BILL ANALYSIS Ó
AB 2742
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Date of Hearing: April 27, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2742 (Nazarian) - As Introduced February 19, 2016
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill extends, from January 1, 2017, to January 1, 2030, the
sunset date on provisions authorizing public-private partnership
(P3) agreements for transportation.
FISCAL EFFECT:
AB 2742
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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
regional transportation agencies to fund transportation
infrastructure when other funds are not readily available. AB
2742 is supported by a number of transportation agencies and
industry organizations that contend P3 authority is an
AB 2742
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important tool in delivering complex projects in a
cost-effective and expeditious manner.
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
of best practices to maximize the benefits and minimize the
limitations of P3s. In assessing the Presidio Parkway project,
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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. This
bill, which simply extends the sunset date on P3
authorization, does not incorporate any of the LAO's
recommendations.
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.
Also opposed are the American Federation of State, County and
Municipal Employees and the California State Council of the
Service Employees International Union, which object to P3s,
which by their nature shift certain work traditionally
performed on highway projects by public employees to private
sector employees.
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5)Prior Legislation. AB 1265 (Perea) of 2015, and almost
identical bill, did not pass off this committee's Suspense
file.
Analysis Prepared by:Chuck Nicol / APPR. / (916)
319-2081