AVALON, CA — Catalina Island Health has formally requested a $2.8 million advance from the City of Avalon’s General Fund to participate in a state and federal program aimed at increasing hospital funding through matching Medi-Cal reimbursements. The City Council unanimously approved a non-binding letter of interest during its March 18, 2025, meeting, allowing the proposal to move forward for further analysis and potential state approval.
According to Avalon City Attorney Scott Campbell, this vote does not finalize the transaction. The agreement is contingent on several factors, including legal and financial review and, most critically, approval from the State of California. “If the state doesn’t approve it, then even if the city and the hospital agree, the deal doesn’t move forward,” Campbell emphasized.
The proposal centers around an intergovernmental transfer process in which Avalon would transfer $2.8 million to the state. In return, the state would use the funds to draw down additional federal matching dollars, resulting in increased Medi-Cal payments to the hospital. However, those increased payments cannot be used to repay the city directly. Instead, Catalina Island Health is proposing to use Measure C funds — a sales tax approved to support hospital services — to reimburse the city over time.
Campbell noted that Measure C generates approximately $700,000 to $800,000 annually, and those funds could be used over a few years to repay the advance. “The hospital is proposing this plan in good faith, and city staff would return in July or August with a formal agreement for Council consideration,” Campbell said.
Several councilmembers voiced both support and concern. Councilmember Mary Schickling expressed skepticism, calling the proposal “a huge gamble,” especially in light of recent budget news out of Sacramento. She cited a report that Governor Gavin Newsom had to divert $3.4 billion from the state’s General Fund to fund Medi-Cal, indicating uncertain financial terrain ahead.
Councilmember Lisa Lavelle pointed out that the city is not obligated to release the funds unless and until all terms, including financial oversight, are secured and approved. “We’re not cutting a check today,” Lavelle said. “This just allows staff to continue the conversation and return with a well-vetted plan.”
Financial oversight emerged as a key theme during the discussion. In response to Councilmember Yesenia De La Rosa’s question about who monitors the financial disbursements, Campbell said the city would be involved in ongoing oversight, along with the state and LA Care — the Medi-Cal agency managing the program.
Councilmembers and members of the public also raised concerns about the level of transparency currently afforded by the hospital. Resident Dave Thompson questioned why hospital board meetings were not open to the public. Mayor Anni Marshall suggested that any final agreement could include conditions requiring greater transparency and public accountability.
Hospital representatives, including an unnamed spokesperson, emphasized that the funding request is not a loan in the traditional sense, but rather an effort to recoup lost Medi-Cal revenue by investing in a program designed to boost federal reimbursement rates. “We’re not asking for a bailout,” the spokesperson said. “We’re trying to leverage funding that we otherwise wouldn’t receive.”
Despite that, concerns lingered. Resident Bri Broussard recalled a previous council meeting where hospital representatives acknowledged financial instability but had yet to follow up on discussions about Measure H — a separate funding source for capital improvements, such as new hospital construction.
Finance Director Matt Baker reassured the council that Avalon has the resources to accommodate the request if it goes forward. He said the city’s General Fund currently holds about $16 million, and even after the potential advance, Avalon would retain more than $10 million in unassigned reserves. Baker also confirmed the city would receive 5% interest on the advance, higher than current investment returns.
Although the proposal has raised questions and caution, many officials acknowledged the importance of keeping the hospital viable and pursuing creative funding solutions. “This is about exploring options,” said Campbell. “Ultimately, the Council will still need to vote again before any money leaves city accounts.”
A final agreement, if approved by the state and returned to council later this year, would include financial reporting requirements, audits, and limitations on hospital ownership changes without city approval.
In the meantime, city staff will continue to evaluate the proposal, engage with state officials, and draft the terms of a possible agreement. A decision on whether to proceed with the funding is expected in the fall.
