BILL ANALYSIS �
AB 1580
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Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON VETERANS AFFAIRS
Sharon Quirk-Silva, Chair
AB 1580 (Yamada) - As Amended: March 19, 2014
SUBJECT : Veterans' homes: Morale, Welfare, and Recreation
Fund.
SUMMARY : Institutes review measures and controls on the
expenditure of Morale, Welfare, and Recreation funds.
Specifically, this bill :
1. Requires that for proposed expenditures of Morale, Welfare,
and Recreation Fund (MWR) moneys of more than five thousand
dollars ($5,000), proposed contracts of more than twenty-five
thousand dollars ($25,000) per year, or proposed contracts of
more than one hundred thousand dollars ($100,000), all of the
following shall apply:
(A) The administrator of the Veterans Home proposing an
expenditure shall submit the proposed expenditure or
contract to the secretary of the Department of Veterans
Affairs for approval. The secretary shall consider the
advisory opinion required in (B) and any other relevant
information when determining whether an expenditure or
contract will be approved.
(B) The proposed expenditure or contract shall be reviewed by
legal counsel of the department, or another similarly
qualified reviewer designated by the secretary. The
reviewer shall issue an advisory opinion to the secretary
identifying those laws and regulations with which the
proposed expenditure or contract or execution of the
contract must comply, and any other relevant legal issues
that may arise with respect to compliance with those laws
and regulations.
(C) Prior to the execution of a proposed expenditure or
contract, the department shall provide written notification
in the form of a draft expenditure proposal to the
Veterans' Home Allied Council or to another body
representing the residents of the affected home or homes.
The draft expenditure proposal shall include, but is not
limited to, a description of the intent of the project that
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is the subject of the proposed expenditure or contract,
estimated costs, and an approximate timeline of execution.
The Veterans' Home 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 the department shall consider any responses
provided.
(D) Upon the execution of the expenditure or contract, the
department shall provide written notification to the
Veterans' Home Allied Council or another body representing
residents of the affected home or homes. The notification
shall identify the purpose of the project, costs, and who
is the recipient or recipients of the moneys distributed
from the Morale, Welfare, and Recreation Fund.
EXISTING LAW
Military and Veterans Code section 1010, et. seq. provide the
statutory authority for creation of the Veterans Home of
California. Section 1047 contains the requirement that the
administrator of each Home shall maintain a 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, including, but not limited to,
providing for operations of the Veterans' Home Exchange, hobby
shop, motion picture theater, library, band, and any other
function that is operated for the morale, welfare, and
recreation of the veterans, and to pay 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. In addition, that
section prohibits certain uses of MWR funds, including: any of
the following: (1) Medical treatments or any other related
treatment. (2) Maintenance of the physical plant of the home.
(3) Any function, operation, or activity that is not directly
related to the morale, welfare, or recreation of the veterans.
Several sections of the Military and Veterans Code pertain to
various requirements that certain portions of the estate of
veterans may be recovered by the department for obligations
owing to the department including costs of a veterans care in
excess of the reimbursement for that care made by the United
States Department of Veterans Affairs (unreimbursed costs of
care). Home residents are informed about these recovery
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provisions on admission to the home and every month thereafter
during their residence. (MVC section 1035.7) Recovered
unreimbursed costs of care are not, however, returned to the
General Fund. They are returned to the MWR fund account for the
Home at which the decedent veteran resided at death.
FISCAL EFFECT : Unknown at this time.
COMMENTS : The Morale Welfare and Recreation (MWR) fund was
established in 1999 by SB 281 (Chesbro). The Legislature
intended to provide 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. The amount of money in each
account varies from home to home, ranging from an account in
excess of four million dollars at the largest home at
Yountville, to an account of seven thousand dollars at the
recently established West Los Angeles home. 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.
An October 2013 California State Auditor's investigation report
entitled, Wastefulness, Failure to Comply With State Contracting
Requirements, and Inexcusable Neglect of Duty 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
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% of any net income generated from
operating the park after subtracting all operating expenses
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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% 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 key deficiencies in the current
administration of MWR funds. Though the administrator is
authorized to use MWR funds with the approval of the Secretary
of CalVet, 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 the
Department of 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.
This bill implements certain recommendations of the October 2013
investigation by instituting controls, oversight, and resident
notification and input concerning the expenditure of MWR funds.
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Also, as recommended by the investigation it strikes a balance
by permitting smaller expenditures to be encumbered by somewhat
less process so that small expenditures may be more quickly
made.
Policy questions for Members :
This bill does not resolve a central question: What is the
nature of the MWR funds? Are they state money or do they belong
to the residents? The answer to these questions would drive most
of the other policy decisions to be made.
Does it make sense for money recovered as unreimbursed costs of
care, paid by the state and recovered at state expense, to be
deposited into the MWR accounts?
MWR accounts have traditionally been maintained in banks local
to each Home and managed locally, often with a single local
authorized signatory at each Home. This could present security,
fraud, or other concerns. Should the bill direct that funds be
located in state accounts to provide enhanced security and
oversight?
Is it equitable for Home locations to have wildly disparate MWR
fund amounts? Should the funds be pooled and apportioned
according to population or some other measure?
Does it make sense that if a person lives for years in one Home
location and then moves to another location for an increased
level of care for short time before passing, any recovered costs
of care go to the MWR fund where the resident passed away?
The Home now includes 8 locations statewide and policy has
generally encouraged the department to manage the locations as a
system. Should the MWR funds be managed systemically, for the
benefit of all the residents rather than for just the residents
from which the funds were generated?
REGISTERED SUPPORT / OPPOSITION :
Support
Veterans Caucus of the California Democratic Party
Opposition
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None at this time.
Analysis Prepared by : John Spangler / V. A. / (916) 319-3550