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, AB 639 (J. Perez) Page 1 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 AB 639 (J. Perez) Page 2 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 AB 639 (J. Perez) Page 3 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 AB 639 (J. Perez) Page 4 housing will have to be paid from the General Fund.