BILL ANALYSIS Ó
SB 562
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Date of Hearing: July 1, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
SB
562 (Lara) - As Amended June 16, 2015
SENATE VOTE: 36-0
SUBJECT: Infrastructure financing: City of Long Beach Civic
Center.
SUMMARY: Allows the City of Long Beach to use a public-private
partnership procurement (P3) method to develop a new civic
center. Specifically, this bill:
1)Allows the City of Long Beach (City) to contract and procure
the project (the revitalization and redevelopment of the Long
Beach Civic Center), pursuant to the following:
a) Requires the City to evaluate the project proposals it
solicits and receives and choose the private entity or
entities whose proposal is, or proposals are, judged as
providing the best value in meeting the best interests of
the City;
b) Allows the City to enter into a P3 through a concession
agreement, design-build agreement, design-build-finance
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agreement, project agreement, lease-leaseback, or other
appropriate agreements combining one or more major elements
of the foregoing agreements, with one or more private
entities for delivery of the project;
c) States that the City retains the rights 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;
d) Requires the contract award for the project to be made
to the private entity or entities whose proposal or
proposals are determined by the City, in writing, to be the
most advantageous by providing the best value in meeting
the best interests of the City;
e) Provides that the negotiation process shall specifically
prohibit practices that may result in unlawful activity,
including, but not limited to, rebates, kickbacks, or other
unlawful consideration, and shall specifically prohibit
city employees from participating in the selection process
when those employees have a relationship with a person or
business entity seeking a contract pursuant to the bill's
provisions that would subject those employees to the
general prohibition for conflict of interest contained in
the California Political Reform Act; and,
f) Requires the documents related to the project to be
subject to disclosure under the California Public Records
Act (CPRA), except those exempted from disclosure under the
CPRA.
2)Provides that the project is subject to compliance with the
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California Environmental Quality Act (CEQA), and that neither
the act of selecting a private entity, nor the execution of an
agreement with the private entity shall require prior
compliance with CEQA. Provides that appropriate compliance
with CEQA shall thereafter occur before project construction
commences.
3)Requires the public portion of the project, at all times, to
be owned by the City, unless the City, in its discretion,
elects to provide for ownership of the project by the private
entity through a separate lease agreement. Provides that the
agreement shall provide for the lease of all or portion of the
project to, or ownership by, the private entity or entities,
for a term up to 50 years. Provides that the agreement shall
provide for complete reversion of the public portion of the
project to the City at the expiration of the lease or transfer
term.
4)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.
5)Requires the plans and specifications for the project to
comply with all applicable governmental design standards for
that particular infrastructure project. Requires the private
entity studying, planning, designing, constructing,
developing, financing, operating, maintaining, or any
combination thereof, the project, to utilize private sector
firms for studying, planning, designing, constructing,
developing, financing, operating, maintaining, or any
combination thereof, the project.
6)Provides that a facility, subject to the bill's provisions and
leased to a private entity during the term of the lease, shall
be deemed to be public property for the purposes of
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identification, maintenance, enforcement of laws, and for
purposes of claims and actions against public entities and
public employees (the Government Claims Act).
7)Requires all public works constructed, pursuant to the bill's
provisions, to comply with statute regarding public works
related to public works and public agencies contained in the
Labor Code.
8)Provides that the bill's provisions shall not be construed to
authorize the City use tidelands trust revenues or any other
applicable granting state for general municipal purposes or
any other purpose unconnected with the public trust.
9)States that the provisions of the bill are severable, and
provides, if any provision of the bill or its application is
held invalid, that invalidity shall not affect other
provisions or applications that can be given effect without
the invalid provision or application.
10)Defines the following terms:
a) "Best interests of the city" to mean 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 of workmanship and materials.
b) "Best value" to mean a value determined by objective
criteria that shall include a combination of price,
financing costs, features, functions, performance,
life-cycle maintenance costs and abatement offsets, and
development experience.
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c) "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.
d) "City" to mean the City of Long Beach and its
departments, including the City of Long Beach Harbor
Department.
e) "Long Beach Civic Center" to mean 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.
f) "Private entity" means an individual, business entity,
or combination of individuals and business entities.
g) "Private portion of the project" to mean 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.
h) "Project" to mean the revitalization and redevelopment
of the Long Beach Civic Center with a new city hall, port
headquarters, public library, and public park, public
library, or other governmental facilities.
i) "Public portion of the project" to mean those parcels of
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land within the Long Beach Civic Center to be developed as
a city hall, port headquarters, public park, public
library, or other government facilities.
j) "Public-private partnership" to mean 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, but not limited to, studying, planning,
designing, constructing, developing, financing, operating,
maintaining, or any combination thereof, the project.
11)Makes a number of findings and declarations regarding the
necessity and benefits of using a public-private partnership
to develop a new Long Beach Civic Center.
12)Finds and declares that a special law is necessary and that a
general law cannot be made application within the meaning of
Section 16 of Article IV of the California Constitution
because of the unique and special circumstances surrounding
the existing Long Beach Civic Center, and the need to
immediately, quickly, and efficiently develop the project, and
to resolve property issues potentially delaying the project.
EXISTING LAW:
1)Authorizes, pursuant to the California Infrastructure Finance
Act, local government agencies to use P3s for specified types
of infrastructure projects, and requires P3 agreements to
contain a number of elements, including security for the
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construction of the facility to ensure its completion.
2)Requires, for P3s, the governmental agency soliciting
proposals and entering into agreements with private entities
for the studying, planning, design, developing, financing,
construction, maintenance, rebuilding, improvement, repair, or
operation, or any combination thereof, by private entities for
fee-producing infrastructure projects to ensure that the
contractor is selected, pursuant to a competitive negotiation
process.
3)Defines "fee-producing infrastructure project" or
"fee-producing infrastructure facility" to mean the operation
of the infrastructure project or facility will be paid for by
the persons or entities benefited by or utilizing the project
or facility.
4)Allows projects to be proposed by the private entity and
selected by the governmental agency at the discretion of the
governmental agency, and allows a project to be proposed and
selected individually or as part of a related or larger
project.
5)Requires the competitive negotiation process to utilize, as
the primary selection criteria, the demonstrated competence
and qualifications for the studying, planning, design,
developing, financing, construction, maintenance, rebuilding,
improvement, repair, or operation, or any combination thereof,
of the facility. Requires the selection criteria to also
ensure that the facility be operated at fair and reasonable
prices to the user of the infrastructure facility services.
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6)Prohibits the competitive negotiation process from requiring
competitive bidding, and prohibits the competitive negotiation
process from including practices that may result in unlawful
activity, including, but not limited to, rebates, kickbacks,
or other unlawful consideration. Prohibits governmental
agency employees from participating in the selection process
when those employees have a relationship with a person or
business entity seeking a contract under this section that
would subject those employees to the prohibition for conflict
of interest contained in the California Political Reform Act.
7)Provides, other than the criteria mentioned above and
applicable provisions related to providing security for the
construction and completion of the facility, that the
governmental agency soliciting proposals is not subject to any
other provisions of the Public Contract Code, as specified,
that relates to public procurements.
8)Provides that infrastructure constructed by a private entity
shall, at all times, be owned by a governmental agency, unless
the governmental agency, in its discretion, elects to provide
for ownership of the facility by the private entity during the
term of the agreement. Provides that the agreement shall
provide for the lease of those facilities to, or ownership by,
the private entity for up to 35 years, and in consideration
therefor, the agreement shall provide for complete reversion
of the privately constructed facility to the governmental
agency at the expiration of the lease at no charge to the
governmental agency.
9)Provides that the agreement between the governmental agency
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and the private entity shall include compliance with CEQA.
Provides that neither the act of selecting a proposed project
or a private entity, nor the execution of an agreement with a
private entity, shall require prior compliance with CEQA.
Requires appropriate compliance with CEQA to occur before
project development commences.
10)Requires performance bonds as security to ensure completion
of the construction of the facility and contractual provisions
that are necessary to protect the revenue streams of the
project.
11)Requires adequate financial resources of the private entity
to design, build, and operate the facility, after the date of
the agreement.
FISCAL EFFECT: None
COMMENTS:
1)Background on P3s and Lease-Leaseback Financing . P3s place a
wide range of project responsibilities and risks onto private
entities, some of which were traditionally borne by public
agencies alone. A typical P3 agreement calls on the private
entity to design and build a facility, and also to finance,
operate and maintain it, and in exchange, the private entity
may be entitled to tolls or user fees that the facility
generates, or may receive direct payments from the government.
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California law authorizes the use of P3s for Caltrans, the
Judicial Branch, the High-Speed Rail Authority, and local
government agencies. AB 2660 (Aguiar), Chapter 1040, Statutes
of 1996, known as the California Infrastructure Act,
authorizes local governments to utilize private sector
investment capital for carrying out "fee-producing
infrastructure facilities." AB 2660 applies to cities,
counties, school districts, community college districts,
public districts, county boards of education, joint powers
authorities, transportation authorities, and any public or
municipal corporations.
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.
2)P3 Requirements for Local Agencies. Under AB 2660, a local
agency can contract with private entities to study, plan,
design, construct, develop, finance, maintain, rebuild,
improve, repair or operate fee-producing infrastructure
facilities. In order to use the P3 method, existing law
requires the governmental agency soliciting proposals to use a
"competitive negotiation process", which does not require
competitive bidding. As part of the agreement, the local
agency can also grant private parties with ownership or lease
rights to such facilities for up to 35 years. Existing law
for P3s requires compliance with CEQA, but provides that
"neither the act of selecting a proposed project or a private
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entity, nor the execution of an agreement with a private
entity, shall require prior compliance with CEQA" and requires
"appropriate compliance with CEQA to occur before project
development commences."
Existing law for P3s requires the plans and specifications for
the project to comply with all applicable governmental design
standards for that particular infrastructure project, and
requires the private entity studying, planning, designing,
constructing, developing, financing, operating, maintaining,
or any combination thereof, the project, to utilize private
sector firms for studying, planning, designing, constructing,
developing, financing, operating, maintaining, or any
combination thereof, the project. A facility built using the
P3 method and leased to a private entity during the term of
the lease, according to existing law, shall be deemed to be
public property for the purposes of identification,
maintenance, enforcement of laws, and for purposes of claims
and actions against public entities and public employees (the
Government Claims Act). Existing law requires all public
works constructed to comply with statute regarding public
works and public agencies contained in the Labor Code.
These P3 provisions, with one exception, have been essentially
unchanged since their enactment.
3)Author's Statement. According to the author, "The Long Beach
City Hall and Main Library have been found to be seismically
deficient. Under the hybrid public-private partnership model
authorized by this bill, the City has the opportunity to use
existing budgeted 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, adjusted for inflation.
This financing mechanism will allow the City to address public
health and safety concerns in the earliest possible timeframe,
and without significantly impacting the City's General Fund or
requiring a tax increase.
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"The public portions of the project include a new seismically
safe Long Beach City Hall, Port of Long Beach Headquarters and
Main Library. The private portions of the project include
transit-oriented mixed-used developments, high-rise
condominiums and retail. All new developments will be built
on 15.87 acres of land in downtown Long Beach under a Project
Labor Agreement and in accordance with the City's award
winning Downtown Plan."
4)Bill Summary. This bill allows the City of Long Beach to use
a hybrid public-private partnership procurement method to
develop a new civic center, and specifies the requirements of
the P3, by adding a new section of law right after the
existing P3 statutes. Many of the provisions in the bill are
modeled after P3 law for local agencies, with some exceptions:
a) Competitive Negotiation Process. Current P3 law
requires a "competitive negotiation process" that utilizes,
"as the primary selection criteria, the demonstrated
competence and qualifications for the studying, planning,
design, developing, financing, construction, maintenance,
rebuilding, improvement, repair, or operation, or any
combination thereof, of the facility." The process does
not require competitive bidding.
This bill, however, allows the City of Long Beach to
evaluate the project proposals it solicits and receives and
to choose the private entity or entities whose proposal is,
or proposals are, judged as providing the "best value" in
meeting the "best interests" of the City. The bill defines
"best interests" to mean 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, and defines "best
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value" to mean a value determined by objective criteria
that shall include a combination of price, financing costs,
features, functions, performance, life-cycle maintenance
costs and abatement offsets, and development experience.
b) Term. Existing law allows the P3 agreement to provide
for the lease of facilities to, or ownership by, the
private entity for up to 35 years. This bill, however,
allows a lease agreement 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 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.
c) Contents of the Agreement. Current P3 law specifies
that the contents of the agreement between the governmental
agency and the private entity must include provisions to
ensure a variety of issues - compliance with CEQA, that the
private entity has adequate financial resources to design,
build, and operate the facility, authority for the
governmental agency to impose user fees (for 'fee-producing
infrastructure'), and preparation of an annual audited
report accounting for the income received and expenses to
operate the facility, among other requirements. This bill
contains similar CEQA requirements for the project, but
does not require other items to be in the agreement between
the City and the private entity. According to the sponsor,
this is because a city hall (like the one being proposed as
part of the project) is not "fee-producing" and therefore
those provisions in P3 law are not applicable to this
project.
This bill is sponsored by the City of Long Beach.
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5)Prior P3 Legislation. Recent legislation to alter the P3
statutes for local agencies include:
a) AB 1261 (Caballero, 2007) would have made a number of
changes to local government P3 statutes, such as: extending
the allowable lease period from 35 years to 50 years;
altering the criteria local governments must use to select
a contractor; and, allowing sanitary sewer systems, power
transmission facilities, and power distribution facilities
to be constructed under P3 agreements. AB 1261 passed this
Committee on a 7-0 vote on April 18, 2007, but subsequently
died on the Senate Floor.
b) AB 878 (Caballero, 2009) was nearly identical to AB
1261. AB 878 was referred to this Committee, but was never
heard.
c) AB 164 (Wieckowski), Chapter 94, Statutes of 2013,
requires the use of performance bonds and payment bonds in
local government infrastructure projects that are financed
through public-private partnerships.
6)Arguments in Support. Supporters argue that this bill will
provide greater project stability for the City's
groundbreaking public-private development and will create much
needed jobs, revitalize downtown Long Beach and result in
seismically safe government buildings that will be used to
serve public needs.
7)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
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Support
City of Long Beach [SPONSOR]
Downtown Long Beach Associates
Port of Long Beach
Opposition
None on file
Analysis Prepared by:Debbie Michel / L. GOV. / (916)
319-3958