BILL ANALYSIS
SB 623
Page 1
Date of Hearing: June 30, 2010
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 623 (Ashburn) - As Amended: May 24, 2010
SENATE VOTE : Vote not relevant
SUBJECT : Local government: bonds.
SUMMARY : 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, 2011,
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. 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
bond issue that requires voter approval on or after January 1,
2011, 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, for purposes of the bill, the term "related" to
include, but is not limited to, a family relationship by blood
or marriage, a financial relationship, an affiliation between
business structures, or the sharing of one or more common
principals.
3)Defines, for purposes of the bill, the term "bond campaign
services" to include fundraising, 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
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inclusion in the voter pamphlet published by the applicable
county registrar of voters; or,
b) Public opinion polling that is conducted before a bond
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 to use 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)Allows local agencies to issue and sell general obligation
(GO) bonds through the negotiated sale method for a price at,
above, or below par value
FISCAL EFFECT : Unknown
COMMENTS :
1)SB 623 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,
2011, 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
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.
2)Until this year, 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.
3)County treasurers report that many local agencies issue bonds
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at negotiated sales using underwriters or financial advisors
that also provide campaign services to help win voter approval
for the bonds. According to the author, pre-packaged campaign
and underwriting relationships may result in higher fees and
less favorable terms in bond issuances conducted in a
negotiated sale, making tax payers the ultimate losers in
these bond campaigns. This bill aims to curb these types of
relationships.
4)Existing law 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 to use
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 [AB 714 (Canciamilla),
Chapter 154, Statutes
of 2002]. The Committee may wish to ask the author why the bill
is necessary in light of existing law.
5)SB 1461 (Ashburn), a substantially similar bill, was heard in
Senate Local Government and failed passage on May 5, 2010.
Another similar bill, AB 2011 (Cook) was heard in this
Committee in 2008 and also failed passage.
6)Support Arguments : The sponsor, the California Association of
County Treasurers and Tax Collectors (CACTTC), notes that in
many cases underwriters also provide campaign-related services
pro bono to public agencies as part of the negotiated
agreement, and that tax collectors report that the higher
costs of underwriting that they see in negotiated bond sales
are attributable to "free" campaign services that are being
covered in the bond sale. CACCTC states that this means that
taxpayers are paying for political campaigns. When firms
provide both bond campaign services and underwriting or
financial services under no-bid agreements with local
agencies, it may appear that public officials are spending
public funds on bond campaigns. By prohibiting the bundling
of these services, this bill will help to stop in appearance
of misuse of public funds.
Opposition Arguments : Existing law prohibits a local agency
from using public resources
to pay for any type of campaign services to promote the
passage of a bond. It can be argued that existing law already
prohibits the type of behavior that the author and sponsor are
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seeking to stop, and therefore, the Committee may wish to
consider whether the bill is unnecessary. Also, there is
nothing inherently improper about an agency selling bonds at a
negotiated sale with an underwriter that managed or supported
the campaign to approve the bond.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of County Treasurers and Tax Collectors
[SPONSOR]
Kern County Superintendent of Schools
Kern County Taxpayers Association
Opposition
Community College League
Small School Districts' Association
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958