BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 193| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: SB 193 Author: Senate Governance and Finance Committee Amended: As introduced Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 8-0, 3/16/11 AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, La Malfa, Liu NO VOTE RECORDED: Kehoe SUBJECT : Third Validating Act of 2011 SOURCE : Author DIGEST : This bill enacts the Third Validating Act which 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. ANALYSIS : 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. This bill enacts the Third Validating Act which validates CONTINUED SB 193 Page 2 the organization, boundaries, acts, proceedings, and bonds of the state government, counties, cities, special districts, school districts, and redevelopment agencies, among other public bodies. Comments 1. 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 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. This bill gives legislative protection to public agencies and private investors. 2. 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. 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. 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 CONTINUED SB 193 Page 3 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 3/16/11) State Controller John Chiang State Treasurer Bill Lockyer American Federation of State, County and Municipal Employees Association of California Water Agencies California Association of Local Agency Formation Commissions California Association of Recreation and Park Districts California Association of Sanitation Agencies California Municipal Utilities Association California Redevelopment Association California Special Districts Association California State Association of Counties County of Sacramento East Bay Municipal Utility District Fire Districts Association of California Midpeninsula Regional Open Space District Mosquito and Vector Control Association of California Regional Council of Rural Counties State Association of County Auditors Urban Counties Caucus AGB:mw 3/17/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED SB 193 Page 4 CONTINUED