The California Department of Veterans Affairs (CalVet) oversees eight veterans homes throughout the State that provide rehabilitative, residential, and medical care to eligible veterans residing in California. State law authorizes the Department of General Services (DGS), with CalVet’s consent, to lease property not immediately needed at the veterans homes to third parties so long as the lease terms are in the best interests of the home. CalVet and DGS have entered into a number of leases, including leases for a theater, museum, and golf course, most of them at the Yountville veterans home (Yountville). We reviewed active leases of the veterans home properties as well as the processes of CalVet and DGS for setting and collecting lease payments and monitoring compliance with the terms of those leases. We also reviewed CalVet’s process for permitting short-term uses of veterans home property by third parties, such as for fun runs and cycling events. This report draws the following conclusions:
CalVet and DGS Mismanaged Veterans Home Property by Entering Into Agreements That Do Not Align With State Law or the Interests of the Veteran Residents
CalVet and DGS have entered into leases without ensuring that they were in the best interests of Yountville and that do not comply with state law. In fact, neither department had developed criteria for determining whether a lease is in the best interests of a veterans home. CalVet has also permitted four entities to occupy space at Yountville without written agreements to protect the State from liability and without compensating the home. Additionally, CalVet’s failure to adequately oversee state-owned employee housing (employee housing) at Yountville has resulted in leases that expose the State to liability. Finally, despite a history of questionable leases of veterans home properties, CalVet did not implement policies and procedures to ensure that leases comply with state law.
CalVet and DGS Have Inadequately Overseen Rental Fees and Payments, Reducing the Funds Collected and Reinvested for the Benefit of the Veteran Residents
DGS cannot demonstrate that the State received appropriate value for leases of state property because it did not document market value assessments before establishing rental rates for those leases. Further, CalVet and DGS have not ensured that the rental revenue that they do collect has been directed to the veterans homes as required by state law, and CalVet has failed to collect all of the rent owed to it by lessees. In total over the last three fiscal years, CalVet and DGS have not ensured that $610,000 in rent was directed to the veterans homes. CalVet also failed to regularly assess the fair market rent for employee housing at Yountville, resulting in a $152,000 gap in 2018 between the current rents and the fair market rent.
CalVet’s Poor Oversight of the Veterans Home Properties Has Exposed the State to Risk and Caused CalVet to Forgo Revenue That Would Have Benefited Veterans
CalVet allowed third parties to host a variety of events at the veterans homes, such as cycling events and fun runs, sometimes without obtaining written agreements to protect the State against liability. CalVet also allowed some third parties to use the properties without compensating the homes, forgoing revenue that could have been used to benefit veterans. Furthermore, CalVet has failed to monitor compliance with the terms of its leases. In one instance, a lessee had entered into a contract allowing a company to launch hot air balloons daily from a veterans home property in violation of its lease terms. Although CalVet has been aware of this activity for two years, it has not acted to stop it.
Summary of Recommendations
The Legislature should amend state law to do the following:
- Require CalVet to define what types of short-term uses of veterans home properties are in the best interests of the home and to include in all short-term use agreements conditions that protect the State’s interests.
- Prohibit CalVet from approving any short-term uses of the veterans home properties that do not meet the best interests of the home.
CalVet should do the following:
- Implement policies for ensuring that leases of veterans home properties comply with state law.
- Report all lease proceeds to the Legislature and request appropriation of those funds to the veterans homes.
- Revise its employee housing leases to include terms that protect the State and ensure that rental rates for its employee housing units are consistent with the market rates.
DGS should adopt, in consultation with CalVet, a definition of what constitutes the best interests of the veterans homes and deny any requests for leases that do not meet those criteria.
DGS should document its assessment of market value on all veterans home properties before leasing the property and set rental rates equivalent to market rent.
DGS should report the lease proceeds it collects to the appropriate authorities to ensure that the proceeds are directed to the veterans homes.
CalVet agreed with or stated that it would implement all of our recommendations. DGS generally agreed with most of our recommendations, but disagreed that it should collect payments for all leases of veterans home property.