BILL ANALYSIS Ó SENATE COMMITTEE ON VETERANS AFFAIRS Senator Jim Nielsen, Chair 2015 - 2016 Regular Bill No: SB 543 Hearing Date: 4/28/15 ----------------------------------------------------------------- |Author: |Wolk | |-----------+-----------------------------------------------------| |Version: |4/15/15 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Wade Teasdale | | | | ----------------------------------------------------------------- Subject: Veterans: Veterans' Home of California DESCRIPTION Summary: With regard to the Veterans Home of California system, this bill creates a single system-wide Morale, Welfare, and Recreation Fund (MWR Fund) that consolidates existing and future MWR moneys generated by individual veterans home campuses, and establishes procedures and restrictions on the budgeting and spending of moneys in the Fund. Existing law: 1. Provides for establishment and operation of the Veterans Home of California, within the Department of Veterans Affairs (CalVet), at various sites for aged and disabled veterans and their nonveteran spouses, who meet certain eligibility requirements. 2. Requires that the administrator of each home campus maintain an MWR Fund that shall be used - at the discretion of the administrator and subject to the approval of the secretary - to provide for the general welfare of the veterans. (More detail on existing MWR law is contained in the Background section.) This bill: SB 543 (Wolk) Page 2 of ? 1. Clarifies that the collective term "veterans' homes," as used in statute, includes the Veterans' Homes of California located in Chula Vista, Fresno, Lancaster, Redding, Ventura, and West Los Angeles. 2. Creates a statewide Veterans' Home MWR Fund as a fund in the State Treasury with continuous appropriations to CalVet without regard to fiscal year. 3. Requires the administrator of each veterans home to deposit all moneys, which currently are maintained in a local campus-specific MWR account, into the new consolidated MWR Fund. 4. Provides that all future moneys, which are collected as a result of unreimbursed member costs: a. Shall be deposited into the consolidated MWR Fund. b. Are considered to be state funds. 5. Provides that the consolidated MWR Fund shall include proceeds from the same sources as the existing local MWR funds: a. Proceeds from operation of a canteen at a home. b. Revenue derived from issuance of prisoner-of-war special license plate. c. Interest earned on invested funds. d. Funds derived from the estates of deceased residents. e. Other sources as may be specified. 6. Requires that green fees and other moneys derived from the Yountville home's golf course be credited toward the MWR allocation of the Yountville home. SB 543 (Wolk) Page 3 of ? 7. Requires CalVet to promulgate rules and regulations related to the MWR Fund, that: a. Are developed in consultation with the residents at each home, the Veterans' Home Allied Council, and the resident council at each campus of the Veterans' Homes of California. b. Include, but not be limited to, a yearly budgeting process for moneys to be expended in each home. 8. Authorizes CalVet to disburse funds to the homes. a. Annual disbursements to each home. b. Provides the CalVet Secretary with discretionary authority to augment a home's annual MWR Fund allocation with additional funds for a special project under the following conditions: i. The augmentation is no greater than five percent of the home's annual disbursement amount. ii. That home's administrator submits a proposal that: 1. Shows good cause for the allocation. 2. Is developed by the administrator through consultation with the home's residents, allied council, or resident council. 9. Authorizes the CalVet Secretary to make an additional discretionary MWR augmentation to the Yountville veterans home after making a determination that the augmentation is appropriate on the basis of the home's unique age, size, and historical significance. 10. Reaffirms existing law's restrictions on how MWR funds may be expended. SB 543 (Wolk) Page 4 of ? 11. Requires two annual MWR Fund-related reports, one on expenditures from the Fund and one on moneys deposited into the Fund, each of which is to be sent every August 20th to: a. Department of Finance. b. The Senate and Assembly policy committees with jurisdiction over veterans affairs. c. The fiscal committees of the Senate and Assembly. d. The allied council/resident council of each veterans home. 12. Requires CalVet to maintain a reserve of two million dollars in the MWR Fund. 13. Authorizes CalVet to transfer funds from the MWR Fund into the Surplus Money Investment Fund for investment purposes and requires that the amount invested and accrued interest be credited to the MWR Fund for allocation by CalVet. 14. Authorizes each home administrator to enter into an agreement with the home's allied council that authorizes the council to operate specified facilities or engage in specified activities. 15. Provides for the accounting and management of voluntary donations as follows: a. Requires each home to establish an account, which is separate from the MWR Fund account, for purpose of receiving donations b. Requires CalVet to adopt regulations for managing such accounts, and to do so in consultation with the home residents. SB 543 (Wolk) Page 5 of ? BACKGROUND CalVet's Veterans Homes Division provides rehabilitative, residential medical care and services in a homelike environment for all veterans (and eligible veteran spouses) residing in the State's eight veterans homes, which are located in Barstow, Chula Vista, Fresno, Lancaster. Redding, Ventura, West Los Angeles, Redding, and Yountville. As of early 2013, more than 1,700 members resided in these veterans homes. Morale, Welfare and Recreation Funds Existing law: 1.Authorizes MWR funds to be used for, but not be limited to, the following: a. Operating the Veterans' Home Exchange store, hobby shop, motion picture theater, library, and band, and any other function that is operated for the morale, welfare, and recreation of the veterans; b. Paying for newspapers, chapel expenses, welfare and entertainment expenses, sport activities, celebrations, and any other activity that is for the morale, welfare, and recreation of the veterans. 2.Prohibits MWR funds from being used for: (1) medical or any related treatment; (2) maintenance of the home's physical plant; or (3) any function, operation, or activity not directly related to the morale, welfare, or recreation of the veterans. 3.Provides that certain portions of the estates of deceased veteran residents may be recovered by CalVet for obligations owed to CalVet, including costs of a veterans care in excess of the reimbursement for that care made by the United States Department of Veterans Affairs (VA). 4.Requires that residents, upon admission to the home and monthly thereafter, be informed about these provisions to recover unreimbursed costs of care. SB 543 (Wolk) Page 6 of ? 5.Provides that the recovered funds are not returned to the State General Fund, but, instead, are deposited into the MWR fund account for the home at which the veteran resided at death. The existing local MWR funds obtain funding from several sources, including: a. The estates of deceased residents, who die without heirs or owing money to the home for the cost of their care; b. Donations from taxpayers when filing their state tax returns; c. Revenues from the issuance of prisonerofwar license plates; d. Other donations; e. Interest earned from investments made with MWR Fund moneys; and f. Revenues from businesses operated using the MWR Fund. Although MVC § 1047 allows a home administrator to spend MWR moneys for the benefit of the residents of the home, other state laws impose requirements on the manner in which this is done, particularly when it entails leasing stateowned land. Recent Controversy and Audit In October 2013 the California State Auditor released an investigative report (i2011-0837) entitled, Wastefulness, Failure to Comply With State Contracting Requirements, and Inexcusable Neglect of Duty. The report revealed that over a two-year period from January 2010 to December 2011, the Yountville Veterans Home administrator executed two contracts using MWR funds without consulting CalVet executive office officials, appropriate legal counsel, or residents of the Home. These contracts included a zip line adventure park for use by SB 543 (Wolk) Page 7 of ? the public and residents of the home and a tavern that did not comply with state leasing requirements. In the construction of the adventure park, the contract included provisions which leased over 200 acres of state land for one dollar per year and involved the clearing of untouched natural lands without a CEQA review. Under the contract executed by the administrator, the home would receive 10 percent of any net income generated from operating the park after subtracting all operating expenses including salaries with no revenue guaranteed if revenues did not exceed expenses. Once the contract was discovered by CalVet officials, it cost the state $228,612 to extricate itself from the contract and to dismantle the nearly completed zip line tour. When the administrator pursued the second contract leasing the on-sight tavern, she failed to initiate a process to solicit competitive bids, eventually resulting in a contract by which the Veterans Home paid an outside management company $75,000 per year to manage the tavern. Included in the deal, MWR funds were used to cover all start-up costs for the venture and any monthly expenses not covered by sales for the first year of the contract. Only 25 percent of the profits generated from the enterprise would be deposited into the MWR fund after all other expenses were covered; however there was no guarantee the venture would be profitable. In exchange for being permitted to establish a business on state property, the vendor was paid and subsidized with state-controlled funds. When the terms of the contract were discovered and terminated by CalVet officials a year and a half later, the home had paid the vendor $424,307. The report discovered both contracts violated state contracting practices and little or no information had been shared between the administrator of the home and CalVet headquarters prior to the execution of the contracts. Further, the Department of General Services was not consulted in its role as the agency overseeing state leasing requirements. In total, $652,919 were wasted in state-managed funds. The report highlighted several deficiencies in the administration of MWR funds. Though the administrator is authorized to use MWR funds with the approval of the CalVet Secretary, home administrators have historically been granted sole authority over decision making regarding the use of the fund. Further, each contract was executed with little or no legal oversight, which presumably would have discovered both contracts violated state law and required review by General SB 543 (Wolk) Page 8 of ? Services. Finally, residents of the home were unaware of the two contracts being executed involving MWR funds; only discovering the construction of the adventure park, nominally built for their benefit, when helicopters were seen flying overhead with construction material. COMMENT Committee Staff Comments 1. Existing MWR Balances : The Committee was unable to receive an updated report from CalVet regarding the balances of the existing local MWR funds. However, as of June 30, 2012, the amount of money held in the MWR funds maintained by six veterans homes (the new Fresno and Redding homes were not yet operational) totaled more than $8 million. Approximately $5 million was held in the MWR fund of Yountville, the oldest and largest home campus. 2. Special Consideration for Yountville : This bill establishes a system-wide MWR fund and significantly cross-levels existing funds and takes the discrete needs of individual campuses into account when authorizing disbursements. The bill also attempts to shift the balancing point somewhat toward the Yountville campus by recognizing that home's unique characteristics and its disproportionate financial contribution to the new consolidated MWR Fund. Committee members may see justification for that shift, but may want to consider for themselves where the balancing point should be placed. 3. Suggested Amendments: a. General Annual Disbursements: This bill authorizes CalVet to make annual general disbursements to the eight individual home campuses, but does not specify criteria. If the author's intent is that these general disbursements are to be sized in proportion to a campus' relative resident population, then the bill should be amended to clarify the criteria. b. Special Disbursements: The bill provides for the CalVet Secretary to allocate two other special SB 543 (Wolk) Page 9 of ? disbursements beyond the regular annual disbursement. One special augmentation could be made to any home in any year, for a justified special project, so long as the total amount would not exceed five percent of that home's regular annual disbursement. A second potential augmentation is authorized strictly for the Yountville home, based on some special need justified by the home's "unique age, size, and historical significance." a. The author might consider amending the bill to require the CalVet Board, which now operates as an advisory body to the Secretary, to review proposed special augmentations and to receive comment from home resident councils and individual residents before adopting formal advice to be offered to the Secretary. c. Annual Reports: The two reports, which are due on the same day and go to the same recipients, should be consolidated into a single report. Related Legislation 1. AB 1580 (Yamada, died on inactive file, Senate Third Reading, 2014 ) would have instituted review measures and controls on the expenditure of MWR funds For proposed expenditures of MWR Fund moneys of more than $5,000; and proposed contracts of more than $25,000 per year or more than $100,000 total: a. The home administrator proposing the expenditure or contract shall submit the proposal to the CalVet secretary for approval. The secretary shall consider the advisory opinion required in (b) below in and any other relevant information. b. The proposal shall be reviewed by the CalVet legal counsel or other similarly qualified reviewer designated by the secretary. The reviewer shall issue an advisory opinion to the secretary identifying laws and regulations governing approval or execution of such expenditures or contracts. SB 543 (Wolk) Page 10 of ? c. Prior to execution of a proposed expenditure or contract: 1) CalVet shall provide written notification in the form of a draft expenditure proposal to the home's Allied Council or other body representing the residents of an affected home. The draft expenditure proposal shall include, but is not limited to, a description of the intent of the project that is the subject of the proposed expenditure or contract, estimated costs, and an approximate timeline of execution. 2) The Allied Council or other body representing residents of the affected home or homes shall have the opportunity to respond to the draft expenditure proposal and CalVet shall consider any responses provided. d. Upon execution of the expenditure or contract, CalVet shall provide written notification to the Allied Council or another representative body affected homes. The notification shall identify the purpose of the project, costs, and who is the recipient or recipients of the moneys distributed from the MWR Fund. 1. AB 1739 (Allen, Chapter 95, Statutes of 2012) allows the administrator of a state veterans' home to enter into an agreement with the home's allied council to authorize the council to operate MWR Fund activities such as a hobby shop, movie theater, library, band, and to pay for such things as newspapers, entertainment, sports activities, celebrations and other activities for the benefit of the veterans. 2. SB 10 (Evans, Chapter 265, Statutes of 2011) establishes a Veterans' Home Allied Council for each of California's Veterans Homes and permits each council to represent veterans who reside in the veterans' homes in matters before the Legislature if each council, in the course of providing that representation, complies with certain requirements. SB 543 (Wolk) Page 11 of ? POSITIONS Sponsor: Author. Support: Yountville Veterans Home Oppose: None on file. -- END --