The Avalon City Council on March 17 voted to enter into a letter of intent to advance about $2.93 million (rounded) in Measure C funds to the local hospital. The money would be for Catalina Island Health’s participation in the Voluntary Rate Range Intergovernmental Transfer Program.
City staff was seeking direction on whether to enter into a letter of interest, which would lead to an agreement to make the advance.
A final agreement would have to be approved at a future council meeting.
The vote was 4-0. Councilmember Mary Schickling was absent.
City Manager David Maistros said this was essentially a letter of intent. He said staff would come back with a final agreement in July.
According to Gail Fornasiere, the hospital’s director of community outreach, said the government knows they don’t pay enough and this is one of the mechanisms to help cover funds.
“This is just how it works,” she said.
Councilmember Michael Ponce, a past hospital board members, said: “It’s not like anything else,” referring to hospital reimbursement.
Councilmember Lisa Levelle said if the city was going to do this in perpetuity, the council needed to make sure the city remains solvent.
“It’s not a small chunk of change and we have a lot of projects coming up,” she said.
Maistros said staff would have a much better picture of where the city was at financially in July.
Finance Director Matt Baker said the program allows the city to receive federal funds.
Background
“On March 18, 2025 the CIMC asked the City of Avalon to approve execution of a non-binding letter of interest (“LOI”) for a potential advance payment of approximately $2,800,000 from the City’s general fund so that CIMC can participate in a program to receive a substantial increase in funding – specifically, the Voluntary Rate Range (‘VRR’) Intergovernmental Transfer (‘IGT’) Program. The advance would be paid back over the course of several years through any available CIMC revenues, including Measure C funds,” according to the staff report by City Attorney Scott Campbell.
“On July 24, 2025, the City Council approved the City to enter into an Voluntary Rate Range Intergovernmental Transfer agreement with the California Department of Health Care Services (‘DHCS’), obligating the City to transfer approximately $1,106,450 to DHS on the condition that CIMC would allow the City to offset the amount of the transfer, plus any DHCS assessments, City Attorney’s fees incurred in connection with the advance payment, and certain administrative and lost opportunity fees, through Measure C funds, and, if necessary, any other available and permissible CIMC revenues over the course of eighteen months,” Campbell wrote.
“CIMC has paid the outstanding balance of that prior advance on March 10, 2026,” Campbell wrote.
“The Medicaid program (called “Medi-Cal” in California) is jointly funded by the State of California and the federal government for certain residents of the State,” Campbell wrote.
“The State’s share of the funding is a combination of State funds appropriated to the DHCS, public funds transferred from other public agencies such as cities or counties (called ‘Intergovernmental Transfer’ or ‘IGT’), and certain health care-related taxes. These funds together represent the “non-federal share” of the funding to pay for Medi-Cal program expenses and are used to draw down matching federal funds,” Campbell wrote.
“The amount of federal funds available depends on the ‘federal matching assistance percentage’ or ‘FMAP’ and varies by state, by specific services and types of Medicaid beneficiaries, and by whether the expenses were for administrative purposes or for medical care delivered to patients. Federal Medicaid managed care rules permit DHCS to annually develop and certify a range of actuarially sound capitation rates that it will pay to each of contracted Medi-Cal managed care plans, which must be reviewed and approved each year by the Centers for Medicare & Medicaid Services in order to be eligible for federal matching funds,” Campbell wrote.
“There is a special program that CIMC wants to participate in to obtain increased funding for its services. Specifically, the Voluntary Rate Range Intergovernmental Transfer Program was established in 20 11-2012 to allow local public ‘transferring entities’ to contribute their own funds via IGTs to help DHCS to pay capitation rates to Medi-Cal managed care plans at the upper bound of the rate range and to draw down matching federal funds based on those higher rates,” Campbell wrote.
“The plans must use the ‘rate range increases’ (that is, the difference between the lower bound and the upper bound of the range) to make increased payments to health care providers to increase access to services for their Medi-Cal enrollees,” Campbell wrote.
“Participation in the program is voluntary for public transferring entities and each Medi-Cal managed care plan. For each Medicaid managed care plan year (calendar year), DHCS asks the managed care plans and transferring entities for their interest in participating in the Program—demonstrated by completing a non-binding Letter of Interest (‘LOI’)—and for information on the uncompensated care costs for the Medi-Cal enrollees in their plan,” Campbell wrote.
“CIMC is asking the City of Avalon to use unallocated funds from the City’s General Fund to support CIMC’s participation in the Voluntary Rate Range Program with L.A. Care. L.A. Care is one of the three Medi-Cal managed care plans that covers Medi-Cal members in Los Angeles County. Most of the Medi-Cal patients who receive services at CIMC are enrolled in L.A. Care. If approved by the City Council, the City would sign and submit the attached non-binding LOIs included as Attachment A and the attestations included as Attachment B to L.A. Care and HealthNet in order to demonstrate its interest in participating in the program. L.A. Care must submit these documents on behalf of all transferring entities to DHCS by April 10, 2026,” Campbell wrote.
“Any funds CIMC receives through this program must be used by CIMC for services to Medi-Cal members and cannot be used to pay back the City. The City is expected to be paid back primarily from the use of funds from Measure C, the sales tax that was approved by City voters for support of hospital services, as well as other available CIMC revenues. Revenue and Taxation Code sections 7286.25-7286.26 authorize Avalon to impose a special sales tax to be used ‘exclusively for the Avalon Municipal Hospital and Clinic.’ This authority is broad and seems to contemplate that the Hospital could use Measure C funds to repay debt incurred for the benefit of the Avalon Municipal Hospital and Clinic, regardless of the lender. There is additional analysis underway of the enforceability of an advance payment agreement between the City and the Hospital in the event that the Hospital ceases to operate. Until such analysis is complete, staff does not recommend entering into the final agreement to advance the funds. At this stage, CIMC is just asking that the City signal its interest in participating in the program, which is non-binding, and any final agreement will be subject to the City Council’s approval at a future meeting,” Campbell wrote.
“CIMC is seeking to participate in the program as it faces an ongoing structural deficit largely due to uncompensated care costs associated with serving Medi-Cal patients,” Campbell wrote. “If the proposed IGT is approved by DHCS, DHCS will provide an IGT agreement to the City for execution by about July 31, 2026, which must be executed by about October 31, 2026. If the City executes the IGT agreement with DHCS, it will be required to transfer funds to the State by December 31, 2026,” Campbell wrote.
According to Campbell’s report, if Avalon approves the agreement, the advance would be $2,927,441.90 plus a 20% Department of Health Care Services assessment.
The repayment would come from Measure C funds for a period of 48 months.
The city would be paid 100% of the money advanced.
