BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1580 (Yamada) - Veterans
Amended: July 2, 2014 Policy Vote: VA 4-1
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Maureen Ortiz
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1580 consolidates the separate Veterans'
Morale, Welfare and Recreation Funds at each veterans home into
a newly created fund in the State Treasury.
Fiscal Impact:
Redirection of approximately $14 million from individual
accounts to the newly created state fund (Special Fund)
Administrative costs of up to $1.1 million annually to the
Department of Veterans Affairs (General Fund)
The Department of Veterans Affairs will need additional staff of
between 7 and 10 PYs to develop standardized expenditure
procedures for the fund; to prepare the quarterly report; and
for the administration of the new fund. Total costs would be
between $790,000 and $1.1 million annually depending on the
level of staff required.
The combined amount from the individual Veterans' Morale,
Welfare and Recreation Funds is approximately $14 million, most
of which is held in the Morale, Welfare and Recreation Fund at
the home in Yountville.
Background: Existing law authorizes the creation of a Veterans'
Morale, Welfare and Recreations Fund (MWR) at each veterans
home. Revenue to the Veterans' Morale, Welfare and Recreations
Fund is derived from many sources including proceeds from the
California Veterans Homes Fund, the Veterans Quality of Life tax
check-off, operations of a canteen, revenue derived from the
issuance of prisoner-of-war special license plates, monies
collected from gold course green fees and range ball fees,
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donations, interest earned on invested funds, and funds derived
from the estates of deceased members.
Existing law authorizes the MWR funds to be used for the
following purposes:
a) Operating the Veterans' Home Exchange store, hobby shop,
motion picture theater, library and band, as well as any other
function that is operated for the morale, welfare, and
recreation of the members of the homes.
b) Paying for newspapers, chapel expenses, welfare and
entertainment expenses, sport activities, celebrations, and any
other activity that is for the moral, welfare, and recreation of
the veterans.
Existing law prohibits the use of the MWF funds for the
following purposes:
a) Medical or any related treatment.
b) Maintenance of the home's physical plant.
c) Any function, operation, or activity not directly related to
the morale, welfare, or recreation of the veterans.
Current law also provides that certain portions of the estates
of deceased veteran residents may be recovered by the department
for obligations owed for costs of the veterans care that are in
excess of the reimbursements made by the USDVA. Any recovered
funds are deposited in the MWF account at the home where the
veteran had resided.
Proposed Law: AB 1580 consolidates the individual Veterans'
Morale, Welfare and Recreation Funds at each veterans home into
a newly created fund in the State Treasury. Specifically, the
bill does the following:
a) Creates the Veterans' Morale, Welfare and Recreation Fund in
the State Treasury, and continuously appropriates the moneys in
that fund.
b) Requires the individual accounts at each of the eight
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veterans homes be consolidated into this newly created fund, and
abolishes those individual funds.
c) Exempts moneys deposited into the fund from the prorata
deduction to the General Fund for supervision or administration
of the state government, or for services to other state
agencies.
d) Requires the Department of Veterans Affairs to develop
standardized procedures for distribution of the moneys in the
fund which shall be in accordance with standard state contract
and procurement practices and rules; and to provide residents
with a quarterly report on the expenditures made from the fund
on behalf of each home.
e) To access the funds, the administrator of each home, in
consultation with the Veterans' Home Allied Council, must submit
a proposal for expenditures of the funds for the department
secretary to approve.
f) Requires the department to maintain a reserve of $2 million
in the fund.
Staff Comments: 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 the
Department of Veterans Affairs, appropriate legal counsel, or
residents of the Home.
These contracts included expenditures for 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 percent of any net
income generated from operating the park after subtracting all
operating expenses including salaries with no revenue guaranteed
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if revenues did not exceed expenses. Once the contract was
discovered by department 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 had 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 was wasted in
state-managed funds.
The Auditor's report also 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 that
both contracts were in violation of state law and required
review by General Services.
Recommended Amendments: Staff recommends that the continuous
appropriation in the newly created Veterans' Morale, Welfare and
Recreation Fund be removed to provide legislative oversight on
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the use of the funds.