BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 971 |Hearing |3/30/16 |
| | |Date: | |
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|Author: |Committee on Governance and |Tax Levy: |No |
| |Finance | | |
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|Version: |2/8/16 |Fiscal: |No |
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|Consultant|Weinberger |
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FIRST ValidatinG ACT OF 2016 (URGENCY)
Validates the organization, boundaries, acts, and bonds of state
and local agencies.
Background
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 971 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
SB 971 (Committee on Governance and Finance) 2/8/16 Page 2
of ?
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 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 971 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. What's new ? In most years, the Legislature passes
validating acts containing language that is effectively
identical to the language in the preceding year's validating
acts. The three validating act for 2016 contain two substantive
differences from prior bills. Specifically, this year's bills:
Add "Enhanced Infrastructure Financing Districts" and
"Community Revitalization and Improvement Districts" to the
definition of a "public body" that is subject to the
validating acts' provisions.
Include redevelopment successor agencies in the
validating acts' definition of a "public body" solely for
the purpose of issuing bonds or incurring other
indebtedness subject to specified provisions of state law.
SB 971 (Committee on Governance and Finance) 2/8/16 Page 3
of ?
5. 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. The First Validating Act (SB 971) will probably
reach Governor Brown's desk this spring, validating errors made
before the date on which the bill is chaptered. The Second
Validating Act (SB 972) will become operative on September 1,
validating mistakes made after SB 971 was chaptered. The Third
Validating Act (SB 973) will take effect on January 1, 2017,
covering the period between SB 182's operative date and the end
of 2016.
Support and
Opposition (3/24/16)
Support : Alameda County LAFCO; Association of California
Healthcare Districts; Association of California Water Agencies;
California Association of Local Agency Formation Commissions;
California Special Districts Association; California State
Association of Counties; California State Treasurer John Chiang;
Contra Costa County LAFCO; East Bay Municipal Utility District;
Rural County Representatives of California; Urban Counties of
California; Yolo County LAFCO.
Opposition : Unknown.
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