BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  May 6, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          1265 (Perea) - As Amended April 29, 2015


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          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. 









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          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  








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            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  








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            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















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