BILL ANALYSIS �
AB 1045
Page 1
Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 1045 (Norby) - As Introduced: February 18, 2011
SUBJECT : Local government: bonds
SUMMARY : Prohibits a local agency from entering into a
financial advisory, legal advisory, underwriting, or other
similar relationship with an individual or firm, with respect to
a bond issue that requires voter approval on or after January 1,
2012, 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,
2012, 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 not be limited to, a family relationship by blood
or marriage, a financial relationship, an affiliation between
business associations, or business associations with directors
or principals in common.
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
inclusion in the voter pamphlet published by the applicable
county registrar of voters; or,
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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)This bill 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,
2012, 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 the last few years, 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.
The negotiated sale method provides a means of offering
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municipal bonds in which the issuing entity and a selected
underwriter negotiate the terms of the issue, as opposed to
having multiple underwriting groups competitively bidding on
the issue to establish its terms.
3)County treasurers report that many local agencies issue bonds
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 states 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 Legislature may wish to
ask the author why the bill is necessary in light of existing
law.
5)SB 1461 (Ashburn, 2010), a substantially similar bill, was
heard in Senate Local Government and failed passage on May 5,
2010. SB 623 (Ashburn, 2010) was gutted and amended in the
Assembly with virtually the same language as SB 1461. SB 623
passed the Assembly Local Government Committee on a 5-2 vote
and passed the Assembly Floor, but ultimately died in the
Senate Local Government Committee. Another similar bill, AB
2011 (Cook) was heard in the Assembly Local Government
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. By prohibiting the bundling of
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these services, this bill will help to stop an 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 seeking to stop, and therefore, the
Legislature 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
CA Association of County Treasurers and Tax Collectors (CACTTC)
Kern County Superintendent of Schools
Orange County Board of Supervisors
Opposition
Association of CA School Administrators (ACSA)
George K. Baum & Company
Small School Districts Association
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958