BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 639 (J. Perez) - Veterans Housing Bond
          
          Amended: July 3, 2013           Policy Vote: VA 7-0, T&H 11-0
          Urgency: Yes                    Mandate: No
          Hearing Date: August 12, 2013                           
          Consultant: Maureen Ortiz       
          
          This bill meets the criteria for referral to the Suspense File.
          
          
          Bill Summary:  AB 639 enacts the Veterans Housing and Homeless  
          Prevention Bond Act of 2014, subject to approval by the voters,  
          to authorize the issuance of $600 million in bonds from the  
          Veterans' Bond Act of 2008 to provide multifamily housing and  
          services to veterans.  

          Fiscal Impact: 

              Total debt service of approximately $25 million annually  
              (General)

              Approximately $220,000 in one-time ballot printing/mailing  
              costs (General)

          Background:  In 2008, enacted by SB 1572 (Wyland, Chapter 122,  
          Statutes of 2008), the voters approved Proposition 12 which  
          created the Veterans' Bond Act of 2008 authorizing the issuance  
          of $900 million in general obligations bonds to be used to fund  
          the Veterans Farm and Home Loan Program (Cal-Vet Home Loan  
          Program).  Prior to that, the voters had approved a $500 million  
          bond authorization in 2000 (Proposition 32).  

          The revenue from those bonds is used by the Department of  
          Veterans Affair (DVA) to purchase farms, homes, units in  
          cooperative developments, and mobile homes which are then resold  
          to California veterans.  Each veteran makes monthly payments to  
          the Department which are set in an amount sufficient to do all  
          of the following:  

          1)  Reimburse the department for its costs in purchasing the  
          farm home or mobilehome, 









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          2)  Pay all of the costs resulting from the sale of the bonds,  
          including interest on the bonds, and 

          3)  Pay all of the costs of operating the program.  The interest  
          rate on a Cal-Vet loan is generally lower than the national  
          average for all other 30 year fixed rate loans.  

          Although the Cal-Vet Home Loan Program is funded through general  
          obligation loans which are a fiscal responsibility of the state,  
          it has historically been fully supported by the participating  
          veterans without any state costs.  If, however, payments made by  
          program participants do not fully cover principal and interest  
          payments on the bonds, because general obligations bonds are  
          backed by the state, the difference would come from the General  
          Fund.  However, this has not happened since the creation of the  
          program, and the default rate is very low.  Since the department  
          actually holds the title to the homes, and the loans are not  
          sold on the secondary market, if a homeowner does default on a  
          Cal-Vet loan, the department sells the home to recoup the loan  
          proceeds.  In the rare event that there is a short sale, the DVA  
          has a mechanism in place referred to as "loan loss reserves"  
          which is a set-aside that is required by their independent  
          auditors and can be used to further prevent any costs to the  
          General Fund.

          Since its inception in 1921, the Cal-Vet Home Loan Program has  
          assisted over 420,000 veterans in purchasing a home or farm.   
          Over the last decade, however, there has been a sharp decline in  
          loan activity.  In 2003, the program issued 1,130 new loans.  In  
          2012, it issued just 83 loans.  In the same time period, the  
          program's portfolio of outstanding loans declined from 20,169 to  
          7,913.  While recovery in the general housing market may  
          increase homebuyer demands among veterans, program participation  
          depends largely on how competitive its interest rates are with  
          other loan products.

          As of this date, all of the $900 million bond authorization from  
          Proposition 12 in 2008 and approximately $230 million of the  
          $500 million authorization from Proposition 32 in 2000 remain  
          unused.

          Proposed Law:  AB 639 enacts the Veterans Housing and Homeless  
          Prevention Bond Act of 2014.  Specifically, the bill does the  








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          following:

          a)  Restructures $600 million of the existing $900 million bond  
          authorized by Proposition 12 of 2008 for the purpose of creating  
          a fund to provide the acquisition, construction, rehabilitation,  
          and preservation of affordable multifamily supportive housing,  
          affordable multifamily transitional housing, or related  
          facilities and services to veterans and their families. 

          b)  Creates the Housing for Veterans Fund for the deposit of the  
          proceeds of the bonds issued and sold, and subjects the funds to  
          an annual appropriation by the Legislature.

          c)  Creates the Housing for Veterans Finance Committee  
          consisting of the Controller, Treasurer, Director of Finance,  
          Secretary of Business, Consumer Services and Housing, and the  
          Secretary of Veterans Affairs for the purpose of authorizing the  
          issuance and sale of the bonds.

          d)  Creates a board consisting of the California Housing Finance  
          Agency (CHFA), the Department of Housing and Community  
          Development (HCD), and the Department of Veterans Affairs (DVA)  
          to do all of the following:

                  Leverage public, private, and nonprofit program and  
               fiscal resources,

                  Prioritize projects the combine housing and supportive  
               services, such as job training, mental health and drug  
               treatment, or physical rehabilitation,

                   Promote public and private partnerships,

                   Foster innovative financing opportunities,

                   Adopt guidelines or regulations, and administer the  
               program, and

                   Submit an MOU entered into between the DVA and the HCD  
               and CHFA to the Senate and Assembly Budget Committees by  
               March 4, 2015.

          e)  AB 639 authorizes the Legislature, by majority vote, to  








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          amend the provisions of the act for the purpose of improving  
          program effectiveness and accountability, or for the purpose of  
          furthering overall program goals.

          f)  Requires the measure to be submitted to the voters at the  
          2014 statewide general election.

          g)  Provides that the proceeds of the bonds will be subject to  
          an annual appropriation by the Legislature.

          h)  Requires the DVA to enter into a memorandum of understanding  
          with the HCD and CHFA to address their respective and shared  
          responsibilities in implementing, overseeing, and evaluating the  
          housing program.

          Additionally, AB 639 requires the board to convene a stakeholder  
          process to provide information for the development of guidelines  
          for the implementation of any program that is developed for the  
          use of the bond proceeds. Stakeholders may include organizations  
          that have experience providing housing or homeless services to  
          veterans, housing developers, and public and private agencies  
          that serve the veteran population.

          Related Legislation:  SB 1572 (Wyland, Chapter 122, Statutes of  
          2008) authorized the issuance of $900 million in general  
          obligation bonds for the Cal-Vet Home Loan Program.  

          Staff Comments:  California is home to nearly two million  
          veterans and with the unwinding of the wars in Iraq and  
          Afghanistan that number is expected to dramatically increase.   
          Many of these veterans are in need of housing, employment,  
          mental health and drug treatment, and physical rehabilitation.   
          California leads the nation in the number of homeless veterans.   
          AB 639 will restructure Proposition 12 to allow for the  
          development of multifamily housing for veterans, with a priority  
          for projects that align housing with services.   If enacted,  
          this measure will preserve approximately $500 million in the  
          existing bond authority for the Cal-Vet Home Loan Program.

          While the current Cal-Vet Home Loan Program works more like  
          revenue bonds, with the homeowners paying all of the costs of  
          the debt service, it is more likely that the costs from the  
          restructure of this $600 million to be used for multi-family  








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          housing will have to be paid from the General Fund.