Schwarzenegger Signs Performance Bond Legislation
Aug. 25, 2010
Gov. Schwarzenegger has signed CBIA-sponsored legislation that will codify and extend the existing procedures for the release of homebuilder performance securities.
Authored by Sen. Lou Correa, D-Santa Ana, SB 1019 extends provisions in existing law that determine the process by which a homebuilder’s performance security is released by a local government once public improvements have been completed.
Approved unanimously by the Assembly earlier this month, Schwarzenegger signed the bill Monday night without comment.
“I am pleased that the Governor signed SB 1019, a much-needed action for job recovery in California's building industry,” said Correa. “With the release of performance security bonds, builders can utilize this bonding capacity where new construction opportunities exist, thus creating the new construction jobs California needs.”
Since the program’s inception in 2005, the performance security framework has worked extremely well and has kept projects – and the improvements tied to the development – moving forward in timely manor.
When a builder/developer builds a new subdivision, he or she must provide the city or county with an improvement or performance bond as security to insure that the public improvements such as streets, parks, sidewalks, traffic signals and other infrastructure that will be constructed and subsequently turned over to the public entity will be built to the applicable specifications and standards. Typically, the bond amount is set at a level sufficient to permit the construction according to the specifications with builders paying a surety company a premium to obtain the bond.
When the work is completed, inspected and accepted by the local jurisdiction, the public works director or the local legislative body releases the bond.
Up until January of 2006, state law authorized a city or county to develop its own policies regarding when the work is completed, when it is accepted and whether there should be a partial release of the bond and, ultimately, when the entirety of the bond should be released.
In 2006, the Legislature approved legislation sponsored by CBIA that established for the first-time in California, a statewide statutory process for the partial or phased release of performance bond security in order to curb the practice of slow security release engaged in at that time by numerous jurisdictions across the state. That bill carried with it a five-year evaluation period or sunset clause. If, by the beginning of 2011, subsequent legislation had not been enacted to make the law permanent, it would have expired.
• Read the legislation
