BILL ANALYSIS
AB 2651
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( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 2651 (Knight)
As Amended June 3, 2010
2/3 vote. Urgency
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|ASSEMBLY: |74-0 |(May 6, 2010) |SENATE: |33-0 |(June 14, |
| | | | | |2010) |
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Original Committee Reference: V.A.
SUMMARY establishes the "Veterans' Bond Payment Fund" within the
Military & Veterans' Code (MVC) to pay debt service on Cal-Vet
Home Loans.
The Senate amendments add an urgency clause and make other
technical and non-substantive changes.
AS PASSED BY THE ASSEMBLY , this bill is substantially similar to
the version approved by the Senate.
FISCAL EFFECT: According to the Senate Appropriations
Committee, potential savings in the cost of serving the CalVet
general obligation bond 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
California Department of Veterans Affairs (CDVA) 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.
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2)Purpose . According to the sponsor, CDVA, bond rating agencies
have been assigning lower ratings to CalVet general obligation
bonds as compared to the 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, 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.
According to CDVA, "This bill will save CalVet hundreds of
millions of dollars. The difference in the interest rate paid
for a Baa1 rated bond verses a AA- rated bond can be 1% or
more. We obtained the MMD for General Obligation Bonds from
the Bond Buyer to obtain the interest rates for Baa and AA
rated bonds. The Baa bond was at an interest rate of 5.79%
and the AA bond was at 4.33% for a difference in interest of
1.46%. This is an interest rate difference of 1.46%. Based
on our remaining bond authority of approximately $1 billion
outstanding for 30 years, we would save about $438 million
dollars in interest payments. (1.46% x $ 1 billion x 30 years
= $438 million savings) In addition, there could be
additional savings if we are able to do refunding of our
current outstanding $ 1.7 billion of bonds."
Analysis Prepared by : Eric Worthen / V. A. / (916) 319-3550
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