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California State Auditor Report Number : 2015-042

Children’s Hospital Program
The California Health Facilities Financing Authority Has Generally Complied With Laws and Regulations and Resolved Its Issue Related to High Fund Balances



Summary

HIGHLIGHTS

Our audit of the Children’s Hospital Program (program) highlighted the following:

Results in Brief

In accordance with the Children’s Hospital Bond Acts of 2004 (2004 act) and 2008 (2008 act), the California Health Facilities Financing Authority (authority) administers the Children’s Hospital Program (program), which provides grants for eligible hospitals to construct or improve children’s facilities. As of February 2015 the authority had awarded and disbursed most of the 2004 and 2008 acts’ bond proceeds. Of the $750 million authorized by the 2004 act, the authority had awarded $674.1 million in program grants and disbursed approximately $672.8 million to grantees. Of the $980 million authorized by the 2008 act, the authority had awarded $675.6 million and disbursed $607.1 million to grantees. The 2004 act gave each grantee hospital until June 30, 2014, to apply for funds until it reached a grant award limit. After this date, however, the 2004 act allows any of the eligible hospitals to apply for the remaining funds. In May 2014 the authority adopted amendments to program regulations to extend the application deadline to June 30, 2018—four years later than specified in the 2004 act. By adopting these amendments, the authority effectively set aside $67.9 million of funds not awarded as of June 30, 2014, for grants to Loma Linda University Children’s Hospital and prevented other eligible hospitals from applying for these funds.

The authority’s activities related to awarding grants generally complied with laws and regulations. Further, the authority has a process for monitoring grants and has made payments to grantees in accordance with the law. Finally, the authority established a process to ensure that its requests for, and the subsequent sale of, general obligation bonds to finance the program are reasonable and appropriate, resolving the high fund balance issue discussed in our July 2012 report titled Children’s Hospital Program: Fund Disbursements Are Appropriate, but Estimates of Cash Needs Have Been Consistently High (Report 2012-042). The authority’s cash balance for the program as of February 28, 2015, was $36.3 million, down from $355 million in January 2012.

Recommendation

The authority should amend its regulations so that they comply with the 2004 act, thus allowing any eligible hospital to apply for funds related to the 2004 act that remained as of June 30, 2014.

Agency Comments

The authority disagrees with our recommendation and stated that it will not implement it.



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