In November 2004 California voters approved Proposition 61, the Children’s Hospital Bond Act of 2004 (2004 act), establishing the Children’s Hospital Program (program) and authorizing the State to sell $750 million in general obligation bonds to fund the program. In November 2008 California voters approved Proposition 3, the Children’s Hospital Bond Act of 2008 (2008 act), which authorized an additional $980 million in general obligation bonds for the program. The purpose of the program is to improve the health and welfare of California’s critically ill children by providing funds for capital improvement projects for qualifying children’s hospitals. (See the text box for hospitals’ eligibility requirements.) Eligible projects include those to construct, expand, improve, or finance children’s hospitals, including their furnishings and equipment.
Specific Hospital Eligibility Requirements
for Grants Under the Children’s Hospital Program
A general acute care hospital is eligible for program grants if it is, or is an operating entity of, a California nonprofit corporation established before January 1, 2003, and if it demonstrates the following:
- A mission of clinical care, teaching, research, and advocacy that focuses on children.
- Comprehensive pediatric services to a high volume of children eligible for government programs and with special health care needs eligible for the California Children’s Services program—a combined federal-, state-, and county-funded program to treat children with certain chronic medical conditions.
- Evidence of the following, based on information hospitals reported to the Office of Statewide Health Planning and Development on or before July 1, 2003, for their fiscal year ending between June 30, 2001, and June 29, 2002:
- At least 160 licensed beds for pediatric acute care, pediatric intensive care, and neonatal intensive care.
- More than 30,000 total pediatric patient days, excluding nursery acute days.
- Medical education of staff to include at least eight full time equivalent pediatric or pediatric subspecialty residents.
Sources: The California Health and Safety Code and the California Department of Health Care Services
Under both the 2004 and 2008 acts, two groups of general acute care hospitals are eligible for the program: five enumerated University of California (UC) hospitals and eight non-UC hospitals that the California Health Facilities Financing Authority (authority) identified by applying the acts’ eligibility criteria. Of the total funds available under both acts, 20 percent is earmarked for grants to the five UC hospitals. Each of these hospitals may receive more than one grant, but the total for all grants awarded to each UC hospital is limited to $30 million for the 2004 act and $39.2 million for the 2008 act, for a total of $69.2 million per UC hospital. The remaining 80 percent of the total bond funds is earmarked for the eight other hospitals that are eligible for the program based on the eligibility requirements in the 2004 and 2008 acts. These hospitals may also receive more than one grant, but the total for all grants awarded to each hospital is limited to $74 million for the 2004 act and $98 million for the 2008 act, for a total of $172 million per hospital. The 2004 act allowed each grantee hospital to apply for funds up to the grant award limit by June 30, 2014. The 2008 act has a similar provision, but its cutoff date for applying for earmarked funds is June 30, 2018.
The 2004 and 2008 acts authorize the authority to award grants for the purpose of funding eligible projects. Established in 1979, the authority administers the State’s programs to provide loans and grants, funded through the issuance of tax-exempt bonds, to public and nonprofit health care providers. The authority employs a process to review applications for grants, evaluate proposed projects, and make recommendations to its governing board for approval or rejection of grant applications.
In addition to the program requirements contained in the 2004 and 2008 acts, regulations also govern the program. These regulations include more specific requirements related to eligibility, applying for funding, and closing out grants. To carry out program activities, the authority uses commercial paper—short-term unsecured promissory notes—to meet its short-term cash needs, and the Public Finance Division of the State Treasurer’s Office issues bonds when market conditions are favorable.
Scope and Methodology
The 2004 and 2008 acts state that the California State Auditor (state auditor) may conduct periodic audits to ensure that bond proceeds are awarded in a timely fashion and in a manner consistent with the requirements of the acts. These periodic audits also make certain that grantees of bond proceeds are using funds in compliance with applicable provisions. The state auditor previously conducted two reviews of the program and issued related audit reports in May 2009 and July 2012. This current review constitutes our third review of the program. Table 1 summarizes the audit objectives and the methods used to address the requirements of the 2004 and 2008 acts.
Audit Objectives and the Methods Used to Address Them
|1||Review and evaluate the laws, regulations, and rules significant to the audit objectives.||
|2||Determine the current status of the program and any other relevant information on the program.||
|3||Determine whether the authority awards bond proceeds in a manner consistent with applicable laws and regulations.||
Determine whether disbursements for program projects agree with the approved grant.
Determine the effectiveness of the monitoring and closeout procedures for grants.
|6||Determine whether the authority maintains a reasonable and appropriate fund balance to pay for project disbursements.||
Source: California State Auditor’s analysis of information and documentation identified in the table column titled Method.
Assessment of Data Reliability
In performing this audit, we relied on electronic data files extracted from the information systems listed in Table 2. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer-processed information that we use to support our findings, conclusions, or recommendations. Table 2 describes the analyses we conducted using data from these information systems, our methodology for testing them, and the conclusions we reached as to the reliability of the data.
Methods Used to Assess Data Reliability
|INFORMATION SYSTEM||PURPOSE||METHOD AND RESULT||CONCLUSION|
California Health Facilities Financing Authority (authority)
Master grant and disbursement spreadsheets for the Children’s Hospital Bond Acts of 2004 and 2008
Authority’s spreadsheets containing all grant awards and disbursements it has made as of February 28, 2015, under each bond act
To identify the grant awards and disbursements the authority has made as of February 28, 2015.
Sufficiently reliable for the purposes of this audit.
Source: California State Auditor’s analysis of various documents, interviews, and data obtained from the authority.