BILL ANALYSIS
AB 1051
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Date of Hearing: April 14, 2009
ASSEMBLY COMMITTEE ON VETERANS AFFAIRS
Mary Salas, Chair
AB 1051 (Fletcher) - As Introduced: February 27, 2009
SUBJECT : Veterans: Pooled Self-Insurance Fund.
SUMMARY : Create the Pooled Self-Insurance Fund to receive
various reserves and moneys, and would allow the department,
from the moneys appropriated from the fund, to purchase
insurance related to its veteran home loan program.
EXISTING LAW :
1)Allows that in the event California Department of Veterans
Affairs (CDVA) enters into a master agreement with one or more
insurance companies to provide life insurance coverage for the
purchasers of farms and homes from CDVA, the master agreement
shall provide that the life insurance coverage offered under
the master agreement will be offered by the insurance company
or companies to disabled and non-disabled veterans on an equal
basis and that no veteran shall be denied coverage because
that veteran is disabled at the time of application.
2)States all properties purchased by CDVA shall be covered by
insurance. Insurance purchased by CDVA shall be guaranteed
replacement cost coverage as described in subdivisions (e) and
(f) of Section 10102 of the Insurance Code against fire and
other hazards for the full replacement cost of the
improvements or structures, shall include limited building
code upgrade as described in Section 10103 of the Insurance
Code, and shall be placed with a company or companies as CDVA
may determine from time to time.
3)States the amount of loan insurance or guaranty to be placed
upon the veteran's liability for repayment of the veteran's
contract and the amount necessary to be paid by the veteran or
CDVA for the premiums or fees for that insurance or guaranty.
4)Allows CDVA to maintain an Indemnity Fund, for the purpose of
indemnifying eligible purchasers, for any of the following:
a) Repairing structural damage in excess of five
hundred dollars ($500) caused by flood, including floods
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by surface water, waves, tidal water, tidal wave,
overflow of streams or other bodies of water, spray from
any of the foregoing, whether wind driven or not, and
water that backs up through sewers or drains;
b) Repairing structural damage in excess of 5 percent
of the total covered loss or five hundred dollars ($500),
whichever is greater, caused by earthquake, volcanic
eruption, landslide, or mudslide.
FISCAL EFFECT : Unknown
COMMENTS : Since 1922, the California Department of Veterans
Affairs has managed the CalVet Home Loan Program. The program
purchases homes and farm properties to sell to eligible
veterans. It is a self-funding bond enterprise program that
issues both State of California General Obligation and Revenue
bonds to finance loans to California's eligible veterans. The
Program sells the property to the veterans using a contract of
purchase whereby the Program retains the title to the property
until the veteran has paid for it in full. At that point, the
legal title is transferred to the veteran.
The CalVet Program has four insurance reserve funds: the
Disaster Indemnity Fund (covers earthquakes and floods), the
Fire & Hazard Insurance Fund, the CalVet Legacy Self-Insurance &
Disability Fund, and the CalVet Primary Mortgage Insurance Fund.
The Legacy Life & Disability Self Insured program, the Fire &
Hazard Insurance program, the Disaster Indemnity program, and
the Primary Mortgage Insurance Program were developed by the
CalVet Program as part of a Home Protection Plan in order to be
consistent with the provisions of the contracts of purchase, and
to provide additional security for the Program's interest in the
properties. All of these insurance and self insurance programs
are either mandated or authorized by state law.
With the exception of the Disaster Indemnity Fund, premiums for
the other three insurance reserve funds are paid directly into
the CalVet Program's operating fund-the Farm and Home Building
Fund of 1943. Shortfalls experienced by the three
non-segregated funds result in use of the 1943 Fund to reconcile
a deficit.
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In fiscal year 2007/2008, the Fire & Hazard insurance program
experienced a $1.2 million loss, while the Indemnity program had
a $1.3 million gain. Because the premiums for Fire & Hazard
coverage are paid directly into the 1943 Fund, all claims and
operating expenses are paid directly from the 1943 Fund.
Therefore, the shortfall experienced by the Fire & Hazard
reserve fund resulted in the use of the 1943 Fund in order to
reconcile the deficit.
In the 2006/2007 fiscal year, both reserve funds showed an
increase at year end; however for several years prior, the
Indemnity fund operated at a loss.
Under a worst case scenario, multiple major disasters could have
a major effect on the solvency of the 1943 Fund and cause the
Program to default on bond payments. If this were to occur,
taxpayers would have to make the debt service payments.
The author states, "a change is needed to increase the solvency
of the CalVet Home Loan insurance programs overall. Current
legislation does not allow for this co-mingling of reserves, as
only the Indemnity Fund is statutorily mandated as separate from
the Program's Operating Fund. This bill will allow the other
three insurance funds to operate outside of the 1943 Fund
similar to the Disaster Indemnity Fund."
By allowing all four insurance funds to operate in manner such
as the Disaster Indemnity fund, the 1943 Fund will remain
solvent, with a better bond rating and with more funds available
to loan program. This would enable the 1943 fund the
flexibility to meet the growing needs of the CalVet Farm and
Home Loan Program brought about by the change in federal law
that opened up the program to all post 1977 military veterans.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Veterans Affairs
Opposition
None on file.
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Analysis Prepared by : Eric Worthen / V. A. / (916) 319-3550