BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 192                      HEARING:  3/16/11
          AUTHOR:  Governance & Finance CommitteeFISCAL:  No
          VERSION: 2/8/11                       TAX LEVY: No
          CONSULTANT: Detwiler                  

                    SECOND VALIDATING ACT OF 2011 (URGENCY)
          

          Validates the organization, boundaries, acts, and bonds of 
          state and local agencies.


                           Background and Existing Law  

          For over 70 years, the Legislature's annual Validating Acts 
          have boosted the stability and credit ratings of state and 
          local bonds.  The Validating Acts cure public officials' 
          mistakes that might otherwise invalidate boundary changes 
          or bond issues.  They also correct errors or omissions by 
          local agencies and state departments.  The Acts do not 
          protect against fraud, corruption, or unconstitutional 
          actions.


                                   Proposed Law  

          Senate Bill 192 validates the organization, boundaries, 
          acts, proceedings, and bonds of the state government, 
          counties, cities, special districts, school districts, and 
          redevelopment agencies, among other public bodies.


                               State Revenue Impact
          
          No estimate.

                                     Comments  

          1.   Purpose of the bill  .  The annual Validating Acts 
          protect investors from the chance that a minor error might 
          undermine the legal integrity of a public agency's bond.  
          Banks, pension funds, and other investors will not buy 
          public agencies' securities unless they are sound 
          investments.  Investors rely on legal opinions from bond 




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          counsels to assure the bonds' credit worthiness.  Without 
          legislative action to cure technical errors, bond counsels 
          are reluctant to certify bonds as good credit risks.  SB 
          192 gives legislative protection to public agencies and 
          private investors.

          2.   Which mistakes  ?  The three Validating Acts cure 
          typographical, grammatical, and procedural errors.  They do 
          not forgive fraud, corruption, or unconstitutional acts.  A 
          local official who makes a technical error will find 
          reassurance in the Validating Acts, while a corrupt 
          official faces prosecution regardless of the Acts.

          3.   Taxpayers benefit  .  By insulating state and local bonds 
          against harmless errors, the Validating Acts save 
          taxpayers' money.  Strong legal opinions from bond counsels 
          result in higher credit ratings for state and local bonds.  
          Higher credit ratings allow state and local officials to 
          pay lower interest rates to private investors.  Lower 
          borrowing costs save money for taxpayers.

          4.   Why three  ?  Starting in the mid-1920s, the Legislature 
          passed separate validating acts for different types of 
          bonds, several classes of special districts, and various 
          local boundary changes.  By the late 1930s, the practice 
          was to pass annual validating acts (AB 2842, Bennett, 
          1939).  The current custom and practice is to pass three 
          Validating Acts that retroactively cure public officials' 
          mistakes.  The first two measures are urgency bills that go 
          into effect when they are chaptered.  SB 191 (First 
          Validating Act) will probably reach Governor Brown's desk 
          this spring, validating errors made before the date on 
          which the bill is chaptered.  SB 192 (Second Validating 
          Act) will reach Governor Brown in August, validating 
          mistakes made after SB 191.  The Third Validating Act (SB 
          193) will take effect on January 1, 2012, covering the 
          period between the chaptering of SB 192 and the end of 
          2011.


                         Support and Opposition  (3/10/11)

           Support  :  State Controller John Chiang, State Treasurer 
          Bill Lockyer, American Federation of State, County & 
          Municipal Employees, Association of California Water 
          Agencies, California Association of Local Agency Formation 





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          Commissions, California Association of Recreation and Park 
          Districts, California Association of Sanitation Agencies, 
          California Redevelopment Association, California Special 
          Districts Association, California State Association of 
          Counties, Fire Districts Association of California, 
          Mosquito and Vector Control Association of California, 
          Regional Council of Rural Counties, State Association of 
          County Auditors, Urban Counties Caucus, County of 
          Sacramento, Midpeninsula Regional Open Space District.

           Opposition  :  Unknown.