SAN FRANCISCO - Hospitals find it too expensive and time-consuming to use the California Health Facilities Financing Authority as a conduit bond issuer, and the CHFFA is unlikely to do much new business unless that changes, according to a report commissioned by the authority.

Sjoberg Evashenk Consulting delivered the report to the CHFFA at its February meeting, and the CHFFA board is scheduled to hear public comment on the report Thursday.

The CHFFA board, chaired by state Treasurer Bill Lockyer, commissioned the report as part of its long-running debate over how to apply the requirement, set forth in the 1970s legislation that created the authority, that the savings created by allowing non-profit hospitals to issue tax-exempt bonds be passed on to health care consumers.

The debate over the "pass-on" requirement took center stage when Sacramento-based Sutter Health applied in 2006 to issue $958 million in revenue bonds for hospital construction and upgrade projects.

The board, in the waning weeks of former treasurer Phil Angelides' term, voted to delay action on the request so that it could engage in more discussion over the "pass-on" savings.

It took the board four months to approve Sutter's application, after a compromise was proposed by the incoming treasurer, Lockyer, in which Sutter would be deemed to have met the "pass-on" requirement by donating $8.5 million to small and rural health care facilities.

The CHFFA has yet to adopt any permanent guidelines for applying the "pass-on" requirement.

The Sutter deal, both in the amount of time it took to process and the amount of extra money it cost the issuer, epitomizes the problems the CHFFA faces in remaining viable as a bond conduit, when hospitals have the option of issuing bonds through other conduits, such as the California Statewide Communities Development Authority, the report said.

Joint powers authorities, such as the CSCDA, though they are required to establish a "public benefit" to conduct any conduit financing, are not subject to the "pass-on" savings guideline in the CHFFA statute.

"As a result, the unintended consequences are that CHFFA bond issue activity has stalled significantly since that transaction," the report said. "While there are numerous non-profit hospital bond financing transactions being negotiated throughout California, CHFFA is not the issuer of choice and no longer the viable competitor it was previously."

According to the consultants, the issuers, bankers, attorneys, and advisors they spoke with believe issuing bonds though CHFFA will be more expensive than through other conduits.

"It is for this reason that the "pass-on" debate should be discontinued in the limited CHFFA forum and is best focused in Congress and the California Legislature," the report said.

Stakeholders on the issuance side also believe CHFFA's application and approval process too long and complex. The authority has a 34-page application form, the report said, compared to four for CSCDA.

Unions representing hospital employees have in the past used CHFFA hearings as a venue to air their grievances against some employers, notably Sutter Health.

The report said that stakeholders on the issuance side also made it clear they will not return to CHFFA unless the public hearing process is managed to focus on the merits of the facilities being financed and the finances and creditworthiness of the borrowers.

The consultants recommended that the board adopt procedures to do so, including requiring that public comments be provided in advance in writing, and establishing time limits for comments.

At Lockyer's request, state Sen. Sheila Kuehl, D-Santa Monica,who chairs the Senate Health Committee, introduced a bill earlier this month to impose similar community benefit requirements on all entities that issue tax-exempt financing for nonprofit health facilities.

It's a spot bill, introduced with the expectation that it will be amended, said health committee consultant Melanie Moreno, but she said Kuehl's intent would be to apply a pass-on requirement to other authorities, and also to clearly define what the requirement means.

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