Legislative Analyst's Office, December 2000

LAO
Recommended
Legislation
General Government

Department of Veterans Affairs

Rethink Cal-Vet Loan Program

Recommendation

In the short term, enact legislation to strangthen internal and external oversight of the Cal-Vet program to ensure proper management. In the long term, amend state law to direct the orderly phase-out of issuance of new Cal-Vet home loans. Subject to voter approval, surplus Cal-Vet funds should be directed to programs that will benefit both aging war veterans and state taxpayers.

Rationale

The Cal-Vet home loan program has not been competitive with other private- and public-sector loan programs which offer better interest rates and terms. Additionally, the Cal-Vet loan portfolio is declining due to federal restrictions on tax-exempt state bonds (which fund the program) and the aging of the war veteran population. Significant financial and operational problems have eroded the state's equity (assets less liabilities) in the Cal-Vet fund by about $200 million.

LAO Reference

Please see Rethinking the Cal-Vet Loan Program, January 1998.

LAO Contact

Craig Cornett: 445-4660

Property Tax Administration

Incentives

Recommendation

Improve the incentives for counties to improve the property tax administration system by increasing the state's long-term commitment.

Rationale

Counties face a disincentive to invest in the property tax administration system, since they must contribute a higher percentage of any increased costs than they receive in increased revenues. While contributing minimal revenues to administration costs, the state generally receives the largest benefit from increased property tax revenues (due to the resulting decrease in the state's required contribution to schools). As a result, the state should assume a proportionate share of future increases in administration costs in order to improve the incentives for investing in the administration system.

LAO Reference

Please see our 2000-01 Analysis, pages F-186 to F-189.

LAO Contact

Michael Cohen: 445-6442


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