BILL ANALYSIS Ó
AB 2742
Page 1
Date of Hearing: April 11, 2016
ASSEMBLY COMMITTEE ON TRANSPORTATION
Jim Frazier, Chair
AB 2742
(Nazarian) - As Introduced February 19, 2016
SUBJECT: Transportation projects: comprehensive development
lease agreements
SUMMARY: Extends the sunset date on provisions that authorize
public-private partnership (P3) agreements for transportation.
Specifically, this bill:
1)Extends from 2017 to 2030 the sunset date on provisions that
authorize the California Department of Transportation
(Caltrans) and regional transportation authorities to enter
into P3 agreements for transportation.
2)Adds Santa Clara Valley Transportation Authority (VTA) to the
list of regional transportation agencies that are authorized
to use P3 authority.
3)Exempts P3 agreements from non-applicable provisions of
existing law governing the Caltrans' and regional
transportation agencies' use of design-build contracting
authority.
AB 2742
Page 2
4)Delete obsolete provisions.
EXISTING LAW:
1)Defines key terms, most notably "transportation project" to
mean one or more of the following: planning, design,
development, finance, construction, reconstruction,
rehabilitation, improvement, acquisition, lease, operation, or
maintenance of highway, public street, rail, or related
facilities supplemental to existing facilities currently owned
and operated by Caltrans or regional transportation agencies.
2)Until January 1, 2017, grants Caltrans and regional
transportation agencies, as defined, authority to enter into
P3 agreements--that is, comprehensive development lease
agreements with public or private entities, or consortia
thereof, under the following conditions:
a) The California Transportation Commission must review and
approve proposed P3 projects;
b) Proposed projects must be primarily designed to improve
mobility, improve the operations or safety of the affected
corridor, and provide quantifiable air quality benefits;
and,
c) Proposed projects must also address known forecast
demands.
1)Prescribes the review and approval process for proposed P3
agreements.
2)For projects on the state highway system, requires Caltrans to
be the responsible agency for performance of project
development work, including the development of performance
specifications, preliminary engineering, prebid services,
environmental documents, and construction inspection services;
AB 2742
Page 3
authorizes Caltrans to do the work using in-house employees or
contractors.
3)Requires all P3 agreements to authorize the use of tolls and
user fees for the use of the facility being constructed.
FISCAL EFFECT: Unknown
COMMENTS: California's first venture into P3s for
transportation was with AB 680 (Baker), Chapter 107, Statutes of
1989, which authorized Caltrans to enter into P3 agreements for
up to four projects. Caltrans built two projects under this
authorization. The first project was ten miles of tolled
express lanes in the median of the existing State Route (SR) 91
in Orange County and the subsequent project was SR 125 in San
Diego County to connect the area near the Otay Mesa border
crossing with the state highway system. For each project,
Caltrans used a single contract with a private partner to
design, construct, finance, operate, and maintain the facility.
In 2009, authority to enter into P3 agreements for
transportation was expanded. Specifically,
SBX2 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. This particular P3 requires the private
partner to complete the second phase of the design and
reconstruction of the southern approach to the Golden Gate
Bridge and to 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.
AB 2742
Page 4
In a 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 that used the authority granted under
SBX2 4. In this examination, the LAO cites a number of
potential benefits of successful P3 agreements, including:
1)They can transfer project risks to the private partner;
2)They may provide greater price and schedule certainty;
3)They allow for more innovative design and construction
techniques;
4)They can free up public funds for other purposes;
5)They can provide quicker access to project financing; and,
6)They 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:
1)Increased financing costs;
2)Greater possibility of unforeseen challenges (due primarily to
the extended time periods involved in P3 agreements);
3)Limits to government's flexibility;
4)Greater risks due to more complex procurement processes; and,
5)Fewer bidders.
The author introduced AB 2742 so that P3 agreements can continue
as a viable option for state and regional transportation
agencies to fund transportation infrastructure when other funds
AB 2742
Page 5
are not readily available. According to the author,
"California's transportation infrastructure-consisting of
streets, highways, bridges, and transit operations-is suffering
a shortage of necessary investments for the operations and
maintenance of existing facilities and dedicated funding sources
for new improvements. The extension of P3s will give California
another tool in its toolbox to meet its ambitious transportation
infrastructure goals and remain competitive in the global
marketplace." AB 2742 is supported by a number of
transportation agencies and industry organizations that contend
P3 authority is an important tool in delivering complex projects
in a cost-effective and expeditious manner.
Opponents of AB 2742 argue that P3 agreements by their very
nature result in work that is traditionally performed by public
employees being outsourced to private entities. They also
object to provisions of the bill that exempt P3s from certain
requirements governing design-build authority, as set forth in
AB 401 (Daly), Chapter 586, Statutes of 2013. These
requirements ensure that public employees maintain
responsibilities for specific aspects of design-build projects
entered into by Caltrans or a regional transportation agency.
On this note, the Professional Engineers in California
Government (PECG), writing in opposition to AB 2742 unless it is
amended, believes the role of construction inspection is a
critical government function that is necessary on any
infrastructure project, particularly on complex P3 projects.
PECG is seeking amendments to ensure this function remains the
responsibility of public employees.
Committee comments:
1)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
AB 2742
Page 6
all of California's large, complex transportation projects,
independent of the procurement or financing methods used to
develop and construct them.
2)Regarding the opponents' concerns that this bill circumvents
statutory protections for public employees that were set forth
in AB 401, it is worth noting that AB 2742 exempts P3
agreements from provisions related to design-build contracts
entered into by Caltrans or by regional transportation
agencies. These are not the agencies that would typically be
entering into a design-build contract under a P3 agreement.
These agencies would enter into a P3 agreement with the
contracting entity or lessee who would, in turn, use
design-build authority, as is provided for in AB 2742. The
exemptions provided for in AB 2742 are technically and
logically accurate. Whether or not similar provisions should
or should not apply to P3 agreements is another matter.
Related legislation: AB 1265 (Perea) of 2015 was identical to
this bill. AB 1265 was returned to the Chief Clerk by the
Assembly Appropriations Committee pursuant to Joint Rule 56.
ABX1 2 (Perea), which is identical to AB 2742, is pending in the
First Extraordinary Session.
SBX1 14 (Cannella), nearly identical to this bill, would extend
P3 authority indefinitely.
SBX1 14 is pending in the Senate Transportation and
Infrastructure Development Committee.
SB 158 (Huff), which would provide a narrow exception to the
2017 sunset date for P3s. SB 158 was returned to the Secretary
of the Senate by the Senate Transportation and Housing Committee
pursuant to Joint Rule 56.
Previous legislation: AB 749 (Gorell) of 2013, would have
extended the sunset date for provisions that grant authority to
Caltrans and to others to enter into P3s for transportation
projects. AB 749 was referred to this committee but was not
AB 2742
Page 7
heard at the request of the author.
AB 401 (Daly), Chapter 586, Statutes of 2013, authorizes
Caltrans and regional transportation agencies to use
design-build procurements for highways and expressways, under
certain conditions.
SBX2 4 (Cogdill), Chapter 2, Statutes of 2009, authorized, until
January 1, 2017, Caltrans and regional transportation agencies
to enter into an unlimited number of P3 agreements. To date,
only one project, the Presidio Parkway, has been approved under
this authority.
AB 1467 (Nunez), Chapter 32, Statutes of 2006, authorized, until
January 1, 2012, Caltrans and regional transportation agencies
to enter into P3 agreements for certain transportation projects.
AB 680 (Baker), Chapter 107, Statutes of 1989, authorized
Caltrans to enter into P3 agreements for up to four projects.
Caltrans built two projects under this authorization.
REGISTERED SUPPORT / OPPOSITION:
Support
Associated General Contractors
California Transportation Commission
AB 2742
Page 8
Los Angeles County Metropolitan Transportation Authority
Mobility 21
Orange County Transportation Authority
Santa Clara Valley Transportation Authority
Transportation Agency for Monterey County
Transportation California
Opposition
American Federation of State, County and Municipal Employees,
AFL-CIO
California State Council of the Service Employees International
Union
AB 2742
Page 9
Professional Engineers in California Government
Analysis Prepared by:Janet Dawson / TRANS. / (916) 319-2093