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HomeMy WebLinkAboutMINUTES - 06172014 - D.5RECOMMENDATION(S): ACKNOWLEDGE that Doctors Medical Center (DMC) is the only hospital in West Contra Costa County serving the general public and is a critical component of the County’s Emergency Medical Services system. 1. ACKNOWLEDGE that the County has a vested interest in protecting the health of the general population, and, as such, is interested in assisting DMC in fulfilling its long term recovery plan. 2. ACKNOWLEDGE that there have been three previous transactions between the County and the West Contra Costa Healthcare District (“District”) to help meet the health care needs of West Contra Costa County. These transactions were approved by this Board in 2006, 2011, and 2013, as discussed in greater detail in the Background section below. Pursuant to prior Board authorization, the County has provided assistance to the District in the total amount of $29 million, and the District has executed agreements authorizing the transfer of $34.6 million of District ad valorem property tax revenues to the County. District property tax revenues are transferred to the County at the rate of approximately $3 million per year. The sum of $17,096,223.18 remains to be transferred to the County under the previous agreements. 3. APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 06/17/2014 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Candace Andersen, District II Supervisor Karen Mitchoff, District IV Supervisor Federal D. Glover, District V Supervisor NO:Mary N. Piepho, District III Supervisor Contact: Patrick Godley, 925 957-5405 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: June 17, 2014 David Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: D.5 To:Board of Supervisors From:William Walker, M.D., Health Services Director Date:June 17, 2014 Contra Costa County Subject:Hearing on Transfer of Property Taxes from West Contra Costa Healthcare District to County; Approval of Appropriation Adjustment and Transfer of Funds RECOMMENDATION(S): (CONT'D) ACKNOWLEDGE that in 2011, the parties 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) (the “Governing Body”), with overall administrative and professional responsibility for DMC, and that County Representatives continue to serve on the Governing Body. 4. ACKNOWLEDGE that on June 16, 2014, the District held a duly noticed public hearing and unanimously adopted a resolution requesting and authorizing the execution of a new tax transfer agreement with the County. 5. APPROVE Appropriation Adjustment No. 5086, authorizing the Auditor-Controller to release up to $6 million from Designation General Fund Capital Reserve and appropriate it to County-State-West Contra Costa Healthcare District Inter-Government Transfer (Dept. 0018); DELEGATE to the Health Services Director the authority to transfer up to $6 million of these funds to the District, in one or more installments, between July 1, 2014, and December 31, 2014, provided that the Health Services Director, in his discretion, determines that a transfer of funds is necessary to meet DMC’s operational needs. The authority delegated to the Health Services Director to transfer funds to the District terminates effective January 1, 2015, and is subject to the limitations and other conditions set forth in the Third Agreement for Property Tax Transfer from West Contra Costa Healthcare District to Contra Costa County, dated June 17, 2014, between the District and the County, attached as Exhibit A to Resolution 2014/218, described below. 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; ACKNOWLEDGE that the County published notice of this public hearing pursuant to Government Code section 6061. 7. ADOPT Resolution No. 2014/218 authorizing the transfer of property tax revenues from the District to the County in an amount of up to $8,200,000 or a pro rata portion thereof if the Board of Supervisors determines that less than $6,000,000 should be transferred to the District, as further described in the proposed Third Agreement for Property Tax Transfer from West Contra Costa Healthcare District to Contra Costa County, dated July 1, 2014 (the “Third Transfer Agreement”), attached as Exhibit A to Resolution 2014/218. 8. APPROVE and AUTHORIZE the Health Services Director or his designee, to execute and deliver to the District the Third Transfer Agreement attached as Exhibit A to Resolution 2014/218, which provides for a further reallocation and transfer of property tax revenues by the District to the County and continued County participation on the DMC Governing Body. 9. ACKNOWLEDGE that the actions taken pursuant to this Board Order do not guarantee the long-term solvency of Doctors Medical Center. 10. ACKNOWLEDGE that the District completed its plan of bankruptcy reorganization on March 10, 2011, is continuing the implementation of its long term recovery plan but is still facing a severe liquidity shortfall; ACKNOWLEDGE that Foley & Lardner, LLP, special counsel to the County Health Services Department, has advised that, notwithstanding the District’s prior bankruptcy filings, the District is eligible to institute another bankruptcy proceeding and that, while it is possible that a court could restructure the District’s obligation to the County, Foley & Lardner, LLP has concluded that this is a remote possibility, as discussed further in the Background section below. 11. DIRECT the Health Services Director to report back to the Board of Supervisors if, between July 1, 2014, and December 31, 2014, he determines that the full $6 million should not be transferred to the District, to allow this Board to consider whether the transfer of funds to the District should be terminated and, if appropriate, to provide direction to the Auditor-Controller to reduce the amount of property tax revenue to be transferred to the County based on less than the full $6 million being transferred to the District. 12. FISCAL IMPACT: Pursuant to the Third Agreement for the Property Tax Transfer from West Contra Costa Health Care District to Contra Costa County, the County would transfer up to $6 million of general purpose capital reserve revenues to the District, or such lesser amount as may be subsequently recommended by the Health Services Director and authorized by the Board of Supervisors. These funds may only be transferred to the District between July 1, 2014, and December 31, 2014, and may be transferred in one or more installments, at the discretion of the Health Services Director, to support operations of DMC. The County will receive up to $8.2 million of the District’s reallocated property tax revenue over a period of approximately three years, commencing after payment to the County of $17,096,223.18 in property tax revenues. If this agreement is approved, it is anticipated that all property tax payments from the District to the County will be completed by the end of FY 2020/2021. These capital reserve funds are not required for current County operations and the County will receive the District’s reallocated property tax revenue in return for the County’s transfer. As such, this transaction will not have a negative impact on the General Fund. BACKGROUND: A. Initial Property Tax Transfer: October 2006. Doctors Medical Center (DMC) 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. Many families in this area are low income. Doctors Medical Center provides medical services to the general public, including low income families, 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 reports from the District discussing the possibility that the hospital would close. 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 included, in part: (i) execution of a JPA to establish the Doctors Medical Center Management Authority (the “Authority”), on which the County had 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 to the County of District ad valorem property tax revenues, commencing with the Fiscal Year beginning July 1, 2007, in the total amount of $11.5 million (approximately $2.5 million annually for four successive years), as specified in the West Contra Costa Healthcare District Agreement for Property Tax Transfer to Contra Costa County, dated October 31, 2006 (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 between July 1, 2007 and September 30, 2008, the Authority worked with management (on-site consultants) to implement a number of initiatives in the following areas: Revenue Cycle: to improve billing and collections; Labor: to achieve right size staffing with hospital volume and need; Non-Labor: to renegotiate pricing arrangements and vendor contracts (better pricing on products and services provided to the hospital). These initiatives yielded $9.7 million in cost savings. The 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. B. Second Property Tax Transfer: April 2011. In 2011, the District requested additional funding from the County to alleviate a 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. The agreement between the County and the District specified that no transfer would be made unless the Health Services Director had first determined that the District was 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 determined 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. 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 assuming overall administrative and professional responsibility for Doctors Medical Center, to 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). C. Third Property Tax Transfer (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 was not sustainable in the long run, particularly with the direction of health care delivery under the Accountable Care Act (ACA). The Board of Directors determined that 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. In November 2011, the District proposed a new parcel tax to District residents. Measure J was passed with approximately 74% voter approval. This new tax provided the District with an additional $5 million per year, closing approximately 30% of the operating loss gap. In December of 2011, the DMC management team finalized $40 million in additional debt financing to support operations. These funds were used to pay hospital expenses. In 2012 and 2013 the DMC management continued to reduce expenses. More than $6 million was cut from an already tight operating budget for calendar year 2013. In 2013, the District requested and received a $9 million transfer from the County. In exchange for the transfer, the District authorized an additional $11.6 million reallocation of District ad valorem property tax revenues to the County. The total amount of District property tax revenues that remain to be reallocated to the County pursuant to the Amended and Restated Second Agreement is $17,096,223.18. D. Proposed Fourth Property Tax Transfer: June 2014. Continued reductions in revenue make it increasingly challenging to cut expenses at pace with revenue declines. For example, in April of 2013 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 actively sought a strategic partner at the local, state and national level. In the spring of 2012, contact was made with nearly two dozen organizations to discuss potential partnerships. Little if any interest has been expressed, but the Governing Body and DMC management continue to pursue options. On May 6, 2014, Measure C, a District parcel tax measure that would have generated approximately $20 million in annual funding, failed to achieve the necessary two-thirds voter approval, although it received a majority vote. The District had widely and repeatedly informed the community and all stakeholders that DMC would be unable to continue operations without approval of that ballot measure. Cash flow projections estimate that the District will be in a negative liquidity position by the end of July 2014, with an estimated $6 million total negative cash flow through September 2014. Without support, DMC will likely be forced to once again plan for closure in the near future. The District has requested a $6 million allocation of funds from the County. In exchange for this funding, the District will authorize a reallocation to the County of District ad valorem property tax revenues in the amount of $8.2 million. In addition, County representatives will continue to serve on the DMC Governing Body. If, between July 1, 2014, and December 31, 2014, the Health Services Director determines that the full $6 million should not be transferred to the District, either because it is clear that the District is going to close despite the new funding, or for any other reason, the Health Services Director will return to the Board for further direction. This will allow this Board to consider whether the transfer of funds to the District should be terminated and, if appropriate, provide direction to the Auditor-Controller to reduce the amount of property tax revenue to be transferred to the County based on less than the full $6 million being transferred to the District. The Health Services Department asked Foley & Lardner, LLP, special counsel to the County Health Services Department, whether the reallocation of tax revenues provided by the Third Transfer Agreement might be set aside if the District were to be the subject of an additional bankruptcy proceeding. According to Foley & Lardner, 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 is distinguishable from an agreement to transfer future revenues, because it is not an agreement to make a transfer in the future 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. E. The Future of Doctors Medical Center. The purpose of the most recent request for County funding is to support operations until a new model of care can be implemented at DMC. In evaluating potential new models for the District’s delivery system of the future, the following goals will be driving the District’s deliberations: Community Need – It may not be possible to continue DMC as a full service community hospital. The current goal is to utilize its limited resources on those services of greatest need to the community with a focus on emergency services. Financial Sustainability – The model must demonstrate long term sustainability and essentially eliminate the continuing deficit experienced with the existing full service hospital. An important consideration in achieving financial sustainability is to ensure that existing parcel tax revenue available to support operations continues to support the future model. The 2004 parcel tax generates approximately $5.9 million annually in revenue. Of this total, approximately $4.3 million is used for debt service on the 2004 and 2011 Certificates of Participation, and $1.6 million is available to support the new model. All of the approximately $5.2 million of 2011 parcel tax revenue is presently available to support operations of a new model. If DMC cannot transition to a new delivery mode and is required to close, neither the $1.6 million of annual 2004 parcel tax revenue nor the $5.2 million of 2011 annual parcel tax revenue will be available to support the new model. In the case of the 2004 parcel tax revenue, all proceeds would go to retire the existing debt as required in the governing bond documents. In the case of the 2011 parcel tax revenues, discontinuation of both the hospital and emergency department will result in automatic sunset of the tax. In addition to retention of the parcel tax, closure of the hospital will result in an automatic termination of the Medicare provider number, and terminate DMC’s ability to bill Medicare for emergency room services for the foreseeable future. The process to obtain a new Medicare provider number would take between 12 and 24 months. The parcel taxes discussed above are separate and distinct from the ad valorem tax transfer under current consideration. The ad valorem property tax of approximately $3 million per year is currently dedicated to the repayment of the County transfers being made under the Amended and Restated Second Agreement. Doctors Medical Center and the Hospital Council of Northern California, under the direction of the Health Services Department, have begun to assess a new sustainable delivery model for DMC. The assessment is funded by the Hospital Council and has extremely tight time frames. The outline of the assessment includes: Scenario A: Reduced Beds Reduce general acute hospital beds to a minimal number of beds. The number and type of beds is to be determined and will take into account licensure requirements and space/operational/staffing considerations. Tentative date to begin reductions is August 1, 2014, depending upon legal notice to employees. Census reduction will occur over a few weeks/months. Reduce or eliminate other services to be determined, in connection with the bed reduction. Maintain the Emergency Department (ED) but at a reduced volume (potential variations for program flexibility, e.g. to allow RNs to staff both the ED and acute beds, but not a pre-condition for bed reduction). Analysis will focus on cash needs through December 31, 2014, while also determining financial sustainability as an ongoing operation. To be completed in 30 days (July 14, 2014) Scenario B: Freestanding Emergency Department Concurrent with Scenario A, complete the legal analysis of the regulatory feasibility of converting to a freestanding ED (to be completed within 30 days (July 14, 2014). Assuming the legal analysis affirms that a freestanding ED is possible, perform the financial and operational analysis (to be completed in 45 days (September 1, 2014)). Analysis will focus on cash needs through the time of conversion while also determining financial sustainability as an ongoing operation. If either the legal analysis or the financial analysis concludes that a freestanding ED is not practical, move on to a new review of the cost of converting and operating an urgent care center. All financial modeling will be done on a monthly basis and will cover the period from August 1, 2014 through the first full fiscal year of stabilized operations (Most likely Fiscal Year Ending FYE December 31, 2016). We will prepare projected statements of income and cash flows. Upon completion of the assessment an optimal future service configuration, that is financially sustainable, should be known. F. The Documents – Summary Points. The transaction requires that the Board of Supervisors approve: (1) an appropriation adjustment; (2) a resolution under Revenue and Taxation CodeSection 99.02; and (3) a property tax transfer agreement. 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 June 16, 2014, 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 o\f property tax revenues to the County. Tax Transfer Agreement. General property taxes otherwise allocable to the District would be transferred to the County during the period the Third Transfer Agreement remains in effect, but not until the $17,096,223.18 outstanding under the Amended and Restated Second Agreement has been transferred by the Auditor-Controller to the County. Under the Third Transfer Agreement, the County will transfer funds to the District in an amount not to exceed $6,000,000. All transfers under the Third Transfer Agreement will be made at the discretion of the Health Services Director to facilitate continued operations of DMC. All transfers of funds by the County will be made within six months of the July 1, 2014, the effective date of the Third Transfer Agreement. If all $6,000,000 is transferred to the District, the Auditor-Controller will transfer $8,200,000 of District ad valorem property taxes to County. If less than $6,000,000 in funds is transferred by the County to the District, the Auditor-Controller will transfer a pro rata amount of property taxes to the County; i.e., if the County transfers $3,000,000 in funds to the District, the Auditor-Controller would transfer $4,100,000 in property taxes to the County. The Amended and Restated Second Transfer Agreement provided 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 Third Transfer Agreement. The Third Transfer Agreement provides that the Board of Supervisors will determine if transfers of funds from the County to the District should be terminated during the six month period following the effective date of the Third Transfer Agreement. The Board’s determination will be based on a report from the Health Services Director. CONSEQUENCE OF NEGATIVE ACTION: Doctors Medical Center will be subject to closure. CHILDREN'S IMPACT STATEMENT: Not applicable. CLERK'S ADDENDUM Speakers: Pat Frost, Director of Emergency Medical Services Department; Eric Zell, Doctors Medical Center Governing Board; Donald Waters, Alameda-Contra Costa Medical Association; Rebecca Rozen, Hospital Council of Northern & Central California; Darrell Lee, Emergency Medical Care Committee; M.L. Mellander, resident of El Sobrante; Elizabeth Echols; Joyce Thomas-Cruz; Margie Liberty, resident of Hercules; Alex Alifaris, Contra Costa Taxpayers Association; Virnell Thomas, California Nurses Association; Seung Choo, R.N., California Nurses Association; Tennyson Hope, California Nurses Association; Rick Alcarez. CLOSED the hearing; and ADOPTED the recommendations as presented. ATTACHMENTS Resolution No. 2014/218 Attachment A to Resolution 2014/218: DMC Third WCCHD Tax Exchange Agreement Approp Adjustment 5086_Doctors Medical Center Revenue Transfer 4839-1826-7419.1 THIRD AGREEMENT FOR PROPERTY TAX TRANSFER FROM WEST CONTRA COSTA HEALTHCARE DISTRICT TO CONTRA COSTA COUNTY This THIRD AGREEMENT FOR PROPERTY TAX TRANSFER FROM WEST CONTRA COSTA HEALTHCARE DISTRICT TO CONTRA COSTA COUNTY (this “Agreement”) is entered into this 1st day of July, 2014 (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; 2 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 the Second Agreement for Property Tax Transfer from West Contra Costa Healthcare District to Contra Costa County; and (3) Providing for Continued Participation in the Operation of Doctor’s Medical Center by County Representatives, effective May 25, 2011, all 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, 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 amended and restated the Second Agreement pursuant to an Amended and Restated Second Agreement for Property Tax Transfer from West Contra Costa Healthcare District to Contra Costa County dated July 16, 2013 (referred to herein as the “Amended and Restated Second Agreement”), pursuant to which: (i) the Second Agreement was restated and replaced; (ii) the County advanced an additional Nine Million Dollars ($9,000,000) to District; and (iii) 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 Seventeen Million Ninety Six Thousand Two Hundred Twenty Three and 18/100 Dollars ($17,096,223.18), which was the result of the Eleven Million Five Hundred Thousand Dollars ($11,500,000) that District agreed to be transferred to County pursuant to the Second Agreement, plus the Eleven Million Six Hundred Thousand Dollars ($11,600,000) that District agreed to be transferred to County pursuant to the Amended and Restated Second Agreement, less the Six Million Three Thousand Seven Hundred Seventy-Six and 82/100 Dollars ($6,003,776.82) the County Auditor had transferred to District from County pursuant to the terms of the Second Agreement; WHEREAS, the total ad valorem property tax revenues that remain to be transferred to County pursuant to the Amended and Restated Second Agreement is $17,096,223.18 (the “Existing Property Tax Transfer Amount”); 3 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 now desire that County transfer up to an additional Six Million Dollars ($6,000,000) 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 an amount up to Eight Million Two Hundred Thousand Dollars ($8,200,000), all as provided in this Agreement; WHEREAS, in order to accommodate this Agreement, on June 16, 2014, the District 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 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 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, all in order to facilitate the preservation of DMC as a health care resource for the communities they both serve, as provided in this Agreement; 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. 4 B. “Amended and Restated Second Agreement” has the meaning given to such term in the recitals to this Agreement. C. “County Transfer Amount” means an amount of money up to Six Million Dollars ($6,000,000) that the County transfers to the District under the authority delegated to the Health Services Director by action of the Board of Supervisors on June 17, 2014. D. “County Representative” has the meaning given to such term in Section 2.C below. E. “Effective Date” has the meaning set forth in the first paragraph of this Agreement. F. “Existing Property Tax Transfer Amount” has the meaning ascribed to it in the recitals to this Agreement G. “Governing Body” has the meaning set forth in Section 2.B, below. H. “New Property Tax Transfer Amount” means Eight Million Two Hundred Thousand Dollars ($8,200,000), or such lesser amount as specified in Section 4 below. 2. CONTINUING PROPERTY TAX ALLOCATION. A. Continuing Property Tax Allocation. Nothing in this Agreement is intended to amend or modify the Amended and Restated Second Agreement in any way. Without limiting the generality of the foregoing sentence, the parties hereto acknowledge that the County Auditor will, pursuant to the Amended and Restated Second Agreement, continue to allocate and transfer to County from year to year the entirety of the general ad valorem property tax revenues that otherwise would be collected and allocated to the District, as authorized by R&T Code Section 99.02, until all such allocations made to County pursuant to the Amended and Restated Second Agreement aggregate the Existing Property Tax Transfer Amount. Once the County Auditor has allocated and transferred to County general ad valorem property tax revenues in the amount of the Existing Property Tax Transfer Amount pursuant to the Amended and Restated Second Agreement, the County Auditor will then allocate and transfer to County from year to year, pursuant to this Agreement, the entirety of the general ad valorem property tax revenues that otherwise would be collected and allocated to District, as authorized by R&T Code Section 99.02, until the sum of all such allocations are equal to the New Property Tax Transfer Amount. The allocation and transfer of ad valorem property tax revenues to County as set forth herein 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 completed assignment of all of District’s rights to tax revenues in the amount of the New Property Tax Transfer Amount, without the need for any further approval or action by District. 5 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 New Property Tax Transfer Amount pursuant to this Agreement. 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 equal to the New 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 New 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 6 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. 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 a bankruptcy proceeding, and is not insolvent. C. The District’s receipt of County funding, as described in Section 4 of this Agreement is conditioned upon the satisfaction of all the following matters to the full 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. 7 4. COUNTY FUNDING A. The County has delegated to the Health Services Director the discretion to transfer to the District an amount up to Six Million Dollars ($6,000,000). The only purpose for which these funds may be distributed to the District is to support ongoing operations of DMC. The funds may only be distributed between July 1, 2014, and December 31, 2014, and may be distributed in one or more installments. The funds will not be transferred to the District if the District is not in compliance with all provisions of this Agreement, including without limitation, Section 3.C. above. B. If the Health Services Director, in his sole discretion, determines to distribute all of the Six Million Dollars ($6,000,000) to the District to support ongoing District operations, the County Auditor will then allocate and transfer to County from year to year, pursuant to this Agreement, the entirety of the general ad valorem property tax revenues that otherwise would be collected and allocated to District, as authorized by R&T Code Section 99.02, until the sum of all such allocations are equal to the amount of Eight Million Two Hundred Thousand Dollars ($8,200,000), in the manner described in Section 2A of this Agreement C. If the Health Services Director, in his sole discretion, determines to distribute more than $0 but less than Six Million Dollars ($6,000,000) to the District, and the County Board of Supervisors confirms that decision, the County will provide written notice to the District and the Auditor of the revised County Transfer Amount and will direct the Auditor to allocate and transfer to the County a pro rata reduced New Property Tax Transfer Amount. For example, if the County Transfer Amount is only Three Million Dollars ($3,000,000), or one-half of the full Six Million Dollars ($6,000,000), the New Property Tax Transfer Amount will be Four Million One Hundred Thousand Dollars ($4,100,000), or one-half of the full Eight Million Two Hundred Thousand Dollars ($8,200,000). District hereby authorizes the County to unilaterally instruct the Auditor to make a pro rata reduction to the New Property Tax Transfer Amount if the County Transfer Amount is less than Six Million Dollars ($6,000,000). D. If the Health Services Director, in his sole discretion, determines that no part of the Six Million Dollar ($6,000,000) allocation will be distributed to the District (i.e., the County Transfer Amount is $0), and the County Board of Supervisors confirms this decision and provides written notice to the District and the Auditor, the Auditor will not transfer the New Property Tax Transfer Amount to the County. E. The District may use the proceeds of the County Transfer Amount only in connection with the ongoing maintenance and operation of DMC. 5. INSURANCE AND INDEMNIFICATION. 8 A. Insurance. Until all of District’s obligations under this Agreement have been satisfied, District will maintain the following insurance to protect the District, and the County Representatives from claims and liability to third parties: (i) comprehensive general liability insurance with limits not less than $10,000,000 per claim and $20,000,000 in the aggregate, with deductibles not exceeding $25,000, and (ii) Directors and Officers liability coverage naming the County Representatives as insureds with limits no less than $10,000,000 per claim and in the aggregate, with deductibles not exceeding $50,000. 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 law, 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. 9 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. 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. 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 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 specified for delivery by 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 10 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 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 11 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. 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