BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
------------------------------------------------------------------
|Bill No: |SB 562 |Hearing |5/6/15 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |Lara |Tax Levy: |No |
|----------+---------------------------------+-----------+---------|
|Version: |4/14/15 |Fiscal: |No |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Weinberger |
|: | |
-----------------------------------------------------------------
INFRASTRUCTURE FINANCING: CITY OF LONG BEACH CIVIC CENTER
Allows the City of Long Beach to use a public-private
partnership procurement method to develop a new civic center.
Background and Existing Law
Confronted by aging infrastructure, growing populations, and
limited revenue sources, local governments sometimes turn to
non-traditional financing techniques to pay for the construction
of new public infrastructure and the replacement of existing
facilities.
Long-term lease-leaseback financing is one method that local
governments use as an alternative to issuing general obligation
bonds to pay for public infrastructure. Under this approach, a
local government leases public property to a third-party that
undertakes improvements to the property and leases the improved
property back to the local government. The rights to receive the
lease payments from the local government are used to secure debt
that was issued to pay for the costs of acquiring and improving
the public property.
In 1996, the Legislature authorized local governments to enter
into public-private partnerships (P3s) for fee-producing
infrastructure projects that might not be feasible without
private-sector involvement. Local governments may solicit
SB 562 (Lara) 4/14/15 Page 2
of ?
proposals and enter into agreements with private entities for
the study, planning, design, financing, construction,
maintenance, rebuilding, improvement, repair, or operation by
private entities of specific types of fee-producing
infrastructure (AB 2660, Aguiar, 1996). A P3 agreement for the
construction of fee-producing infrastructure by a private entity
must provide for the lease of those facilities to, or ownership
by, the private entity for up to 35 years.
In 2007, the City of Long Beach identified seismic deficiencies
in its City Hall and Main Library Buildings and found that
substantial seismic renovations would be required to protect
lives during a major earthquake. The city evaluated the costs
of retrofitting the existing structures and concluded that the
City Hall and Main Library buildings should be replaced rather
than repaired. In 2013, the City initiated a procurement
process for development of a new Civic Center through a P3
agreement.
City of Long Beach officials want to clarify their authority
under state law to finance the Long Beach Civic Center
improvements through a P3 agreement that combines elements of
state laws that authorize cities to enter into lease-leaseback
financing and design-build-finance-operate-maintain financing
agreements.
Proposed Law
Senate Bill 562 allows the City of Long Beach to use a
public-private partnership agreement to contract and procure a
project to revitalize and redevelop the Long Beach Civic Center
with a new city hall, port headquarters, public library, and
public park, and residential, retail, hospitality,
institutional, and industrial facilities. Specifically, the
bill:
Allows the City to enter into a public-private
partnership with one or more private entities for delivery
of the project through a concession agreement, design-build
agreement, design-build-finance agreement, project
agreement, lease-leaseback, or other appropriate agreements
that combine one or more major elements of these
agreements.
SB 562 (Lara) 4/14/15 Page 3
of ?
Requires the City to award the contract to the private
entity or entities whose proposal or proposals the City
determines, in writing, to be the most advantageous by
providing the best value in meeting the best interests of
the City.
Requires the negotiation process to specifically
prohibit:
o Practices that may result in unlawful
activity, including rebates, kickbacks, or other
unlawful consideration
o City employees from participating in the
selection process when those employees have a
relationship with a person or business entity seeking
a contract that would subject those employees to
specified statutory prohibitions against financial
conflicts of interest.
Allows the City to terminate the project prior to
project award should the city determine that the project is
not in the best interests of the City or should the
negotiations with the private entity or entities otherwise
fail.
SB 562 requires that all documents related to the project must
be subject to disclosure under the California Public Records
Act, except those exempted from disclosure under that act.
SB 562 requires the Long Beach Civic Center project to comply
with the California Environmental Quality Act (CEQA) before
project construction commences and directs that neither the act
of selecting a private entity, nor the execution of an agreement
with the private entity, requires prior compliance with CEQA.
SB 562 requires that the City of Long Beach must own the public
portion of the project, unless the City elects to provide for
ownership of the project by the private entity through a
separate lease agreement.
SB 562 allows a lease agreements to provide for the lease of all
or a portion of the project to, or ownership by, the private
entity or entities, for a term up to 50 years and requires the
SB 562 (Lara) 4/14/15 Page 4
of ?
agreement to provide for complete reversion of the public
portion of the project to the City at the expiration of the
lease or transfer term.
SB 562 prohibits the private portion of the project from being
financed or developed by the public-private partnership or
otherwise using public or tax-exempt financing.
SB 562 directs that:
The plans and specifications for the project must comply
with all applicable governmental design standards for that
particular infrastructure project.
The studying, planning, designing, constructing,
developing, financing, operating, maintaining, or any
combination, of the project must utilize private sector
firms. However, a facility leased to a private entity,
during the term of the lease, must be deemed to be public
property for purposes of identification, maintenance,
enforcement of laws, and for purposes of the Government
Claims Act.
All public works constructed pursuant to bill's
provisions must comply with specified provisions of the
California Labor Code relating to public works projects.
SB 562 defines the following terms:
"Best interests of the city" means a procurement process
that is determined by the city to provide the best value
and an expedited delivery schedule while maintaining a high
level of quality workmanship and materials.
"Best value" means a value determined by objective
criteria that must include a combination of price,
financing costs, features, functions, performance,
life-cycle maintenance costs and abatement offsets, and
development experience.
"Business entity" means a partnership, corporation, or
other legal entity that is able to provide appropriately
licensed contracting, architectural, engineering,
financial, operations, management, facilities maintenance,
and other services for development of a new Long Beach
Civic Center.
SB 562 (Lara) 4/14/15 Page 5
of ?
"City" means the City of Long Beach and its departments,
including the Harbor Department.
"Long Beach Civic Center" means the area bounded by
Broadway, Pacific Avenue, Ocean Boulevard, and Magnolia
Avenue, containing approximately 14.98 acres and the parcel
on the south side of 3rd Street between Pacific Avenue and
Cedar Avenue, containing approximately 0.89 acres.
"Private entity" means an individual, business entity,
or combination of individuals and business entities.
"Private portion of the project" means those parcels of
land within the Long Beach Civic Center to be conveyed to a
private entity and developed as residential, retail,
hospitality, institutional, or industrial facilities.
"Project" means the revitalization and redevelopment of
the Long Beach Civic Center with a new city hall, port
headquarters, public library, and public park, and
residential, retail, hospitality, institutional, and
industrial facilities.
"Public portion of the project" means those parcels of
land within the Long Beach Civic Center to be developed as
a city hall, port headquarters, public park, public
library, or other government facilities.
"Public-private partnership" means a cooperative
arrangement between the public and private sectors, built
on the expertise of each partner, that best meets the
city's needs through the appropriate allocation of
resources, risks, and rewards for the purposes of, and,
including studying, planning, designing, constructing,
developing, financing, operating, maintaining, or any
combination thereof, the project.
SB 562 contains legislative findings and declarations regarding
the necessity and benefits of using a public-private partnership
to develop a new Long Beach Civic Center.
The bill directs that its provisions are severable.
SB 562 (Lara) 4/14/15 Page 6
of ?
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . SB 562 merges existing state laws
relating to lease-leaseback public-private partnerships and
design-build-finance-operate-maintain public-private
partnerships to allow the city of Long Beach to use a unique
hybrid public-private partnership model to finance its Civic
Center project. The Long Beach City Hall and Main Library have
been found to be seismically deficient. Using a P3 procurement
model will allow Long Beach to use General Fund dollars that are
currently spent on maintenance and offsite leases to fund the
construction of a new Civic Center, potentially at no additional
cost to the taxpayer over what is currently paid, as adjusted
for inflation. The P3 model is the same mechanism that was used
successfully to design, build, finance, operate, and maintain
the courthouse the state recently constructed in Long Beach.
This financing mechanism will allow the city to address public
health and safety concerns in the earliest possible timeframe
without significantly increasing the city's General Fund
obligations or requiring a tax increase.
2. Lease term . SB 562's 50-year limit on a lease agreement for
the Civic Center project is shorter than the limits that
generally apply to leases on city property. However, 50 years
far exceeds the 20 to 30 year terms of bonds or other debt
instruments that local governments usually use to finance public
infrastructure projects and extends the 35-year maximum lease
term established by the 1996 Aguiar bill for local P3
agreements. While allowing for a longer lease term may help
ensure that the annual General Fund impact of Long Beach's Civic
Center project doesn't exceed budgeted amounts, longer financing
SB 562 (Lara) 4/14/15 Page 7
of ?
periods typically result in higher overall borrowing costs,
which are ultimately paid by the city's taxpayers. It is
unclear whether authorizing a maximum 50-year term for Long
Beach's public-private infrastructure agreement makes it more
difficult to ensure that the public's interest in the Civic
Center project is protected for the duration of any agreement.
3. Special legislation . The California Constitution prohibits
special legislation when a general law can apply (Article IV,
§16). SB 562 contains findings and declarations explaining the
need for legislation that applies only to the City of Long
Beach.
Support and
Opposition (4/30/15)
Support : City of Long Beach.
Opposition : Unknown.
-- END --