BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1397 (Huff) - Highway safety and information program
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|Version: April 21, 2016 |Policy Vote: T. & H. 6 - 2 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 9, 2016 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1397 would authorize the Department of
Transportation (Caltrans), subject to federal approval, to enter
into an agreement with a contractor to construct and operate a
system of changeable message signs (CMS) on the state highway
system that provides for the placement of advertisements on the
signs when not in use by Caltrans. The bill would provide for
an initial demonstration phase with reporting requirements prior
to full implementation.
Fiscal
Impact:
Estimated Caltrans up-front administrative costs in the range
of $100,000 to $300,000 to develop agreements, adopt
regulations, seek federal waivers, and initiate the best value
procurement process. These costs would be incurred prior to
entering into an agreement with a contractor. (State Highway
Account)
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Unknown ongoing administrative costs to Caltrans, likely
reimbursable from advertising revenues, subject to the terms
of an agreement. Caltrans would incur costs for oversight,
maintenance, and contracts with both an advertising consultant
for business and marketing advice and an independent
consultant to review safety and operational data. (State
Highway Account)
Unknown, significant revenue gains during the term of the
agreement, potentially in the tens of millions annually, and
possibly over $100 million annually in out years of a
long-term contract with a maximized build-out of the CMS
system. It could be several years before the state realizes
any revenue gains as vendor costs to construct or upgrade CMS
displays would be recovered from advertising revenues.
Revenues would depend upon parameters of the agreement,
including the number of CMS displays that are part of the
program, the projected revenues anticipated from each display,
the term of the contract, and revenue sharing agreements
specified in the contract. (State Highway Account) -----see
staff comments-----
Background: Existing federal law requires all states to adopt or
substantially comply with the federal Manual on Uniform Traffic
Control Devices (MUTCD), which prescribes standards for signs,
signals, and pavement markings on all streets and highways.
California has adopted its own MUTCD, which has been approved by
federal officials as being "substantially in compliance" with
the federal MUTCD. Both the federal and the California MUTCD
limit the use of changeable message signs to traffic operations,
regulatory, warning, and guidance information. Existing law
prohibits the use of changeable message signs or other traffic
control devices for advertising purposes.
Proposed Law:
SB 1397 would authorize Caltrans, subject to federal approval,
to enter into an agreement with a single entity for a project to
implement a state-of-the-art, full-color CMS network within the
rights-of-way of the state highway system, excluding designated
scenic highways, or a major arterial that is included within an
integrated corridor management system. The bill requires
SB 1397 (Huff) Page 2 of
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Caltrans to conduct a best value procurement to select the
contractor and to negotiate an initial agreement that would
become effective upon federal authorization. Caltrans may
retain a consultant to assist in the preparation of the best
value criteria, selection of a contractor, and oversight of the
project. Caltrans may provide preliminary design, inspection,
and oversight services for which it would be reimbursed. The
agreement must do all of the following:
Provide for the construction, upgrade or reconstruction, and
operation of any CMS selected for the project, and require
Caltrans to be responsible for maintenance.
Provide for complete reversion of any ownership interest in
any CMS to Caltrans at the expiration of the agreement at no
charge, and free of any liens.
Provide that all Caltrans emergency notifications have
priority over other messaging, including advertising.
Provide that Caltrans, in consultation with the California
Highway Patrol, retains the ability to make a determination on
the safety of the CMS, and take specified actions.
Require the contractor to indemnify, defend, and hold Caltrans
harmless for any damage, injury claim, or incident in
connection with the construction or operation of any CMS, or
the advertising on those signs, excluding any advertising
approved in advance by Caltrans, as specified.
Provide that Caltrans shall conduct a demonstration phase of
the project as a condition prior to full implementation that
involves CMSs at current and planned locations selected by the
department. Caltrans would determine the number of signs
included in the demonstration, which must be sufficient to
evaluate the impacts and return on investment of the
demonstration. The demonstration would begin upon federal
approval and last until full implementation is authorized, and
if not authorized, then for sufficient time to allow the
contractor to recover its capital and related costs.
Require Caltrans to retain an independent consultant to
evaluate the results of the demonstration phase. Caltrans
would review results and the independent evaluation and
determine whether placement of commercial advertising on the
CMS network creates unsafe motorist distraction, and consider
other identified concerns. Caltrans may require changes to
the agreement to address issues of concern and to allow for
full implementation of the project. If the agreement is
amended to materially impact the ability to generate revenues,
the contractor would be entitled to recover unreimbursed
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capital or operating expenses from Caltrans.
Provide for the selected contractor to receive funds for the
placement of commercial advertisements on the CMS system, and
to share revenues generated in connection with the use of
those signs.
The bill would require revenues to be allocated between the
contractor and Caltrans in accordance with the agreement. Any
revenues received by Caltrans must be deposited in the State
Highway Account, and are not subject to transfer to the General
Fund.
The bill requires Caltrans to adopt standards, policies, and
guidelines to specify design, construction, and operating
requirements, as well as content and formatting of the
advertising, including prohibitions against the advertisement of
alcohol, tobacco, firearms, sexually explicit material, or any
illegal activity. Advertising would be exempt from certain
placement and display standards, but the bill would prohibit ads
that compromise safety or Caltrans' safety communications
functions.
SB 1397 would also require Caltrans to submit a report to the
Legislature within two years of implementing the CMS project
that includes the following: (1) the status of implementation,
including the number of signs placed and their locations; (2)
revenues received and any Caltrans costs and savings associated
with the project, including costs incurred prior to entering
into the agreement with the contractor; (3) an assessment of the
project's impact on public safety, emergency notification,
traveler information, and motorist safety and awareness
campaigns; and (4) a description of the types of advertising
content displayed on the signs.
Related
Legislation: SB 853 (Committee on Budget and Fiscal Review),
Chap. 27/2014, required Caltrans to report to the Legislature by
January 10, 2015, on the subject of advertising on electronic
CMS on the state highway system, and on the feasibility of a
pilot project in that regard, including estimates of revenue.
The report has not been released.
SB 854 (Committee on Budget and Fiscal Review), and AB 1614
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(Committee on Budget), both of which failed passage on the
Senate Floor in 2010, would have allowed advertising on the CMS
or digital messaging signs on the state highway system, subject
to federal approval.
Staff
Comments: There are currently over 830 existing CMS displays in
operation. For purposes of the demonstration portion of the
agreement, it is likely that some proportion of existing signs
would be converted to digital displays. The number of displays
would be determined by Caltrans as part of the agreement, but
must be sufficient to evaluate the impacts and return on
investment of the demonstration. According to information
provided by sponsors, the estimated one-time cost to upgrade or
reconstruct an existing display would be approximately $300,000
per sign. The costs to construct a new sign would be
significantly higher. A fully built-out CMS network could
include over 1300 displays, over 900 of which would include
advertising.
Staff notes that the bill only authorizes an agreement with a
single entity to conduct both the demonstration phase and the
full implementation of the project. While the bill does provide
for adjustments to the contract "to address issues of concern"
after a consultant evaluates and Caltrans reviews the results of
the demonstration phase, there are no provisions to have
separate contracts for the demonstration phase and a full
implementation phase. If full implementation is not authorized,
the demonstration phase must continue until the contractor
recovers its capital and related costs, and if the agreement is
materially modified in a way that impacts revenue-generating
capabilities, the contractor would be entitled to recover
unreimbursed capital or operating expenses. Caltrans would
retain ownership over any CMS displays that were constructed or
converted during the project. The Committee may wish to
consider whether it is prudent to authorize a
full-implementation scenario without the option of legislative
review following the demonstration phase.
If 100 existing signs were converted as part of the
demonstration phase, the capital cost of converting them to
full-color state-of-the-art displays would be approximately $30
million. Advertising revenues for each CMS would depend upon
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the location of the sign, the rate charged for each advertising
slot, and the occupancy rate for each display. Actual
implementation costs and revenues are highly speculative and
also dependent upon the specific terms of the agreement for both
the demonstration phase and full implementation. Based on
information provided by the sponsors that illustrate potential
revenue models, under a maximized 40-year agreement term using
aggressive assumptions of installing 182 revenue-generating
signs per year for five years (a total of 911 signs), the state
share of revenues could be in the tens of millions in the early
years, and may reach several hundred million annually around
year 25. If full implementation were not authorized, it would
likely be several years before sufficient advertising revenues
were generated to cover the capital and operating costs of the
contractor, and the state realized any net revenues.
Recommended
Amendments: Staff recommends that the findings and declarations
that are currently drafted as a new Streets and Highways Code
Section 172.2 be moved to an uncodified section of the bill for
code clarity.
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