BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 475
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          Date of Hearing:  June 29, 2011

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                                Cameron Smyth, Chair
                     SB 475 (Wright) - As Amended:  June 20, 2011
           
          SUBJECT  :  Infrastructure financing.

           SUMMARY  :  Changes the statutory authorization for local 
          governmental agencies to utilize private sector financing alone 
          or in concert with public financing, to study, plan, design, 
          construct, develop, finance, maintain, rebuild, improve, repair, 
          or operate, or any combination thereof, fee-producing 
          infrastructure facilities.  Specifically,  this bill  :  

          1)States that private financing may be used alone or in concert 
            with public financing to construct publicly owned, 
            fee-producing infrastructure.

          2)Provides that the facilities constructed using this mechanism 
            may be leased to the private sector partner, but does not 
            require it.

          3)Defines "fee-producing infrastructure project" or 
            "fee-producing infrastructure facility" to mean that the 
            operation of the infrastructure project or facility will be 
            paid for, in whole or in part, by the persons or entities 
            benefited by or utilizing the project or facility. 

          4)Adds sanitary sewer systems to the types of fee-producing 
            infrastructure that may be constructed under the provisions of 
            the relevant statutes.

          5)Requires that the competitive negotiation process utilize 
            criteria that the governmental agency identifies in the 
            solicitation documents. 

          6)Requires the selection criteria, to the extent applicable to 
            the proposed project, to include the following factors:

             a)   Financial approach or price proposal;

             b)   Features;

             c)   Life cycle-costs;








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             d)   Technical approach,

             e)   An acceptable safety record;

             f)   An acceptable labor compliance record;

             g)   Experience and qualifications of the private entity to 
               perform the services under the agreement; and

             h)   Any other criteria specifically identified by the 
               governmental agency. 

          7)Requires, that prior to entering into an agreement with a 
            private entity for a proposed project that will include some 
            public financing and relates to a project for which public 
            financing is available to finance the entire project, the 
            governmental agency to assess whether the agreement provides 
            greater benefits or value for money as compared to a project 
            that is finance entirely with public financing and is subject 
            to competitive bidding. 


          8)Provides that an agreement may include provisions for the 
            lease, license, or other permissive use of rights away in, and 
            airspace over, property owned by a governmental agency, for 
            the granting of necessary easements, and for the issuance of 
            permits or other authorizations to enable the private entity 
            to construct, maintain, rebuild, improve, or repair 
            infrastructure facilities supplemental to existing 
            government-owned facilities. 

          9)Requires that all public works constructed pursuant to this 
            bill shall comply with the provisions of the Labor Code 
            pertaining to public works.

          10)Provides that user fees may be paid to the governmental 
            agency or the private entity, and that the fees must be 
            dedicated exclusively to the payment of all parties' direct 
            and indirect costs associated with construction, operation and 
            maintenance of the facility, in addition to a reasonable 
            return on the private sector partner's investment, which is 
            negotiated in the procurement process.

          11)Increases the number of public hearings regarding user fees 








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            from one to two. 

          12)Authorizes a governmental entity to determine the validity of 
            any permits, authorizations or approvals, contracts and 
            agreements, user fees, and other actions taken under these 
            statutes through the validation process established in 
            existing law. 

          EXISTING LAW  :

          1)Permits a governmental agency to solicit proposals and enter 
            into agreements with private entities for the design, 
            construction or reconstruction by private entities for 
            specific types of fee-producing infrastructure projects.

          2)Permits these agreements to provide for private entities to 
            lease or operate these fee-producing infrastructure facilities 
            that are owned by a governmental entity constructed by a 
            private entity, for a period of up to 35 years.

           FISCAL EFFECT  :   None

           COMMENTS  :   

          1)In 1996 the Legislature passed AB 2660 (Aguiar), Chapter 1040, 
            Statutes of 1996, which permitted a governmental agency to 
            solicit proposals and enter into agreements with private 
            entities for the design, construction or reconstruction by 
            private entities for specific types of fee-producing 
            infrastructure projects that could provide for private 
            entities to lease or operate these fee-producing 
            infrastructure facilities for a period of up to 35 years.  
            These provisions have been essentially unchanged since their 
            enactment.

          2)According to the author, over the past decade, local agencies 
            and private entities seeking to build projects using these 
            provisions have encountered a series of situations where the 
            law 
          has been ambiguous, which made use of the statute frustrating.  
            Questions and issues that have arisen in the implementation of 
            this act include the following:

             a)   Is 100% private financing always required, or can the 
               governmental agency contribute financing as well?








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             b)   Must the financing always be in the form of equity 
               (cash) or could contributions include loans, carrying 
               costs, assumptions of risks, or any combination thereof?

             c)   Numerous terms generated confusion.  For example, does 
               "agreement" include a "license?"

             d)   Concern arose that the limitation on the lease/operation 
               period was too short, and that the statute was ambiguous as 
               to whether leasing to a private entity is allowed ("may") 
               or required ("shall") when facilities are constructed under 
               the statutory terms.

            The purpose of this bill is to facilitate use of the original 
            statutory scheme.  As such, the bill contains a series of 
            technical clarifications, the purpose of which are not to 
            expand the existing statute, but facilitate its use.

          3)According to the author, while the need to build new 
            infrastructure is daunting, the need to replace existing 
            infrastructure is equally important and, in most instances, 
            more expensive.  Private investment is critical if the state 
            is to meet the mounting infrastructure needs of a growing 
            population.  During the past decade, innovative financing 
            techniques have emerged to meet these financing challenges.  
            This bill is designed to acknowledge this change and allay the 
            concerns of local officials that the original law does not 
            inadvertently constrain deployment of new financing 
            arrangements that will help them meet their infrastructure 
            needs.

          4)The bill was recently amended on June 20, 2011, to include 
            provisions that state that if a governmental entity is going 
            into an agreement with a private entity where there are public 
            funds available to cover the entire cost of the project, then 
            the governmental entity is required to assess whether the 
            agreement provides greater benefits or value for money than if 
            the work was financed entirely through public funds and 
            subject to competitive bidding.  However, the bill is silent 
            on what the governmental entity must use to make that 
            assessment.  Should the assessment be done by evidence in the 
            public record?  If the governmental entity has to determine 
            what the cost would be if the project was done through 
            competitive bid, what criteria should they be using to 








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            determine these costs since an actual bid will not have 
            occurred?  The Committee may wish to consider asking the 
            author to clarify the assessment process.  

          5)SB 475 is similar to AB 1261 (Caballero, 2007), which this 
            Committee passed 7-0.  AB 1261 died on the Senate Inactive 
            File.  

          6)Support arguments:   Supporters argue that with the downturn 
            in the economy, local government agencies are having an 
            increasingly difficult time delivering vital infrastructure 
            projects. Local agencies need a wide variety of tools made 
            available to them so they can deliver the infrastructure 
            projects their communities need.  Effective public-private- 
            partnership (P3) authority is one such tool that can help them 
            to deliver vital projects despite declining revenues.

            Opposition arguments:  Opposition argues that there is already 
            sufficient state and local P3 authority.  Moreover, opposition 
            argues that P3s do not generate new money and by adding in 
            "public financing" to the revenues that are eligible to be 
            used in local P3s this just proves yet again that P3s lack the 
            ability to generate new revenues.  Furthermore, the opposition 
            argues that so-called P3s have cost taxpayers hundreds of 
            millions of dollars and it makes no sense to create a new P3 
            authority. 
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          American Council of Engineering Companies of California
          American Fence Association, California Chapter
          American Water
          Associated General Contractors
          Bay Area Council
          California Association of Sanitation Agencies
          California Chamber of Commerce
          California Conference of Carpenters
          California Fence Contractors' Association
          California-Nevada Conference of Operating Engineers
          California State Council of Laborers
          California Taxpayers Association
          California Water Association
          Chambers of Commerce Alliance 








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          CH2M Hill 
          Engineering Contractors' Association
          Flasher Barricade Association
          Irvine Chamber of Commerce
          League of California Cities
          Marin Builders Association
          National Association of Water Companies
          Orange County Transportation Authority
          PERC Water
          San Jose Water Company
          Skanska Infrastructure Development
          Suburban Water Systems
          Veolia Water North America - West, LLC
          Western Council of Construction Consumers
          W.M. Lyles Co.

           



          Opposition 

           American Federation of State, County and Municipal Employees, 
          AFL-CIO
          California Professional Firefighters
          California School Employees Association, AFL-CIO
          California State Pipe Trades Council
          Food & Water Watch
          Glendale City Employees Association
          International Brotherhood of Electrical Workers
          Laborers' International Union of North America, Locals 777 and 
          792
          Organization of SMUD Employees
          Peace Officers Research Association of California 
          Professional Engineers in California Government
          San Bernardino Public Employees Association
          San Luis Obispo County Employees Association
          Santa Rosa City Employees Association
          State Building and Construction Trades Council of California
          Western Electrical Contractors Association
          Western States Council of Sheet Metal Workers
           
          Analysis Prepared by  :    Katie Kolitsos / L. GOV. / (916) 
          319-3958 









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