In a report released Thursday, a civil grand jury rapped El Camino Hospital District’s lack of transparency in fully outlining how its tax revenues are spent and the conflict of interest inherent in having the same members on its hospital and district boards of directors.
Also under scrutiny: Why didn’t the hospital district inform the Santa Clara County Local Agency Formation Commission (LAFCO) when it sought to purchase Los Gatos Community Hospital in 2009? And were property-tax revenues used for the purchase?
Among its lesser duties investigating complaints of public officials and examining evidence in criminal cases, a civil grand jury inspects and audits financial information where public funds are used, including special districts subsidized by tax dollars.
The hospital district, formed in 1956 and the sole hospital district in the county, is partially funded by property-tax revenues – dividing 1 percent of receipts among the county, cities, school districts and other special districts within its service area. Additionally, voters approved a bond measure in 2003 to fund the new hospital building in Mountain View. The publicly elected five-member hospital district board oversees those expenditures.
Another source of contention for the civil grand jury: The hospital did not seek approval from LAFCO for the Los Gatos-facility purchase. However, hospital officials said the hospital as a corporation purchased the Los Gatos campus, not the district, and was therefore not obligated to seek approval from LAFCO. The same five-member district board comprises the hospital board, except for a vote afforded the hospital CEO, and oversees El Camino’s day-to-day operations.
“Simply asserting the purchase was the Corporation’s and not the District’s does not make it so,” the grand jury reported.
As the district’s overseer, LAFCO is required to perform service reviews of cities and special districts in the county.
But in reviewing hospital financial reports, the civil grand jury noted that all of the hospital’s six entities’ revenues and expenditures were lumped together: the Mountain View and Los Gatos hospitals; the district; the foundation; CONCERN, an employee assistance program; El Camino Surgery Center; and the Silicon Valley Medical Development.
Moreover, a separate report outlining the hospital’s Community Benefits program, wherein the district has earmarked tax monies to be spent, lists expenditures and the persons served, but not whether those persons live within El Camino’s service area, which includes Mountain View, Los Altos, Los Altos Hills, most of Sunnyvale and a small area of Cupertino.
LAFCO increased the hospital district’s sphere of influence to include all of Cupertino and Sunnyvale in 2007, but the district never finalized a formal annexation and therefore does not receive property-tax receipts from those new areas, nor from the Los Gatos service area.
A separate report from LAFCO concluded that no district funds were used toward the purchase of El Camino Los Gatos, according to information in a Thursday press release from the hospital.
“There is so little detail and transparency to the audit or to the detailed budget provided that the civil grand jury was unable to see where funds were derived for the purchase of the Community Hospital of Los Gatos in 2009 or for sponsorship of Sharks’ playoff games in 2011,” according to the report.
The hospital sponsored the San Jose-based Sharks’ team this year.
“Without line-item delineation of where tax monies go, one might assume that tax funds were used for these expenditures, and such expenditures would not be consistent with the objectives of a special hospital district,” the report continued.
Hospital spokeswoman Chris Ernst said the district and corporation are completely separate.
“It’s impossible for funds to intermingle between the two,” she said.
While the civil grand jury members were impressed with the district directors’ commitment to the hospital’s success, the report questioned whether the district needs funding.
“In fact, the District currently is banking close to $10 million and the Corporation $400 million in reserve accounts,” the report reads. “In fact, the Corporation appears to be so successful financially – such that it could purchase the (Los Gatos campus) – that perhaps the District may no longer need the tax monies. Dissolution of the District would free up a portion of taxpayer revenues that could be redistributed for other county purposes, such as funding libraries.”
Beyond a lack of transparency where the district spends its tax revenues, the civil grand jury reported no one is accountable to the district’s taxpayers in explaining how those funds are spent; a conflict of interest between the hospital and district boards, both comprising the same members; and no distinct representation between the boards, with members “switching roles as needed and ignoring certain responsibilities of being a special district, such as communication with LAFCO.”
Board of Directors Chairman John Zoglin said in the release that he appreciated the acknowledgment of directors’ commitment.
The report included several recommendations, including implementing an itemized financial statement outlining tax revenues and the specific amounts allocated to each program, as well as separating hospital revenues and expenditures from tax revenues and expenditures; appointing an independent manager accountable to the district for financial reports; and communicating with LAFCO about activities outside the hospital’s sphere of influence.
“We want to ensure that the community fully understands and appreciates the range of services provided by the district with the taxes received, because our approach is critical to providing quality health services to the community we serve,” Zoglin said.
LAFCO is considering options in dealing with the hospital district’s Los Gatos purchase.
To read the grand jury’s report, visit www.scscourt.org.