Children’s Hospital Bond Act: Facts & Analysis

Prop. 3 would authorize $980 million in state general-obligation bonds to fund grants to eligible children’s hospitals. Prop. 3 is nearly identical to Prop. 61, a $750-million bond measure approved with 58% of the vote in 2004. Children’s hospitals could use the grants for construction, expansion, remodeling, renovation, furnishing, equipping, financing, or refinancing of infrastructure. Funds could not be used for operations or administration.

Funding would come from the issuance of general-obligation bonds, guaranteed by the state’s taxing power, to finance the Children’s Hospital Bond Act Fund. Such bonds are a type of long-term borrowing. The state would pay the principal and interest from its general fund, which is largely supported by tax revenues.

California uses bonds to fund major capital and infrastructure improvements, just as homeowners use mortgages to fund the long-term purchase of homes. The enormous up-front cost of infrastructure improvements necessitates spreading the cost over many years. The use of bonds also allows the beneficiaries of these improvements to share in the cost and enables the state to spend tax revenues on other projects.

Over their 30-year terms, the bonds would cost about $2 billion, including the $980 million of principal and $933 million in interest. California would make annual payments of around $64 million, or $1.76 per Californian, from its general fund. The California Health Facilities Financing Authority (CHFFA), a subdivision of the state treasurer’s office, would oversee grant disbursement. Its administrative cost would be the lesser of the actual cost or 1% of the bond fund.

California currently has about $53 billion in debt outstanding and an additional $68 billion of authorized but not yet sold bonds.

In 2007, California set aside approximately $4.7 billion or 4.4% of revenues to pay for general obligation bonds currently authorized and sold. The portion of revenues set aside for these bonds is expected to increase to 6.1% by 2011-12.

Two categories of hospitals would qualify for Prop. 3 funds: the eight private, nonprofit regional children’s hospitals and the five general acute care children’s hospitals at University of California campuses. In the first category are: Loma Linda University Children’s Hospital in Loma Linda; Miller Children’s Hospital at Long Beach Memorial Medical Center; Children’s Hospital Los Angeles; Children’s Hospital Central California in Madera; Children’s Hospital and Research Center at Oakland; Children’s Hospital of Orange County; Rady Children’s Hospital San Diego; and Lucile Packard Children’s Hospital at Stanford in Palo Alto. In the second category are: UC Davis Children’s Hospital; University Children’s Hospital (UC Irvine); Mattel Children’s Hospital UCLA; Children’s Hospital and Health Center (UC San Diego); and UC San Francisco Children’s Hospital.

Eighty percent of the total funds (about $784 million) would be available to the private, nonprofit children’s hospitals, and 20% (about $196 million) to the UC-affiliated hospitals. Each of the nonprofits could receive up to $98 million and each of the UC facilities up to $39 million. The CHFFA would respond within 60 days to grant applications submitted by the children’s hospitals.

To qualify for Prop. 3 funds, hospitals must provide clinical care, teaching, research, and advocacy focused on children. They must provide comprehensive pediatric care to a high volume of children who are eligible for government programs or whose special health care needs make them eligible for California Children’s Services, a state health program.

In addition, a facility must: (1) have at least 160 licensed beds dedicated to pediatric acute and intensive care and to neonatal intensive care; (2) have an annual pediatric patient census of at least 30,000; and (3) educate at least eight, full-time-equivalent pediatric or pediatric subspecialty residents.

Specifically, a qualifying hospital is required to:

• Contribute to the improvement of children’s health care or pediatric patient outcomes;
• Provide uncompensated or undercompensated care to indigent or public pediatric patients;
• Provide services to vulnerable pediatric populations;
• Promote pediatric teaching or research programs; and
• Demonstrate that a project for potential grant funding is ready to begin and feasible.

Any portion of the $980 million that one or more children’s hospitals does not use by June 30, 2018, would be put into a pool for use by any of the other qualifying children’s hospitals.

The official proponent is Diana Dooley, president and CEO of the California Children’s Hospital Association. CCHA advocates on behalf of the eight private, nonprofit hospitals that would potentially benefit from the passage of Prop. 3. The five UC-affiliated children’s hospitals are associate members of CCHA.

No group has formed specifically to oppose Prop. 3. However, the Howard Jarvis Taxpayers Association says it opposes this and two other bond measures on the November ballot. The Service Employees International Union, some of whose members are employed at children’s hospitals, has expressed reservations about the financing mechanism. As with Prop. 61, no campaign contributions have been collected to oppose Prop. 3.

According to reports filed with the California Secretary of State, the eight regional private, nonprofit children’s hospitals in California equally shared the cost to gather signatures—approximately $1.03 million. The campaign paid Arno Political Consultants Inc. of Rancho Cordova to circulate petitions. It paid an additional $56,000 to Ross Communications and Management Inc. of Sacramento for consulting services and about $6,400 to Bell, McAndrews and Hiltachk LLP of Sacramento for legal services.

Authors of the arguments in favor of the initiative are parents Robin Meeks, Mindy Vazquez, and Diane Gibson.

Authors of the arguments against the initiative include Lewis K. Uhler, founder and president of the National Tax Limitation Committee, based in Roseville. Under former Gov. Ronald Reagan, Uhler served as director of the Office of Economic Opportunity and chairman of the Governor’s Tax Reduction Task Force. Other authors of these arguments are Edward Costa, president of People’s Advocate, a Sacramento organization founded by Paul Gann in 1978, co-author of Prop. 13; and Jon Fleischman, publisher of Flashreport.org and former executive director of the California Republican Party.

The rebuttal to the arguments for the initiative were written by Uhler; Assemblymember Ted Gaines (R-Roseville), a member of the Banking and Finance, Health, and Labor and Employment committees; and attorney James V. Lacy, director of the American Conservative Union and co-founder and managing partner of Wewer & Lacy LLP in Laguna Niguel.

The rebuttal to the arguments against the initiative were written by parents Meeks, Vazquez, and Gibson.

Although the California Legislature is free to appropriate additional funds for children’s hospitals, it could not reduce the amount of funds necessary (about $2 billion) to pay off the Prop. 3 bonds. This obligation means less money would be available in the general fund for other spending needs, and the Legislature’s flexibility in terms of balancing the state budget would be reduced.