BILL ANALYSIS Ó AB 1265 Page 1 Date of Hearing: May 6, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 1265 (Perea) - As Amended April 29, 2015 ----------------------------------------------------------------- |Policy |Transportation |Vote:|15 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: Extends, until January 1, 2030, the sunset date on provisions authorizing public-private partnership (P3) agreements for transportation, thereby extending the authority indefinitely. AB 1265 Page 2 FISCAL EFFECT: Indeterminate future costs or savings depending on the outcomes of the projects selected for future P3s as opposed to other procurement methods that might have been used on those projects. Given that these are likely to be large, complex projects, the costs or savings could be significant. COMMENTS: 1)Background. While there can be varying degrees of P3 agreements, a typical approach, and one that has been used in California, is for the state to enter into a single contract with a private partner (often a consortium of several companies) for the design, construction, finance, operation, and maintenance of an infrastructure facility. SB 2X 4, (Cogdill)/Chapter 2, Statutes of 2009, authorized Caltrans and regional transportation agencies to enter into an unlimited number of P3 agreements for a broad range of highway, road, and transit projects, through December 31, 2016. In January 2011, Caltrans entered into its first P3 under this new authority for the Presidio Parkway project, a 1.6-mile segment of SR 101 that connects the Golden Gate Bridge to city streets in San Francisco. The private partner will complete the second phase of the design and reconstruction of the southern approach to the bridge and operate and maintain the roadway for 30 years. In exchange, the state will make payments estimated to total roughly $1.1 billion to the private partner over the life of the contract. 2)Purpose. The author has introduced this bill so that P3 agreements can continue as a viable option for state and AB 1265 Page 3 regional transportation agencies to fund transportation infrastructure when other funds are not readily available. AB 1265 is supported by over two dozen engineering firms, transportation agencies, construction firms, and trade unions. 3)LAO Report on P3s. In a November 2012 report entitled "Maximizing State Benefits from Public-Private Partnerships," the Legislative Analyst's Office (LAO) examined the two state infrastructure projects undertaken in recent years using P3 agreements, one of them being the Presidio Parkway project. The LAO notes that successful P3 agreements: a) Can transfer project risks to the private partner; b) May provide greater price and schedule certainty; c) Allow for more innovative design and construction techniques; d) Can free up public funds for other purposes; e) Can provide quicker access to project financing; and, f) Can provide a higher level of maintenance than might otherwise be provided. The LAO also, noted, however, that P3 agreements are not without their potential drawbacks, including: a) Increased financing costs; b) Greater possibility of unforeseen challenges (due primarily to the extended time periods involved in P3 agreements); c) Limits to government's flexibility; d) Greater risks due to more complex procurement processes; and, e) Fewer bidders. Based on a review of international research on P3s and interviews with experts in the field, the LAO identified a set AB 1265 Page 4 of best practices to maximize the benefits and minimize the limitations of P3s. In assessing the Presidio Parkway project, the LAO found that Caltrans did not apply many of these best practices, asserting that Caltrans lacked a transparent framework for selecting the project and did not adequately assess the total expected P3-related project costs relative to other project delivery options. The LAO concluded that this resulted in a project not well suited for P3 procurement. As discussed in the analysis of this bill by the Assembly Committee on Transportation, "It would be difficult to argue that California's experiences with P3 transportation projects have been unqualified successes. Each was heavily embroiled in litigation and each was subjected to criticisms of excessive costs, insufficient risk transference, and prolonged delays. In fairness, however, these same criticisms could be applied to virtually all of California's large, complex transportation projects, independent of the procurement or financing methods used to develop and construct them." 4)Opposition. The Professional Engineers California Government (PECG) is opposed unless the bill is amended to clarify Caltrans' responsibilities for construction inspection, environmental review, and a variety of other functions. PECG seeks provisions mirroring those including in AB 401 (Daly)/Chapter 586 of 2013, which authorized Caltrans and regional transportation authorities, until 2024, to use a design-build procurement process. Analysis Prepared by:Chuck Nicol / APPR. / (916) 319-2081 AB 1265 Page 5