On October 20, the West Contra Costa County Healthcare District (WCCHD) filed for Chapter 9 municipal bankruptcy – its second such bankruptcy filing in ten years. In 2015, the district closed its one hospital – Doctors Medical Center in San Pablo – which had been hemorrhaging money for many years. Since WCCHD is insolvent and no longer operates a hospital, one might expect the district to simply dissolve; but instead it plans to continue collecting tax revenue and to do something, anything to justify its ongoing existence. As we explained in our 2015 study, California Healthcare Districts in Crisis, zombie public hospital districts exist across the state.
As reported in the East Bay Times, WCCHD decided to file for bankruptcy after a Davis, CA based hotel operator, Royal Guest Hotels, pulled out of a deal to buy the hospital building and eight acres of surrounding land owned by the district. In its filing, the district listed $5.4 million of cash and other current assets. The district also owns the hospital building and acreage, which appears to be worth something less than the $13.5 million Royal Guest Hotels had originally agreed to pay.
Against these assets, the district reported liabilities of over $100 million. These include:
|Type of Obligation||Amount|
|Bonded Debt||$ 57.0|
|Employee Pension Obligation||20.0|
|Loan from Contra Costa County||14.4|
|Workers Comp and Other Litigation Liabilities||4.0|
|General Trade Creditors||2.2|
|Center for Medicare and Medicaid Services (due to Medicare overcharges)||1.9|
|Unemployment Liability (California Employment Development Department)||1.6|
Among WCCHD’s “General Trade Creditors” is the Contra Costa County Clerk who is owed $414,920 for biennial district election expenses. When combined with the $14.4 million unsecured county loan, it appears that Contra Costa taxpayers are in jeopardy of losing almost $15 million from this bankruptcy proceeding.
In terms of income, the district receives about $9.5 million in tax revenue each year. That includes a $4 million allocation from the standard 1% ad valorem property tax paid by district residents – who live in the cities of Richmond, El Cerrito, San Pablo, Hercules and Pinole as well as adjacent unincorporated areas – and commercial property owners. These same taxpayers also pay a separate parcel tax ranging from $52 for a single-family home to $1040 for a large commercial or industrial property. Parcel tax revenues amount to $5.5 million per year and will continue indefinitely unless repealed.
Bondholders have first claim on the parcel tax revenues and receive interest at rates of up to 6.25%. The district is also paying employees now acting in caretaker roles as well as pensions to retired employees. In March 2016, the district had nine employees performing Information Technology, Finance, Security, Plant Operation, Housekeeping and Administrative roles with payroll running at an annual rate of $2.5 million. According to Transparent California, WCCHD made over $900,000 in pension payments during 2014.
So the property and parcel tax revenue will be used to pay bondholders, employees and pensioners for years to come. None of this benefits the community, which is among the poorest in the Bay Area.
One option would be to dissolve the district. The County could then retain the $4 million in annual ad valorem tax revenue, and sunset the parcel tax once the bondholders have been paid off. But such a financially prudent approach is not on WCCHD’s agenda. According to the district’s bankruptcy filing:
The District intends to use this Chapter 9 case to effect a Plan of Adjustment so that the District can satisfy, to the extent possible, its obligations to creditors and potentially expand operations aimed at enhancing the health, safety, and welfare of the citizens of the District or otherwise provide for the future of the District.
Such an approach is wasteful because the district would have to continue paying election expenses of over $400,000 every two years. It also involves maintaining a separate bureaucracy with the amorphous purpose of providing healthcare services without a hospital.
One possibility would be for the County’s Local Agency Formation Commission (LAFCo) to dissolve WCCHD over the objections of district management. Dissolving the district was one of a number of options presented in a study commissioned by the Contra Costa LAFCo. The study outlines dissolution steps and notes that a newly enacted state law, AB 2610, permits a district to be dissolved without the need for a costly election.
It is understandable that bureaucracies tend to perpetuate themselves. Directors and staff members believe that they are doing something important and (the latter) want to continue being paid. But when a public agency with taxing authority has outlived its purpose, it is essential that the agency be terminated so that it stops burdening the community that it no longer serves.
Note: The bankruptcy filing is 4:16-bk-42917 and the case is being handled by the U.S. Bankruptcy Court, Northern District of California. Documents related to this case can be obtained electronically through the PACER system at a cost of $0.10 per page.