Introduction
Proposition 12 authorizes the state to sell $900 million in general obligation bonds for the Cal-Vet program. This program provides California veterans with home loans that are often below market interest rates with little or no down payment. Prop. 12 bonds would provide funds for approximately 3,600 additional veterans to receive loans. It is expected that the bonds would be paid off approximately over a 30-year period.
Proposition 12
The California Constitution (Article XVI, Section 6) authorizes the use of state money to assist war veterans in buying farms and homes. In 1921, the Legislature created the California Veteran Farm and Home Purchase Program (Cal-Vet) to assist returning World War I soldiers. Since Cal-Vet's inception, 26 veterans bond acts have been passed by voters and have approved approximately $8.4 billion in general obligation bond sales. The California Department of Veterans uses the money raised to buy homes and farms and then resells them to California veterans. Veterans make monthly payments to cover costs from the sale of the bonds along with interest and the costs of operating the program.
Proposition 12 began as Senate Bill 1572, which was introduced in February 2008 and sponsored by Senator Mark Wyland (R-Carlsbad). The bill made it through both the Senate and the Assembly, and in July 2008, Governor Schwarzenegger signed legislation which placed SB 1572 onto the Nov. 4 statewide ballot as Proposition 12. The measure authorizes the state to sell $900 million in general obligation bonds for the Cal-Vet program. The funds generated could provide loans for approximately 3,600 additional veterans over three years, most of whom have served in Kuwait, Afghanistan and Iraq.
General obligation bonds must be approved by the voters and are usually paid for by the state's general fund. The bonds are guaranteed by the state's commitment to repay the debt through taxation or other revenue. Prop. 12 would be paid off over a 30 year period. The California Legislative Analayst believes the amount of the principal and interest (at about 5 percent) would come to $1.8 billion, or $59 million a year.
Reports and Studies
Drowning in Debt: Bond Measures Threaten
California’s Already Precarious Debt Situation
By Adam B. Summers and Anthony Randazzo, Reason Institute,
October 2008
History of Election Results on Cal-Bond Acts, Sacramento Bee, September 17, 2008.
A Primer: The State's Infrastructure and the Use of Bonds. Sacramento: Legislative Analyst's Office, January 2006.