BILL ANALYSIS Ó
AB 621
Page 1
Date of Hearing: April 17, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 621 (Wagner) - As Amended: March 19, 2013
SUBJECT : Local government: bonds.
SUMMARY : Prohibits local agencies from entering into financial
or legal advisory relationships or underwriting relationships
with an individual or firm regarding a bond issue
if that individual or firm, or specified related persons,
provided or will provide bond campaign services to the bond
campaign. Specifically, this bill :
1)Prohibits a local agency from entering into a financial
advisory, legal advisory, underwriting, or similar
relationship with an individual or firm, with respect to a new
issue of bonds that requires voter approval on or after
January 1, 2014, if that individual or firm, or an employee,
agent, or person related to an employee or agent of the
individual or firm, provided or will provide bond campaign
services to the bond campaign.
2)Defines the term "related" to include, but not be limited to,
a family relationship by blood or marriage, a financial
relationship, an affiliation between business associations, or
business associations with directors or principals in common.
3)Defines the term "bond campaign services" to include
fundraising, donation by the individual or firm to the bond
campaign, public opinion polling, election strategy and
management, organization of campaign volunteers,
get-out-the-vote services, development of campaign literature,
and advocacy materials.
4)Specifies that the definition of "bond campaign services" does
not include either of the following:
a) Advice and support related to the preparation of tax
rate statements and other documentation required for
inclusion in the voter pamphlet published by the applicable
county registrar of voters; or,
b) Public opinion polling that is conducted before a bond
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measure is placed on the ballot for the purposes of
gathering information regarding, and evaluating the
potential for, the adoption of the bond measure by the
electorate.
EXISTING LAW :
1)Provides that it is unlawful for any elected state or local
officer, including any state or local appointee, employee, or
consultant, to use or permit the use of public resources for a
campaign activity, or personal or other purposes which are not
authorized by law, and provides for civil penalties for the
violation.
2)Makes it a crime to use school district or community college
district funds, services, supplies or equipment to urge the
support or defeat of any ballot measure or candidate.
3)Requires, before selling bonds, the governing board of a
school district or community college district to disclose
specified information about the method of sale, the identity
of the bond counsel, underwriter, and financial adviser
involved in the sale, and cost estimates. After a bond sale,
the governing board must present actual cost information at
its next scheduled public meeting and submit an itemized
summary of costs to the California Debt and Investment
Advisory Commission.
4)Allows local agencies to issue and sell general obligation
(GO) bonds through the negotiated sale method, and imposes
nearly identical requirements as listed in 3), above, on any
city, county, city and county, or special district that sells
bonds at a negotiated sale.
FISCAL EFFECT : None
COMMENTS :
1)This bill prohibits a local agency from entering into a
financial advisory, legal advisory, underwriting, or similar
relationship with an individual or firm, with respect to a
bond issue that requires voter approval on or after January 1,
2014, if that firm or individual provided, or will provide
bond campaign services to the bond campaign. This prohibition
also applies to any employee, agent, or person related to an
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employee or agent of that individual or firm. Additionally,
the bill clarifies the definition of "bond campaign services"
and defines the types of relationships that are prohibited.
This bill is sponsored by the author.
2)According to the author's office, "Currently, it is illegal
for school officials to use public funds to hire political
consultants to pass a bond measure. However, all over the
state, school districts are having their banks or outside
financial advisors hire political strategists to run the bond
campaigns?AB 621 seeks to close this loophole that is being
exploited for the sake of a desire to build with taxpayer
money."
3)Until the past few years, school districts and community
college districts were the only local agencies authorized to
sell GO bonds at a private sale using the negotiated sale
method.
AB 1388 (Hernandez), Chapter 529, Statutes of 2009, changed this
by authorizing cities, counties and special districts to sell
GO bonds at a negotiated sale, under specified conditions.
The negotiated sale method provides a means of offering
municipal bonds in which the issuing entity and a selected
underwriter negotiate the terms of the issue, as opposed to
having multiple underwriting groups competitively bidding on
the issue to establish its terms.
4)County treasurers report that many local agencies issue bonds
in negotiated sales with underwriters or financial advisors
that also provide campaign services to help win voter approval
for the bonds. Pre-packaged campaign and underwriting
relationships may result in higher fees and less favorable
terms in bond issuances conducted in a negotiated sale. This
bill aims to curb these types of relationships.
5)Existing law makes it unlawful for any elected state or local
officer, including any state or local appointee, employee, or
consultant, to use or permit the use of public resources for a
campaign activity, or personal or other purposes which are not
authorized by law, and provides for civil penalties for the
violation. Current law also makes it a crime to use school
district or community college district resources to support
the passage or defeat of any ballot measure. It also requires
specified disclosures to the public about a bond sale before
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and after the sale, including negotiated sales by local
agencies. The Committee may wish to ask the author why the
bill is necessary in light of existing law.
6)State Treasurer Bill Lockyer on March 25 requested an opinion
from the State Attorney General (AG) on several questions
related to school districts that award underwriting firms an
exclusive, sole-source contract to underwrite all
voter-approved bonds in an election in return for obtaining
pre-election campaign services from the underwriter. The
Committee may wish to consider whether this bill is premature
given that the AG's opinion has not yet been rendered.
7)This bill includes in its definition of "bond campaign
services" a donation to the bond campaign by the individual or
firm providing financial advisory, legal advisory, or
underwriting services. The Committee may wish to consider
whether donations to a bond campaign constitute a "service,"
or whether such donations arguably should remain in the sphere
of permissible political activity.
8)Several attempts have been made to enact the provisions of
this bill. AB 1045 (Norby, 2011) was nearly identical to this
bill. AB 1045 passed this Committee on a 5-3 vote on May 11,
2011. AB 1045 subsequently failed passage in the Senate
Governance and Finance Committee. SB 1461 (Ashburn, 2010), a
substantially similar bill, was heard in Senate Local
Government and failed passage on May 5, 2010. SB 623
(Ashburn, 2010) was gutted and amended in the Assembly with
virtually the same language as SB 1461. SB 623 passed the
Assembly Local Government Committee on a 5-2 vote and passed
the Assembly Floor, but ultimately died in the Senate Local
Government Committee. SB 799 (Wiggins, 2009) was another
nearly identical bill and was never heard in committee.
Another similar bill,
AB 2011 (Cook, 2008) was heard in the Assembly Local Government
Committee and also failed passage.
9)Support arguments : The author contends that "When the bonds
are approved they end up costing the taxpayers millions of
dollars. For example, one $22 million borrowing will end up
costing taxpayers nearly $280 million. The reason that it
grows to such a large amount of debt being that these are
capital appreciation bonds, which no payments are required for
up to 40 years while interest builds; interest which the
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taxpayers have to cover?(this bill) will hopefully save
taxpayers millions of dollars."
Opposition arguments : Opponents argue that this bill will
limit choice regarding which campaign-services company a
school district could hire, noting that more than 50% of bond
programs are implemented by full service firms, which would
increase costs due to reduced competition. They also assert
that the bill's restriction on campaign contributions will
make it more difficult for small district community
organizations to raise funds to pass school bonds. Opponents
contend that this bill will harm urban, rural, small, and
predominantly poor communities, and that it is redundant to
existing law.
10)This bill is double-referred to the Elections and
Redistricting Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of County Treasurers and Tax Collectors
Opposition
Black Oak Mine Unified School District
Cabrillo Unified School District
Morgan Hill Unified School District
Mt. Diablo Unified School District
Shasta Union High School District
Small School Districts' Association
Southern Humboldt Unified School District
Wilson Elementary School
Individual letters (15)
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958