BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 543


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          Date of Hearing:  June 14, 2016


                       ASSEMBLY COMMITTEE ON VETERANS AFFAIRS


                                 Jacqui Irwin, Chair


          SB  
          543 (Wolk) - As Amended June 8, 2016


          SENATE VOTE:  34-4


          SUBJECT:  Veterans:  Veterans' Home of California




          SUMMARY:  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 for and restrictions on the budgeting and  
          spending of moneys in the Fund.


          Specifically, this bill:  





          1)Creates the MWR Fund, a continuously appropriated fund, in the  
            State Treasury. 


          2)Requires the administrator of a veterans' home to deposit all  








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            moneys maintained by the administrator in an existing Morale,  
            Welfare, and Recreation Fund into the statewide MWR Fund. 


          3)Requires the administrator of each home to establish a Morale,  
            Welfare, and Recreation Operating Fund (MWRO Fund) to  
            administer quality of life activities for the general welfare  
            of the residents and receive funds from the MWR Fund, as  
            specified, and to establish an MWR Advisory Committee, as  
            specified. 


          4)The bill would require the department, in consultation with  
            the MWR Advisory Committee, the Veterans' Home Allied Council,  
            and Council or the resident council of each home, to adopt  
            regulations related to, among other things, administering the  
            MWR Fund and the MWRO Funds, Funds and the process by which  
            the homes submit and receive budget allocations. 


          5)The bill would authorize the use of funds in the MWR Fund to  
            provide for the general welfare of the residents of a home, as  
            specified, and would specify restrictions on the use of those  
            funds. 


          6)The bill would require the department to annually determine  
            the total amount for disbursement from the MWR Fund, and for  
            that disbursement to be allocated proportionally to each  
            home's relative share of the total population of the entire  
            veterans' home system. 


          7)The bill would authorize additional allocations to any  
            veterans' home if it is appropriate on the basis of factors  
            including, but not limited to, the home's unique age, size,  
            population, and historical significance. 










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          8)The bill would authorize the administrator of a home to enter  
            into an agreement with the Veterans' Home Allied Council to  
            operate facilities and activities that are related to  
            authorized expenditures from the MWR Fund, as specified. 


          9)The bill would require the department to prepare annual  
            reports regarding moneys deposited into the MWR Fund and  
            expenditure of those funds, as specified, and to submit the  
            report on or before December 31 of each year to specified  
            entities. 


          10)The bill would require the department to maintain a  
            $3,000,000 reserve in the MWR Fund and would authorize the  
            department to invest moneys in the MWR Fund in the Surplus  
            Money Investment Fund. Fund or by contracting with a  
            third-party investment broker consistent with laws and  
            regulations regarding selecting prudent, approved investment  
            types.


          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.


             c)   Prohibits MWR funds from being used for: (1) medical or  
               any related treatment; (2) maintenance of the home's  








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               physical plant; or (3) any function, operation, or activity  
               not directly related to the morale, welfare, or recreation  
               of the veterans.


             d)   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).


             e)   Requires that residents, upon admission to the home and  
               monthly thereafter, be informed about these provisions to  
               recover unreimbursed costs of care.


             f)   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.


          2)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  








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               moneys; and


             f)   Revenues from businesses operated using the MWR Fund.





          3)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.


          FISCAL EFFECT:  


          According to the Senate Appropriations Committee, the fiscal  
          impact is:





          1)Redirection of approximately $11.5 million from individual  
            accounts to the newly created state fund (Special Fund)
          2)First year costs of approximately $418,000, and ongoing of  
            $396,000 annually to the Department of Veterans Affairs  
            (General Fund)





          The Department of Veterans' Affairs estimates the need for four  
          positions: 3 AGPA's and 1 Business Services Assistant, to  
          promulgate rules and regulations, administer the new fund, and  
          comply with the reporting requirements.








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          COMMENTS:  





          This bill fixes many of the challenges posed by the current MWR  
          structure, challenges set forth in greater detail below.  The  
          current MWR structure, with substantially the same architecture,  
          has been in place since 1999 when there were only two homes,  
          Yountville and Barstow.  The veteran home system in California  
          has since grown to 8 homes.  At least two unsuccessful similar  
          bills previously have attempted to address the necessary changes  
          to the MWR structure.  The content of this bill has been  
          discussed extensively both in the context of the bill before the  
          Committee and in the context of previous bills on this topic.





          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. 





          The Morale Welfare and Recreation (MWR) fund was established in  
          1999 by SB 281 (Chesbro). The Legislature intended to provide  








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          veteran home administrators with an additional funding tool to  
          provide for the general welfare of residents beyond their  
          medical and housing needs. Each home maintains an individual MWR  
          fund. Monies are deposited into individual funds through a  
          variety of means including proceeds generated from the Veterans'  
          Home Exchange, revenue from prisoner-of-war special license  
          plates, funds from golf course green fees and range ball fees,  
          accrued interest in the account, the recovered cost of care  
          collected from residents' estates, and any donations from the  
          public. 





          Over time a wide disparity in MWR fund balances has developed.    
          According to the 2016-17 MWR budgets, the Homes had the  
          following balances:





          Barstow                 $1,951,956


          Chula Vista            $2,289,524


          Fresno                   $107,294


          Lancaster              $161,689


          Redding                 $90,910


          West LA                $69,450








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          Ventura                 $112,992


          Yountville              $6,290,926





          Total                      $11,074,741





          Home administrators, at the direction of the Secretary of the  
          Department of Veteran Affairs (CalVet), have discretion over how  
          monies within the fund are spent.





          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 a second contract leasing the  
          on-site 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.  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  








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          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  
          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.





          As stated above, this bill is not the first attempt to fix the  
          MWR system's challenges and general anachronism.  Particularly  
          since the release of the Audit discussed above, it is fair to  
          say that both the members of the homes and CalVet have found  
          themselves in an untenable situation, the members among other  
          issues, are concerned that the MWR system has become more  
          opaque, and slower, and they express concerns about the effect  
          of changes to a system which is at least the familiar "devil  
          they know."  CalVet in an effort to be responsive to the issues  
          raised in the Audit and as part of an overall attempt to make  








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          the Homes function as a system, has been more cautious and  
          managed the MWR funds more carefully; in some instances  
          resulting in longer times for decisions as to expenditures and  
          plans.





          The bill would fix most if not all of the major MWR issues that  
          critically need to be addressed.  This bill:





          1)Fixes the definition of Veterans Home of California, which  
            currently only includes Yountville and Barstow.



          2)Strikes a balance between CalVet oversight and control of MWR  
            funds and the importance of home member input, consultation,  
            and local control of MWR programming.



          3)Increases transparency and clarifies the rules and processes  
            applicable to MWR.



          4)Fixes the arguable inequity of MWR fund balances, but provides  
            authority for the Secretary to meet the special circumstances  
            or unique needs of each Home.



          5)Requires uniform accounting procedures to be used for MWR  








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            funds and reporting thereon at every Home.



          6)Clarifies the permissible purposes for which MWR funds may be  
            used, but retains and conforms to the Legislative intent on  
            this point.



          7)Addresses general anachronism and logistical concerns not  
            anticipated by the original language creating the MWR funds.



          REGISTERED SUPPORT / OPPOSITION:




          Support


          None on File




          Opposition


          None on File




          Analysis Prepared by:John Spangler / V.A. / (916)  
          319-3550









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