BILL ANALYSIS
AB 2651
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Date of Hearing: April 28, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2651 (Knight) - As Amended: April 19, 2010
Policy Committee: Veterans
AffairsVote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a Veterans Bond Payment Fund, for deposit
of monies from the Veterans' Home Building Fund of 1943, in
sufficient amounts and for the exclusive purpose of making
periodic debt service payments on CalVet general obligation
bonds.
FISCAL EFFECT
Potential savings in CalVet general obligation bond debt service
of up to several hundred million dollars over the life of the
bonds, due to enhanced bond credit ratings and hence lower
interest rates.
COMMENTS
1)Background . The CalVet loan program, administered by the
Department of Veterans Affairs (DVA) was established after
World War I to assist California war veterans in purchasing
farms and homes. Since 1922, the Legislature has passed, and
the voters have approved, 27 CalVet bond issues totaling $9.3
billion. The most recent bond measure totaled $900 million and
was approved in November 2008. Though these are general
obligation bonds backed by the full faith and credit of the
State of California, the CalVet program is fully
self-supporting, with principal and interest on the bonds and
the administrative costs repaid from interest charged to the
veteran loan holders.
2)Purpose . According to the sponsor, the bond rating agencies
have been assigning lower ratings to CalVet general obligation
AB 2651
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bonds than they have been assigning to CalVet revenue bonds,
even though payments from the 1943 Fund for debt service on
such revenue bonds is subordinate to the requirement under the
veterans general obligation bond acts to transfer moneys from
the 1943 Fund to the General Fund in an amount equal to debt
service on CalVet general obligation bonds. Although the
veterans bond acts state that the moneys from the 1943 Fund
are to be transferred to the General Fund "to pay the debt
service" on CalVet general obligation bonds, the rating
agencies have expressed concerns that once the transferred
moneys are deposited in the General Fund, they will not be set
aside to pay bond debt service and could be applied, in the
event of the General Fund cash shortfall, to support
education, which has first call on state revenues, or to pay
debt service on other state general obligation bonds.
AB 2651 is intended to dedicate moneys derived from the 1943
Fund to pay debt service and allow the rating agencies to take
into account the assets of the 1943 Fund when determining the
likelihood of payment of CalVet general obligation bonds, as
they do when rating CalVet revenue bonds. The result should
be a higher bond ratings, lower interest costs, and savings on
debt service of up to several hundred million dollars over the
life of the bonds. Ultimately this will lower costs to
veterans participating in the CalVet program.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081