Dissolution Dialogue on Healthcare Districts
Original post made by Jack Hickey, Woodside: Emerald Hills, on Aug 1, 2014
Dialogue between Jack Hickey and Dennis Zell
July 18, 2014 - July 21,2014
Dennis, I have been an elected member of the Sequoia Healthcare District Board of Directors since 2002. Dissolution of the Districts has been my objective.
My current thinking is that LAFCo should pursue a ballot measure which would create a countywide successor for SHD and PHD, with funding from existing countywide taxes, i.e. no new taxes. That measure should contain a provision that should it fail to pass, SHD and PHD would be dissolved.
Enabling legislation might be required for such a measure.
I am attaching a supporting document for your perusal.
Would you support such a ballot measure?
Jack, thank you for your inquiry. No, I would not support that.
I oppose consolidation because I believe that hospitals serve a local purpose and that consolidation would make them less responsive to local interests in the same way that local school districts are more responsive to local concerns than big city "unified" school districts. I think the Appletree project shows that the two districts have a healthy working relationship and can cooperate when needed.
I oppose dissolution because I believe the districts still serve an important function.
Dennis, what would you suggest for Daly City, Pacifica, Brisbane, Colma , and the Coastside? A separate Healthcare District? Voters are not likely to support an added tax and the cities are not likely to give up a share of their property tax. East Palo Alto and Fair Oaks areas outside the SHD are not likely to support a tax increase, and EPA is not likely to give up a share of its property tax.
What do you consider to be the "important function" which the districts serve? Isn't it considerably different than the function for which the voters created the districts? Shouldn't the voters have a direct say in this?
Yes, I think a separate health care district would be appropriate, especially considering the uncertain future of Seton.
As to EPA and Fair Oaks, I imagine the Sequoia and El Camino Districts are already subsidizing residents from there. Maybe the Legislature should consider expanding or creating a district to formally represent those people and give them a voice in health care issues while at the same time dealing with the "free rider" problem.
On the other hand, I already mentioned the important function of supporting innovative and self-sustaining non-profits to address under-served communities, and the law does not prohibit health care districts from doing things that benefit residents outside the districts.
Another important function is dealing with problems that simply did not exist when hospital districts were formed. The legislative change in name from Hospital Districts to Health Care Districts is but one legislative recognition of the evolved purpose of our districts. The free market has built lots of new hospitals, and our original purpose of financing and running hospitals is (at least for the Peninsula Health Care District) no longer the necessity that it was in the last century.
On the other hand, the practice of medicine also seems to have changed. The "profession" of medicine is no longer characterized by individual doctors and small practice groups, but is instead dominated by huge business entities (doctor's groups and medical centers) ostensibly organized as non-profits. Many doctors seems to "punch in" and "punch out" and the business decisions are left to administrators who seem more concerned with the bottom-line of financial statements than the health care needs of the community. Wise business decisions sometimes result in socially undesirable or deficient health care service "gaps" (in terms of what services are offered and where they are offered).
In my view, health care districts fulfill an important modern function of filling those aforementioned gaps. In today's world, simply having a hospital in the community does not mean that the community's health care needs are being met.
Dennis; when voters approved the formation of the Hospital Districts, it was for the purpose of establishing hospitals. They did that. Now that they no longer own hospitals, the districts should be dissolved. It was not the intent of voters to create a publically funded United Way.
I have publically suggested that the district's philanthropic activity may be a misappropriation of public funds. Web Link. A memorandum from District counsel, Mark Hudak, defends the boards philanthropy. Web Link
He states: "Once created by the voters, however, the district is a creature of state law, subject to the expansion and contraction of its powers by the Legislature. Health care districts are not static; they are not limited to the powers that were in the enabling statutes at the time each district was created." I find that repugnant.
I offer an analysis from Christopher Schmidt, who's opinion I respect, which also suggests a misappropriation of public funds. That analysis was in answer to my statement which precedes it:
"Christopher, as you know, I have been advocating for dissolution of the Sequoia Healthcare District with tax revenues being distributed to the agencies sharing its boundaries.
> The issue is clear. The Sequoia Healthcare District was created by voters in 1948 to build, operate and maintain Sequoia Hospital. It no longer owns the hospital. The Grand Jury questioned continued collection of property taxes for the newly assumed philanthropic role taken on by the District. LAFCo has suggested dissolution, consolidation with Peninsula HCD or expansion to include the entire County.
> Recently I discovered that Revenue Limit school districts(e.g. Redwood City Elementary) who currently receive considerable support from the Sequoia Healthcare District would lose that support and not capture any of the property taxes from dissolution, while Basic Aid school districts would share in the property tax redistribution. I have concluded that a voter approved countywide healthcare district supported by a share of the 1% ad valorem property tax would be the most equitable, politically attainable, solution. "
I don't follow the logic above. I see two types of problem with the district:
(1) The size of the district's AB 8 share of the property tax, established by the state in response to Prop 13, is no longer justified by the rationale in effect in the 1977/1978 base year, because, as you wrote, it doesn't even own the hospital any more.
(2) The district's reallocation of revenue to certain school districts in recognition of the hospital district's not needing that revenue for its own operations any more is not in keeping with the legal theory of AB 8. Reallocation of unneeded AB 8 share is not properly at the discretion of the board of the district no longer needing the revenue. That's a matter for the county auditor/controller and the other stakeholders splitting the 1% property tax. (Google "Demystifying the CA PT Appt System".) The other stakeholder are, roughly, the county government, cities, school districts, and other special districts. Collusion between the Sequoia Healthcare District and certain elementary school districts is not a legal substitute for the AB 8 tax apportionment process. In my opinion it is simple misappropriation of funds.
I think closing the district is the straightforward and obvious solution to both of the problems above. If, during the subsequent AB 8 tax apportionment process, the county auditor/controller and the other stakeholders agree that elementary school districts' employment of school nurses represents a new function they have taken on since the 1977/1978 base year, they would presumably receive an accordingly larger share. (But, FWIW, I doubt that schools could make such an argument convincingly.)
IMO, the school districts benefiting from the Healthcare District's past misappropriation of funds do not derive any lasting right to those funds in the future. They should just count themselves lucky if they are not asked to return that money.
I disagree with your statement that revenue limit districts would not share in the property tax redistribution. They would receive their due share of that money, but what you are alluding to is that they would accordingly lose some of the state aid they currently receive (which is calculated to bring their incomes up to the revenue limit, because the state isn't in the business of giving more money to districts that don't need it if local property taxes are adequate). Reduced dependence on state aid is a good and valuable thing, especially in consideration of the state's making those payments later and later in the year. For some districts (e.g. the SMCCCD, which is perpetually on the bubble) the additional revenue might obviate the need for any state aid at all, allowing them to transition to being basic aid districts.
I do not think that a voter approved countywide healthcare district supported by a share of the 1% ad valorem property tax would be a good idea. The county's two existing healthcare districts have more or less privatized their hospitals, so what's their justification for continuing to take revenue away from the other tax jurisdicitons who have all the same responsibilities they had before? And in the 1/3 of the county where they have never had a hospital district, those cities and school districts (and the county too) would take cuts to their shares of the property tax to fund your proposal. For what purpose?? This isn't like you!
I agree with the late Fred Graham: Folding the healthcare district would help public health because the county government would be the primary recipient of those funds, and the county hospital (where his wife worked) had a much greater need of that money than Sequoia Hospital did, and they do far more for public health. (Disclaimers: my late father also worked for the county hospital at one time, and was, in prior years, on the Peninsula Hospital board.)
Jack, the analysis of Mr. Hudak is correct. The Special Districts are a creature of statute and the legislative power resides with the Legislature.
I don't understand the legal basis of any contrary argument.
Dennis, the issue of voter intent in the case of SHD was raised by Quentin Kopp's Civil Grand Jury. The situation with PHD is similar. Web Link
"The voters of the Sequoia Hospital District voted in 1946 that they were willing to be taxed for the purpose of maintaining the Sequoia Hospital, and in 1996 the voters agreed to a sale of the Sequoia Hospital and other district assets to the non-profit corporation Hospital Acquisition Corporation so that the emergency and other services of the hospital could be continued. The assets were later transferred to CHW."
"Although hospital districts have broad powers in the distribution of revenues, nonetheless, it is the responsibility of the Sequoia Healthcare District to expend its tax and other revenues for the purposes approved by the voters. The grand jury finds that the Sequoia Healthcare District has not done so."
"The 2001-2002 Grand Jury finds that District taxpayers should be made aware that the 1946 measure authorizing the tax assessment was for the construction, maintenance, and operation of a hospital, but that the District no longer owns, maintains, or operates a hospital."
"The 2001-2002 Grand Jury finds that since the sale of the hospital the District has assumed a role similar to that of a philanthropic foundation, using its tax revenues to make grants to other government and non-profit agencies. This is a function of the District that was never presented to the voters for their approval under 1996 Measure H."