Sat10252014

News

Audit proposes dissolution of ECH District

The Santa Clara County Local Agency Formation Commission (LAFCO) released an audit report last month that calls for dissolution of the El Camino Hospital District if certain corrective steps are not taken within the next year and a half.

Harvey M. Rose Associates prepared an audit and service report for LAFCO that suggests the district should be eliminated if it does not improve its governance and increase transparency and public accountability.

LAFCO commissioners presented the report at their May 30 meeting. They are scheduled to review the report and its recommendations at an Aug. 1 meeting.

Among the findings is the need for “a more distinct separation” of the relationship between the district and its Mountain View hospital, a nonprofit corporation. The report noted that the $54 million acquisition of Los Gatos Hospital in 2009 “complicates the founding purpose of the District and, by extension, the Corporation.”

“The audit found that, although they are legally separate entities, there is no functional distinction between district and corporation governance, management and finances,” the report stated. “The audit was unable to draw a clear distinction between corporation income and district funds that allowed the corporation to accumulate surplus net assets sufficient to acquire Los Gatos Hospital. Without distinct governance and full transparency, public accountability is weakened.”

An attorney representing the district responded swiftly, urging LAFCO to reject the report.

“The district intends to zealously defend its autonomy to determine how to continue to provide ‘the most cost-effective, direct use of its funds to benefit the health of our community and manage its operations,’” attorney Gregory B. Caligari stated in a letter addressed to LAFCO commissioners.

The district released a statement contending that dissolving the district would harm the constituency it serves, particularly low-income residents who receive health services through its Community Benefits Program.

“The district has serious concerns that vital health-care services currently provided by the district through the Community Benefits Program would no longer be available to district residents if the district is dissolved,” the statement reads.

The report asserts that the district’s four elected board members, who also serve on the Mountain View hospital’s board, constitute a “quorum of the voting members of the corporation board. Therefore, any activities of the corporation are, by extension, activities of the district.”

The El Camino Hospital District was established in 1956 to serve the then-rural communities of Los Altos, Los Altos Hills, Mountain View, parts of Sunnyvale and Cupertino, and some unincorporated county areas. In 1992, the El Camino Hospital Corporation was created, leading to major assets of the district sold, leased or transferred to the corporation.

The hospital receives an apportionment of district property taxes and 2003 general obligation bond money totaling approximately $15 million to $16 million annually. The report highlighted the combined entities’ overall financial strength, but noted that approximately 50 percent of inpatient services assist patients outside the district’s boundaries or sphere of influence.

“Continuation of taxpayer support, without broadening community benefit contributions beyond the corporation and its affiliates, does not provide assurance that district residents receive an appropriate return on investment,” the report concluded.

The recommendations include changes to the budget and financial structure of the El Camino Hospital District to allow more “clear and distinct segregation of budget priorities and reporting of financial activities” to increase transparency and accountability.

The report declared its recommendations should be accomplished within 12-18 months of the report’s acceptance by LAFCO. If the requested changes aren’t initiated within six months, the report added, LAFCO should begin actions to dissolve the district.

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