SAN FRANCISCO - A bill intended to level the playing field between the California Health Facilities Financing Authority and other conduit issuers of hospital bonds has cleared its first policy committee.
The bill is sponsored by Senate Health Committee chairwoman Sheila Kuehl, D-Santa Monica, at the request of state Treasurer Bill Lockyer, who chairs the CHFFA board.
At issue is the "pass-on" requirement established in CHFFA's 1979 enabling legislation, requiring savings achieved through the use of tax-exempt bonds to be passed on to consumers.
Members of the CHFFA board have debated what that means, a question that came to head in 2006 when Sacramento-based nonprofit hospital chain Sutter Health applied to issue $958 million in revenue bonds.
The action was delayed for months while the board wrangled, finally settling on an agreement to require Sutter to donate $8.5 million to small and rural health care facilities.
After that, new-money bond applications to CHFFA all but dried up as would-be borrowers shifted their activity to conduit issuers set up as joint powers authorities, which are established under a different legal structure with no mention of pass-on requirements.
In the 11 months after the Sutter transaction, the formerly $1 billion-a-year CHFFA only issued $27 million in new bonds, according to a report CHFFA commissioned from Sjoberg Evashenk Consulting.
The authority's business will pick up this year, but only as a side effect of the credit crunch: CHFFA has authorized six major borrowers to refinance more than $4.6 billion in outstanding variable-rate securities that became impaired by the crunch.
The consulting firm interviewed hospitals, health care associations, underwriters, bond counsel, and other stakeholders as part of their study. "Through those interviews, it was made clear that hospitals and other health care providers will not return to CHFFA for tax-exempt bond financing unless CHFFA clearly defines the pass-through provision," according to an analysis prepared by Senate Health Committee staff.
Kuehl's SB 1221 is intended to remedy that by creating equal "community service" requirements for any conduit financing of a nonprofit hospital project. The Senate Health Committee approved the bill by a vote of 6 to 2 Wednesday, sending it on to the Appropriations Committee.
According to the staff report, the bill would establish several criteria to determine if a hospital is providing significant community service, such as: maintaining a policy of treating all patients without regard to ability to pay; serving beneficiaries of Medi-Cal, the state's version of the Medicaid program for low-income people; and maintaining a charity care policy.
Lockyer submitted a letter supporting the measure and advocating doing away with the pass-on savings language.
"The treasurer contends that the vague and discretionary intent language currently in statute, unique to CHFFA, raises expectations on the part of consumers and advocates who harbor an unwarranted hope that health care costs can, and should, be controlled by conduit issuers, who otherwise have no statutory or regulatory role to develop or apply policy in this area," according to the committee staff report. "Conversely, the language unnecessarily repels potential borrowers from doing business with the only state-run conduit [health care] issuer of tax-exempt status."
