BILL ANALYSIS
SB 1350
Page 1
Date of Hearing: June 23, 2008
ASSEMBLY COMMITTEE ON TRANSPORTATION
Mark DeSaulnier, Chair
SB 1350 (Cedillo) - As Amended: June 17, 2008
SENATE VOTE : Not relevant
SUBJECT : Route 710 Freeway Gap Closure
SUMMARY : Sets forth provisions governing either a design-build
or public-private partnership (P3) contract for completion of
the Interstate 710 (I-710) freeway gap closure project.
Specifically, this bill :
1)Makes legislative findings and declarations regarding the need
to complete construction of the I-710 freeway gap closure
project.
2)Defines key terms, most notably "project" to mean the
construction of a tunnel closing the gap between I-710 and
I-210 in Los Angeles County.
3)Delineates roles, responsibilities, and authorities for the
California Department of Transportation (Caltrans) and the Los
Angeles County Metropolitan Transportation Commission (Metro),
as follows:
a) Caltrans is responsible for completing project
justification reports, securing environmental clearance
(including approval from the Federal Highway
Administration), and completing project scoping documents
(including project alignment, design documents, and
performance criteria) in enough detail that a private
consortia will have information in sufficient enough detail
to complete the design, construction, and operation of the
project.
b) Caltrans has authority, notwithstanding any other
provision of law, to obtain outside consultants for a broad
range of services, such as for engineering, planning,
traffic forecasting, economic and financial consulting, and
tunnel construction, to assist it in preparing
environmental documents and other predevelopment
activities.
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c) Firms or individuals retained by Metro or Caltrans to
assist in developing project plans or other predevelopment
documents are prohibited from competing with a design-build
entity or other private entity to work on the project.
d) Caltrans may, notwithstanding any other provision of
law, retain specialized inspection and surveying services
for the project due to the unique engineering requirements
of the project.
e) Metro, in consultation with Caltrans, is to decide
whether the project is to be developed as a design-build
project or as a P3 project, pursuant to other provisions of
this bill. Such a determination is to be made upon the
issuance of a record of decision by the federal Department
of Transportation.
f) Caltrans and Metro must be reimbursed for predevelopment
work performed up to issuance of the record of decision.
g) Metro is required to enforce a labor compliance program
or to contract with a third party to operate such a
program. This requirement will be waived if Metro or the
entity selected to develop and operate the system enters
into a collective bargaining agreement that binds all
contractors on the project.
h) Metro and Caltrans are required to enter into a
memorandum of understanding for purposes of the project.
i) Metro, or a private entity selected to develop and
operate the project, is required to appoint a project
manager who is to report to Metro's governing board.
4)Provides that construction of the project may be financed with
State Transportation Improvement Program funds, federal
grants, reimbursements from the sale of property originally
acquired for a surface freeway, local revenues, public debt,
private debt and equity, and tolls and other user fees.
5)Provides that variable tolls may be imposed to manage the flow
of traffic, maximize traffic throughput, and enhance revenue
generation and provides that public buses are entitled to use
the facility without charge.
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6)Makes legislative findings that design-build procurement
method for development of the project will reduce project
costs, expedite project completion, and provide design
features not otherwise obtainable via a traditional
design-bid-build procurement method.
7)Explicitly provides that Metro may use a design-build
procurement method for the project and grants Metro the
authority to collect tolls or other fees to finance the
project; grants Metro authority to issue debt secured by tolls
or other fees, as well.
8)Sets forth procedures, conditions, and requirements related to
a design-build procurement method, should Metro choose to use
it, as follows:
a) Directs Metro, in consultation with Caltrans, to
document the project scope. Specific documents may
include, but are not limited to, the size, type, and
desired design character of the project, performance
specifications covering the quality of materials,
equipment, ventilation, and other operating and
environmental capability systems, workmanship, and other
information necessary to adequately meet Metro's and
Caltrans' needs. These documents have to be prepared by a
design professional duly licensed or registered in
California.
b) Prescribes requirements of a request for proposal that
would be used to solicit a design-build firm to design and
construct the project.
c) Requires that the following minimum requirements
constitute at least 50% of the total weight or
consideration given to any proposal: price; technical
expertise in the design, construction, and operation of
tunnels in an urban community; life cycle costs over 40
years or more, skilled labor force availability; and
acceptable safety record.
d) Provides that, for purposes of this bill, "skilled labor
force availability" is determined by the existence of an
agreement with a registered apprenticeship program,
approved by the California Apprenticeship Council, which
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has graduated apprentices in each of the 5 preceding years.
e) Prescribes the details of a standard questionnaire that
Metro is to use to evaluate design-build proposals and
exempts completed questionnaires from public disclosure
under the Public Records Act.
f) Requires Metro, in consultation with Caltrans, to
establish and adopt procedures for selecting the
design-build entity that offers the best value to the
agency and to publicly announce the contract award and
include specific, written supporting documentation.
g) Limits retention proceeds that can be withheld by Metro
at the time of bid in a design-build contract to no more
than 5% and prohibits Metro from withholding retention from
payments to the design-build entity for actual costs
incurred and billed for specific activities.
h) Limits the amount of retention proceeds that can be
withheld between the design-build entity and
subcontractors.
i) Requires the design-build entity that is selected to
design and build the project, if a design-build procurement
method is chosen for the project, to obtain sufficient
bonding and errors and omissions insurance coverage
sufficient to cover all design and architectural services
provides in the contract.
j) Requires minimum performance and design criteria to be
adhered to and authorizes deviations from those standards
under prescribed procedures.
aa) Requires that, upon complete of the project, Metro must
enter into agreements with Caltrans regarding operations,
maintenance, and rehabilitation of the facility.
bb) Authorizes Metro to contract with a private operator to
collect tolls and maintain the facility.
9)Sets forth procedures, conditions, and requirements as it
relates to a P3 procurement method, should Metro choose to use
this approach:
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a) Notwithstanding any other provision of law, authorizes
Metro, in consultation with Caltrans, to enter into
comprehensive development lease agreements with private
entities, or consortia thereof, for the development of the
project.
b) Requires Metro, in consultation with Caltrans, to
establish and adopt a procedure for final selection of a P3
lease agreement for development, operations, and
maintenance of the project; requires the final selection to
be based on the bid that provides the best value to Metro
and Caltrans.
c) Requires Metro and Caltrans, jointly and upon entering
into an agreement, to issue a written statement identifying
the basis of the award.
d) Provides that the project will be owned by Caltrans,
leased to the private entity, and reverted back to Caltrans
at the end of the lease.
e) Transfers, at the time of the reversion, the right to
collect tolls and user fees to Metro and allows Metro to
extend the tolls, provided revenues from the tolls are used
to improve, operate, or maintain the facility.
f) Requires plans and specifications for the project to
comply with applicable standards of this type.
g) Allows the agreement to authorize the private entity to
impose tolls for use of the project and requires that, over
the term of the lease, that toll revenues be applied to the
private entity's capital outlay costs for the project, as
well as costs associated with operations, toll collections,
reimbursement to the state for maintenance and police
services, and a reasonable return on investment to the
private entity.
h) Provides that the lessee [sic] will be responsible for
all costs due to development, maintenance, repair,
rehabilitation, reconstruction, and operating costs during
the term of the lease.
i) Provides that a lease to a private entity, under the
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terms and conditions provided for in the bill, constitutes
public property for a public purpose and is exempt from
leasehold, real property, and ad valorem tax, except for
any ancillary commercial purposes.
j) Specifically provides that the facility is part of the
state highway system for purposes of identification,
maintenance, and traffic enforcement.
aa) Also provides that the project is considered a part of
the state highway system for purposes of statutes governing
claims against the state. These statutes include, for
instance, design immunity.
10)Requires Metro, upon engaging in a design-build or P3
contract, to enter into a joint powers agency (JPA) to create
a project construction advisory authority to provide oversight
over the construction and operation of the project.
11)Prescribes membership of JPA to include:
a) Members of city councils of the Cities of Alhambra, La
Canada-Flintridge, Los Angeles, Monterey Park, Pasadena,
San Marino, and South Pasadena;
b) Two members from the Los Angeles County Board of
Supervisors from districts representing the project area;
c) A representative of Metro;
d) A representative of the Southern California Association
of Governments (SCAG);
e) A representative from the governing board of the San
Gabriel Valley Council of Governments; and,
f) A representative of Caltrans.
12)Prescribes governing procedures and responsibilities for JPA.
EXISTING LAW:
1)Creates Metro and defines its memberships, roles,
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responsibilities, and authorities, including designation as
the regional transportation planning and public transportation
operating agency for Los Angeles County.
2)Does not generally allow the use of design-build procurement
for highways.
3)Does not provide general authority to impose tolls or to enter
into P3 agreements for public highways.
4)Grants Caltrans broad authority, and responsibility, to
improve and maintain the state highway system.
5)Authorizes Metro to use a specified design-build procurement
process for the construction of a specific high-occupancy
vehicle lane in Los Angeles County.
6)Authorizes regional transportation agencies or Caltrans to
enter into up to four comprehensive development lease
agreement with public or private entities for transportation
projects, under the following key conditions:
a) The projects must be primarily designed to improve goods
movement and must address a known forecast demand.
b) All negotiated lease agreements have to be submitted to
the Legislature for approval or rejection.
c) Any legislative approval will be by enactment of a
statute.
d) Prior to submitting a proposal to the Legislature, the
project sponsor would have to conduct at least two public
hearings.
e) Tolls and user fees may not be charged to noncommercial
vehicles with three or fewer axles.
f) Existing non-toll or non-user-fee lanes cannot be
converted to toll lanes except that high-occupancy vehicle
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lanes can be converted to high-occupancy toll lanes lanes
for vehicles not otherwise meeting the occupancy level
requirements for those lanes.
g) No lease agreements can be entered into after January 1,
2012.
7)Enacted via passage of Proposition 35 in 2000,
constitutionally provides that the State of California and all
other governmental entities, including, but not limited to,
cities, counties, cities and counties, school districts and
other special districts, local and regional agencies and joint
power agencies, must be allowed to contract with qualified
private entities for architectural and engineering services
for all public works of improvement. The choice and authority
to contract must extend to all phases of project development
including permitting and environmental studies, rights-of-way
services, design phase services and construction phase
services. The choice and authority exists without regard to
funding sources whether federal, state, regional, local or
private, whether or not the project is programmed by a state,
regional or local governmental entity, and whether or not the
completed project is a part of any state owned or state
operated system or facility.
FISCAL EFFECT : Costs to Caltrans are unknown. According to
Metro's Route 710 Tunnel Technical Feasibility Assessment
Report, the initial order of magnitude construction cost
estimate for the tunnel is $3 billion (2006 dollars).
COMMENTS : I-710 is a major north-south interstate freeway
running 23 miles through Los Angeles County. The freeway runs
from Long Beach to Alhambra, stopping short of the originally
planned terminus in Pasadena. Construction of the segment
between Alhambra and Pasadena, through South Pasadena, has been
delayed for decades due to community opposition.
Failure to complete the I-710 contributes to traffic congestion
in northeastern Los Angeles and the northwestern San Gabriel
Valley, as there are no north-south freeways in the heavily
populated area between I-5 (Golden State Freeway) and I-605 (San
Gabriel River Freeway). Pro- and anti-I-710 lobbies have
debated whether finishing I-710 would alleviate any of the San
Gabriel Valley's congestion, or merely displace it from surface
streets to the freeway.
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Over the past forty years, alternative concepts have been
proposed and evaluated to complete the I-710 freeway and close
the 4.5 mile gap in the corridor. To date, none of the
previously proposed and evaluated alternatives have been
successful in satisfying the regional mobility needs and
community/environmental concerns. The alternatives considered
traversed through highly developed urbanized neighborhoods and
required a substantial volume of right-of-way along the
alignments.
Many members of the community were concerned with the impact of
these right-of-way intensive, surface alternatives and
consequently, opposed the extension of the I-710. In response
to this reaction and to lessen the potential impact of
completing the I-710, a tunnel concept was proposed for
assessment as a potential option to the surface alternatives.
Metro has completed the feasibility assessment of a tunnel
alternative to extend the I-710 from its current terminus at
Valley Boulevard in the City of Los Angeles to I-210 in the City
of Pasadena. Generally, the study concluded that the tunnel
concept is feasible. Potential environmental impacts were
identified, however, preliminary assessments concluded that
these impacts could be minimized, eliminated or mitigated. The
report concluded that no insurmountable environmental issues
were identified that would preclude further consideration of the
tunnel alternative. Based on this, proponents argue that
further study is warranted and that the tunnel concept should be
advanced to the next more detailed stage to further validate the
findings of this assessment and to determine whether the tunnel
concept can ultimately serve as the alternative to complete the
I-710.
Committee concerns : This bill deals with complex issues, many
of which raise a number of policy concerns worthy of the
committee's deliberations:
1)Level playing field: This bill provides that firms or
individuals retained by Metro or Caltrans to perform
preliminary analysis and preliminary engineering are not
eligible to compete for either a design-build contract or a P3
agreement. Furthermore, according to this bill's findings and
declarations, SCAG "proposed that a tunnel may be a feasible
way of closing the gap between I-710 and I-210 and, as the
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planning agency for the Southern California region, included
the project in its Regional Transportation Plan as early as
1989."
The committee may wish to consider also excluding from the
opportunity to bid on the project, firms or individuals hired
by SCAG to study the project and provide preliminary analyses.
This would ensure a level playing field amongst bidders on
the project.
2)Legislative oversight : The estimated cost of the tunnel
project is approximately $3 billion. This bill would provide
for the use of either design-build or P3 procurement method,
neither of which is generally used in California for highway
projects.
The committee may wish to consider whether legislative
oversight in some form is appropriate, either as it relates to
following the progress of the project or consenting to the
design-build or P3 contract.
3)Missing opportunities for public or legislative review:
Unlike provisions of the State Contract Act, which typically
governs pubic works contracts, this bill does not require
Metro or Caltrans to provide notice of an intent to award a
contract, either by means of a design-build or P3 procurement
method. Typically, public works contracting provisions
require that this notice of intent to award be posted and a
predetermined amount of time be allowed to pass before the
contract is awarded. The period between notice of the intent
to award and the actual award of the contract is referred to
as the "protest period," within which time bidders have the
opportunity to protest a pending contract. Absent this
protest period, this bill provides little or no opportunity
for public or legislative scrutiny prior to the award of what
would likely be a very large, very complex, very innovative
contract.
The committee may wish to consider whether the provisions
governing the procurement methods provided for in this bill
should include a "protest period" or some other form of
daylight on the proposed contract, prior to its being awarded.
4)Retainage : Under a directive issued by the Federal Highway
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Administration, state departments of transportation can choose
one of three different options to comply with requirements
intended to ensure prompt and full payment of retention from
the prime contractor to the subcontractor within 30 days after
the subcontractor's work is satisfactorily completed. The
options, as outlined by the federal directive, are as follows:
a) [The state] may decline to hold retainage from prime
contractors and prohibit prime contractors from holding
retainage from subcontractors;
b) [The state] may decline to hold retainage from
contractors and require a contract clause obligating prime
contractors to make prompt and full payment of any
retainage kept by the prime contractor to the subcontractor
within 30 days after the subcontractor's work is
satisfactorily completed; or,
c) [The state] may hold retainage from prime contractors
and provide for prompt and regular incremental acceptances
of portions of the prime contract, pay retainage to prime
contractors based on these acceptances, and require a
contract clause obligating the prime contractor to pay all
retainage owed to the subcontractor for satisfactory
completion of the accepted work within 30 days after
payment to the prime contractor.
Provisions in this bill that dictate retention requirements
appear to be in conflict with these federal directives. This
conflict should be resolved.
5)Bond requirements : This bill would require a design-build
entity to insure against errors and omissions but does not
require performance or payment bonds, which are typically
required in public works contracts. Performance bonds insure
against a contractor walking off a job and payment bonds
ensure that subcontractors get paid. Consequently, this bill
does not protect the public's interest against default by the
private entity in either a design-build or P3 contract.
6)Toll revenues : This bill allows tolls to be imposed but
provides little governance over, for instance, allowable uses
of excess toll revenue (if there are any), limits on the
amount of toll revenue that can be collected by the private
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entity, or length of time for which tolls can be imposed.
The committee may wish to request that the author include
provisions in this bill that would, for instance, require any
excess toll revenues to be used for transportation purposes
(including transit purposes) in the corridor and limit the
term length of any P3 agreements (for example, to 50 years).
7)Non-compete clause : This bill is silent on the issue of
"non-compete" clauses-contractual provisions that would
prevent or limit improvements in the corridor that could
infringe on the private entity's profits. Proponents of P3s
have argued that the protection provided for in a non-compete
clause is needed to obtain private financing. However,
California's four original P3 toll road franchises each
included non-compete clauses, and these clauses became the
source of much public outcry and litigation because they
effectively limited the state's ability to improve the
corridor in which the franchise was built.
The committee may wish to consider whether Metro or Caltrans
should have the authority to enter into P3 agreements without
limitations on non-compete clauses being included in those
agreements.
8)Why not design-bid-build: This bill provides for either a
design-build or P3 approach to construction of the project
delivery. Design-build is a project delivery method and does
not address project financing. P3s typically address both the
means of project delivery as well as project financing.
The committee may wish to suggest that the traditional
design-bid-build approach be allowed as well, thereby
providing a full host of project delivery options for the
project.
9)Timeliness : This bill was gutted and amended less than one
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week prior to the last scheduled policy hearing, leaving
little time for public review and comment on its complex
content. According to the author's staff, passage of this
bill is necessary this year to increase the likelihood that
the project can be funded, thereby paving the way for the
environmental studies to proceed.
Given that this project has been on the books for decades, the
committee may wish to consider whether a hasty review of this
bill is prudent and necessary.
Proponents of this bill argue that this "is an important bill
because it will keep the I-710 completion moving, if the current
tunnel technical study proves positive. Filling the 710 freeway
gap will reduce congestion more than will any other highway
project in Southern California and will reduce air pollution
more than any other project in the six-county SCAG."
In opposition to this bill, Consulting Engineers and Land
Surveyors of California (CELSOC) writes, "CELSOC has serious
concerns regarding the constitutionality of this bill..[it] is
concerned that the provisions of the bill violate Proposition
35..."
Proposition 35 states, in part, "[government agencies] must be
allowed to contract with qualified private entities for
architectural and engineering services for all public works of
improvement. The choice and authority to contract must extend
to all phases of project development including permitting and
environmental studies, rights-of-way services, design phase
services and construction phase services." CELSOC argues that,
by mandating that the "department shall be responsible for
preparation of project study reports and other project
justification and needs reports?.," the bill conflicts with
Proposition 35 and is, therefore, unconstitutional. (Proponents
counter this argument by pointing out that this bill does not
preclude Caltrans from contracting out this work and, thus, does
not conflict with Proposition 35).
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Others in opposition, such as the City of South Pasadena, argue
that the bill pre-supposes the outcome of the still-pending 710
tunnel study, which is "required to consider all practicable
routes under the terms of its federal funding." The city
further argues that the bill usurps the authority of the
Legislature under current law to limit the number of P3
agreements that can be implemented in California and establishes
a framework that may "divert resources, both public and private,
more cost-efficient, effective, and needed projects simply
because the tunnel is fast-tracked."
The City of La Canada-Flintridge also writes in opposition to
this bill, "This massive tunnel project is controversial and has
the potential to bankrupt the State's transportation budget and
set back the goal of public private partnerships for years.
There is no need to rush into it using a gut and amend bill
presented in the waning days of the two year session."
REGISTERED SUPPORT / OPPOSITION :
Support
710 Freeway Coalition
Opposition
City of La Canada Flintridge
City of South Pasadena
Consulting Engineers and Land Surveyors of California
Planning and Conservation League
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093