Patterico's Pontifications


Clearing Up Misconceptions on California’s Prop. 12

Filed under: Politics,Public Policy — Justin Levine @ 12:35 pm

[posted by Justin Levine]

I have come across many who say they intend to vote against Prop. 12 in California because they understandably feel that the state can’t afford any more bond debt.

That’s unfortunate. What they don’t seem to understand is that Prop. 12 won’t likely cost state taxpayers anything. Not one cent.

Prop. 12 will sell $900-million in bonds to help fund a program that allows California veterans to take out low-interest home loans. It would likely be able to help out up to 3,600 veterans. However, unlike most bond sales, the taxpayers aren’t responsible for paying back these bonds – the veterans who take out the home loans are.

The only way that this will cost California taxpayers is if the veterans who take out these loans manage to default on their mortgages. All 3,600 veterans would have to default on their loans in order to stick taxpayers with the full costs of Prop. 12 bonds. Even then, the state would be able to recoup much of the costs by selling the properties to someone else.

This program has been around since 1921 and veterans have shown that they have a very low rate of default.

If you haven’t voted yet – Yes on 12.

[I suspect that Patterico will be particularly annoyed with me if I don’t allow comments on this particular thread. So have at it.]

– Justin Levine

24 Responses to “Clearing Up Misconceptions on California’s Prop. 12”

  1. IIRC, these are the only state bonds that have always been paid back on or ahead of schedule, without recourse to the General Fund.

    i could be wrong, but that’s what i remember reading awhile back.

    it seems like the least we can do.

    (full disclosure: i’m a vet, but i don’t have a loan, nor am i likely to ever apply for one)

    redc1c4 (27fd3e)

  2. Hoo-kay.

    That’s $250,000 per veteran. But since when should California be getting into the low-interest home lending business? First veterans, then who, illegal aliens?

    Then you have the Fed droppoing the funds rate to 1% (rumors are that it will possibly go to 0%) and mortgages are at near historical lows (for a 30 yr fixed term).

    Why does CA need to do this? As I am not a CA resident, I would really like to know.

    Dr. K (f196bc)

  3. Yeah, and the only way the taxpayers will be on the hook for Fannie Mae and Freddie Mac loans will be if all of the home owners who have mortgages on them default and fail to pay their loans. That’s could never happen.

    Oh, wait…

    I respect and support those who serve in the military. They should get free medical care for life for any injuries suffered during their service to us. But I’m not sure why the taxpayers should be in the business of guaranteeing their home loans, regardless of its success since 1921.

    Once government gets in the business of deciding who IT should favor with special treatment, the door is open to helping others that some other interest group claims is particularly deserving.

    (Disclaimer, I’m not in California, so this doesn’t directly affect my pocketbook; I’m speaking as a matter of general principle.)

    PatHMV (653160)

  4. As someone who has had Veteran status for over 40-years now, I have always supported the issuance of these bonds, though I have never availed myself of this service, but have always thought it should be there for those who need it.
    They do have some pretty strict standards that you have to meet, or at least that is what has been described to me by friends who do have Cal-Vet loans.
    There are much tougher standards to get a Cal-Vet loan than what ACORN was doing in the sub-prime market.
    At some points in it’s history, Cal-Vet was the only avenue for low-cost home-ownership for vets, predating the entire concept of the G.I.Bill by 24-years, and filling gaps in that coverage post WW-2.
    Long way to say: Yes on 12!

    Another Drew (184a22)

  5. Another Drew… is there something inherent in their status as veterans which makes it difficult for these men and women to get loans? I mean, if they are demographically such a good credit risk, and the standards are so tight, why do they have trouble getting the loans through the normal market process? I’d be sympathetic to the idea if there was something about their service that made it harder for them to get a regular loan.

    PatHMV (653160)

  6. I am from California and I voted “No” on 12. I support veterans, but I don’t understand, like others have said, why we need to issue bonds on their behalf. If all of these bond issuances pass, California may literally be unable to raise all of the cash. Why hurt our credit rating (which raises our cost of borrowing) more for high-quality loan candidates? I agree with PatHMV that if I’m missing a reason here, but I don’t see it. The only benefit I saw in my analysis is that it may attract veterans coming home from Iraq to buy homes in California (helping property values), but I don’t see that happening.

    Cankle (8aa31a)

  7. Comment by PatHMV — 11/4/2008 @ 1:01 pm

    California, during the Progressive Era, determined that Vets were not able to avail themselves of these loans as well as non-vets.
    You must remember, this was in the aftermath of WW-1, with many vets having been gassed in the trenches, which diminished their ability to work, many were amputees, which limited their employment opportunities, etc.
    There was no such thing at that time as the G.I.Bill, or FHA home loans.
    Since this program was put into place in 1921, the General Fund has NEVER (even in the depths of the Depression) had to be tapped to repay these bonds. The program has always been self-supporting, principal and interest and administrative.

    Do the current crop of vets need this?
    Maybe, maybe not.
    But, when someone goes off to serve his country, he sacrificies that part of his life that he could have been using to build-up his status in whatever civilian employment he (and now she) might have had.
    You do a hitch, you lose time. If you are a Reservist who gets called up, by law your employer has to give you back the same job at the same rate that someone today is getting with the same time (some employers are good enough to give you seniority credit for your time in service, some don’t). But, you lose time.

    These programs are to compensate vets for that lost time, for their sacrifice, for their concept of duty for others.
    It is just the same as getting an extra 5 or 10 points on a Civil Service application for prior military service, an appreciation for that lost time.

    And it does not cost the taxpayer any money!
    It is a way for the average taxpayer to thank someone for his/her sacrifice for them.

    You do appreciate the sacrifice our military makes for you, your family, and your country, don’t you?

    Not picking, just asking.

    Another Drew (184a22)

  8. Nope. Not a good time to buy property. The market is signaling this with the tightened credit standards. What for prices to finish dropping, then we’ll issue bonds for the money.

    TakeFive (7c6fd5)

  9. Yes, there is a reason why vets have more problems with loans than many other people.

    They were in low-paying jobs all over the world protecting your sorry ***** instead of building up a credit history. How’s that?

    If you think “supporting the vets” means clapping at the airport or neglecting to spit on them, then by all means vote against this.

    GaryS (1a3d23)

  10. Another aspect of these bonds…
    Since there has never been a default on Cal-Vet Bonds, they enjoy the highest credit rating, and subsequently the lowest interest rates, of any bonds issued by CA.
    Your vote is authorizing the state to sell these bonds, it does not cost you any money.
    You will not have to bail-out the vets who have had your back all the years that you have enjoyed on this Earth.
    Or, you just don’t give a damn!

    Another Drew (184a22)

  11. Comment by TakeFive — 11/4/2008 @ 1:41 pm

    Are you for real?
    If you said that to my face, I would strike you down – and I am not a violent person!

    What a remarkable display of ignorance (of the current CA RE market), and Bigotry!

    I yield the soapbox, I’m done on this subject.

    Another Drew (184a22)

  12. Of course I support our soldiers, Another Drew, which I mentioned in my original comment… including my 3 cousins who joined the Army post-9/11 who have, between them, served something like 8 tours in Iraq, on the front lines, if not beyond the front lines. But despite the still too-low pay, they don’t think of themselves as charity cases and they’re not looking for government assistance beyond their paycheck. And most of them are finding that the job market favors veterans because of their excellent training and leadership skills.

    If there was a proposal to have taxpayers give every veteran $1 million, would we be allowed to question that without being linked to the nasty spitters (who I would happily punch out should they assault any of our servicemen in that way in my presence), GaryS?

    AnotherDrew, the thing is, we’re not in WWI anymore. Certainly our veterans continue to suffer significant injuries in service to us, and if California wanted to supplement the relatively poor funding for healthcare provided by the VA, I’d be fine with that. If they wanted to provide additional disability benefits to veterans who, because of physical injury or even severe emotional trauma can no longer work profitably, I’d be fine with that. But to guarantee mortgage loans of all veterans whatsoever? I just don’t see it.

    PatHMV (653160)

  13. Ditto to what Another Drew and GaryS said.

    I’m in California. Guess how I voted?

    kitty (eaf855)

  14. I’m concerned when vets don’t get what they DID bargain for, but I’m not terribly moved by a plea to give them benefits — however just they may be — for which they did NOT bargain.

    There are lots of “deserving” groups that may seek special deals by dint of propositions, bonds and whatnot. How about another $1B for firemen? Another $4B for sworn police officers? On what PRINCIPLED basis can we say yes to vets and no to others who lay their life on the line to preserve our liberty and safety?

    We’re deeply in debt. It’s nice that this particular measure supposedly is lower risk-of-default than most, but it’s still more debt service for a state that is all but immobilized under a mountain of debt already. Enough.

    Mitch (890cbf)

  15. AD, the main difference is that those WWI, WWII, Korean War, and Vietnam vets all were drafted.

    The folks today are volunteers. A free choice made freely, and knowing what it could mean. The market is far more open than it was even 30 years ago.

    Dr. K (fe18de)

  16. Comment by PatHMV — 11/4/2008 @ 2:03 pm

    One last note…
    I am assured by your post that your family members will not be applying for G.I.Bill benefits upon seperation, and therefore, saving the taxpayers of the United States further costs of their military service beyond their active duty.
    Thank you.

    Another Drew (184a22)

  17. disclosure: I am a vet, but a reservist who’s active duty time was completely for training, so I don’t qualify for any military benefits.

    There is no way to properly compensate people who serve and may have to put their life on the line during that service. Therefore we should always find ways to give them these extra benefits that give great “bang for the buck”. It helps the veteran a lot, but costs us a minimal amount in administrative effort.

    Firefighters and Police are also to be respected, but military face people who’s job it is to kill or maim them. I would not oppose such programs for police and firefighters if there is great “bang for the buck.”

    Ken in Camarillo (aa2192)

  18. Suppose we issue $1 billion in bonds at 5%, then lend to Vets at 5%. We collect and spend $50 million in interest, so it looks like a wash.

    However the bond buyers don’t pay federal or state income tax on the income. They avoid 9% state tax ($4.5 million) and 30% federal tax ($15 million).

    “Prop. 12 won’t likely cost state taxpayers anything. Not one cent.” is flat out wrong. Does have a Reader’s Rep? I would like to demand a correction.

    TomHynes (c43c0a)

  19. Geeze, California, and probably the nation, is in big big trouble. We spend billions upon billions on education for illegal aliens, welfare for them, pay directly and indirectly for their crime and health care costs, and more, and that’s all OK. But an essentially no-cost benefit for vets who risked their lives and gave up a big hunk of their youth to protect us is “too much”.

    Just unfreaking believable. And disgusting. What the hell has America come to?

    GaryS (1a3d23)

  20. Just a bunch of fucking ingrates, Gary.

    Another Drew (184a22)

  21. With all due respect, Justin, you wait until 12:35 pm on Election Day to make this argument? Probably 60+% of voters have already cast their ballots by that time. I hope you can sway a few people, but this argument was needed last week when people were beginning to vote.

    JVW (646f59)

  22. AD, the main difference is that those WWI, WWII, Korean War, and Vietnam vets all were drafted

    Tell that to my Uncle who was born in Italy, emigrated to the United States, and volunteered to go to France, and was gassed in the trenches for his troubles.

    You have no idea.

    Another Drew (184a22)

  23. Well, Another Drew and GaryS, you’ve demonstrated that you have no interest in actually debating the issue, resorting to name-calling. I notice that you didn’t answer my question regarding a ballot proposition to give $1 million to each and every veteran. Would opposition to that be anti-military? Make all who opposed it “a bunch of fucking ingrates”? What a fucking moron you are, if that’s the best argument you can come up with.

    Do I oppose the GI Bill? No, in part because it’s part of the promise made to our soldiers when they sign up. That’s part of the promise we made to them when they signed up.

    As TomHynes notes, tax free bonds are not “free money.” California’s issuance of tax free bonds to help somebody (who may or may not actually need the help) get a below-cost mortgage actually costs taxpayers all across the country extra money. All the purchasers of those tax-free bonds, if they invested in some normal, for-profit mortgage company, would have to pay income taxes on the interest they earn.

    Really, it’s a wonderful thing for California to do, because it doesn’t cost YOUR taxpayers terribly much money. The tax burden is borne by federal taxpayers through the loss of the tax revenue the government would otherwise receive.

    But I’m done with this thread; I’ve got better things to do than talk with idiots who feel compelled to falsely demonize me as somebody who doesn’t “support the troops” simply because I ask for a little bit more justification regarding one particular benefit that California voters were being asked to extend to our veterans.

    PatHMV (653160)

  24. Comment by PatHMV — 11/5/2008 @ 7:19 am

    Excuse me!
    There was no GI Bill when millions were drafted into the service in WW-2.
    There was no GI Bill when I enlisted in the early 60’s.
    Millions have gone into the service just for the privilege of serving, not for some paycheck.
    And Yes, I may be a Fucking Moron, for continuing to believe that Americans’ care about the men and women who put their ass on the line every day and every night in some shithole somewhere in the world.
    But, this argument was about a program that was for the benefit of California citizens who defended their country, a benefit that has not one red-cent of cost to other Californians, other than to think that somebody might be getting something that you’re not – but then, without actually serving, you don’t deserve that benefit, do you?
    All municipal bonds everywhere enjoy tax-free benefits on the Federal level. You don’t like that, have your Congressman, or Senator, introduce a bill to repeal the law. On the state level, muni’s are only tax-free to citizens of the state from whence the bond is issued. In other-words, if you live in NY, and buy CA muni’s, you still have to pay NY income tax on the income from that bond.
    And, we are not extending this benefit to your veterans, it is only available to vets who were CA citizens when they enlisted, and return to CA after their service ceases.
    It doesn’t cost you a thing.
    If you don’t live in CA, why are we having this discussion?
    Get Lost.

    Another Drew (579482)

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