BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON VETERANS AFFAIRS
                             Senator Jim Nielsen, Chair
                                2015 - 2016  Regular 

          Bill No:             SB 543         Hearing Date:    4/28/15
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          |Author:    |Wolk                                                 |
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          |Version:   |4/15/15                                              |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Wade Teasdale                                        |
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                  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:







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              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.









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             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.








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             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.











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          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.









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          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  








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          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  








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          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  








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                 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.









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                 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.










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           POSITIONS
           
          Sponsor:  Author.

          Support:  Yountville Veterans Home 

          Oppose:   None on file.


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