BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 182                      HEARING:  3/13/13
          AUTHOR:  Governance & Finance CommitteeFISCAL:  Yes
          VERSION:  2/6/13                      TAX LEVY:  No
          CONSULTANT:  Weinberger               

                    SECOND VALIDATING ACT OF 2013 (URGENCY)
          

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


                           Background and Existing Law  

          For more than 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 182 validates the organization, boundaries,  
          acts, proceedings, and bonds of the state government,  
          counties, cities, special districts, and school districts,  
          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  
          182 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 181 (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 182 (Second Validating  
          Act) will reach Governor Brown in August, validating  
          mistakes made after SB 181.  The Third Validating Act (SB  
          183) will take effect on January 1, 2014, covering the  
          period between the chaptering of SB 182 and the end of  
          2013.


                         Support and Opposition  (3/7/13)

           Support  : State Controller John Chiang; American Federation  
          of State, County, and Municipal Employees, AFL-CIO;  
          Association of California Water Agencies; California State  
          Association of Counties;  East Bay Municipal Utility  





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          District; Rural County Representatives of California.


           Opposition  :  Unknown.