BILL ANALYSIS Ó SB 971 Page 1 Date of Hearing: May 4, 2016 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Susan Talamantes Eggman, Chair SB 971 (Committee on Governance and Finance) - As Introduced February 8, 2016 SENATE VOTE: 38-0 SUBJECT: Validations. SUMMARY: Validates the organization, boundaries, acts, proceedings, and bonds of the state government, counties, cities, special districts and school districts, among other public bodies. EXISTING LAW allows agencies to make changes to the organization, boundaries, acts, proceedings, and bonds of the state, cities, counties, special districts, school districts, and other local agencies. FISCAL EFFECT: None COMMENTS: 1)Bill Summary and Background on Validating Acts. The annual SB 971 Page 2 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. 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. 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. 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. 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 reach Governor Brown in August, validating mistakes made after SB 971. The Third Validating Act (SB 973) will take effect on January 1, 2017, covering the period between the chaptering of SB 972 and the end of 2016. SB 971 Page 3 2)Urgency Clause. This bill contains an urgency clause and requires a two-thirds vote of each house. REGISTERED SUPPORT / OPPOSITION: Support Alameda Local Agency Formation Commission American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO Association of California Healthcare Districts Association of California Water Agencies California Association of Local Agency Formation Commissions (CALAFCO) California Special Districts Association California State Association of Counties California State Treasurer John Chiang SB 971 Page 4 Contra Costa Local Agency Formation Commission East Bay Municipal Utility District Imperial Local Agency Formation Commission Local Agency Formation Commission of Napa County Local Agency Formation Commission of Yolo County Rural County Representatives of California (RCRC) San Mateo Local Agency Formation Commission Urban Counties of California (UCC) Opposition None on file Analysis Prepared by:Debbie Michel / L. GOV. / (916) 319-3958 SB 971 Page 5