From The Orange County Register, Oct 23, 2018
By Michael Genest
In my role as Director of the California Department of Finance, I served as Governor Arnold Schwarzenegger’s chief financial policy advisor for four years. In that time, I advocated against a number of policies that I believed to be fiscally irresponsible. I opposed using the General Fund for transportation bonds, I encouraged Medi-Cal cuts, and I argued to get the state out of the business of school bonds. My stance on these fiscal issues was based on my knowledge of the state’s bleak fiscal future, which will ultimately come home to roost in the form of more taxes and service cuts.
However, I believe Proposition 4, the Children’s Hospital Bond, is a prudent investment that voters should approve in November. In fact, it is the only bond on this year’s ballot for which I personally will be voting yes.
The passage of Prop 4 will approve $1.5 billion of General Obligation bonds “to provide a steady and ready source of funds for capital improvement programs for children’s hospitals to improve the health, welfare, and safety of California’s children.”
The first two children’s hospital bonds were put on the ballot in 2004 and 2008 after the state eliminated the program hospitals had previously leveraged to fund big infrastructure investments. Without the benefit of the construction and renovation reimbursement program, the hospitals asked voters to approve $750 million and $980 million bonds, respectively, which led to better health care and longer, healthier lives for children. The State Auditor found that the money was, in fact, spent to improve and/or expand the capacity of the hospitals to serve children, as required by the bond acts. Prop 4 contains the same requirements.
Children’s hospitals provide a high level of specialized care to children in need, especially kids on Medi-Cal, which represent 63 percent of California children’s hospitals’ patient load. The demand for this level of care is growing because it is more efficient to provide pediatric care in hospitals set up to handle kids. Additionally, most hospitals prefer to serve Medicare and private insurance patients because they receive much higher reimbursement rates than from Medi-Cal.
Some have criticized Prop 4 because it provides taxpayer-backed bond money to private hospitals. But the fact is that these hospitals serve a significant number of patients on public programs. As a result of our state’s demographics and health care coverage policies, California’s children’s hospitals serve a disproportionately high percentage of low-income kids — and even more so when compared to most community hospitals in the state and other children’s hospitals across the country. Like it or not, caring for these kids is already the state’s responsibility.
In spite of the high number of Medi-Cal patients, children’s hospitals in California receive only about 13 percent of their revenue from state General Fund payments, with the remainder coming from charitable contributions, private insurance, and the federal government. Not only are these existing funds critical to have on a balance sheet to leverage for major infrastructure projects, but these charitable and private dollars cover the operating costs that Medi-Cal does not reimburse for. In other words, the state gets a huge bargain on care provided by children’s hospitals.
Even with the Prop 4 bonds being 100 percent funded by the state, the actual spending to increase care will be mostly covered by those other revenue sources. In the last two issues, the state share only amounted to 25 percent of the total capital spending – another bargain.
Most importantly, if children’s hospitals can’t retrofit to meet seismic requirements, they will have to reduce capacity by taking beds out of service. If they can’t keep up with the growing demand for pediatric specialty care, the state will have to cover the costs of providing that care in other hospitals. Not only will that mean less access to specialized pediatric care, but it will also be much more expensive for California taxpayers.
Ultimately, Proposition 4 is a good deal financially, even for a state with long-term fiscal challenges – in the long term, it will likely save the state money. For these reasons, Californians should vote yes on Prop 4 in November.
Michael Genest served for four years as Director of the California Department of Finance; he was also part of Governor Schwarzenegger’s transition team. Before joining Governor Schwarzenegger’s Administration, Genest was the Director of the California Senate Republican Fiscal Office. Genest began his career in California state government with a ten-year stint in the non-partisan and highly regarded Legislative Analyst’s Office.
