VETERANS’ BOND ACT OF 2008
Legislative Bond Act

THE QUESTION

Should the state be authorized to sell $900 million in general obligation bonds for the purpose of replenishing funding for long-term farm and home loans made to veterans through the Cal-Vet program?

BACKGROUND

The Cal-Vet program offers low-interest loans to veterans for the purchase of homes and farms.  The program dates to the end of World War I, when the Legislature approved the California Farm, Home and Mobile Home Purchase Assistance Program.

The bond proceeds are used to make loans to veterans for the purchase of farms, homes and mobile homes.  Any veteran living in California is eligible for such loans.  The veterans who have Cal-Vet loans repay them, with interest.  The Cal-Vet program is completely self-supporting, since the veterans’ loan and interest payments cover the cost of the bond debt and program overhead.  More than 420,000 veterans have received loans from the Cal-Vet program since its inception.

The bond funds need to be periodically replenished in order to make new loans available.  Since 1921, voters have approved all twenty-six bond measures proposed to fund this program.  The last replenishment of funds was in November 2000.  As of July 2008, there was about $102 million remaining from those funds that will be used to support new loans.

THE PROPOSAL

Proposition 12 would authorize the state to borrow $900 million through the sale of general obligation bonds to replenish Cal-Vet funding for long-term farm and home loans.  These bonds would provide sufficient funds for at least 3,600 additional veterans to receive loans.

FISCAL EFFECT

The bonds authorized by this measure would be paid off over a period of about 30 years.  If the $900 million in bonds were sold at an interest rate of 5 percent, the cost would be about $1.8 billion to pay off both the principal ($900 million) and the interest ($856 million).  The average payment for principal and interest would be about $59 million per year.

According to the Legislative Analyst, throughout its history the Cal-Vet program has been totally supported by the participating veterans, at no direct cost to the taxpayer.  However, because general obligation bonds are backed by the state, if the payments made by veterans participating in the program do not fully cover the amount owed on the bonds, the state’s taxpayers would pay the difference. 

WHAT A YES OR NO VOTE MEANS

A YES vote means that the state will be authorized to sell $900 million in general obligation bonds to replenish funding for home and farm loans for veterans through the Cal-Vet program.

A NO vote means that the state would not be authorized to sell those bonds.

SUPPORTERS SAY

• This program helps veterans who served our country with honor to purchase homes and farms in California, helping them return to civilian life.
• Cal-Vet is an entirely self-supporting program that has made it possible for over 420,000 veterans to purchase homes and farms, at no expense to the taxpayers.
• The loan program is good for the economy, generating thousands of housing industry jobs with millions of dollars in annual payrolls.

OPPONENTS SAY

• This program has indirect costs to the taxpayers, since the interest paid to bondholders is tax-deductible, reducing tax revenue to the state.
• These loans should be limited to those most deserving of assistance—veterans who were wounded or served in combat zones.  The program currently has no such limitations.
• In a time of declining home prices, state taxpayers could be liable for shortfalls if home purchasers cannot make payments or sell their property.

SUPPORT AND OPPOSITION

Ballot arguments in support are signed by Senator Mark Wyland, Chairman, Senate Committee on Veterans Affairs; Assemblyman Greg Aghazarian; and Assemblyman Tony Strickland.

Ballot arguments in opposition are signed by Gary Wesley (no further identification given).

FOR MORE INFORMATION

General Resources:

California Secretary of State:
http://www.voterguide.sos.ca.gov/

Legislative Analyst’s Office:
http://www.lao.ca.gov/ballot/2008/12_11_2008.pdf

Ballotpedia:
http://ballotpedia.org/wiki/index.php/California_Proposition_12_%282008%29

Supporters:
There do not appear to be any Web sites for supporters of Proposition 12.

Opponents:
There do not appear to be any Web sites for opponents of Proposition 12.