BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1051|
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THIRD READING
Bill No: AB 1051
Author: Fletcher (R)
Amended: 4/28/09 in Assembly
Vote: 21
SENATE VETERANS AFFAIRS COMMITTEE : 6-0, 6/23/09
AYES: Denham, Correa, Wiggins, Negrete McLeod, Cedillo,
Maldonado
NO VOTE RECORDED: Wyland
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 11-0, 7/9/09
AYES: Calderon, Cogdill, Correa, Cox, Florez, Kehoe, Liu,
Lowenthal, Padilla, Price, Runner
NO VOTE RECORDED: Harman
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 77-0, 5/21/09 (Consent) - See last page
for vote
SUBJECT : Veterans: Pooled Self-Insurance Fund
SOURCE : Department of Veterans Affairs
DIGEST : This bill consolidates the Department of
Veterans Affairs (VA) Home Loan Programs (Program) four
insurance reserve funds into the Pooled Self-Insurance Fund
(Pooled Fund), and allows the VA to purchase insurance
related to the Program from the monies appropriated from
the Pooled Fund. This bill also maintains the four reserve
CONTINUED
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funds as sub-funds within the Pooled Fund and requires that
any internal sub-fund borrowing be repaid in full within
three years. In addition, the bill requires the VA to
report annually to the Legislature on the status of the
Pooled Fund and that the sub-funds be subject audit.
ANALYSIS :
Existing law:
1. Allows that in the event the VA enters into a master
agreement with one or more insurance companies to
provide life insurance coverage for the purchasers of
farms and homes from VA, 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 VA shall be covered
by insurance. Insurance purchased by VA 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 VA for the premiums or fees for that
insurance or guaranty.
4. Allows VA 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
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floods 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.
Comments
Since 1922, the VA 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
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the three non-segregated funds result in use of the 1943
Fund to reconcile a deficit.
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's office 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 enables 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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SUPPORT : (Verified 8/18/09)
Department of Veterans Affairs (source)
American Legion, Department of CA
California Association of County Veteran Service Officers
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,
Fong, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Silva, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Fuentes, Nava, Saldana
TSM:do 8/18/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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