BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 192 HEARING: 3/16/11
AUTHOR: Governance & Finance CommitteeFISCAL: No
VERSION: 2/8/11 TAX LEVY: No
CONSULTANT: Detwiler
SECOND VALIDATING ACT OF 2011 (URGENCY)
Validates the organization, boundaries, acts, and bonds of
state and local agencies.
Background and Existing Law
For over 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 192 validates the organization, boundaries,
acts, proceedings, and bonds of the state government,
counties, cities, special districts, school districts, and
redevelopment agencies, 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
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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
192 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 191 (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 192 (Second Validating
Act) will reach Governor Brown in August, validating
mistakes made after SB 191. The Third Validating Act (SB
193) will take effect on January 1, 2012, covering the
period between the chaptering of SB 192 and the end of
2011.
Support and Opposition (3/10/11)
Support : State Controller John Chiang, State Treasurer
Bill Lockyer, American Federation of State, County &
Municipal Employees, Association of California Water
Agencies, California Association of Local Agency Formation
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Commissions, California Association of Recreation and Park
Districts, California Association of Sanitation Agencies,
California Redevelopment Association, California Special
Districts Association, California State Association of
Counties, Fire Districts Association of California,
Mosquito and Vector Control Association of California,
Regional Council of Rural Counties, State Association of
County Auditors, Urban Counties Caucus, County of
Sacramento, Midpeninsula Regional Open Space District.
Opposition : Unknown.