Staff Report 4.1 Reorganization of the Palm Drive Health Care District Consisting of Dissolution of the Agency and Assignment of the County of Sonoma as Successor Agency Solely to Wind Up the Affairs of the District

Analysis  

The Directors of the Palm Drive Health Care District (“PDHCD” or “District”) have submitted, via unanimous resolution, a proposal seeking dissolution of the District and assignment of the County of Sonoma as the successor agency.

The effect of dissolution, according to the Cortese-Knox-Hertzberg Local Government Act of 2000 (“CKH” or the “Act”), is that the “district shall be dissolved, disincorporated, and extinguished, its existence shall be terminated, and all of its corporate power shall cease, except as the Commission may otherwise provide…for the purpose of winding up the affairs of the district.”

The powers and duties of the successor agency are designated as:

For the sole and exclusive purpose of winding up the affairs of the dissolved district, the successor and the officers and legislative body of the successor have the same powers and duties of the dissolved district and all of the following additional powers and duties:

• To exchange, sell, or otherwise dispose of all property, real and personal, of the dissolved district.
• To compromise and settle claims of every kind and nature.
• To sue or be sued in the same manner and to the same extent as the dissolved district and the officers and legislative body of the dissolved district.

 Staff has evaluated the proposal and notes that the Commission is obligated under the CKH to approve the proposal and can do so without conducting an election or protest proceedings.

Various stakeholders have suggested conditions related to prior actions of the District, and conditions seeking actions from the successor agency (the County). The Commission does have the authority to impose various types of conditions on the approval of the proposal, but staff is not recommending that specific conditions be imposed.

Staff determines that the proposal is categorically exempt from the California Environmental Quality Act under sections 15320 (proposal does not change the geographical area in which previously existing powers were exercised), and 15061(b) (3) (“common sense exemption” – the proposal has no potential effect on the environment).

Staff is recommending that the Commission conduct a public hearing (the hearing was duly noticed through local media), then approve the reorganization as required by the Act.  Staff has prepared a draft resolution for the Commission’s consideration.

Background

The Commission has been actively engaged in evaluation of the Palm Drive Health Care District in recent years, including consideration and adoption of a Municipal Service Review and two Addendums, consideration of two detachment proposals, and one amendment to the District’s Sphere of Influence.

The most recent Commission action (taken on July 1, 2020) was to adopt a determination indicating that the District was no longer exercising its authorized powers, and that dissolution of the District would be an appropriate action.

The District unanimously passed a resolution of application to LAFCO seeking dissolution on May 12, 2020, and on May 13 filed the application. LAFCO staff issued a Certificate of Filing on June 1, 2020, indicating that the application was sufficient.

Pursuant to Section 56131.5 of the Cortese-Knox-Hertzberg Act, staff provided notice to four state agencies of its receipt of the proposal, providing these agencies a sixty-day window to comment.  No comment from these agencies has been received.

The Commission has the authority to order the reorganization without conducting protest proceedings or an election because conditions set forth in Section 57102 and 57077.1(c) have been met.

CKH enumerates twenty-two categories of terms and conditions that may be imposed on any reorganization. Interested parties have suggested imposition of conditions regarding several matters, which are discussed in the next section.

Suggested Conditions

Three groups have provided suggestions or requests for the imposition of conditions on the approval of the proposal: the District, the County, and interested parties.

• The District, within its resolution of application, requested five terms and conditions. The first is that the County be named the successor agency, and the next three recite the powers and authorities of the successor agency that are within code sections of the Act.

The last proposed term sought an effective date of dissolution of July 1, 2020.  Due to the noticing requirements for four state agencies, the proposal could not be heard until the Commission’s August meeting.  Should the Commission act at this meeting, the dissolution would become effective upon the execution of the certificate of completion, which staff proposes should be undertaken immediately.

• The County of Sonoma, as the successor agency to the District, has requested two conditions. They are essentially assurances that the County can continue to levy and collect ad valorem and parcel taxes approved by District voters until payment for all short- and long-term debts and obligations of the District are paid, and that the County shall be entitled to recover direct and indirect costs it incurs in administrating the requirements of acting as the successor agency from the same sources.

While staff believes that these terms are explicit in code, they have been recited in the draft resolution.

• Interested parties have raised or suggested conditions of approval that address three matters.

When the District sold its medical facility to an independent health care firm, the sales agreement included a penalty clause if that operator did not offer emergency health clinic services. While the operator did offer health clinic services after the sale, those operations have since closed.

It has been suggested that LAFCO impose a condition on the approval of the dissolution ordering the successor agency to seek the financial penalty included in the sales contract.

Staff has been informed by the District’s legal counsel that the District has initiated the required “notice and cure” actions to exercise the penalty clause in the sales contract. As the successor agency, the County is aware of this effort and can continue to pursue remedies with the health care operator, whether that is reestablishment of clinic services or payment of the penalty. In short, the successor agency is fully aware of the issue and has discretion to deal with it as deemed appropriate.

The second suggested conditional term addresses an action recently taken by the PDHCD Board of Directors to grant several hundred thousand dollars to a newly-formed public health care committee that will ostensibly provide health services to West County communities.

Mr. Jim Horn, a previous director of PDHCD, has requested (Attachment 2) that LAFCO seek to prohibit the District from enacting this grant, and, if the District makes the grant, that the County be “encouraged” to “claw back” the funds.

Mr. Horn believes that the District is not authorized to use parcel tax levies for any other purpose than to support the provision of emergency and acute care services under the provisions of Measure W, which was the voter-approved measure authorizing the taxation.  (The District has obtained a legal opinion regarding the authorized uses of Measure W funds, but has not released that opinion.)

The District has already granted these funds, and LAFCO lacks authority to order the funds returned.  To the extent Mr. Horn is suggesting a condition directing the County, Mr. Horn’s “claw back” proposal raises legal concerns for LAFCO in that it presupposes a “claw back” can legally be achieved by the successor agency.  LAFCO is ill equipped to evaluate this claim without access to the confidential records that the County will inherit, and the claim implicates the due process rights of the grantee. 

With all of this in mind, staff has not recommended a term or condition related to this matter.

The last conditional term has also been suggested by Mr. Horn (Attachment 3, which has been redacted to exclude personal contact information), that would require that all District-related records, including those that may be in the form of email that was sent and delivered under District director personal accounts, be preserved.

As with any other property, the successor agency will acquire all District records.  While staff notes there are no specific document retention requirements in the event of LAFCO-ordered dissolutions, the successor agency will have full rights to seek out documents as needed to administer the winding up of District affairs. Interested parties retain all rights to seek redress from the successor agency that they currently have with the District.  Again, staff has not recommended a term or condition related to this matter.

Staff would like to close this discussion by noting that the District and the County have conducted numerous direct meetings and discussions to plan for the transition of District affairs to the County, with a comprehensive list of actions. The District has attended to many short-term obligations such as disposition of the lease for District offices, and the District and County have addressed longer-term issues such as medical record retention.

While not in any way suggesting that there is an “ideal” dissolution process, staff believes that the County, while not relishing the role of successor agency in this or any other dissolution case, is prepared and able to take on this task. The County is aware of the panoply of transition issues, and is being granted full authority to act on them appropriately.

Staff Recommendation

Staff has prepared a draft resolution for Commission consideration that represents a “clean” recitation of the proposed action, its effects, and the powers and authority being divested to the County of Sonoma as the successor agency to the Palm Drive Health Care District, without condition.

Fundamentally, the proposed action devolves all powers and authorities held by the District to the County, and directs the County to solely wind up the affairs of the District by resolving both short- and long-term financial obligations.

Landowners residing within the District boundaries and within the two detached areas should be apprised that the successor agency will continue to collect levies and taxes solely to support resolution of those District obligations and to support appropriate administration of those activities. When those obligations have been fully discharged, tax levies will cease.

Recommendation 

Staff recommends that the Commission hold a public hearing to solicit input from interested parties related to adjudication of the proposal from the Palm Drive Health Care District Board of Directors seeking dissolution of the District.

Pursuant to the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 the Commission is enjoined to approve the proposal, and has the authority to do so without conducting protest proceedings or an election.

Staff has prepared a draft resolution ordering the dissolution that recites the Commission’s action, its effects, and the powers and authorities that are being divested to the successor agency.

Alternate Recommendation 

The Commission, at its discretion, can direct staff to amend the resolution, and return the matter for final consideration and approval at a future meeting.

Attachments 

1. Resolution No. 01, Dated May 12, 2020, of the Board of Directors of the Palm Drive Health Care District, Applying to LAFCO For Dissolution
2. Letter from Mr. Jim Horn Dated July 2, 2020, Seeking Conditions of Approval for Dissolution of PDHCD
3. Letter from Mr. Jim Horn Dated July 13, 2020, Seeking Additional Condition of Approval for Dissolution of PDHCD (Redacted to Exclude Personal Contact Information)
4. Draft Resolution for Commission Consideration