BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 463| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 463 Author: Ducheny (D) Amended: 8/22/06 Vote: 21 SENATE TRANSPORTATION COMMITTEE : 12-1, 4/5/05 AYES: Torlakson, Ashburn, Cedillo, Ducheny Kehoe, Lowenthal, Machado, Maldonado Murray, Runner, Simitian, Soto NOES: McClintock NO VOTE RECORDED: Margett SENATE FLOOR : 37-1, 4/21/05 AYES: Aanestad, Ackerman, Alarcon, Alquist, Ashburn, Battin, Bowen, Campbell, Cedillo, Chesbro, Cox, Denham, Ducheny, Dutton, Escutia, Figueroa, Florez, Hollingsworth, Kehoe, Kuehl, Lowenthal, Machado, Maldonado, Margett, Migden, Morrow, Ortiz, Perata, Poochigian, Romero, Runner, Scott, Simitian, Soto, Speier, Torlakson, Vincent NOES: McClintock NO VOTE RECORDED: Dunn, Murray SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 68-4, 8/30/06 - See last page for vote SUBJECT : State Route 125 toll road: franchise agreement extension SOURCE : California Transportation Ventures CONTINUED SB 463 Page 2 DIGEST : This bill provides a 10-year extension (45 years total) to the franchise agreement between the state and the private entity constructing and operating the State Route 125 toll road in San Diego, if specified conditions are met. Assembly Amendments add the terms and conditions related to the extension. ANALYSIS : AB 680 (Baker), Chapter 107, Statutes of 1989, authorized the Department of Transportation (Department) to enter into agreements with private entities for the construction by, and lease to, private entities of four transportation demonstration projects (toll roads). The bill authorized the department to lease rights of way, grant easements, and take related actions to enable private entities to construct transportation facilities supplemental to existing state-owned transportation facilities and lease those facilities to the private entities for up to 35 years. Toll roads constructed under these provisions are owned by the state while operated by the private entities under a franchise agreement, and the facilities revert to the state at the end of the lease period. The private entities are allowed by the law to earn a "reasonable return" on their capital investment, the amount of which return is stipulated in the franchise agreement. During the term of the franchise agreement, the private entity pays local property taxes as well as the operational costs of the toll road, including the department's maintenance costs and the California Highway Patrol's enforcement costs. This bill provides for a 45-year lease period, rather than 35-year, for the State Route (SR) 125 toll road franchise lease agreement in San Diego County under the following conditions: 1.Requires the franchise agreement to be amended to provide for a lease period of up to 45 years, if that term is agreed to by the private toll road operator and the CONTINUED SB 463 Page 3 Department of Transportation (Caltrans), with the concurrence of the San Diego Association of Governments (SANDAG), the County of San Diego, the City of San Diego, and the City of Chula Vista. 2.Allows the tolls collected during any extension period to reimburse the private operator for project costs it incurred on behalf of Caltrans or SANDAG; to compensate or reimburse the private operator for project costs or other impacts for which it is entitled to compensation under existing agreements; to reimburse Caltrans or SANDAG for project development costs under the existing franchise agreement; for the private operator's capital outlay, operational, toll collection, or administrative costs; for reimbursement of the state's police or maintenance costs; and for a reasonable return on the private operator's investment. The franchise agreement under these circumstances must require excess revenue to be applied to the repayment of the private operator's indebtedness, or paid into the State Highway Account for the benefit of the San Diego region, or both. 3.Allows Caltrans and SANDAG, in the event no franchise amendment is executed by January 31, 2010, or if a franchise agreement extends the lease period for less than 10 additional years, to operate and maintain the toll road for any additional period up to 10 years following the expiration of the agreement. This would have to be concurred with by the County of San Diego, the City of San Diego, and the City of Chula Vista. Resulting toll revenues would be used to reimburse Caltrans or SANDAG for project costs under the existing franchise agreement. 4.Requires the franchise agreement to remain in full force unless amended pursuant to this bill and declares that this bill does not modify any rights or obligations of the parties to the agreement. 5.Allows SANDAG to operate the SR 125 project and collect tolls upon expiration of the franchise agreement, or the extended private toll franchise, if approved by a 2/3 vote of the SANDAG board, pursuant to an expenditure plan to fund projects in the corridor which extends along CONTINUED SB 463 Page 4 State Route 125 to the California-Mexico border. These projects would be limited to highway and street projects, truck-only lanes, and transit services and facilities. Changes to the expenditure plan would also require a 2/3 vote of the SANDAG board. 6.Allows SANDAG to operate the facility by itself or in cooperation with Caltrans, with toll revenues being available for operations, toll collection, administration, and reimbursement of the state's maintenance and police service costs. Background The SR 125 project consists of a 3.2-mile non-toll freeway segment and a 9.3-mile toll facility in eastern San Diego County. A private entity, California Transportation Ventures (CTV), is constructing both segments, including the non-toll segment on behalf of the state, with the entire facility expected to be opened for travel in October 2006. The extension of SR 125 has been included in the state's freeway plans since 1959, and the route was added to San Diego's 20-year Regional Transportation Plan in 1984. Following the enactment of AB 680 in 1989, plans were initiated for the facility currently under construction. In 1991, a franchise agreement was completed and initial project studies and design concepts were begun. Development and project approval proved lengthy and final environmental clearance was not granted until 2001. In 2003, the project received financing and broke ground. Under the franchise agreement with the state, CTV's "reasonable return" on investment is capped at 18.5 percent over the 35-year period of the lease. CTV's capital and related investment is currently estimated at $635 million, or more than 50 percent higher than the projected $400 million project cost in 1990. CTV states that approximately $40 million of the project's costs are for mitigation expenses, including local parks, playing fields, campgrounds, etc. In addition, the franchise will pay approximately $5 million/year in property taxes throughout the time period of the agreement, as well as the road CONTINUED SB 463 Page 5 maintenance and enforcement costs. The SR 125 project will open as a four-lane freeway with five interchanges (with two more planned), with sufficient right-of-way to permit later expansion as needed. The facility will operate as a fixed-rate toll road on the 9.3-mile leased portion of the route. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/28/06) California Transportation Ventures (source) Associated General Contractors of America, San Diego Chapter Chula Vista Chamber of Commerce City of Chula Vista Greg Cox, San Diego County Board of Supervisors Otay Mesa Chamber of Commerce San Diego Association of Governments OPPOSITION : (Verified 8/28/06) La Raza Roundtable Department of Finance ARGUMENTS IN SUPPORT : According to the Senate Transportation and Housing Committee analysis, the source of the bill states that since the project was approved, permitting delays, community negotiations, environmental and related mitigation, and financing and construction cost increases together have increased the project's costs substantially. Because of the 35-year limit on the franchise agreement, CTV states that it will not be able to earn the return on investment necessary to cover the increased costs. Extending the term of the agreement by 10 years will provide enough time to earn a reasonable return on the total investment without changing the terms (percent) or capped return amount. The proponents contend that charging higher tolls is not an available option to increase the company's return because the market will not bear substantially higher tolls. CTV CONTINUED SB 463 Page 6 also notes that during the proposed 10-year franchise extension, it will pay another $50 million or more in property taxes, as well as continue to pay the facility's operational costs for the state. ARGUMENTS IN OPPOSITION : The Department of Finance opposes this bill, "because there are currently no grounds for the state to agree to an increase in the period of time the public must pay tolls after having negotiated a contract with the franchisee, without receiving any benefit in return. During this extension the public would potentially pay hundreds of millions of dollars in additional tolls. Inasmuch as the toll segment is not yet completed, toll rates have not been set, and the vehicular usage for the route is as yet unknown, we believe that it is premature to extend the lease period on this particular route simply to ensure the franchisee a larger return on their investment." ASSEMBLY FLOOR : AYES: Aghazarian, Arambula, Baca, Bass, Benoit, Berg, Bermudez, Blakeslee, Calderon, Canciamilla, Chavez, Chu, Cohn, Coto, Daucher, De La Torre, DeVore, Dymally, Emmerson, Evans, Frommer, Garcia, Haynes, Jerome Horton, Shirley Horton, Houston, Huff, Jones, Karnette, Keene, Klehs, Koretz, La Malfa, La Suer, Laird, Leno, Leslie, Levine, Lieber, Lieu, Liu, Matthews, McCarthy, Montanez, Mountjoy, Mullin, Nakanishi, Nation, Niello, Parra, Pavley, Plescia, Richman, Ridley-Thomas, Sharon Runner, Ruskin, Salinas, Spitzer, Strickland, Torrico, Tran, Umberg, Villines, Walters, Wolk, Wyland, Yee, Nunez NOES: Maze, Nava, Saldana, Vargas NO VOTE RECORDED: Bogh, Chan, Cogdill, Goldberg, Hancock, Negrete McLeod, Oropeza, Vacancy JJA:nl 8/31/06 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED