In order to ensure timely compliance with the 2030 seismic compliance requirements as discussed in the preceding sections, the City of Alameda Health Care District began in 2020, and continuing well into 2023 (with ongoing discussions with AHS and with outside financial expertise) considering what action must be taken to plan and fund the required seismic upgrades to Alameda Hospital. 

In connection with authorizing, on January 10, 2002, an election to establish the District, the Local Agency Formation Commission of the County made the formation of the District subject to certain terms and conditions, including adding a $13,000,000 appropriations limit, and authorizing the District to levy an annual special tax (the “Parcel Tax”) of up to $298 per parcel or per possessory interest for specified purposes of the District. Those purposes are to repay outstanding indebtedness related to Alameda Hospital and to defray ongoing hospital general operating and capital improvement expenses. Thus, the revenues raised by the Parcel Tax can only be used to defray operating expenses of Alameda Hospital, pay for capital improvement expenditures for Alameda Hospital and for debt repayment related to capital improvements to Alameda Hospital to accomplish the foregoing purposes. The ballot measure (Measure A) asked voters to decide whether the Parcel Tax should be imposed on taxable parcels and possessory interests of real property within the District. On April 9, 2002, 69% of the residents of the District voted to approve Measure A.

Due to (i) the District’s passage of its parcel tax Measure A in 2002, and (ii) its ability to secure legislative approval of a statutory lien, it had one viable financing option available to fund planning, design and construction costs associated with Alameda Hospital’s construction project, namely, “Certificates of Participation” (“COPs” or the “Certificates”).

While the issuance of General Obligation Bonds by the District would require voter approval, the issuance of COPs or Revenue Bonds by the District would only require the approval of its Board of Directors. However, Section 32316 of the California Health & Safety Code (“H&SC”) limits a District’s ability to issue revenue bonds to not more than 50% of the average of the past three year’s revenues of the District, capping its revenue bond debt capacity at $3.0 million, far less than the anticipated costs of the seismic improvements.

The District learned that COPs are not considered to be debt for the purposes of the H&SC because they are not incurred by the District’s authority to issue debt but instead by its authority to sell and repurchase its facilities. Under that approach, COPs take on the form of debt without being considered as debt under the H&SC.

The District also learned that as long as the COPs are secured by its parcel tax revenues, the parcel tax revenues will continue to be available to service the principal and interest payments on the COPs until maturity of the COPs. Thus, the parcel tax revenues were provided as security to COP investors who are relying solely on this revenue source for repayment of the COPs, and a contractual obligation has been established to continue the revenue stream in meeting the District’s payment obligation to holders of the COPs. Provisions of contract law require this revenue stream provided to investors will remain in place at least until the COPs being secured by parcel tax revenues are repaid.

The details and intricacies of this financing were presented in detail at a duly noticed and agendized public meeting of the District’s Board of Directors in December 11, 2023, with open discussion on the seismic plan and related financing details at each public Board meeting thereafter through passage of the Authorizing Resolution No. 2024-01 by the Board on June 10, 2024. While the Board members asked many questions along the way about the seismic plan and related financing details, no member of the public asked questions or raised objections.

The District needed to expedite the seismic planning and design process for several reasons. First, construction cost inflation appeared in 2023 and 2024 to be at an all-time high with no relief in sight. If costs continued to increase year over year, based on recent inflation, the District could easily have priced or cost itself out of an ability to fund future construction costs. Because the District’s funding capacity is limited to $298 per parcel, it simply didn’t have the resources to increase funding as costs continued to rise and potentially exceed its capacity to fund these project costs. As such, time was truly of the essence and everyone’s cooperation and urgency was critically important as the project’s planning, design and approval process moved forward.

In summary, the COPs were executed and delivered on August 29, 2024, to (i) finance the planning, design and construction of improvements to Alameda Hospital in order to make it compliant with the 2030 Seismic Requirements and to make certain other improvements to Alameda Hospital as determined by the District and AHS, and (ii) pay costs of the financing. The Certificates are payable semiannually on each March 15 and September 15 of each year, commencing March 15, 2025.

The District is legally required under the COPs to pay the principal and interest due under a lien on the Parcel Tax Revenues. Section 5451.8 of the California Government Code (the “Lien Statute”) imposes a lien on the Parcel Tax Revenues to secure the District’s obligations under the COPs. Pursuant to the Lien Statute, the Parcel Tax Revenues are immediately subject to such lien and the lien attaches to the Parcel Tax Revenues and is effective, binding and enforceable against the District, its successors, creditors and others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for any physical delivery, recordation, filing or further act.

The initial sale and delivery of Certificates of Participation (2024 Financing Program, Series A) was in the aggregate principal amount of $13,500,000.  The total cost of the project is estimated at approximately $60 million and the project itself is broken into 4 phases including both seismic upgrades (approximately $32 million) to meet SB 1953 requirements and operational upgrades referred to as Phase 4 (approximately $28 million). Phases 1 thru 3 primarily address seismic upgrades while Phase 4 consists of certain operational upgrades as described below.

Phase 1 consists of above-ceiling construction work to anchor equipment, ducts of a certain size, ceiling, lighting or sprinklers that are not already anchored, in critical areas of Alameda Hospital to comply with SB 1953. This Phase 1 of the project will make required NPC 4 seismic upgrades to Alameda Hospital.

Phase 2 involves the installation of domestic water tank, sewer tank, and an enlarged fuel storage tank. This work is needed to meet SB 1953 seismic requirements to allow Alameda Hospital to function if potable and non-potable water, as well as electricity, is out of service for 4 days. This Phase 2 of the project will make required NPC 5 seismic upgrades to Alameda Hospital.

Phase 3A and 3B involves increasing seismic strength of the Stephens Wing and the West Wing to comply with SB 1953. This Phase 3 of the project will make required SPC 4D seismic upgrades to Alameda Hospital.

Phase 4 consists of converting a vacated partial floor of the South Wing to a distinct part Skilled Nursing Unit (Medi-SNF beds) to provide operational upgrades in response to market demand and to maintain financial viability of Alameda Hospital.

The District expects to issue additional Certificates in 2025 to fund the balance of the construction and related costs.