Response to the Audit

Response From the California Health Facilities Financing Authority

Date: August 31, 2015

To: Elaine M. Howle, CPA
California State Auditor
555 Capitol Mall, Suite 300
Sacramento, California 95814

RE: California Health Facilities Financing Authority (Authority)
Response to California State Audit Report No.: 2015-042
Children's Hospital Bond Act

Dear Ms. Howle:

Thank you for the opportunity to review and respond to the draft copy of your report on the Children's Hospital Programs as created by Propositions 61 and 3 in 2004 and 2008, respectively. We appreciate all the time, effort and good communication invested by your audit team over these past several months.

The purpose of the Children's Hospital Program is to improve the health and welfare of California's critically ill children, by providing a stable and ready source of funds for capital improvement projects for children's hospitals. The Authority will continue to implement this purpose and therefore, does not intend to amend its regulations. Please reference our attached legal analysis of your audit recommendation.

Please contact me anytime to further explore or discuss our comments.

Sincerely,

(Original signed by Diane Stanton)

DIANE STANTON
Executive Director

Enclosures

Response to California State Audit Report No.: 2015-042
August 31, 2015

Recommendation

The Authority should amend its regulations to bring them into accord with the 2004 act, thus allowing any eligible hospital to apply for funds related to the 2004 act that remained as of June 30, 2014.

Authority Response:

The purpose of the Children's Hospital Bond Act of 2004 (the "Act") is to "improve the health and welfare of California's critically ill children, by providing a stable and ready source of funds for capital improvement projects for children's hospitals." (Health & Saf. Code, § 1179.21.) Essentially, the Act is designed to provide funding for all eligible children's hospitals. In interpreting a statute, the courts will construe the statutory language "in the context of the statute as a whole and the overall statutory scheme [in light of the electorate's intent]." (California Chamber of Commerce v. Brown (2011) 196 Cal.App.4th 233, 248 (brackets in original), citing Horwich v. Superior Court (1999) 21 Cal.4th 272, 276.)

The purpose of Health and Safety Code section 1179.24, subdivisions (c) and (d), is to address the award of any remaining funds after all of the eligible children's hospitals have received their requested funds, or the event in which any of the children's hospitals did not receive its allocation. Not all of the eligible children's hospitals have been able to receive their allocated grant. Therefore, to meet the purpose of subdivisions ( c) and ( d) and the purpose of the Act as a whole (funding for all eligible children's hospitals), the Authority adopted regulations to fairly award funds to any children's hospital that had not yet been able to receive its share of the funds by June 30, 2014. (Cal. Code Regs., tit. 4, §§ 7030, subd. (gg), 7032) The regulations establish a criteria for grant awards after that date. This grant award method gives the first opportunity to any children's hospital that has not received its allocated funds. The phrase "[n]otwithstanding this grant limitation" in subdivisions ( c) and ( d) is interpreted to mean that the Authority is not required to take into consideration the maximum amounts when awarding the remaining funds to "any children's hospital". (Health & Saf. Code, § 1179.24, subds. (c) and (d).) Pursuant to Health and Safety Code section 1179.22, "[t]he Authority is authorized to award grants to any children's hospital for purposes of funding projects, as defined in subdivision (g) of Section 1179.11." The Authority is given this broad authority to administer the program under the Act. Courts will show deference and give considerable weight to a state agency's construction of a statute. (Sara M v. Superior Court (2005) 36 Cal.4th 998, 1011.)

As defined in Government Code section 11342.600, the Authority's regulations "implement, interpret, or make specific the law enforced or administered by it, or . . . govern its procedure." The Authority complied with the Administrative Procedure Act and the amended regulations were approved by the Office of Administrative Law. There were no public comments or objections to the amended regulations, and the California Children's Hospital Association expressed support for the amendment to the regulations and the Authority's method of allocating the remaining funds.

The Authority will continue to implement the purpose of the Act and therefore does not intend to amend its regulations.

Comment

CALIFORNIA STATE AUDITOR’S COMMENT ON THE RESPONSE FROM THE CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY

To provide clarity and perspective, we are commenting on the response to our audit from the California Health Facilities Financing Authority (authority). The number below corresponds to the number we have placed in the margin of the authority’s response.

As we stated in the section titled Recent Regulations Affecting the Grant Application Process Conflict With the 2004 Act, we believe that the amended regulations adopted by the authority, effective May 19, 2014, are in conflict with the Children’s Hospital Bond Act of 2004 (2004 act) that governs the disposition of these funds. We disagree with the authority’s position and believe it is not consistent with the act’s requirement that any eligible hospital may apply for the remaining funds. Further, we believe that if the amended regulations were to be challenged, a reviewing court would find them invalid.