HomeMy WebLinkAboutMINUTES - 07162013 - D.2RECOMMENDATION(S):
1. ACKNOWLEDGE that Doctors Medical Center (DMC) is the only hospital in West Contra Costa County serving
the general public and, as such, is a critical component of the County’s Emergency Medical Services system.
2. ACKNOWLEDGE that West Contra Costa Healthcare District (the “District”) completed its plan of bankruptcy
reorganization on March 10, 2011, is continuing the implementation of its long term recovery plan and is still facing
a severe liquidity shortfall.
3. ACKNOWLEDGE that pursuant to the Second Agreement for Property Tax Transfer from West Contra Costa
Healthcare District to Contra Costa County, dated April 5, 2011, the County and the District established a committee
of the District Board that serves as the DMC “governing body,” as that term is used in Section 70035 of Title 22 of
the California Code of Regulations (respecting licensure and regulation of acute care hospitals), with overall
administrative and professional responsibility for DMC.
4. ACKNOWLEDGE that the County has a vested interest in protecting the health of the general population, and, as
such, is interested in assisting the hospital in fulfilling its long term recovery plan.
5.
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 07/16/2013 APPROVED AS RECOMMENDED OTHER
Clerks Notes:
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Candace Andersen, District II
Supervisor
Mary N. Piepho, District III
Supervisor
Karen Mitchoff, District IV
Supervisor
Federal D. Glover, District V
Supervisor
Contact: Patrick Godley,
925-957-5400
I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the
Board of Supervisors on the date shown.
ATTESTED: July 16, 2013
David Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc: Robert Campbell, Auditor-Controller, Lisa Driscoll, County Finance Director, Patrick Godley, Health Services Department
D.2
To:Board of Supervisors
From:William Walker, M.D., Health Services Director
Date:July 16, 2013
Contra
Costa
County
Subject:Hearing on Transfer of Property Taxes from West Contra Costa Healthcare District to County and Approval of
Appropriation Adjustment
AMENDED AND RESTATED SECOND AGREEMENT FOR PROPERTY TAX
TRANSFER FROM WEST CONTRA COSTA HEALTHCARE DISTRICT TO CONTRA
COSTA COUNTY
This AMENDED AND RESTATED SECOND AGREEMENT FOR
PROPERTY TAX TRANSFER FROM WEST CONTRA COSTA HEALTHCARE DISTRICT
TO CONTRA COSTA COUNTY (this “Agreement”) is entered into this 16th day of July, 2013
(the “Effective Date”) by and between the West Contra Costa Healthcare District, a California
local health care district (“District”), and the County of Contra Costa, a political subdivision of
the State of California (“County”).
WITNESSETH:
WHEREAS, District owns and operates an acute care hospital in San Pablo,
California, doing business as “Doctor’s Medical Center – San Pablo” (“DMC”), at which it
provides care to, among others, Medi-Cal beneficiaries;
WHEREAS, County believes that the preservation and continuance of DMC as a
health care resource is necessary to meet the health needs of the population of West Contra Costa
County;
WHEREAS, Section 99.02 of the California Revenue and Taxation Code (the
“R&T Code”) authorizes District and County to modify the allocation of property tax revenues
between them, provided the modification does not violate the conditions set forth in R&T Code
Section 99.02 and does not affect the tax revenue allocation for any other public entity;
WHEREAS, to facilitate the preservation of DMC as a health care resource for
the communities they both serve, County and District entered into that certain “The West Contra
Costa Healthcare District Agreement for Property Tax Transfer to Contra Costa County” dated
October 31, 2006 (the “Initial Agreement”), pursuant to which District agreed, under the
authority of R&T Code Section 99.02, to provide for the allocation and transfer to County of the
entirety of the general ad valorem property tax revenues that otherwise would be collected and
allocated to District, commencing July 1, 2007, and continuing from year to year thereafter until
$11,500,000 had been allocated and transferred to County, all in consideration of County
transferring $10,000,000 to the California Department of Health Care Services in order to
facilitate enhanced Medi-Cal payments to District of up to Twenty Million Dollars ($20,000,000)
for services it rendered to Medi-Cal beneficiaries at DMC during the state fiscal year ending
June 30, 2007, and as otherwise provided in the Initial Agreement;
WHEREAS, County and District fully performed their obligations under the
Initial Agreement;
WHEREAS, in order to further facilitate the preservation of DMC as a health care
resource for the communities served by District and County, District and County entered into
that certain Second Agreement for Property Tax Transfer from West Contra Costa Healthcare
District to Contra Costa County dated April 5, 2011 (as the same was amended by that certain
Agreement (1) Terminating Doctors Medical Center Management Authority; (2) Amending
Second Agreement for Property Tax Transfer from West Contra Costa Healthcare District to
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Contra Costa County; and (3) Providing for Continued Participation in the Operation of Doctor’s
Medical Center by County Representatives, effective May 25, 2011, collectively referred to
herein as the “Second Agreement”), pursuant to which: (i) County advanced, in installments, the
sum of Ten Million Dollars ($10,000,000) to District; and (ii) District agreed to cause the County
Auditor, pursuant to R&T Code Section 99.02, to transfer and allocate to County ad valorem
property tax revenues that otherwise would be allocated to District in a total amount of Eleven
Million Five Hundred Thousand Dollars ($11,500,000);
WHEREAS, pursuant to the Second Agreement, the parties also established a
committee of the District Board that serves as the DMC “governing body,” as that term is used in
Section 70035 of Title 22 of the California Code of Regulations (respecting licensure and
regulation of acute care hospitals), with overall administrative and professional responsibility for
DMC;
WHEREAS, of the Eleven Million Five Hundred Thousand Dollars ($11,500,000)
in ad valorem property tax revenues to be reallocated and transferred from District to County
pursuant to the terms of the Second Agreement, the County Auditor has transferred Six Million
Three Thousand Seven Hundred Seventy-Six and 82/100 Dollars ($6,003,776.82) to the County,
and there remains to be transferred Five Million Four Hundred Ninety-Six Thousand Two
Hundred Twenty-Three and 18/100 Dollars ($5,496,223.18) to the County in ad valorem
property tax pursuant to the terms of the Second Agreement;
WHEREAS, in order to further facilitate the preservation of DMC as a health care
resource for the communities served by District and County, the parties desire that County
transfer an additional Nine Million Dollars ($9,000,000) to District and that District now cause
the County Auditor to transfer and allocate to County additional ad valorem property tax
revenues that otherwise would be allocated to District in the amount of Eleven Million Six
Hundred Thousand Dollars ($11,600,000);
WHEREAS, the total ad valorem property tax revenues to be transferred to
County pursuant to this Agreement is Seventeen Million Ninety-Six Thousand Two Hundred
Twenty-Three and 18/100 Dollars ($17,096,223.18) (the “Restated Property Tax Transfer
Amount”), which is the result of the Eleven Million Five Hundred Thousand Dollars
($11,500,000), which District agreed to be transferred to County pursuant to the Second
Agreement, plus the Eleven Million Six Hundred Thousand Dollars ($11,600,000), which
District agreed to be transferred to County pursuant to this Agreement, less the Six Million Three
Thousand Seven Hundred Seventy-Six and 82/100 Dollars ($6,003,776.82) the County Auditor
has transferred to District from County pursuant to the terms of the Second Agreement;
WHEREAS, in order to accommodate this Agreement, District has held a
properly noticed public hearing in accordance with R&T Code Section 99.02 and determined,
based upon that hearing, that: (1) revenues are available for this purpose; (2) the contemplated
transfer will not result in any increase in the ratio between the amount of revenues of the
transferring agency that are generated by regulatory licenses, use charges, user fees, or
assessments and used to finance services provided by the transferring agency; (3) the
contemplated transfer will not impair the ability of the transferring agency to provide existing
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services; and (4) the contemplated transfer will not result in a reduction of property tax revenues
to school entities;
WHEREAS, to further accommodate this Agreement, District has adopted a
resolution authorizing this Agreement and requesting concurrence by County in the foregoing
findings pursuant to R&T Code Section 99.02;
WHEREAS, District and County now wish to enter into this Agreement in order
to facilitate the preservation of DMC as a health care resource for the communities they both
serve, with the purpose and intent that the same shall entirely amend, restate, replace and
supplant the parties’ remaining rights and obligations under the Second Agreement, and
specifically, to provide for District’s additional allocation and transfer of general ad valorem
property tax revenues to County in consideration of County’s transfer of additional amounts to
District for the purposes and otherwise as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is acknowledged, and in further consideration of the foregoing premises and the following
terms and conditions, the parties hereto agree as follows:
1. DEFINITIONS.
In addition to those words and phrases defined elsewhere in this Agreement, the
following words and phrases in this Agreement shall have meanings set forth below:
A. “Ad valorem property taxes” shall mean the sum of the general ad valorem
tax revenues allocable in regular installments to District, including such incremental increases or
decreases as occur by reason of changes in District’s property tax base or changes in District’s
allocations occurring by reason of law or subsequent reallocations of existing property tax
revenues to District.
B. “Effective Date” has the meaning set forth in the first paragraph of this
Agreement.
C. “Governing Body” shall have the meaning set forth in Section 2.B, below.
2. CONTINUING PROPERTY TAX ALLOCATION.
A. Continuing Property Tax Allocation. This Agreement amends, restates,
replaces and supplants the parties’ remaining rights and obligations under the Second
Agreement. The County Auditor shall allocate and transfer to County the entirety of the general
ad valorem property tax revenues that otherwise would be collected and allocated to District
commencing July 1, 2013, and shall continue to allocate such ad valorem property tax revenues
to County from year to year, as authorized by R&T Code Section 99.02, until the sum of all such
allocations to County equals the Restated Property Tax Transfer Amount and District has
satisfied all of its other obligations herein. The allocation and transfer of ad valorem property
tax revenues to County that otherwise would be allocated to District shall be effective solely
upon this Agreement becoming effective and being provided to the County Auditor. The transfer
and allocation of property tax revenues provided herein is and shall be an effective and
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completed assignment of all of District’s rights to the amount of such tax revenues set forth in
this Section 2.A, without the need for any further approval or action by District.
B. Governing Body Continued Existence; County Representatives. In further
consideration for County’s support of District pursuant to this Agreement, District will continue
to maintain the committee of the District Board that serves as the “governing body” of DMC (the
“Governing Body”), as that term is used in Sec. 70035 of Title 22 of the California Code of
Regulations (respecting licensure and regulation of acute care hospitals), with overall
administrative and professional responsibility for DMC at least until such time as there has been
a transfer and allocation of ad valorem property tax revenues to County in an amount equal to
the Restated Property Tax Transfer Amount. District agrees that, unless and until District has
satisfied its obligations under this Section 2, by causing the allocation, transfer and
apportionment of ad valorem property tax revenues in an amount equal to the Restated Property
Tax Transfer Amount, it will not amend either of District’s Amended and Restated Bylaws or the
Governing Body Bylaws, to remove, reduce or impair participation by County Representatives in
the Governing Body without the prior written consent of County.
C. Governing Body Membership. The Governing Body shall have and
exercise the full powers and authority granted to it pursuant to the “West Contra Costa
Healthcare District Doctors Medical Center Governing Body Bylaws” adopted April 29, 2011, as
amended January 23, 2013, and as the same may be modified and amended with the consent of
District and County at least until such time as there has been a transfer and allocation of ad
valorem property tax revenues to County in an amount equal to the Restated Property Tax
Transfer Amount. The membership and composition of the Governing Body shall be comprised
of: (i) the five (5) members of the District Board, serving ex officio; (ii) four (4) representatives
of the County, who shall be the District One representative serving on the County Board of
Supervisors ex officio, the County Health Services Officer (or his/her designee) ex officio, the
County Public Health Director (or his/her designee) ex officio, and the County Health Services
Chief Financial Officer (or his/her designee) ex officio (each of the foregoing, a “County
Representative” and collectively, the “County Representatives”); and (iii) two (2)
representatives of the DMC medical staff, each of whom shall serve for a term of one (1) year.
For purposes of selecting the two (2) DMC medical staff representatives to the Governing Body,
the DMC Medical Executive Committee shall nominate three (3) members of the DMC medical
staff, and a majority of the other members of the Governing Body shall select two of such
nominees to serve on the Governing Body, with the third nominee being an alternate who shall
serve as a Governing Body member in the event of a vacancy (temporary or otherwise) in either
medical staff representative position.
D. County Representative Withdrawal from Governing Body.
Notwithstanding the provisions of Article VI (Committees) of the District Amended and
Restated Bylaws and Article 3 (Members) of the Governing Body Bylaws, each of which
provide that the Governing Body includes (i) the District One representative of the Board of
Supervisors, (ii) the County Health Services Officer or his/her designee, (iii) the County
Public Health Director or his/her designee, and (iv) the County Health Services Chief
Financial Officer or his/her designee, any County Representative may withdraw from the
Governing Body by giving at least 60 days written notice to District of such withdrawal.
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3. DISTRICT REPRESENTATIONS, WARRANTIES AND COVENANTS;
CONDITIONS PRECEDENT.
A. District hereby covenants and agrees that in each fiscal year it will: (i) take
all actions necessary, reasonable and/or prudent to ensure that the levy of general ad valorem
property taxes, upon which the allocation described in Section 2.A of this Agreement depends,
will be fully implemented on an annual basis; and (ii) not take any actions that would have the
effect of impairing or reducing such levy or the above-described allocation of general ad valorem
property tax revenues until all amounts due to County hereunder have been allocated and
transferred.
B. District was a debtor in a Chapter 9 bankruptcy case (Case No. 06-41774-
T), which case was closed by order of the court on December 9, 2010. District hereby represents
and warrants that (i) it has satisfied all of its obligations under its plan of bankruptcy
reorganization, and that the United States Bankruptcy Court no longer has any jurisdiction over
it, and (ii) since the closure of its prior bankruptcy case it has not considered instituting a
bankruptcy proceeding, and has no intention of discussing instituting a bankruptcy proceeding,
and is not insolvent.
C. County’s obligation to effect the transfer to District pursuant to Section 4
of this Agreement shall be conditioned upon the occurrence of all the following matters to the
satisfaction of County:
1. District demonstrates to County’s satisfaction, in County’s sole
discretion, that District has complied with R&T Code Section 99.02, as required in order
to permit District to enter into and perform the terms of this Agreement;
2. The transactions contemplated by this Agreement shall have been
approved by such governmental agencies as may be required;
3. District takes no action to terminate, modify or otherwise alter the
Governing Body, its composition or authority;
4. District has not instituted a case in bankruptcy court, or been the
subject of any involuntary bankruptcy proceeding, or had a receiver appointed for it or its
assets, or admitted in writing its inability to pay its debts as they become due; and
5. District otherwise is and remains in good faith compliance with its
obligations hereunder.
4. COUNTY’S FUNDING OBLIGATIONS
A. No later than ten days after the Effective Date, County will transfer to
District the amount of Nine Million Dollars ($9,000,000) in immediately available funds (the
“County Transfer”).
B. District shall use the proceeds of the County Transfer only to pay and
satisfy one or more of the following: (i) debt service on funded indebtedness incurred in
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connection with the improvement or operations of DMC first coming due after the Effective
Date; or (ii) the general expenses of operations of DMC incurred after the Effective Date.
5. INSURANCE AND INDEMNIFICATION.
A. Insurance. District will obtain or cause to be obtained such insurance
as County deems necessary or prudent to protect the District, and the County Representatives
from claims and liability to third parties, including without limitation Directors and Officers
liability coverage naming the County Representatives as insureds. District will provide the
Governing Body and County with evidence of the foregoing insurance no later than 30 days
after the Effective Date. County shall be named as an additional insured on all insurance
carried by District related to the operation, maintenance and administration of DMC.
B. Indemnification. To the maximum extent permitted by laws, District
shall indemnify, defend, save, protect and hold harmless County and the County
Representatives, and County’s governing body, officers, employees, representatives, agents,
successors and assigns (collectively, “Indemnitees”), from and against any and all demands,
losses, claims, costs, suits, liabilities, expenses for any damage, injury or death (collectively,
“Liability”) arising directly or indirectly from or connected with this Agreement or the
Indemnitees’ actions or inactions under this Agreement or as members of the Governing
Body, including but not limited to the Governing Body’s oversight of DMC, or any other
activity taken pursuant to this Agreement or in connection with the Governing Body,
including reasonable attorneys’ fees, the Indemnitees may make by reason of such matters.
If requested by any of the Indemnitees, District will defend any such suits at the sole cost and
expense of District, with counsel approved by County. District’s obligations under this
section shall exist regardless of concurrent negligence or willful misconduct on the part of
the Indemnitees, District or any other person or entity; provided, that District is not required
to indemnify County for the proportion of Liability a court determines is attributable to the
sole negligence or sole willful misconduct of County and is not required to indemnify a
County Representative for the proportion of Liability a court determines is attributable to the
sole negligence or sole willful misconduct of such County Representative.
6. COMPLIANCE WITH LAW. District has ultimate responsibility for
ensuring compliance with federal, state and local laws and regulations governing the delivery
of health care services at DMC. District will immediately report to the Governing Body any
notice of violation. District will solicit the advice of the Governing Body regarding any
violation and will take appropriate action, or direct the Governing Body to take appropriate
action based on the respective scope of responsibilities, regarding remedial actions as needed
or as recommended by the Governing Body.
7. EXCLUSIONS.
District and County recognize that District receives certain special taxes, i.e.,
parcel tax revenues generated from voter approved parcel tax measures enacted in 2004 and 2011
and that such special parcel tax revenues are not subject to this Agreement.
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8. JOINT REVIEW.
District and County may jointly review County property tax records from time to
time or as requested by District or County to verify accurate distribution under this Agreement.
9. GOVERNING LAW AND ATTORNEYS’ FEES.
This Agreement shall be construed and enforced in accordance with the laws of
the State of California. Should any legal action be brought by either party because of any default
under this Agreement or to enforce any provision of this Agreement, or to obtain a declaration of
rights hereunder, the prevailing party shall be entitled to reasonable attorneys’ fees, court costs
and such other costs as may be fixed by the court.
10. NOTICES.
Any notice or other communication required or permitted hereunder shall be
sufficient if in writing, and given either personally, by facsimile (with original forwarded by
regular U.S. Mail), regular U.S. mail or by Federal Express or other similar courier promising
overnight delivery. If personally delivered, a notice or communication shall be deemed to have
been given and received when delivered to the party to whom it is addressed. If given by
facsimile transmission, a notice or communication shall be deemed to have been given and
received upon receipt of the entire document by the receiving party’s facsimile machine, and
verified by electronic transmission by the sending facsimile machine. Notices that are mailed by
regular U.S. mail shall be deemed delivered two business days after deposited in the mail and
notices given by Federal Express or other overnight courier service shall be deemed delivered the
day following the date of delivery to Federal Express or such other overnight courier. Such
notices or communications shall be given to the parties and each of their designees at their
addresses set forth below:
If to District:
To the persons then serving as its Chair, Board of Directors and its Chief Executive Officer, at
the below address:
West Contra Costa Healthcare District
c/o Doctor’s Medical Center
2000 Vale Road
San Pablo, CA 94806
Fax #: (510) 970-5728
If to County:
The person then serving as its County Administrator, at the below address:
Contra Costa County
651 Pine Street, 11th Floor
Martinez CA 94553
FAX#: 925-335-1098
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and to:
The person then serving as its Chief Operating Officer/Chief Financial Officer, Department of
Health Services, at the below address:
Department of Health Services
50 Douglas Dr Suite 310-A
Martinez, CA 94553
FAX#: (925) 957-5401
Any party hereto may at any time, by giving ten (10) days written notice to the
other party, designate any other address or facsimile number in substitution of the address or
facsimile number to which such notice or communication shall be given.
11. SEVERABILITY.
If any provision of this Agreement is held invalid, void, or unenforceable but the
remainder of this Agreement can be enforced without failure of material consideration to any
party, then the remainder of this Agreement shall remain in full force and effect, unless amended
by mutual consent of the parties.
12. FURTHER ASSURANCES; CONDITION PRECEDENT.
Each party shall execute and deliver to the other party or parties all such other
further instruments and documents and take all such further actions as may be reasonably
necessary to carry out this Agreement and to provide and secure to the other party or parties the
full and complete enjoyment of its rights and privileges hereunder.
13. CONSTRUCTION.
All parties have been represented by counsel in the preparation of this Agreement
and no presumption or rule that ambiguity shall be construed against a drafting party shall apply
to the interpretation or enforcement hereof. Captions on sections and subsections are provided
for convenience only and shall not be deemed to limit, amend, or affect the meaning of the
provision to which they pertain.
14. OTHER MISCELLANEOUS TERMS.
The singular includes the plural; the masculine gender includes the feminine.
“Shall” or “will” is mandatory; “may” is permissive.
15. TIME.
Time is of the essence of each and every provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
County of Contra Costa
By: _______________________________
_______________________________
Director, Contra Costa County
Department of Health Services
West Contra Costa Healthcare District
By: _______________________________
_______________________________
Chair, Board of Directors
RECOMMENDATION(S): (CONT'D)
ACKNOWLEDGE that the County duly gave notice of a public hearing pursuant to Government Code section
6061.
6. CONDUCT A PUBLIC HEARING pursuant to Revenue & Taxation Code section 99.02(e) to consider the
effect of the proposed transfer of general property tax allocation to the County by the District on fees, charges,
assessments, taxes or other revenues.
7. ACKNOWLEDGE that the County Auditor-Controller has concluded that if the property tax transfer is enacted
(1) that countywide property taxes will not go above the 1% rate established by Proposition 13 and (2) that
schools or other taxing agencies will not be adversely affected.
8. ACKNOWLEDGE that on July 15, 2013, the District held a duly noticed public hearing and unanimously
adopted a resolution requesting and authorizing the execution of a tax transfer agreement with the County.
9. ADOPT Resolution No. 2013/304 authorizing the transfer of property tax revenues from the District to Contra
Costa County in the amount of $11.6 million in consideration of the County’s continuing support of the District’s
delivery of health care services at Doctors Medical Center, such support to include the transfer of $9 million to
the District pursuant to Government Code Section 26227, and the service by County officers and/or other County
personnel on a committee of the District Board being formed to have overall administrative and professional
responsibility for Doctors Medical Center (the “Governing Body”), and that will continue to serve as the Hospital
“Governing Body” of Doctors Medical Center as that term is used in Section 70035 of Title 22 of the California
Code of Regulations (respecting licensure and regulation of acute care hospitals).
10. APPROVE and AUTHORIZE the Health Services Director or his designee to execute a property tax transfer
agreement between the County and the District, a copy of which is attached to the Resolution as Exhibit A (the
“Amended and Restated Second Transfer Agreement”) and which provides for a further reallocation and transfer
of property tax revenues by the District to the County as well as County participation on the Doctors Medical
Center Governing Body.
11. ACKNOWLEDGE that the actions taken pursuant to this Board Order do not guarantee the long-term
solvency of Doctors Medical Center.
12. ACKNOWLEDGE that the Health Services Department asked Foley & Lardner, LLP, special counsel to the
County Health Services Department, about bankruptcy risk and whether the reallocation of tax revenues provided
by the Amended and Restated Second Transfer Agreement might be set aside if the District were to be the subject
of an additional bankruptcy proceeding. Foley & Lardner told us that notwithstanding the District’s prior
bankruptcy filings, it is eligible to institute another bankruptcy proceeding. They also advised that while
bankruptcy courts have broad equitable powers to rearrange and restructure a debtor’s obligations, they believe
that this arrangement presents a negligible risk that the transfer would be set aside by a bankruptcy court, owing to
the fact that the County is transferring value to the District, and the District’s reallocation of property tax revenues
to the County is being done contemporaneously with the County’s transfer. In addition, while there is a lack of
precedent on the issue, the reallocation of property tax revenues such as here is distinguishable from an agreement
to transfer future revenues, because it is not an agreement to make a transfer in the future, when and as revenues
are received, but rather is a present agreement to change the allocation of property tax revenues between the
County and the District, such that the reallocated tax revenues never become the property of the District.
13. APPROVE Appropriation Adjustment No. 5000 authorizing the Auditor-Controller to release $9,000,000
from Designation General Fund Capital Reserve and appropriate it to County-State-West Contra Costa Healthcare
District Inter-Government Transfer (Department 0018), subject to the limitations and other conditions set forth in
the Amended and Restated Second Transfer Agreement which is described below under the “The Documents
(Summary Points)” section in greater detail.
FISCAL IMPACT:
Pursuant to the Amended and Restated Second Transfer Agreement, the County will transfer $9 million of general
purpose capital reserve revenues to the District. The County will receive $11.6 million of the District’s reallocated
property tax revenue over a period of approximately six years, commencing with the fiscal year beginning July 1,
2013. Because these capital reserve funds are not required for current operations, and because the County will
receive the District’s reallocated property tax revenue in return for the County’s transfer.
BACKGROUND:
Initial Property Tax Transfer: October 2006
Doctors Medical Center is operated by the District. This 247-bed facility is located in the western portion of the
County, which has a population of approximately 250,000, a large portion of whom are low income. Doctors
Medical Center provides medical services to the general public and is a critical component of the County
Emergency Medical Services system.
In September 2006, the District declared a financial emergency and authorized the filing of a bankruptcy petition
in an effort to keep the hospital open. On September 19, 2006, and September 26, 2006, the Board of Supervisors
received updates from the District regarding possible closure of the hospital. On October 1, 2006, the District filed
a voluntary petition for Chapter 9 bankruptcy protection. On October 31, 2006, the Board of Supervisors
approved the general structure of a recovery plan (the “Recovery Plan”) to maintain services at Doctors Medical
Center. The participants in the Recovery Plan were the County, the District, the physician groups that
independently admit patients to the hospital, the State and the bankruptcy court, all of whom approved the general
structure. The Recovery Plan, in part, included: (i) execution of the JPA to establish the Doctors Medical Center
Management Authority on which the County has majority representation; (ii) execution of an agreement between
the County and the State of California Department of Health Services for the transfer, in installments, from the
County General Fund, through June 30, 2007 of up to $10 million to the State’s General Fund, which funds were
matched by the federal government and used by the State to provide enhanced Medi-Cal payments in the amount
of $20 million to Doctors Medical Center; and (iii) in consideration of the County’s transfer discussed in (ii)
above, reallocation of ad valorem property tax revenues that would otherwise be allocated to the District,
commencing with the Fiscal Year beginning July 1, 2007, to the County in the total amount of $11.5 million
(approximately $2.5 million annually for four successive years), pursuant to that certain West Contra Costa
Healthcare District Agreement for Property Tax Transfer to Contra Costa County, dated October 31, 2006 (the
“Initial Transfer Agreement”), between the District and the County. The County is permitted to end its
participation in the Doctors Medical Center Management Authority at any time with 90 days notice.
The Doctors Medical Center Management Authority is governed by a seven-member board of directors
comprised of two members from the District, one affiliated physician representing the Doctors Medical Center
medical staff and four members representing the County. The County members of the Doctors Medical Center
Management Authority are the Director of County Health Services, the Chief Financial Officer of County Health
Services and two members from the Board of Supervisors.
Pursuant to the Initial Transfer Agreement, as of June 30, 2007, the County had transferred all $10 million to the
State’s General Fund. $3 million was transferred on November 3, 2006, $3 million on December 5, 2006 and $4
million on February 15, 2007.
During the period July 1, 2007, through September 30, 2008, the Doctors Medical Center Management Authority
worked with management (on-site consultants) to implement a number of initiatives in the following areas:
Revenue Cycle-improve billing and collections; Labor-right size staffing with hospital volume and need;
Non-Labor-renegotiate pricing arrangements and vendor contracts (better pricing on products and services
provided to the hospital). These initiatives yielded $9.7 million in savings.
The Doctors Medical Center Management Authority then negotiated a three year “bridge funding” Medi-Cal
contract increase in the amount of $36 million with the California Medical Assistance Commission (CMAC); a
$12 million three year grant with Kaiser Permanente and a $3 million three year grant from John Muir Medical
Center which eliminated the annual $29.7 million structural deficit of Doctors Medical Center.
On June 3, 2008, the District filed a “Disclosure Statement Plan for the adjustment of debt” in the United States
Bankruptcy Court, Northern District of California. On August 14, 2008 the Plan was approved without objection
and the District emerged from bankruptcy.
The bankruptcy Plan called for payments to creditors over a three-year time period of $12 million. The final
payment was made on March 10, 2011. No further action on the part of the District is required by the Bankruptcy
Court.
Pursuant to the Initial Transfer Agreement, tax transfers by the District to the County were made as follows: $3.4
million during fiscal year 2007/08; $3.4 million during fiscal year 2008/09; $3.0 million during fiscal year
2009/10; and a final transfer of $1.7 million on March 10, 2011. Total payments received amount to $11.5
million. No further tax transfers are due.
Second Agreement for Property Tax Transfer: April 2011
The District requested a second reassignment of property tax revenues to alleviate the cash deficiency.
The request involved transfers of up to $10 million from the County to the District, to be made up of an initial
transfer of $2 million, and two subsequent transfers in the amount of $2 million and $6 million that were
conditioned on the requirement that, before any subsequent transfer is made, the Health Services Director has first
determined that the District is in full compliance with the requirements of the Second Agreement at the time of
each transfer. The County reserved the right to stop the transfers at any time if the Board of Supervisors
determines that the District was not demonstrating sufficient progress toward the establishment of the Hospital
Governing Body or was not otherwise in compliance with the Second Agreement. The full $10 million in County
transfers subsequently were made.
In exchange for the foregoing transfers and other specified consideration, the District authorized a reallocation to
the County of all ad valorem property tax revenues that would otherwise be allocated to the District, commencing
with the Fiscal Year beginning July 1, 2011, until the total tax transfers to the County reach $11.5 million
(approximately $3 million annually for four successive years). In addition, the District consented to the
participation by County officers and/or other County personnel on a committee of the District Board being formed
for the purpose of overall administrative and professional responsibility for Doctors Medical Center, and that will
serve as the “Governing Body” of Doctors Medical Center as that term is used in Section 70035 of Title 22 of the
California Code of Regulations (respecting licensure and regulation of acute care hospitals).
As of June 30, 2013, $6,003,776.82 in property tax revenue has been received; $5,496,223.18 is outstanding.
Current Situation: Amended and Restated Second Agreement: July 2013
In 2012 DMC again found itself facing a significant financial gap. The Board of Directors declared that the
current delivery model is not sustainable in the long run, particularly with the direction of health care delivery
under the Accountable Care Act (ACA), and a strategic partner must be found to ensure long-term survivability.
Understanding that the search for such a partner would take time, the organization again worked to identify
immediate initiatives essential to secure the time necessary for implementation of a longer term strategy. These
included another round of expense reductions, a new parcel tax, and another debt financing.
The parcel tax – Measure J – was passed with approval of approximately 74% of the voting district residents in
November 2011. This new tax provided an additional $5 million in support closing approximately 30% of the
operating loss gap.
In December of that year, therefore, the management team finalized $40 million in additional debt financing to
support operations. The hospital is “living” on this financing to support expenses at this time.
Since 2012, the management team of DMC has continued to reduce expenses – including another reduction of
more than $6 million from an already tight operating budget for calendar year 2013. Continued reductions in
revenue however, make it increasingly challenging to cut expenses at pace with revenue declines. For example, in
April of this year Medicare payments were cut by more than $1 million annually as part of the budget
sequestration. In 2014, further changes in Medicare will reduce payments by nearly $3 million – despite the fact
that DMC will care for the same volume of very sick patients, while experiencing general inflation increases in the
cost of drugs and supplies to care for those patients.
Simultaneous with DMC’s measures to control costs – and therefore the operating losses – the organization has
remained active in searching for a strategic partner at the local, state and national level. In the spring of 2012,
contact was made with nearly 2 dozen organizations to discuss potential partnerships. Little if any interest has
been expressed, but the Governing Body and management continue to pursue options.
With the implementation of major new delivery system reform expected in 2014 as a result of ACA, greater
opportunity for partnership will be available to DMC and the District. Implementation of a partnership will take
time, however, and in the interim the hospital has a 2013 budgeted loss of approximately $11 million (taking into
account reductions in Medicare payments as a result of the 2013 federal sequester). As a result, the organization is
again looking for help to fund the operating gap until a partnership can be consummated.
Without support, DMC will likely be forced to once again plan for closure by the end of this year.
The District request involves a $9 million transfer from the County to the District. In exchange for the transfer, the
District will authorize a reallocation of ad valorem property tax revenues that would otherwise be allocated to the
District to the County until the total tax transfers equal $11.6 million in addition to the transfers reallocated to the
County under the April 2011 Second Agreement for Property Tax Transfer.
This transaction requires that the Board of Supervisors approve: (1) an appropriation adjustment; (2) a resolution
under Revenue and Taxation Code Section 99.02; and (3) a property tax transfer agreement.
THE DOCUMENTS (SUMMARY POINTS):
A. Resolution:
Tax transfer agreements entered into pursuant to California Revenue and Taxation Code Section 99.02 permit the
reallocation of general property taxes among taxing agencies. Before entering into a tax transfer agreement, both
agencies are required to hold a public hearing to consider whether the agreement will result in any changes to
other sources of revenue.
On July 15, 2013, the District held a public hearing and adopted a resolution requesting a tax transfer agreement
with the County and approving the execution of the Second Tax Transfer Agreement. The District has determined
that (1) revenues are available for this purpose; (2) the transfer will not result in any increase in the ratio between
the amount of revenues of the transferring agency that are generated by regulatory licenses, use charges, user fees,
or assessments and used to finance services provided by the transferring agency; (3) the transfer will not impair
the ability of the transferring agency to provide existing services; and (4) the transfer will not result in a reduction
of property tax revenues to school entities.
Based on the information presented, if the Board of Supervisors concurs in the determinations of the District and
has found that no other taxing agencies will be adversely affected, the District may, by resolution, agree to the
transfer of property tax revenues to the County.
B. Tax Transfer Agreement:
General property taxes otherwise allocable to the District would be transferred to the County during the period the
tax transfer agreement remains in effect. The Amended and Restated Second Transfer Agreement sets forth the
terms and conditions for the temporary transfer of District ad valorem property tax revenues to County to facilitate
new funding for Doctors Medical Center. The sum of the tax revenues to be transferred to the County is
$17,096,223.18.
In addition, the Amended and Restated Second Transfer Agreement provides for the County’s ongoing support of
the delivery of health care services at Doctors Medical Center through the participation by County officers and/or
other County personnel on the DMC Governing Body, which participation will continue until County has received
the transfer of all property taxes due under the Second Amended and Restated Transfer Agreement.
CONSEQUENCE OF NEGATIVE ACTION:
Doctors Medical Center will be subject to closure.
CHILDREN'S IMPACT STATEMENT:
Not applicable.
CLERK'S ADDENDUM
Speakers: Bill Granados, CCC Fire Protection District Advisory Commission; Eric Zell, Doctors' Medical
Center; Vito Impastato, Firefighters' Local 1230; Vincent Wells, President Firefighters' Local 1230; Pat Frost,
Contra Costa Emergency Medical Services. CLOSED the hearing; and ADOPTED the recommendations as
presented.
ATTACHMENTS
Resolution No. 2013/304
Resolution No. 2013/304
Exhibit A - Amended and Restated Second Agreement
Appropriation Adjustment No. 5000