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Dissolution Dialogue on Healthcare Districts

Original post made by Jack Hickey, Woodside: Emerald Hills, on Aug 1, 2014

In my 11 years as an elected Director of the Sequoia Healthcare District I have found it impossible to have a dialog with the Board majority which has ignored suggestions of the San Mateo County Civil Grand Jury and the Local Agency Formation Commission(LAFCo). Recently, I had a dialogue with one of my counterparts on the Peninsula Healthcare District. I am inviting all directors of both districts to join in. And, of course, public comments are welcome.

Dialogue between Jack Hickey and Dennis Zell
July 18, 2014 - July 21,2014

HICKEY:
Dennis, I have been an elected member of the Sequoia Healthcare District Board of Directors since 2002. Dissolution of the Districts has been my objective.
My current thinking is that LAFCo should pursue a ballot measure which would create a countywide successor for SHD and PHD, with funding from existing countywide taxes, i.e. no new taxes. That measure should contain a provision that should it fail to pass, SHD and PHD would be dissolved.
Enabling legislation might be required for such a measure.
I am attaching a supporting document for your perusal.
Would you support such a ballot measure?

ZELL:
Jack, thank you for your inquiry. No, I would not support that.
I oppose consolidation because I believe that hospitals serve a local purpose and that consolidation would make them less responsive to local interests in the same way that local school districts are more responsive to local concerns than big city "unified" school districts. I think the Appletree project shows that the two districts have a healthy working relationship and can cooperate when needed.
I oppose dissolution because I believe the districts still serve an important function.

HICKEY:
Dennis, what would you suggest for Daly City, Pacifica, Brisbane, Colma , and the Coastside? A separate Healthcare District? Voters are not likely to support an added tax and the cities are not likely to give up a share of their property tax. East Palo Alto and Fair Oaks areas outside the SHD are not likely to support a tax increase, and EPA is not likely to give up a share of its property tax.
What do you consider to be the "important function" which the districts serve? Isn't it considerably different than the function for which the voters created the districts? Shouldn't the voters have a direct say in this?

ZELL:
Yes, I think a separate health care district would be appropriate, especially considering the uncertain future of Seton.
As to EPA and Fair Oaks, I imagine the Sequoia and El Camino Districts are already subsidizing residents from there. Maybe the Legislature should consider expanding or creating a district to formally represent those people and give them a voice in health care issues while at the same time dealing with the "free rider" problem.
On the other hand, I already mentioned the important function of supporting innovative and self-sustaining non-profits to address under-served communities, and the law does not prohibit health care districts from doing things that benefit residents outside the districts.
Another important function is dealing with problems that simply did not exist when hospital districts were formed. The legislative change in name from Hospital Districts to Health Care Districts is but one legislative recognition of the evolved purpose of our districts. The free market has built lots of new hospitals, and our original purpose of financing and running hospitals is (at least for the Peninsula Health Care District) no longer the necessity that it was in the last century.
On the other hand, the practice of medicine also seems to have changed. The "profession" of medicine is no longer characterized by individual doctors and small practice groups, but is instead dominated by huge business entities (doctor's groups and medical centers) ostensibly organized as non-profits. Many doctors seems to "punch in" and "punch out" and the business decisions are left to administrators who seem more concerned with the bottom-line of financial statements than the health care needs of the community. Wise business decisions sometimes result in socially undesirable or deficient health care service "gaps" (in terms of what services are offered and where they are offered).
In my view, health care districts fulfill an important modern function of filling those aforementioned gaps. In today's world, simply having a hospital in the community does not mean that the community's health care needs are being met.

HICKEY:
Dennis; when voters approved the formation of the Hospital Districts, it was for the purpose of establishing hospitals. They did that. Now that they no longer own hospitals, the districts should be dissolved. It was not the intent of voters to create a publically funded United Way.
I have publically suggested that the district's philanthropic activity may be a misappropriation of public funds. Web Link. A memorandum from District counsel, Mark Hudak, defends the boards philanthropy. Web Link
He states: "Once created by the voters, however, the district is a creature of state law, subject to the expansion and contraction of its powers by the Legislature. Health care districts are not static; they are not limited to the powers that were in the enabling statutes at the time each district was created." I find that repugnant.

I offer an analysis from Christopher Schmidt, who's opinion I respect, which also suggests a misappropriation of public funds. That analysis was in answer to my statement which precedes it:

"Christopher, as you know, I have been advocating for dissolution of the Sequoia Healthcare District with tax revenues being distributed to the agencies sharing its boundaries.
>
> The issue is clear. The Sequoia Healthcare District was created by voters in 1948 to build, operate and maintain Sequoia Hospital. It no longer owns the hospital. The Grand Jury questioned continued collection of property taxes for the newly assumed philanthropic role taken on by the District. LAFCo has suggested dissolution, consolidation with Peninsula HCD or expansion to include the entire County.
>
> Recently I discovered that Revenue Limit school districts(e.g. Redwood City Elementary) who currently receive considerable support from the Sequoia Healthcare District would lose that support and not capture any of the property taxes from dissolution, while Basic Aid school districts would share in the property tax redistribution. I have concluded that a voter approved countywide healthcare district supported by a share of the 1% ad valorem property tax would be the most equitable, politically attainable, solution. "

CHRISTOPHER:
I don't follow the logic above. I see two types of problem with the district:

(1) The size of the district's AB 8 share of the property tax, established by the state in response to Prop 13, is no longer justified by the rationale in effect in the 1977/1978 base year, because, as you wrote, it doesn't even own the hospital any more.

(2) The district's reallocation of revenue to certain school districts in recognition of the hospital district's not needing that revenue for its own operations any more is not in keeping with the legal theory of AB 8. Reallocation of unneeded AB 8 share is not properly at the discretion of the board of the district no longer needing the revenue. That's a matter for the county auditor/controller and the other stakeholders splitting the 1% property tax. (Google "Demystifying the CA PT Appt System".) The other stakeholder are, roughly, the county government, cities, school districts, and other special districts. Collusion between the Sequoia Healthcare District and certain elementary school districts is not a legal substitute for the AB 8 tax apportionment process. In my opinion it is simple misappropriation of funds.

I think closing the district is the straightforward and obvious solution to both of the problems above. If, during the subsequent AB 8 tax apportionment process, the county auditor/controller and the other stakeholders agree that elementary school districts' employment of school nurses represents a new function they have taken on since the 1977/1978 base year, they would presumably receive an accordingly larger share. (But, FWIW, I doubt that schools could make such an argument convincingly.)

IMO, the school districts benefiting from the Healthcare District's past misappropriation of funds do not derive any lasting right to those funds in the future. They should just count themselves lucky if they are not asked to return that money.

I disagree with your statement that revenue limit districts would not share in the property tax redistribution. They would receive their due share of that money, but what you are alluding to is that they would accordingly lose some of the state aid they currently receive (which is calculated to bring their incomes up to the revenue limit, because the state isn't in the business of giving more money to districts that don't need it if local property taxes are adequate). Reduced dependence on state aid is a good and valuable thing, especially in consideration of the state's making those payments later and later in the year. For some districts (e.g. the SMCCCD, which is perpetually on the bubble) the additional revenue might obviate the need for any state aid at all, allowing them to transition to being basic aid districts.

I do not think that a voter approved countywide healthcare district supported by a share of the 1% ad valorem property tax would be a good idea. The county's two existing healthcare districts have more or less privatized their hospitals, so what's their justification for continuing to take revenue away from the other tax jurisdicitons who have all the same responsibilities they had before? And in the 1/3 of the county where they have never had a hospital district, those cities and school districts (and the county too) would take cuts to their shares of the property tax to fund your proposal. For what purpose?? This isn't like you!

I agree with the late Fred Graham: Folding the healthcare district would help public health because the county government would be the primary recipient of those funds, and the county hospital (where his wife worked) had a much greater need of that money than Sequoia Hospital did, and they do far more for public health. (Disclaimers: my late father also worked for the county hospital at one time, and was, in prior years, on the Peninsula Hospital board.)

ZELL:
Jack, the analysis of Mr. Hudak is correct. The Special Districts are a creature of statute and the legislative power resides with the Legislature.
I don't understand the legal basis of any contrary argument.

HICKEY:
Dennis, the issue of voter intent in the case of SHD was raised by Quentin Kopp's Civil Grand Jury. The situation with PHD is similar. Web Link
"The voters of the Sequoia Hospital District voted in 1946 that they were willing to be taxed for the purpose of maintaining the Sequoia Hospital, and in 1996 the voters agreed to a sale of the Sequoia Hospital and other district assets to the non-profit corporation Hospital Acquisition Corporation so that the emergency and other services of the hospital could be continued. The assets were later transferred to CHW."
"Although hospital districts have broad powers in the distribution of revenues, nonetheless, it is the responsibility of the Sequoia Healthcare District to expend its tax and other revenues for the purposes approved by the voters. The grand jury finds that the Sequoia Healthcare District has not done so."
Web Link
"The 2001-2002 Grand Jury finds that District taxpayers should be made aware that the 1946 measure authorizing the tax assessment was for the construction, maintenance, and operation of a hospital, but that the District no longer owns, maintains, or operates a hospital."
"The 2001-2002 Grand Jury finds that since the sale of the hospital the District has assumed a role similar to that of a philanthropic foundation, using its tax revenues to make grants to other government and non-profit agencies. This is a function of the District that was never presented to the voters for their approval under 1996 Measure H."

Comments (17)

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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 1, 2014 at 2:42 pm


ZELL:
Jack, this dialogue is very interesting to me. However, the Civil Grand Jury's failure to discuss the enabling statutes fatally undermines its persuasiveness. As a lawyer, I think our health care districts have been acting in conformity with the broad enabling statutes as a legal matter.
The political question of whether health care districts should continue to exist is an interesting one. But, as mentioned in my previous emails, I believe their potential to facilitate sustainable non-governmental solutions to health care issues justifies their continued existence. For instance, leasing land to private hospital companies is certainly in the public interest. The public gets to keep hospitals where they want them, but are not burdened with higher taxes to build and operate them. And the risk of losing money is on the private companies. I guarantee you that if hospital districts were building and managing hospitals today, the tax necessary to sustain them would be many times more than the measly $50 or so per parcel that is currently being assessed.
I see the same potential to find private solutions for other health care issues that are currently paid for by government. It seems to me that if you were to do away with the health care districts, you would sell-out one of the best opportunities for reforming the current dysfunctional public health care and safety-net system for a lousy $50 bucks per year. Why not use your position to help identify and kick-start innovative non-governmental solutions?

HICKEY:
Dennis, the Civil Grand Jury focussed on voter intent. I have researched the enabling statutes. See: Web Link and Web Link
I determined that petitioning for dissolution via these statutes has a reasonable signature requirement, but requires a 2/3 vote of the electorate to dissolve a district. If LAFCo were to proceed with dissolution, the required vote would be a simple majority, which is much more attainable.
I agree that "... leasing land to private hospital companies is certainly in the public interest." But, it doesn't require a healthcare district to do that. Nor does it require a healthcare district to educate nurses.
The SMCCCD, whose stature has greatly benefitted from the nursing programs funded by SHD and PHD, could certainly continue these programs with the added revenue they would receive if SHD and PHD were dissolved.
SMCCCD also might be the logical agency to inherit the "Healthy Schools" initiatives of SHD and PHD.
And, SHD and PHD funding of Samaritan House is not something on which healthcare districts have a monopoly. In fact, I asked Kitty Lopez if Samaritan House could survive without funding from SHD. Her answer, of course, was "yes".
And, transferring $1,350,000/year from the District to the Children's Health Initiative does not require a $200,000/year CEO.
Regarding Community Grants, I agree with the position taken by Charlie Bronitsky Web Link

ZELL:
Jack, focusing on original intent does not make sense in this context because the statutes governing health care districts have been amended by the California Legislature.
The Legislature provides for the creation of political subdivisions (such as cities, counties, and special districts) for practical reasons such as the undeniable benefit of local governance and local control. However, such political subdivisions are always subject to the superior legislative power of the state, and exist at the pleasure of the state. Under your strict construction, the California Legislature could never expand or restrict the power of political subdivisions that were created under the laws of the state. That interpretation is, in my view, absurd and unconstitutional. Future Legislatures always have the power to amend the enactments of prior Legislatures; the Legislative power can only be restricted by constitutional amendment (e.g. Prop. 13).
Moreover, the ideas that 1) government should only allow government employees to accomplish the will of the people, and that 2) private entities cannot be paid by government entities to accomplish public goals, are two notions that I disagree with as well. I would argue that private entities, especially many non-profits, are able to accomplish public goals much more efficiently some of the time.
Whether it is wise to give money to a non-profit in any particular situation depends upon the circumstances, but the concept of giving money to a non-profit should not be categorically rejected.
It seems to me that many of your arguments are based upon the false premise of illegality. If you want to do away with health care districts because they are repugnant to your Libertarian political philosophy then be intellectually honest and say so. I think you lose credibility when you cloak your political arguments in the guise of unsound legal arguments.

HICKEY:
Dennis, the Legislature also provided for the reorganization and dissolution of special districts through LAFCo. LAFCo has since adopted the following "sphere of influence" for SHD and PHD:
"transitional sphere of influence with the potential for expansion to include excluded areas, dissolution and consolidation"
Both Districts have rejected dissolution and consolidation, and have failed to explore the expansion of the districts to include all San Mateo County residents.
PHD responded by saying "Since Proposition 13 would prevent the creation of new tax revenues for this new agency (without other agencies giving up a portion of their revenues) the new agency would be funded solely by the residents of the existing two (merged) Districts." SHD neglected to address that recommendation.
There is an obvious solution:
Proposition 13 does not prevent legislation which would enable the Board of Supervisors to conduct an election allowing the majority of county voters to effect the "giving up" of a portion of other agencies revenues to implement a countywide healthcare district without a tax increase. Such a measure would likely pass, unless voters decide that other agencies could fill in those "...socially undesirable or deficient health care service 'gaps'".
In the case of the Healthy Schools program, such agencies already exist. They're called school districts. CHI is countywide and does not benefit from the existence of PHD and SHD. The nursing programs do not directly benefit residents of the districts.
How about PHD and SHD stop collecting property taxes and use their endowment to act as information providers which promote worthwhile non-profit organizations which fill in those "...socially undesirable or deficient health care service 'gaps'"? Oh, wait a minute. We already have a privately funded non-profit which assists those other organizations. Thrive Web Link. The districts are redundant.
Dennis, why don't you add to the dialogue on the Almanac Town Square Forum. Your perspective might stimulate discussion.






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Posted by yup
a resident of Atherton: Lindenwood
on Aug 1, 2014 at 3:07 pm

Maybe you should run for governor again.


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Posted by CW
a resident of Menlo Park: Linfield Oaks
on Aug 3, 2014 at 1:18 am

Jack, you've been on the board for 11 years. What have you *succeeded* in doing to dissolve this district? What have you accomplished? Our taxes, which were meant for a hospital, are now going to charities. In 11 years, you haven't been able to stop this from taking place. I don't want to hear what arguments you have made. The Internet is full of your diatribes about that. But what have you accomplished in 11 years?


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Posted by Poster
a resident of another community
on Aug 3, 2014 at 9:49 am

Certainly this issue has been adjudicated in court. What was the decision by what court?


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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 3, 2014 at 2:51 pm

CW: I have kept the discussion alive. And, I take credit for saving Sequoia Hospital at it's historic site.
There have been missed opportunities in past elections. This election should once again provide voters with an opportunity to replace those directors who have ignored the Grand Jury and LAFCo, with directors who advocate a straight forward vote on the issue of the district's future.
Your support would be helpful.

I thank the voters who, in 2010, gave me more votes than Art Faro.
John J. "Jack" Hickey .......... 25,133 votes 18.9%
Arthur J. Faro .......... 23,568 votes 17.7%
And those 32,627 who voted for John J. "Jack" Hickey in 2012.

Now I ask that you re-elect me and help elect two other directors to replace Faro and Shefren.


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Posted by yup
a resident of Atherton: Lindenwood
on Aug 3, 2014 at 3:00 pm

You personally "saved" Sequoia from being moved to a more efficient site with better transportation?

As a board member?

Or as a citizen?


 +   Like this comment
Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 3, 2014 at 3:41 pm

I suspect that public opinion overwhelmingly supports Sequoia Hospital on it's historic site. It is a community gem.

As an elected Director, I attended the meeting at which the board, on a 4/1 vote which I opposed, committed the District to "Exclusively pursue development of a replacement hospital campus." I immediately drafted a referendum petition, submitted it to the proper channels, and began collecting signatures. See: Web Link and Web Link
My action stopped implementation of the boards decision until the petitioning process ran it's course. Signature gathering was greatly facilitated by my stature as an elected board member. And, it raised the level of awareness of the community. Coincidently, the newly re-elected Board President, Jerry Shefren, resigned. See: Web Link


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Posted by CW
a resident of Menlo Park: Linfield Oaks
on Aug 3, 2014 at 9:41 pm

You didn't answer my question. I wasn't asking about the hospital site. What have you done toward eliminating this district and its tax? In 11 years have been able to persuade even one of your colleagues? Or get even one person on the board who agrees with goal? Or bring one lawsuit that challenges the existence of this district?


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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 4, 2014 at 11:28 am

CW, I first responded to your comment "You personally "saved" Sequoia from being moved to a more efficient site with better transportation?". You suggest that it would have been better to move Sequoia Hospital to a location down by the Bayshore freeway, in close proximity to Kaiser. You are in a minority.
As for lawsuits, I did spend $2,000 in 2004 to file a writ of mandate against the Registrar of Voters who had denied Merillee Gibson a place on the ballot. The "good old boys club" quelched that action. And, when I sought an attorney to take on the district for bestowing a gift of $1800 to Directors Faro, Kane and Griffin, I couldn't find any in San Mateo County who didn't have a conflict of interest. See: Web Link


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Posted by yup
a resident of Atherton: Lindenwood
on Aug 4, 2014 at 11:36 am

A lawsuit ten years ago.

So, essentially, this is a soapbox for a guy who has spent a life on a soapbox of his own making (runs for governor, US senate, US congress seat, dog-catcher, etc...)

It's time, Jack.


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Posted by Mickie Winkler
a resident of Menlo Park: The Willows
on Aug 4, 2014 at 1:49 pm

Please, Jack, correct me if I am wrong.
The Sequoia HealthCare District is one of those tax creating districts which is frozen in place by Prop 13. If it were not for Prop 13,and in a rational world, the District would have been dissolved when the hospital it was created to support was sold.

It is very difficult to dissolve anything. The elected officials have status. The staff, and especially in this district, the salary for the District CEO is outrageous. And so it goes.

Change is hard but worth pursuing. Dissolve the District. I agree


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Posted by PV resident
a resident of Portola Valley: Woodside Highlands
on Aug 4, 2014 at 9:10 pm

I completely agree that the hospital district should be dissolved.
Philanthropy is an individual decision and not for elected officials.
It's time.
Thank you to Mr. Hickey for trying to get the public's attention & support on this issue.


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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 5, 2014 at 9:44 am

Mickie, you are correct. Property taxes assessed for Sequoia Hospital prior to Prop. 13 are still being collected by the District even though they no longer own the hospital. This is not itemized on your tax bill, but is included in the 1% ad-valorem tax. See: Where do your property taxes go? Web Link
I thank Dennis Zell for responding to my original question, and engaging in this dialogue. I have invited Directors from both healthcare districts as well as city councilmembers to join in this dialogue.

I sent the following to Linda Craig of the LWV.(she is also on the LAFCo commission) She also authored this LTE: Web Link

Linda, I hope the LWV will host a forum for Healthcare District candidates. You could combine SHD and PHD.


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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 10, 2014 at 3:37 pm

In my original communication with Dennis Zell said the following:

"I am attaching a supporting document for your perusal. "

Here are the contents of that document:

SMC Civil Grand Jury(2004/05) Recommendation

1. The Sequoia Healthcare District Board should:
1.1 immediately explore with the Peninsula Healthcare District the merging of the two agencies via a joint powers agreement or reorganization structured to serve the health care needs of the combined districts, and explore the expansion of the districts to include all San Mateo County residents.

On May 16, 2007, LAFC0 adopted the following "sphere of influence" for SHD and PHD: "transitional sphere of influence with the potential for expansion to include excluded areas, dissolution and consolidation"

Both Districts have failed to explore the expansion of the districts to include all San Mateo County residents.
PHD responded by saying "Since Proposition 13 would prevent the creation of new tax revenues for this new agency (without other agencies giving up a portion of their revenues) the new agency would be funded solely by the residents of the existing two (merged) Districts." SHD neglected to address that recommendation.

There is an obvious solution:
Proposition 13 does not prevent legislation which would enable the Board of Supervisors to conduct an election allowing the majority of county voters to effect the "giving up" of a portion of other agencies revenues to implement a countywide healthcare district without a tax increase..


SMC Civil Grand Jury(2012/13) report on LAFCo/Healthcare Districts
Sequoia Healthcare District(SHD) and Peninsula Healthcare District(PHD)

LAFCo staff conducted the 2007 service review of SHD and PHD. In contrast, an outside consultant conducted the 2012 Santa Clara County LAFCo Audit and Service Review of the El Camino Hospital District (ECHD). The consultant's report was 94 pages long and was, by far, a more detailed analysis of the district's operations. The report included an Executive Summary, an Introduction, a section on ECHD and its affiliates, a section on Hospital Districts in California, an audit of ECHD, a service review of ECHD, and a section on governance and organizational alternatives. In addition, the report addressed two key questions:
1) Is ECHD providing services outside of its boundaries.
2) Should ECHD continue to exist and/or continue to receive public funds or could another entity provide ECHD's services more efficiently.

Interviewees stated that LAFCo does not have the resources to produce reports with this level of detail. In addition, given the nuances of health care districts, interviewees felt an outside consultant might provide LAFCo with additional information that would assist the Board in choosing to initiate boundary changes or take other actions to reorganize services.


 +   Like this comment
Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 10, 2014 at 3:50 pm

I want to make my position clear on the "election" suggested in my previous post. I said:

"There is an obvious solution:
Proposition 13 does not prevent legislation which would enable the Board of Supervisors to conduct an election allowing the majority of county voters to effect the "giving up" of a portion of other agencies revenues to implement a countywide healthcare district without a tax increase.."

I will add: If voters reject implementation of a countywide healthcare district, both SHD and PHD would be dissolved.

LAFCo offered three transitional possibilities.
Consolidation was rejected by both SHD and PHD.
The other transitional possibilities, expansion and dissolution, would be addressed by the proposed election as described with my addition.


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Posted by Doug Radtke
a resident of another community
on Aug 12, 2014 at 12:34 pm

My name is Doug Radtke, and I support Jack Hickey in his efforts with the Sequoia Healthcare District.

I am similarly running for the Peninsula Healthcare District with ultimately the same objectives.

Please visit my website www.dougradtke.com and I encourage those who are aware of people that live in the PHCD's geographic territory to cast their vote for me. Thank you.


 +   Like this comment
Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on Aug 13, 2014 at 7:24 pm

Please continue posting to this topic at Web Link


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