Proposition 4: Voters Pass $1.5 Billion Children's Hospital Bond

California voters on Tuesday approved Proposition 4, which authorizes the state to sell $1.5 billion in bonds for children's hospitals to be used mainly on infrastructure projects. As of 8 am on Wednesday, the measure had 60 percent support.

More than two-thirds of the bond money will go to eight nonprofit children’s hospitals. Smaller amounts will go to University of California children’s hospitals and hospitals not specifically designated for children, but with a children's program or a children's wing.

"These funds will allow our hospitals to upgrade their facilities to meet new seismic safety requirements, update technology and expand capacity so that we can continue to provide the best care and save more lives," said Ann-Louise Kuhns, president and CEO of the California Children's Hospital Association, the organization that sponsored the proposition.

Children’s hospitals rely heavily on reimbursements from Medi-Cal, the insurance program for low-income adults and children, pregnant women and people with disabilities. Medi-Cal typically pays less for treatments than both Medicare and private insurance. That doesn’t leave much left over for capital projects, like required seismic improvements taking effect in 2030, Kuhns said.

An analysis from the nonpartisan Legislative Analyst's Office shows that California taxpayers would be on the hook for a total of $2.9 billion (including the borrowed sum plus interest) to pay back the bond over 35 years. Payments are estimated to cost Californians $80 million annually.

More than $11 million in contributions have been made in support of the initiative, most of it from some of the children's hospitals that would benefit from the money. Salesforce CEO Marc Benioff has also contributed to the yes campaign.

No money was raised to oppose the measure, but critics point out that this was the third time in recent years that children’s hospitals came to voters for money; they received $750 million in 2004 and $980 million in 2008.

The majority of hospitals that will benefit from Proposition 4 are already in solid financial positions, and they all pay their CEOs more than $1 million a year, said Elizabeth Ralston, former president of the League of Women Voters of Los Angeles, who has analyzed all three hospital bonds and the hospitals’ IRS filings.

Take Stanford's Lucile Packard Children's Hospital, Ralston said, which just opened a huge, brand-new hospital. In 2015, the hospital made $263 million in excess revenue, nearly double the share of what they’ll receive from Proposition 4.

“To me, it seems like an abuse of the initiative process,” Ralston said. “This is not what it was designed to do — to get people to fund private organizations based on an emotional appeal.”

Especially when the hospitals have no trouble raising money on their own, she added. She called Proposition 4 a “business proposition”: the hospitals chipped in $1.3 million to put the measure on the ballot, and they will each get $135 million back on their investment.

The hospitals could have gone to the Legislature to put the measure on the ballot for a lot less money upfront. But then, Ralston said, they would be subject to hearings and analyst reports and competition.

"Other groups that provide children’s services that don’t have as much money would say, 'We need money, too,' " Ralston said. “I think we should leave budgeting to the Legislature."