CCA joined Susan True to discuss Watsonville Community Hospital, the Community Foundation Santa Cruz County’s solution to a healthcare crisis. Discover the key learnings of social impact projects, diversity in community leadership, and tips for funders, investors or donors to mitigate risk.
Watch the video or read the full interview below (Download a PDF of the interview)
00:00 - Introductions
01:50 - The beginnings of CFSCC
03:50 - The crisis of Watsonville Community Hospital (WCH)
17:50 - Budget challenges and legal language errors in the WCH project
23:50 - Key learnings from a social impact project of this scale
25:45 - Best practices for building communication and relationships across such diverse groups, perspectives and interests
32:22 - Tips for funders, investors or donors to mitigate risk
Community Capital Advisors Impact Story
Watsonville Community Hospital
Guest: Susan True, CEO of the Community Foundation Santa Cruz County (CFSCC)
Host: Kim Kastorff, Director of Kimpacto (and on behalf of Community Capital Advisors)
Susan, can you give us an overview of your current role with the foundation along with the foundation’s mission, and what makes your foundation unique?
I am Susan True, the CEO of the Community Foundation in Santa Cruz, and I’ve been in the role for about 5 years. What I love about our work is that our mission is putting together people, ideas and resources to inspire both philanthropy and to accomplish great things. We have a real focus on getting things done, and are very solutions-focused so that when our community has a need it gets addressed.
What are some of the various types of projects that your foundation has been involved with over the past few years?
We were born out of some horrific floods. At the time, the community didn’t have a central place to go to, in order to help their neighbors or to collect and distribute resources in a time of need. Since then, we have played a central role during the COVID pandemic, some wildfires, and now the floods again. One thing is being a quick responder but the other thing is addressing long-term issues by bringing people together, finding resources and addressing things like youth wellness, educational opportunities, the well-being of seniors, healthcare access and water sustainability.
Let’s take a deep dive into one of your recent projects in Santa Cruz County. As I understand it, the local Watsonville Community Hospital (WCH) was about to close it’s doors in 2022. Can you share some of the key internal issues that this hospital was facing before your foundation became involved?
In 1998, the hospital was sold to an out-of-state for-profit private entity, and at the time it seemed like this privatization would actually bring needed resources to improve services.…but that’s not what actually happened. In fact it has been a period of great instability.
For example there has been a revolving door of CEOs during this period, with over 20 CEO’s serving the hospital in that 20+ year period. There was chronic inattention to basic operations and lost profitability. Finally, in 2019 a small LLC bought the hospital and then they re-sold it to a Real Estate Investment Trust (“REIT”), and then leased back the operations to the hospital. In January 2021, the LLC defaulted on the lease and the REIT replaced the board and the operator of the hospital. A year later the hospital was in bankruptcy. During the summer of 2021 some community leaders, such as our county government, the city of Watsonville, a community health trust, and our federally qualified health center, all together formed a project called the “Health care district project” which contained all the steps necessary to acquire the project during the bankruptcy filing. During that process, the areas of neglect (e.g. billing, accounts receivables, negotiating insurance contracts, vacant space unrented) and the severity of the issues became more transparent. So, a business plan was developed to determine if it could indeed become a functioning hospital.
These issues sound very serious, and perhaps to big to solve. If this hospital closes it’s doors, what would be the health impact and social impact to the local community? Are there other alternative hospitals or centers for support?
The community foundation gets involved when the problem is too big for any one entity to solve on it’s own, so anything that requires a lot of different people to come together to solve, we like to jump in and play a leadership role to bring the resources together. We (Santa Cruz) are a small community of around 277,000 people and we do have two hospitals, the Watsonville hospital and then another in the northern part of the community, and they are only about 15 miles apart. But if you look at the traffic patterns during the morning and evening, it could take an hour to drive to the other hospital and that felt literally like a life and death situation. One of the things that was a driver for me was that over half of our babies are born at the Watsonville Community Hospital. Our local health system is a fragile patchwork of patient care and speciality care, and so the provision of care is a very important part of our whole healthcare system.
Clearly this hospital needed to be saved and urgently! Specifically, what was needed to save this hospital, both financially and non-financially?
I’m so proud of our community for being able to pull this off, and it really took several different sets of expertise, skills and high levels of initiatives. The first non-financial issue was that the court required a new California healthcare district to be formed and to take on the ownership and operations of the hospital. Our state senator, John Laird, in just 19 days had that signed into law by our governor. Not many state legislators would have been able to do that. As mentioned, the business plan was needed to address some core issues in the business, and to look at all of the debt as costs skyrocketed during the pandemic. So, that was the non-financial part, but then we also needed to raise $67 million between February and August and we are a small community. So, our state budget dedicated $25 million based on many of our state legislators who advocated on behalf of this large budget allocation. But still we needed to raise $42 million under very tight bankruptcy timelines… but we did it.
I imagine there are other smaller (and easier) high-impact projects in Santa Cruz County. Why did you and your foundation feel they should get involved and dedicate the time and financial resources to such a big endeavor?
Our mission is to accomplish great things, and this is not something (that I know of) which has been done elsewhere. Our community was uniquely positioned with the leaders who chose to step up, and yes it was a fragile process. I think leadership is all about picking the winners and deciding when to jump in, because without you it might not happen. This is one of the principal elements of my job, which is to know when to resource big issues and get something done.
Are there any specific groups or persons that you want to highlight in terms of leading the efforts, or their support in this project?
We played a very big role in the fundraising, and the community came together and people stepped forward with their wallets in a very risky proposition. We have all been sitting around and watching this hospital fail for over 20 years, and so to put money into it is a leap of faith. We had people dig through the business plan, like our board member Kirk Schmidt who was instrumental in that. Driscoll’s offered $1.7 million as a match, and we successfully raised that match. We had many donors come forward and we raised over $7 million in just a few months. So there were a lot of people who got behind this idea.
Did everything go fairly smoothly, or where there any unexpected hiccups along the way? If so, what happened and how did you solve it?
The biggest hiccup came with the state budget. As I mentioned, the state had allocated $25 million to support the acquisition of the hospital. We were on a very tight timetable, and we had to present the funds at the end of August in the bankruptcy court. About 10 days before that deadline, we realized there was an administrative clerical error, and the funds that had been allocated for the purchase of the hospital, in state budget language, which is law, was to go to the Watsonville Community Hospital. However, the Hospital entity was in bankruptcy court and owned by a REIT. We did not want the Hospital to get $25 million, we needed the Healthcare District that we recently formed to get the money. Our state senator worked on the budget language to fix this administrative error, but we still needed to have that $25 million for the bankruptcy proceedings at the end of August. So, we put together five short-term $5 million loans which came from the community foundation, the cities and the health clinic.
This is where we were really lucky that we have had Community Capital Advisors on board with us for years in advance, because I was able to call Marc Rand and say “we have a crisis… we have to find some really quick financing.” We were able to act swiftly to find creative capital in all sorts of situations.
Today, what is the current status of the hospital? Is it fully operational, as before?
It is fully operational. In a very sweet turn of events, several of the people that helped get it to this fully operational place, have actually received care there. It has meant a lot to all of us, because we are community members and using our community-owned hospital.
With your help (and others), what changes have already been made to ensure the success of this project and the long-term stability of this hospital, going forward?
A couple things, one is increasing revenue from the services that the hospital has already been providing, and that has been primarily through insurance contract re-negotiation. Also, reducing the hospital’s expenses to bring down the cost of care. Then, creating new revenue streams since much of the hospital was vacant. So, adding physical therapy and other sorts of revenue streams could be realized by using the facilities better. Finally, we are helping to build fundraising capacity. The hospital was being privately held these last 20+ years and did not develop a community relationship for fundraising. Many community hospitals do have a foundation, or a fundraising arm, so we need to develop that to better supplement and improve the quality of care.
I imagine there has already been (and will continue to be) a significant social impact to the community as a result of your efforts. For the patients and clients of this hospital, how has this project positively (or negatively) affected them?
They are unaware. They have had seamless operations and continued care, and no disruptions. We were not closed, not even one day. I think that’s what we are most proud of.
Since your foundation has never done anything like this before, probably there has been a few key learnings. Can you share some of your reflections or key takeaways? Or, what would you do differently next time?
I don’t think anybody has ever done anything like this before. I think the hardest part of the project was that the community had experienced such neglectful management for so long, that after literally generations, you end up giving up hope that this hospital could ever be a well-functioning hospital. I think we should have done a better job earlier of explaining the complexities of the failure in a more simple way, so that the public could see a path forward. We didn’t have enough trusted community leaders doing the external messaging (e.g. newspaper, news coverage) about the hope and promise of the community owned hospital. So, many people thought there was no way that this could succeed.
For projects like this, it seems critical to manage very diverse groups and stakeholders and to ensure that everyone reaches a common agreement … and quickly! Do you have any tips or best practices for building communication and relationships across such diverse groups, perspectives and interests?
The work of the hospital acquisition in some ways started decades before. The reason I say that is because so much of what happened was because we could operate quickly, because we trusted each other. I knew that Senator Laird would do his job to the best of his ability and there was nobody better to do it. I knew that our county administrative officer with whom I worked on many projects in the past, would use all of his municipal connections to make sure that this happened, and in compliance with the law, and put all of the resources necessary into it. Plus, working with others on hospital financing issues. The reason that I knew that is because we have all worked together on projects for so long that have benefited this community. If we were all new to each other, I don’t know if this would have happened. So, the most important thing is that you are laying the groundwork with diverse community leaders who are all able to impact the community in different ways over long periods of time. That’s really how this project happened.
On a personal level, clearly you persevere and take on many challenging and highly sensitive projects, which is very impressive! So I’m curious, how do you manage the day-to-day pressure and emotional aspects that arise during projects like this (i.e. both your own emotions and those of others like the local community)?
We probably laugh a lot. We have a great team at the Community Foundation. We have a staff that is really committed to jumping in and doing these things. The whole team is on board and that we are serious. When we say that we are going to accomplish great things, we really are going to do it. So people are willing to adjust work flows, change schedules and organize priorities. So, I am not doing this by myself.
We really have a great team of people with a broad range of expertise, from understanding the community and issues, to understanding our finances, and even where to pull this investment from. We just have a really solid team. So, I try to laugh a lot about the absurdities of our world, and I work with great people.
Based on your experience, do you have any other tips or advice for others who are directly working on social impact projects, or for those considering getting involved in high social impact causes?
I think it would be to “Be Bold.” There’s an important gap to be filled in financing of important impact projects. What I see a lot is that there is a replication of lending and grants to pretty safe projects. I always think that the Community Foundation’s role is to be the lender of last resort, because the projects are so risky that nobody else wants to take them on. That’s what the market is not going to do on it’s own and that’s what we’re here for. We are here to say that there’s an incredible path to a desired social impact, and without us, it’s probably not going to get done. That’s what a Community Foundation is for, we are not a bank. We are about building community. I think that that ‘boldness’ has really helped us in this project. I love the partnership with Community Capital Advisors (CCA) because Marc has been supportive of that profile of lending. But also CCA really helped keep us safe and make sure that there is due diligence, and that we have really looked into what the risks are. So, any risks that we are taking is a known risk and hopefully has some mitigating forces as well.
The partnership with Community Capital Advisors has helped us to do that bold action, safely and well.
Finally, what would you say to other foundations, funders, investors or donors who are hesitant to provide funding or get involved in such risky projects? Why should they take on more risk, and/or how can they mitigate these risks to feel more comfortable in providing support?
I think some of it is just the profile of a foundation, and how cautious (for whatever reason) a foundation needs to be. We have a board, and staff, and a community that really demands action and that we take a stand on important issues. There aren’t other community institutions here that can do what we do. So, the community asks a lot of us. I feel very responsible to respond to that, and I always ask “who are we trying to protect?” If we are just here to protect ourselves, we are no longer relevant to serving the community. We have to look out for our own interests so that we can continue to serve the community generations down the line. But, if that’s where our analysis stops, then we actually aren’t of service to the community in the way we are designed to be.
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Susan True, CEO of the Community Foundation Santa Cruz County