BILL ANALYSIS Ó 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 SB 182 -- 2/6/13 -- Page 2 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 SB 182 -- 2/6/13 -- Page 3 District; Rural County Representatives of California. Opposition : Unknown.