcy law defines a “lien” as a charge against or interest in property to secure payment of a debt or performance of an obligation. A “statutory lien” is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien can remain enforceable even after a bankruptcy filing. As a result, they often receive higher ratings than similar debt instruments not secured by statutory liens on the municipal bond market, making them less costly to the issuing agency.

There have been a couple recent examples of statutory liens for health care districts. In 2011, the Legislature authorized West Contra Costa Health Care District (WCCHCD) to issue COPs secure by statutory lien (SB 644, Hancock). WCCHCD filed for bankruptcy in 2006, and emerged from bankruptcy thereafter. However, it never managed to regain financial solvency and fell further into debt. WCCHCD shut its hospital, a full-service acute care facility in 2015. WCCHCD again filed for bankruptcy in 2018, and SB 522 (Glazer, 2018) subsequently dissolved WCCHCD, and required the Board of Supervisors of Contra Costa County to either serve as or appoint the district board.

Additionally, AB 582 (Levine, 2013) authorized a similar authority for the Palm Drive Healthcare District (PDHCD). In 2007, PDHCD filed for bankruptcy protection. The bankruptcy court subsequently approved a plan of adjustment that required the PDHCD to sell COPs and use the proceeds to satisfy its obligations under the plan and finance other specified expenses. PDHCD issued $11 million in COPs in 2010, allowing it to exit from bankruptcy. According to a Sonoma Local Agency Formation Commission Report, “PDHCD sold the health care facility to the American Advanced Management Group in 2019, after seeking approval from voters within the PDHCD’s territory. At that time, the PDHCD no longer provided emergency or acute care services, directly or through a management agreement. The District has continued to provide limited community health services through grants to community organizations…” PDHCD officially dissolved on August 7, 2020.

Seismic Safety Requirements. In 1972, the Legislature passed the Alquist Act (SB 519, Alquist), which required all new hospital construction to meet stringent seismic safety standards. The original Alquist Act did not apply to existing buildings, partly because of the expectation that older hospital buildings would be replaced with conforming buildings over time. However, by the time the 1994 Northridge earthquake occurred more than 20 years later, 80 percent of hospital beds were still in pre-1973 non-conforming buildings. The Northridge earthquake experience prompted the Legislature to update the Alquist Act (SB 1953, Alquist, 1994) to bring older hospital buildings into compliance with structural requirements. The bill set a 2008 compliance date, which was subsequently delayed through various bills over the years and became known as “2020 compliance.” SB 1953 also adopted additional requirements to ensure hospitals, by January 1, 2030, would not only remain standing, but would also remain operational following a major earthquake (referred to as “2030 compliance”). If a hospital does not comply with the 2030 requirements by January 1, 2024, it must post a public notice in the lobby or waiting area stating it is not 2030 compliant, and must start making annual reports to various entities including public agencies and labor organizations. If a hospital does not comply with the 2030 requirements by January 1, 2030, and it does not receive an extension, the California Department of Public Health could suspend its license to operate.

Alameda hospitals. In 2002, 69 percent of voters elected to form the City of Alameda Health Care District (AHCD) to operate Alameda Hospital after the nonprofit operating the hospital was facing operating losses. Concurrently, voters approved a parcel tax of $298 per parcel to defray operating and capital needs of the hospital. The parcel tax continues to exist, and raises approximately $6 million annually.

Special legislation allowed Alameda County to form a public hospital authority, now known as the Alameda Health System (AHS), to manage, administer, and control the Alameda County Medical Center (AB 2374, Bates, 1996). AHS is governed by a board of trustees appointed by the Alameda County Board of Supervisors and employs about 5,000 people, including 700 physicians across the several hospitals, wellness centers, and other health facilities it operates throughout Alameda County.

In 2013, AHCD and AHS entered into a JPA to jointly exercise their powers to operate Alameda Hospital. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the AHCD Board of Directors. AHCD maintains responsibility for collection of the parcel tax revenue and ensuring the revenue goes to support hospital and health care services and facilities in the City of Alameda. AHS must:

• Maintain at least 50 acute care beds;
• Maintain an emergency department in the City of Alameda; and
• Ensure compliance with state seismic standards.

While Alameda Hospital is 2020 compliant, it has not become 2030 compliant. In 2022, AB 2904 (Bonta) would have granted Alameda Hospital a seven-year extension of the 2030 seismic safety deadline. The Governor vetoed AB 2904 saying:

“I commend the author for responding to their district's facility-specific needs, as well as the commensurate planning necessary to meet the 2030 deadline. However, any consideration of an extension must be contemplated across all communities and across all types of facilities, in a holistic manner. Only with a comprehensive strategy can we begin the discussion that will ensure that patients and their families, as well as the communities that these facilities serve, can be protected in a seismic or emergency event.”

AHCD estimates the 2030 upgrades will cost approximately $28 million. Additionally, it plans to construct an additional 18 skilled nursing facility (SNF) beds for approximately $24 million to build, not including staffing costs. Combined, the AHCD estimates that financing this $52 million using COPs secured by statutory lien will save the district $2.8 million compared to using COPs not explicitly secured by statutory lien due in party to the higher municipal bond rating AHCD expects to receive.

To help finance seismic upgrades and the additional SNF beds, AHCD wants to issue COPs secured by a statutory lien.

Proposed Law

Assembly Bill 2157 specifies that all obligations of the AHCD in connection with any and all COPs executed and delivered by or on behalf of AHCD between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, must be secured by a statutory lien on all of the revenues generated from parcel taxes AHCD levied pursuant to its 2002 special tax.

The measure provides this lien must arise automatically without the need for any action or authorization by AHCD or its board of directors. The lien must be valid and binding from the time the COPs are executed and delivered.

AB 2157 specifies the parcel tax revenue must immediately be subject to this lien, and the lien must be immediately attached to the parcel tax revenue and be effective, binding, and enforceable against AHCD, its successors, creditors, or anyone else asserting rights to AHCD’s property tax revenue, without further action.

Comments

1. Purpose of the bill. According to the author, “Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state’s 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap.”

2. A checkered past. The first time the Legislature created a statutory lien securing specific debt instruments issued by a particular local government was SB 18 x2 (Craven, 1995), which pledged vehicle license fee (VLF) revenues to secure debt issued by Orange County. In the early 2010s, the Legislature authorized two health care districts to create statutory liens securing COPs pledging special tax revenue to secure debt they issued. Both health care districts tried to use COPs to address preexisting fiscal challenges affecting their operations and to address settling debt obligations in federal bankruptcy court. According to AHCD, it is in a much different financial situation than these other two health care districts because it does not have significant outstanding debts, and it only intends to use the COPs authorized by this bill to finance seismic requirements and build additional skilled nursing beds. However, the measure does not limit how AHCD can spend proceeds from selling these COPs, meaning it could use the proceeds to finance ongoing costs like those associated with operating and maintaining its facilities. While AHCD does not appear to be facing immediate challenges financing its operations, the history of health care districts shows that they are not always financially stable. Financing these ongoing using investment tools that require AHCD to pay investors back principal and interest could create budget problems that would set the District on a path of fiscal insolvency, similar to the other two health care districts that previously received similar authority. To ensure that the COPs that the district issues facilitate seismic upgrades and do not create additional fiscal challenges, the Committee may wish to consider amending the bill to prohibit AHCD from spending COP proceeds on operational costs.

3. Winners and losers. Creating a statutory lien securing specific debt instruments issued by a particular local government gives investors greater confidence their investment will be repaid, even if AHCD files for bankruptcy in the future. However, by protecting investors holding COPs from becoming creditors if AHCD files for bankruptcy protection, AB 2157 may increase the risks borne by vendors, employees, and other potential creditors in a municipal bankruptcy proceeding. This is because shielding some potential creditors in a bankruptcy proceeding (in this case investors that purchased COPs) leaves a smaller pool of remaining creditors to bear the costs of restructuring. Should state law shield certain investors at the expense of increasing risk—and potential costs—for other potential creditors in a bankruptcy proceeding?

4. Special legislation. Section 16 of Article Four of the California Constitution prohibits special legislation when a general law can apply. AB 2157 contains findings and declarations explaining the need for legislation that applies only to AHCD.

5. Urgency. As an urgency statute, AB 2157 must be approved by 2/3 vote of each house of the Legislature. Regular legislation takes effect on the January 1 following its passage, but urgency bills take effect as soon as they are passed, signed, and chaptered.

Assembly Actions

Assembly Local Government Committee: 8-0
Assembly Floor: 72-0

Support and Opposition

(5/24/24)

Support: California State Council of Service Employees International Union
City of Alameda Health Care District

Opposition: None received.

-- END --

ASSEMBLY THIRD READING'

ATR Bill Id:AB 2157

Author:(Bonta)

As Introduced Ver:February 6, 2024

2/3 vote. Urgency

SUMMARY

Enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (District).

Major Provisions

1. Specifies that all obligations of the District in connection with any and all COPs executed and delivered by or on behalf of the District between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, shall be secured by a statutory lien on all of the revenues generated from parcel taxes levied pursuant to Measure A, approved by the voters of the District at the general election held on April 9, 2002.
2. Provides that this lien shall arise automatically without the need for any action or authorization by the District or the Board of Directors of the District. The lien shall be valid and binding from the time the COPs are executed and delivered.
3. Specifies that the parcel tax revenue shall immediately be subject to this lien, and the lien shall immediately attached 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 and without the need for any physical delivery, recordation, filing, or further act.
4. Finds and declares that a special statute is necessary and that a general law cannot be made applicable because of the unique circumstances regarding financing obligations of the District.
5. Contains an urgency clause.

COMMENTS

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 rural areas, the Legislature enacted the Local Hospital District Law, to provide medically underserved areas without access to hospital facilities a source of tax dollars that could be used to construct and operate community hospitals. SB 1169 (Maddy), Chapter 696, Statutes of 1994, changed the name of the principal act to "The Local Healthcare District Law" to better reflect the shift in the provision of healthcare services outside hospital settings.

The powers and duties granted to healthcare districts under existing law have remained largely unchanged while the demographics of areas being served by the districts, access and provision of healthcare services, and the districts themselves have vastly changed. For example, following the change in law in 1994, at least 14 healthcare districts have filed for bankruptcy, and over one-third of the healthcare districts in California have either closed or sold their hospital.

State law allows healthcare districts to exercise various powers, including to lease or own property; build and operate healthcare facilities and services, including emergency services, free clinics, diagnostic and testing centers, health education programs, wellness and prevention programs, rehabilitation, and aftercare; to provide assistance to other entities to carry out those services; and to sell their assets.

Generally, a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms with the remaining three serving four-year terms.

Many healthcare districts receive a share of local property taxes. Some levy special parcel taxes, and some charge for services. Some healthcare districts generate revenues from district resources, such as property lease income, and some districts receive grants from public and private sources.

Seismic Safety Requirements. In 1973, the Legislature passed the Alquist Act, which required all new hospital construction to meet stringent seismic safety standards. The original Alquist Act did not apply to existing buildings, partly because of the expectation that older hospital buildings would be replaced with conforming buildings over time. However, by the time the 1994 Northridge earthquake occurred more than 20 years later, 80% of hospital beds were still in pre-1973 non-conforming buildings. The Northridge earthquake experience prompted the Legislature to update the Alquist Act in 1994 to bring older hospital buildings into compliance with structural requirements by 2008 (which was subsequently delayed through various bills over the years), and to adopt additional requirements that would ensure hospitals, by January 1, 2030, would not only remain standing, but would also remain operational following a major earthquake (referred to as "2030 compliance").

Statutory Liens. Federal bankruptcy law defines a "lien" as a charge against or interest in property to secure payment of a debt or performance of an obligation. A "statutory lien" is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien likely remains enforceable even after a bankruptcy filing.

There have been a few recent examples of statutory liens for local agencies. The Legislature authorized the West Contra Costa Health Care District (WCCHCD) to sell COPs secured by a statutory lien on the district's voter-approved parcel tax revenues [SB 644 (Hancock), Chapter 742, Statutes of 2011). WCCHCD filed for relief under Chapter 9 bankruptcy in 2006, and emerged from bankruptcy thereafter. However, it never managed to regain financial solvency and fell further into debt. The WCCHCD shut its hospital, a full-service acute care facility in 2015. WCCHCD again filed for bankruptcy in 2018, and SB 522 (Glazer), Chapter 133, Statutes of 2018 subsequently dissolved the WCCHCD Board of Directors and required the Board of Supervisors of Contra Costa County to either serve as or appoint the district board.

Additionally, AB 582 (Levine), Chapter 23, Statutes of 2014, enacted a statutory lien to secure COPs issued by the Palm Drive Healthcare District (PDHCD). In 2007, PDHCD filed for bankruptcy protection. The bankruptcy court subsequently approved a plan of adjustment that required the PDHCD to sell COPs and use the proceeds to satisfy its obligations under the plan and finance other specified expenses. PDHCD issued $11 million in COPs in 2010, allowing it to exit from bankruptcy. According to a Sonoma Local Agency Formation Commission Report, "PDHCD sold the health care facility to the American Advanced Management Group in 2019, after seeking approval from voters within the PDHCD's territory. At that time, the PDHCD no longer provided emergency or acute care services, directly or through a management agreement. The District has continued to provide limited community health services through grants to community organizations, an activity that could fall under the 'other medical services' authorized power.

"Whether the District could continue to operate, without exercising the powers to provide emergency and acute care services, has been variously discussed, but no determination on the matter has been entertained by Sonoma LAFCO to date. Generally there is some consensus within the community that the primary if not sole activity of the District was to support the provision of emergency and acute care services at the facility in Sebastopol.

"Perhaps of most import however, is that the District Board has determined that the District should be dissolved, with a successor agency (the County) assigned to wrap up the financial affairs of the District. Fundamentally, this means managing the continued collection of tax assessments in order to pay off debt." PDHCD officially dissolved on August 7, 2020

City of Alameda Health Care District. According to the Alameda LAFCO, the District was formed on July 1, 2002 after approval by over two-thirds (69%) of voters. The District was formed to take on operations of the Alameda Hospital, which was at the time operated as a nonprofit and was facing ongoing operating losses. At the time of formation, the voters also approved a parcel tax of $298 per parcel on the property owners of Alameda to defray operating costs and capital needs of the Alameda Hospital. The parcel tax exists in perpetuity and raises approximately $6 million in revenue annually.

According to the District, Alameda Hospital began negotiations in late 2012 with Alameda County Medical Center, now known as Alameda Health System (AHS). As a result, an affiliation agreement was finalized in the form of a Joint Powers Agreement (JPA). By the joint exercise of the common statutory powers of these two public organizations to operate health care facilities, the JPA facilitated the preservation of Alameda Hospital as a health care resource for Alameda County. The JPA was approved by both the District and AHS Boards in 2013 and the affiliation was implemented in 2014. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the District Board of Directors. The District maintains responsibility for collection of the parcel tax revenue and for ensuring that it is used only to support hospital and health care services and facilities in the City of Alameda. Under the Joint Powers Agreement, AHS was obligated to:

1. Maintain at least 50 acute care beds.
2. Maintain an emergency department in Alameda.
3. Ensure completion of the State seismic standards for hospitals under SB 90 and SB 2190, which must be started in 2020 and completed in 2022.

In 2022, AB 2904 (Bonta) would have required the Health Care Access and Information (HCAI) to grant Alameda Hospital a seven-year extension of the 2030 seismic safety deadline for buildings housing specified service. The Governor vetoed AB 2904 saying, "I commend the author for responding to their district's facility-specific needs, as well as the commensurate planning necessary to meet the 2030 deadline. However, any consideration of an extension must be contemplated across all communities and across all types of facilities, in a holistic manner. Only with a comprehensive strategy can we begin the discussion that will ensure that patients and their families, as well as the communities that these facilities serve, can be protected in a seismic or emergency event."

According to the District, it is estimated that the 2030 upgrades will cost approximately $54 million, all of which will be financed by the COPs. The expected savings because of the statutory lien authority is $2.8 million.

According to the Author

According to the author, "Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state's 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap."

Arguments in Support

According to the District, "The Hospital has achieved total compliance with the 2020 seismic retrofit requirement which were designed to prevent collapse of hospital structures. Alameda Hospital has served Alameda and neighboring communities for over one hundred years and is the only acute care facility on the island of over 70,0000 residents.

"In addition to 66 licensed acute beds and an emergency department with a certified stroke program, the Hospital also operates 181 distinct part skilled nursing and subacute beds, most of which are always of needy long term care residents. The threat of losing its acute license by 2030 would threaten all the services with closure.

"The Hospital has spent the last four years planning an approach to compliance with the 2030 standards, only to find estimates may run as much as $53 million, an amount that a hospital the size of Alameda cannot afford, especially in the wake of the pandemic, which has caused widespread financial hardship on the healthcare industry.

"AB 2157 would allow district officials to execute and deliver the certificates of participation, secured via statutory lien, needed to initiate the financing required to meet seismic standards as required by state law. Alameda Hospital is an essential service on an island separated from Oakland by two tunnels and three bridges and needs this critical legislation to limit major disruptions to healthcare services for our community."

Arguments in Opposition

None on file.

FISCAL COMMENTS

None

VOTES

ASM LOCAL GOVERNMENT: 8-0-1

YES: Juan Carrillo, Waldron, Haney, Kalra, Pacheco, Ramos, Ward, Wilson

ABS, ABST OR NV: Essayli

UPDATED

VERSION: February 6, 2024

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0002675

Date of Hearing: March 20, 2024

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Juan Carrillo, Chair

ABPCA Bill Id:AB 2157 (

Author:Bonta) – As Introduced Ver:February 6, 2024

SUBJECT: City of Alameda Health Care District: certificates of participation: lien.

SUMMARY: Enacts a statutory lien to secure certificates of participation (COPs) issued by the City of Alameda Health Care District (District). Specifically, this bill:

1. Specifies that all obligations of the District in connection with any and all COPs executed and delivered by or on behalf of the District between January 1, 2024, and December 31, 2034, including COPs executed and delivered before 2064 to refund the COPs, shall be secured by a statutory lien on all of the revenues generated from parcel taxes levied pursuant to Measure A, approved by the voters of the District at the general election held on April 9, 2002.
2. Provides that this lien shall arise automatically without the need for any action or authorization by the District or the Board of Directors of the District. The lien shall be valid and binding from the time the COPs are executed and delivered.
3. Specifies that the parcel tax revenue shall immediately be subject to this lien, and the lien shall immediately attached 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 and without the need for any physical delivery, recordation, filing, or further act.
4. Finds and declares that a special statute is necessary and that a general law cannot be made applicable because of the unique circumstances regarding financing obligations of the District.
5. Contains an urgency clause.

EXISTING LAW:

1. Defines the following terms [Government Code (GC) § 5450):
   
   1. “Bonds” means any bonds, notes, bond anticipation notes, commercial paper, or other evidences of indebtedness, or lease, installment purchase, or other agreements, or certificates of participation 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. “Collateral” means any revenues, moneys, accounts receivable, contractual rights to payment, and other rights to payment of whatever kind, subject to the pledge provided for or created in a pledge document.
      
   3. “Pledge” means, 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.
      
2. 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 (GC § 5451).
   
3. 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 (GC § 5451).
   
4. Establishes the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983 (Alquist Act), to ensure that hospital buildings are designed and constructed to resist the forces generated by earthquakes and requires the Department of Health Care Access and Information (HCAI), formerly the Office of Statewide Health Planning and Development (OSHPD), to propose building standards for earthquake resistance and to provide independent review of the design and construction of hospital buildings. [Health and Safety Code (HSC) § 129675, et seq.]
   
5. Establishes timelines for hospital compliance with seismic safety standards, including a requirement that buildings posing a significant risk of collapse and a danger to the public be rebuilt or retrofitted to be capable of withstanding an earthquake, or removed from acute care service, by January 1, 2008 and a requirement that a hospital must also be capable of continued operation by January 1, 2030. (HSC § 130060, § 130065)
   

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 rural areas, the Legislature enacted the Local Hospital District Law, to provide medically underserved areas without access to hospital facilities a source of tax dollars that could be used to construct and operate community hospitals. SB 1169 (Maddy), Chapter 696, Statutes of 1994, changed the name of the principal act to “The Local Healthcare District Law” to better reflect the shift in the provision of healthcare services outside hospital settings.

The powers and duties granted to healthcare districts under existing law have remained largely unchanged while the demographics of areas being served by the districts, access and provision of healthcare services, and the districts themselves have vastly changed. For example, following the change in law in 1994, at least 14 healthcare districts have filed for bankruptcy, and over one-third of the healthcare districts in California have either closed or sold their hospital.

State law allows healthcare districts to exercise various powers, including to lease or own property; build and operate healthcare facilities and services, including emergency services, free clinics, diagnostic and testing centers, health education programs, wellness and prevention programs, rehabilitation, and aftercare; to provide assistance to other entities to carry out those services; and to sell their assets.

Generally, a five-member board of directors manages each healthcare district. Each member must be a registered voter residing in the district and serves a four-year term, with the exception of the initial board. The board of supervisors of the county with the greatest share of land in the district appoints the initial board. Upon appointment, the board selects two members by lot to serve two-year terms with the remaining three serving four-year terms.

Many healthcare districts receive a share of local property taxes. Some levy special parcel taxes, and some charge for services. Some healthcare districts generate revenues from district resources, such as property lease income, and some districts receive grants from public and private sources.

1. Seismic Safety Requirements. In 1973, the Legislature passed the Alquist Act, which required all new hospital construction to meet stringent seismic safety standards. The original Alquist Act did not apply to existing buildings, partly because of the expectation that older hospital buildings would be replaced with conforming buildings over time. However, by the time the 1994 Northridge earthquake occurred more than 20 years later, 80% of hospital beds were still in pre-1973 non-conforming buildings. The Northridge earthquake experience prompted the Legislature to update the Alquist Act in 1994 to bring older hospital buildings into compliance with structural requirements by 2008 (which was subsequently delayed through various bills over the years), and to adopt additional requirements that would ensure hospitals, by January 1, 2030, would not only remain standing, but would also remain operational following a major earthquake (referred to as “2030 compliance”).
2. Certificates of Participation. 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 does not mention special districts, the Legislature has allowed special districts to use a variety of debt financing tools without voter approval. COPs are a type of debt instrument that cities, counties, and special districts can issue without voter approval. COPs can take different forms. A COP entitles the holder to a share of a pledged revenue stream, which typically comes from lease payments made by the issuer. Since COPs are structured as lease payments, they do not typically require voter approval.
   
3. Statutory Liens. Federal bankruptcy law defines a “lien” as a charge against or interest in property to secure payment of a debt or performance of an obligation. A “statutory lien” is a distinct type of lien that arises solely by force of statute. Unlike other types of liens, a statutory lien likely remains enforceable even after a bankruptcy filing.

There have been a few recent examples of statutory liens for local agencies. The Legislature authorized the West Contra Costa Health Care District (WCCHCD) to sell COPs secured by a statutory lien on the district’s voter-approved parcel tax revenues [SB 644 (Hancock), Chapter 742, Statutes of 2011). WCCHCD filed for relief under Chapter 9 bankruptcy in 2006, and emerged from bankruptcy thereafter. However, it never managed to regain financial solvency and fell further into debt. The WCCHCD shut its hospital, a full-service acute care facility in 2015. WCCHCD again filed for bankruptcy in 2018, and SB 522 (Glazer), Chapter 133, Statutes of 2018 subsequently dissolved the WCCHCD Board of Directors and required the Board of Supervisors of Contra Costa County to either serve as or appoint the district board.

Additionally, AB 582 (Levine), Chapter 23, Statutes of 2013, enacted a statutory lien to secure COPs issued by the Palm Drive Healthcare District (PDHCD). In 2007, PDHCD filed for bankruptcy protection. The bankruptcy court subsequently approved a plan of adjustment that required the PDHCD to sell COPs and use the proceeds to satisfy its obligations under the plan and finance other specified expenses. PDHCD issued $11 million in COPs in 2010, allowing it to exit from bankruptcy. According to a Sonoma Local Agency Formation Commission Report, “PDHCD sold the health care facility to the American Advanced Management Group in 2019, after seeking approval from voters within the PDHCD’s territory. At that time, the PDHCD no longer provided emergency or acute care services, directly or through a management agreement. The District has continued to provide limited community health services through grants to community organizations, an activity that could fall under the ‘other medical services’ authorized power.

“Whether the District could continue to operate, without exercising the powers to provide emergency and acute care services, has been variously discussed, but no determination on the matter has been entertained by Sonoma LAFCO to date. Generally there is some consensus within the community that the primary if not sole activity of the District was to support the provision of emergency and acute care services at the facility in Sebastopol.

“Perhaps of most import however, is that the District Board has determined that the District should be dissolved, with a successor agency (the County) assigned to wrap up the financial affairs of the District. Fundamentally, this means managing the continued collection of tax assessments in order to pay off debt.” PDHCD officially dissolved on August 7, 2020.

1. City of Alameda Health Care District. According to the Alameda LAFCO, the District was formed on July 1, 2002 after approval by over two-thirds (69%) of voters. The District was formed to take on operations of the Alameda Hospital, which was at the time operated as a nonprofit and was facing ongoing operating losses. At the time of formation, the voters also approved a parcel tax of $298 per parcel on the property owners of Alameda to defray operating costs and capital needs of the Alameda Hospital. The parcel tax exists in perpetuity and raises approximately $6 million in revenue annually.

According to the District, Alameda Hospital began negotiations in late 2012 with Alameda County Medical Center, now known as Alameda Health System (AHS). As a result, an affiliation agreement was finalized in the form of a Joint Powers Agreement (JPA). By the joint exercise of the common statutory powers of these two public organizations to operate health care facilities, the JPA facilitated the preservation of Alameda Hospital as a health care resource for Alameda County. The JPA was approved by both the District and AHS Boards in 2013 and the affiliation was implemented in 2014. Under the JPA, AHS oversees and manages the operation of Alameda Hospital and its affiliated programs, including: licensure, certifications, financial management, and maintenance facilities. There are requirements for AHS to report regularly on such operations and improvements to the District Board of Directors. The District maintains responsibility for collection of the parcel tax revenue and for ensuring that it is used only to support hospital and health care services and facilities in the City of Alameda. Under the Joint Powers Agreement, AHS was obligated to:

• 1. Maintain at least 50 acute care beds.
     
  2. Maintain an emergency department in Alameda.
     
  3. Ensure completion of the State seismic standards for hospitals under SB 90 and SB 2190, which must be started in 2020 and completed in 2022.

In 2022, AB 2904 (Bonta) would have required the HCAI to grant Alameda Hospital a seven-year extension of the 2030 seismic safety deadline for buildings housing specified service. The Governor vetoed AB 2904 saying, “I commend the author for responding to their district's facility-specific needs, as well as the commensurate planning necessary to meet the 2030 deadline. However, any consideration of an extension must be contemplated across all communities and across all types of facilities, in a holistic manner. Only with a comprehensive strategy can we begin the discussion that will ensure that patients and their families, as well as the communities that these facilities serve, can be protected in a seismic or emergency event.”

According to the District, it is estimated that the 2030 upgrades will cost approximately $54 million, all of which will be financed by the COPs. The expected savings because of the statutory lien authority is $2.8 million.

1. Bill Summary and Author Statement. This bill requires all COPs executed and delivered by the District between January 1, 2024, and December 31, 2034, including COPs executed before 2064 to refund COPs, to be secured by a statutory lien on all revenue generated on the District’s parcel taxes. This bill also contains an urgency clause. The District is the sponsor of this bill.

According to the author, “Alameda Hospital is the only hospital on the island of Alameda and is licensed as an acute care hospital, with many skilled nursing and subacute beds that has served the over 75,000 residents of Alameda and adjoining communities for over 100 years. Like many other hospitals, Alameda Hospital is facing financial constraints in meeting the state’s 2030 seismic safety requirements. Closure of this hospital would be detrimental to the island. AB 2157 will help the hospital secure additional financing to help bridge that financial gap.”

1. Policy Considerations. The Committee may wish to consider the following:
   1. Winners and Losers. By protecting investors holding COPs from becoming creditors if the District files for bankruptcy protection, AB 2157 may increase the risks borne by other potential creditors in a municipal bankruptcy proceeding. The District has indicated that it does not have debt of any kind, but it is unclear if it will need to issue additional debt in the future. The Committee may wish to consider if state law should shield some creditors in any bankruptcy proceeding, potentially leaving a smaller pool of remaining creditors to bear the costs of restructuring.
   2. Will We See More? The District may not be the only local government confronting severe fiscal challenges resulting from the need to seismically retrofit a hospital. The Committee may wish to consider whether enacting a statutory lien to secure COPs issued by the District to help facilitate the seismic upgrades for its hospital may set a precedent that will invite similar requests for legislative relief from other financially stressed local governments.
2. Arguments in Support. According to the Districts, “The Hospital has achieved total compliance with the 2020 seismic retrofit requirement which were designed to prevent collapse of hospital structures. Alameda Hospital has served Alameda and neighboring communities for over one hundred years and is the only acute care facility on the island of over 70,0000 residents.

“In addition to 66 licensed acute beds and an emergency department with a certified stroke program, the Hospital also operates 181 distinct part skilled nursing and subacute beds, most of which are always of needy long term care residents. The threat of losing its acute license by 2030 would threaten all the services with closure.

“The Hospital has spent the last four years planning an approach to compliance with the 2030 standards, only to find estimates may run as much as $53 million, an amount that a hospital the size of Alameda cannot afford, especially in the wake of the pandemic, which has caused widespread financial hardship on the healthcare industry.

“AB 2157 would allow district officials to execute and deliver the certificates of participation, secured via statutory lien, needed to initiate the financing required to meet seismic standards as required by state law. Alameda Hospital is an essential service on an island separated from Oakland by two tunnels and three bridges and needs this critical legislation to limit major disruptions to healthcare services for our community.”

1. Arguments in Opposition. None on file.
2. Urgency Clause. This bill contains an urgency clause and requires a 2/3 vote of each house.

REGISTERED SUPPORT / OPPOSITION:

Support

City of Alameda Health Care District [SPONSOR]

Alameda Health System

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958