PROP. 41 (June, 2014): VETERANS HOUSING AND HOMELESS PREVENTION BOND ACT

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1 Board of Directors Policy Committee: Home Ownership Housing Committee (Information only) Level of Government Committee: Legislative Committee (Information Only) May 2, 2014 PROP. 41 (June, 2014): VETERANS HOUSING AND HOMELESS PREVENTION BOND ACT THE QUESTION What additional information and analysis is available on Proposition 41? Note: At the January C.A.R. Board of Directors Meeting in San Diego, after discussion, a motion was approved to "postpone to a date certain" (May 2nd and 3rd) any action on Proposition 41. ACTION REQUIRED? Pending before the Board of Directors. No action is required by the Home Ownership Housing Committee or the Legislative Committee since both of these committees recommended a "FOR" Position to the C.A.R. Board of Directors. POSSIBLE POSITIONS 1. FOR: This ballot measure is real estate related and consistent with C.A.R. policy and its passage could be beneficial to the real estate industry. 2. AGAINST: This ballot measure is real estate related and conflicts with C.A.R. policy and its passage could have a harmful effect on the real estate industry. 3. NEUTRAL: This ballot measure may be real estate related, but C.A.R. has chosen not to take a position on it. 4. NOT REAL ESTATE RELATED: This ballot measure may be significant, but it is deemed to not be related to real property or real estate transactions. DISCUSSION Placed on the ballot in late 2013 by AB 639 (J. Perez), this measure was passed by the Senate, 36-0 and passed by the Assembly, It will, if approved by the voters, establish the Veterans Housing and Homeless Prevention Bond Act of 2014 (Proposition 41 on the June, 2014 Ballot). It proposes to repurpose $600 million of the $900 million in general obligation (GO) bonds approved by the voters in 2008 for the Cal Vet Home Loan Program. Proceeds from this measure will only be used for the acquisition, construction, rehabilitation, and preservation of affordable multifamily transitional housing, or related facilities, for veterans and their families only. It has a specific focus on homeless veterans or those veterans at risk of homelessness. Proposition 41 proposes to reduce the Proposition 12 bonding authority from $900 million to $300 million and authorize issuance of $600 million in GO Bonds for the benefit of veterans and their families.

2 Where does the money come from to fund the Proposition 41 Program? Existing bond authority is being modified so that bonds previously approved but not yet sold may still be sold, but the funds from the sale will be used for another purpose. The actual revenue comes from the sale of state general obligation bonds to investors. The sale will leave a bond authority balance of $535 million for the Cal Vet Home Loan Program ($300 million from Proposition 12 and a balance of $235 million remaining from 2000's Proposition 32). How many loans has Cal Vet made with its existing authority? Cal Vet made 83 home loans totaling $9.9M in the 2012/2013 fiscal year. As of the end of January, 2014, the home loans made in the 2013/2014 fiscal year total 139 with a dollar amount of $34M. Cal Vet Staff is predicting a loan volume of $60M and over 200 loans by the end of the 2013/2014 fiscal year (July 1, 2014). The department is neutral on Proposition 41. The Cal Vet Staff predicts that if Proposition 41 is approved by voters in June, there will be about $539M in approved bond funds available for veterans' home loans. They predict that a new bond authority will need to be placed on a statewide ballot by 2016 or 2017 to restore the funds for the on-going Cal Vet home loan program. It is the goal of the current Cal Vet Administration to double the loan productivity each year from the previous year. Cal Vet indicates that it is also beginning to work with cities around the state to foster home ownership for lower income veterans' families. Cities will "rehab" distressed properties and work in concert with Cal Vet to provide home loans for low to moderate income veterans through the Cal Vet home loan program. Is the existing Cal Vet program limited to California-born veterans? There is no existing requirement that the veteran applying for a Cal Vet home loan be born in California. There also is no such requirement in the language of Proposition 41. Eligibility for this program (the current Cal Vet Home Loan Program), as noted below, is limited to "Veterans". The Veteran must show "Honorable Discharge" on his or her discharge documents (DD-214). There are no prior residency restrictions. As long as the Veteran seeks to utilize the Cal Vet loan to purchase a home in California, the Veteran is eligible for Cal Vet financing. Cal Vet's basic eligibility requirement, until 2006, was that the veteran applying for the loan must have joined the military in California. The Cal Vet Website defines current eligibility requirements for its home loan program as follows: Eligibility - The Cal Vet Home Loan Program has recently updated its eligibility requirements so that nearly every Honorably Discharged Veteran wanting to purchase real estate in California can apply. The applicant's DD-214 must declare an Honorable Discharge. Generally, a Medical Discharge is also acceptable if there was some serviceconnected disability, and "Under Honorable Terms" is generally acceptable Veteran s lifetime. Residency Requirement - No matter where the veteran entered the military in the United States, as long as he or she is seeking to buy a home in California as a primary residence, they qualify for Cal Vet financing. Funds are available for qualifying wartime and peacetime era Veterans as well as applicants currently serving honorably on Active Duty. This aspect of the underwriting requirements for a Cal Vet home loan was modified in Prior to the change, the veteran was required to have enlisted in California to be eligible for a Cal Vet home loan. How are veterans defined in Proposition 41? Under this initiative a qualified veteran is " any person who served in the active military, naval, or air service of the United States, or as a member of the National Guard who was called to and released from active duty or active service for a period not less than 90 consecutive days." While this definition is "open-ended" as to the domicile of eligible veterans, the opening section of the Veterans Housing and Homeless Prevention Bond Act of 2014 (Act) (Proposition 41) refers to the fact that "California is home to almost 2 million veterans.", and the fact that "an unprecedented 2

3 number of California veterans will return to our communities, many in need of housing " This clearly indicates it was the intent of the Legislature to limit the Act's eligibility to Veterans residing in California. There is no mention in the Act as to having to be "California born", nor, as noted above, is there any such requirement in the current home loan program eligibility criteria. How are the bonds authorized by Proposition 41 to be repaid? Existing bonds are used to fund mortgages for veterans (which have an excellent repayment history). The new bonds will be repaid by the state out of general fund monies, unless the programs or projects that they create generate income to Cal Vet to repay the expense. "General Fund" bonds are an obligation of the state and can call upon the state's income (taxes) to repay them. So-called "Revenue Bonds" are repaid out of the income stream (the "revenue") of the programs they create. Cal Vet bonding authority is for General Fund bonds. Total Debt Service on the bond funds to be issued is estimated to be about $50 million per year by the Legislative Analyst's Office (LAO). LAO estimates that the repayment period on the bonds issued to fund this program is 15 years and the source of repayment is general tax revenues. The Act requires that "[t]here shall be collected each year and in the same manner and at the same time as other state revenue is collected, in addition to the ordinary revenues of the state, a sum in an amount required to annually pay the principal of, and interest on, the bonds." Under the revised bond, funds will be allocated to affordable veteran housing projects, both rental and ownership. Some affordable housing projects are anticipated to produce a rental income stream that may be all or partly dedicated to repayment of the Cal Vet loans. There is no express requirement that rental income from such projects be allocated to repayment of the bond funds. Multi-family projects for housing veterans will be funded by grants that will impose a state general fund cost. Proponents of Proposition 41 argue that there will be an ultimate cost savings to the state by reducing costs associated with the housing and treatment for homeless veterans. Traditional Cal Vet home loans are repaid by borrowers' loan payments and do not result in any cost to the state. Who decides how the bond proceeds will be spent? AB 639 establishes the Housing for Veterans Finance Committee (Committee) with sole responsibility for authorizing the issuance and sale of the GO bonds authorized by the program. The Committee consists of the State Controller; State Treasurer; the Director of Finance; Secretary of Business, Consumer Services, and Housing; and the Secretary of Veterans Affairs, or their designated representatives: Two of the designated Committee Members are elected by the People (State Controller and Treasurer); three are appointed by the Governor. The proceeds of bonds issued and sold pursuant to this Act are required to be made available to the Committee for the purpose of creating a fund to provide multifamily housing to veterans and their families pursuant to provisions of the Act. This Committee will be responsible for adopting the underwriting criteria for loans or grant approvals made from funds authorized by Proposition 41. Such responsibility includes following the "legislative intent" limiting eligible recipients to veterans seeking to establish a home in California. The Proposition also requires the California Housing Finance Agency (CalHFA), the Department of Housing & Community Development (HCD), and Cal Vet to work collaboratively to carry out the duties and functions established by Proposition 41. Execution of Proposition 41 Mandates CalHFA, HCD and Cal Vet, pursuant to a joint memorandum of understanding, are mandated by Proposition 41 to do all of the following: --Establish and implement programs as delineated by Proposition 41. 3

4 --Ensure that the Program guidelines and terms provide criteria to match applicants with experience in combining permanent and/or transitional housing with supportive services for veterans. --Ensure that the Program funds are expended in a manner that focuses on veterans at risk of homelessness or are experiencing temporary or chronic homelessness. --Ensure that expenditures leverage public, private, and non-profit resources. --Ensure that public and private partnerships and innovative financing opportunities are encouraged. What position should C.A.R take on this ballot measure? Attachment: List of Supporters. This list was prepared and confirmed by the Senate Floor Analysis Staff before the final vote on the Senate Floor, where it passed on a 36-0 vote. SUPPORT: (Verified 8/30/13 by Senate Floor Analysis Staff) California Association of Veteran Services Agencies (co-source) Corporation for Supportive Housing (co-source) Attorney General Kamala Harris State Treasurer Bill Lockyer Administrators Association of California Affirmed Housing Group American Federation of State, County, and Municipal Employees American Legion - Department of California AMVETS - Department of California Association for Los Angeles Deputy Sheriffs Association of California Health Care Districts Burbank Housing Development Corporation Butte County Board of Supervisors California Association of Counties California Association of Food Banks California Building Industry Association California Conference of Carpenters California Housing Consortium California Judges Association California Labor Federation California Medical Association California Nurses Association California Professional Firefighters California Rural Legal Assistance Foundation California Special Districts Association California Special Districts Association California State Association of Counties California State Council of Service Employees California State Sheriff's Association Century Housing Cities of Azusa, Burbank, Los Angeles, Rancho Murrieta, Oakland, Sacramento, San Jose, Whittier 4

5 City and County of San Francisco Counties of Butte, Del Norte, Los Angeles, San Bernardino, Santa Clara County Alcohol and Drug Program Housing California JP Morgan Chase League of California Cities Los Angeles Area Chamber of Commerce Los Angeles Business Leaders Task Force Los Angeles County Board of Supervisors Los Angeles County Probation Officers Union Los Angeles County Sheriff's Department Los Angeles Homeless Services Authority Los Angeles Police Protective League Los Angeles Regional Reentry Partnership New Directions, Inc. Riverside Sheriff's Association Salvation Army Haven San Diego Gas and Electric San Diego Housing Commission San Diego Housing Federation Southern California Gas Company St. Anthony Foundation State Building and Construction Trades Council of California Swords to Plowshares U.S. VETS United Native Housing Development Corporation United Way of Greater Los Angeles Urban Counties Caucus Veterans of Foreign Wars - Department of California Veterans Village of San Diego Vietnam Veterans of America - California State Council Western Center on Law and Poverty No opposition listed in any analyses; no opposition registered for Proposition 41 Ballots. 5