BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: SB 43 HEARING: 9/9/09
AUTHOR: Alquist FISCAL: Yes
VERSION: 8/27/09 CONSULTANT: Ho
SANTA CLARA STADIUM AUTHORITY
Existing Law
Public contracting . The Local Agency Public Construction
Act spells out the procedures that local officials must
follow when awarding public works contracts. Under the
traditional design-bid-build project delivery method, local
officials invite bids for construction projects based on
completed design plans and specifications and then award
contracts to the lowest responsible bidder. Alternatively,
under the design-build method, local officials contract
with a single entity to both design and construct a
project. Authorized local entities must still invite
competitive bids, but local officials may select the
winning bidder based on either lowest cost or a set of
criteria defining "best value."
General law cities can use the design-build method to
construct buildings and related infrastructure worth more
than $1 million (AB 642, Wolk, 2008). A pilot program
permits redevelopment agencies to use the design-build
method for 10 public improvement projects worth more than
$1 million, provided that the State Public Works Board
first approves the projects (SB 4xx, Cogdill, 2009).
Local agency officials can award construction contracts
without competitive bids only under limited circumstances.
General law cities and redevelopment agencies don't need
competitive bids for work that costs less than $5,000, and
cities can bypass competitive bidding in emergencies.
The California Constitution gives charter cities broad
control over their "municipal affairs." While general law
cities and redevelopment agencies must follow the statutory
public contracting procedures, charter cities may spell out
their own public contracting rules.
Redevelopment . Local officials establish redevelopment
agencies to eliminate economic and physical blight. To
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accomplish this task, the Community Redevelopment Law gives
redevelopment agencies two extraordinary powers: property
tax increment financing and property management powers,
including the power of eminent domain.
Joint powers agencies . The Joint Exercise of Powers Act
allows two or more public agencies to carry out a common
program or joint project, provided that each agency already
has the power to perform that program or project.
Sometimes, these joint powers agreements create a new,
separate joint powers agency (JPA) to finance and operate
the common program or project.
Background
The City of Santa Clara is a charter city located at the
southern tip of the San Francisco Bay. In 1957, the City
established the Redevelopment Agency of the City of Santa
Clara. Like most redevelopment agencies, the Santa Clara
City Council serves as the Agency's Board of Directors, the
City Manager serves as Executive Director, and the City
Attorney serves as General Counsel. In 1973, the Agency
established the Bayshore North Redevelopment Project Area.
Covering 1,200 acres, this project area includes the City's
Convention Center Complex and the California's Great
America amusement park.
In November 2006, the San Francisco 49ers announced plans
to construct a new football stadium in Santa Clara on
City-owned land within the Bayshore North Redevelopment
Project Area. In January 2008, the City concluded its
feasibility study of the proposed stadium, and subsequently
directed the City Manager to enter into non-binding
negotiations with the 49ers. In June 2009, the City
Council approved a Term Sheet agreement for the potential
49ers football stadium, clarifying and documenting the
parties' understandings and commitments.
According to the Term Sheet, the City of Santa Clara and
its redevelopment agency plan to form a joint powers agency
(JPA) that will own, construct, maintain, and operate a
football stadium for the 49ers. The estimated cost for the
stadium and related facilities is $937 million. Up to $114
million will come from public funds, including $59 million
from the redevelopment agency, $35 million from a new
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Mello-Roos Act special tax on surrounding hotel owners, and
$20 million from the City's utility fund to relocate an
electrical substation. The 49ers and the NFL will invest
$493 million, and the team will be responsible for any
construction cost overruns. Finally, the JPA will fund the
remaining $330 million by borrowing against future naming
rights and ticket sales revenues.
The 49ers want Santa Clara officials to award a
design-build contract for the stadium to a general
contractor of the team's choice. However, Santa Clara's
city charter requires the City to award contracts to the
lowest responsible bidder. Further, the state law that
allows redevelopment agencies to use design-build contracts
requires competitive bidding.
Proposed Law
Senate Bill 43 is special legislation that allows a joint
powers agency (JPA) that includes the City of Santa Clara
and the Redevelopment Agency of the City of Santa Clara to
use a unique design-build authority to construct a
professional football stadium. The JPA must be called the
Santa Clara Stadium Authority.
Design-build contract . SB 43 authorizes the Stadium
Authority to award a design-build contract to a qualified
design-build contractor to construct a stadium without
using an otherwise applicable competitive bidding process.
However, before the Stadium Authority can award such a
contract, all of the following must first occur:
Santa Clara's voters must approve a ballot measure
endorsing the development of a professional football
stadium.
The Stadium Authority's governing board must
determine that the contract's cost is reasonable.
The Stadium Authority's governing board must
determine that awarding the contract is in the JPA's
best interest.
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The design-build contract authorized by SB 43 is subject to
the following conditions and restrictions:
The contract cannot involve money from the City's
general fund or enterprise funds.
The redevelopment agency's financial contribution
to the contract must be limited to a specified maximum
amount. This amount does not include debt service and
other related financing costs.
Funds from the redevelopment agency and any
Mello-Roos Act tax can only be used to pay for
subcontract work that's awarded to the lowest
responsible bidder.
The contract cannot modify the redevelopment
agency's statutory obligations and limitations.
A private party must be responsible for any
construction cost overruns.
The Stadium Authority may specify that the
design-build contractor's payment bond must be in a
sum not less than one-half of the contract price or
$300 million, whichever is less.
The Stadium Authority must report to the
Legislative Analyst's Office about its design-build
experience within six months of completing the
stadium's construction.
Subcontracts . SB 43 also requires the Stadium Authority to
establish a competitive bid process that the design-build
contractor must use for awarding subcontracts. The
design-build contractor may award subcontracts to either
the lowest responsible bidder or to the "best value"
bidder. The design-build contractor cannot use funds from
the redevelopment agency or a Mello-Roos Act tax to pay for
subcontract work unless the contractor awards the
subcontract to the lowest responsible bidder in a manner
consistent with provisions in the City's charter.
Powers . In addition to the powers that the City and the
redevelopment agency have in common, SB 43 gives the
Stadium Authority the power to acquire, construct, finance,
maintain, manage, and operate a professional football
stadium and related facilities. The bill prohibits the
Stadium Authority and the Redevelopment Agency of the City
of Santa Clara from spending property tax increment
revenues on the stadium's operation and maintenance.
Non-stadium projects . SB 43 declares that it is not the
Legislature's intent to authorize the use of design-build
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contracting for streets and highways, public rail transit,
water resource facilities, and infrastructure not located
on the stadium site or adjacent city streets and property.
For any improvement on the state highway that may result
from the construction, operation, or maintenance of a
football stadium, the bill requires the state Department of
Transportation to be the responsible agency for providing
project development and design services. SB 43 permits
Caltrans to use Department employees and consultants to
perform those services.
SB 43 contains legislative findings in support of its
special provisions.
Comments
1. A need for flexibility . Over the past two years, the
City of Santa Clara, the City's redevelopment agency, and
the 49ers have crafted a public-private partnership to
finance the construction of a new stadium. Because the
team plans to pay for more than half of the construction
costs as well as any cost overruns, the City and team
officials believe that the team should get to hire the
general contractor of its choice. The 49ers want to ensure
that a contractor who has extensive experience in
constructing NFL stadiums and familiarity with NFL
guidelines is managing the project. Recent Assembly
amendments ensure that the general contractor must use
public money only to pay for subcontract work that's
awarded to the lowest responsible bidder. SB 43 also
prohibits the use of property tax increment revenues to pay
for the stadium's operation and maintenance. The 49ers get
to choose their general contractor while local construction
workers get to competitively bid on hundreds of new
projects. SB 43 provides a unique contracting scheme that
suits the stadium's unique financing arrangement.
2. A bad precedent ? Competitive bidding requirements
exist to prevent favoritism, corruption, and waste of
public money. For over 125 years, state law has required
cities to solicit public, competitive bids and award their
construction contracts to the lowest responsible bidder.
The Santa Clara City Charter has required competitive
bidding for 83 years and a similar requirement for
redevelopment agencies has existed since 1949. The 49ers
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want to hand-pick a general contractor rather than open the
$937 million contract (including $114 million in public
money) up to competition. Given that the team is paying
for over 50% of the stadium's construction costs plus any
construction cost overruns, Santa Clara is prepared to let
the 49ers have their way, except the City Charter and the
Community Redevelopment Law both require competitive
bidding. SB 43 exempts the Stadium Authority from these
competitive bidding requirements. The Committee may wish
to consider whether Santa Clara's situation is unique
enough to warrant this special exemption. If legislators
allow a precedent-setting exemption so that Santa Clara can
lure an NFL franchise, how can they say "no" when other
communities want their own exemptions to attract
professional sport franchises, other big businesses, and
attractions? It's a slippery slope.
3. Who should decide ? In 2010, Santa Clara voters will
decide on a ballot measure on whether to endorse the
stadium project. SB 43 requires voter approval of this
ballot measure before the Stadium Authority can use the
bill's special design-build authority. Voters may also
have an opportunity to decide on whether to amend their
charter to exempt the stadium project from the City's
public bidding process. A Charter Review Committee will
make recommendations to the City Council in October. Santa
Clara's City Attorney says that given a charter amendment,
SB 43 would not be needed. Alternatively, if the
Legislature approves SB 43, the City no longer has to gain
voter approval to amend its charter. Stadium construction
often ignites fierce debate within the host community,
especially when public subsidies are involved. Should the
Legislature inject itself into a local matter between Santa
Clara residents and the 49ers? Why not let Santa Clara's
voters decide?
4. Gut-and-amend . When the Senate passed SB 43 on June 1,
2009, the bill addressed the collection and use of
healthcare workforce data. The June 30 Assembly amendments
deleted that language and converted the bill into a measure
authorizing the Santa Clara Stadium Authority to let a sole
source design-build contract for the construction of a
professional football stadium. Because this topic was
never heard in the Senate, the Senate Rules Committee has
referred the amended bill under Senate Rule 29.10 to the
Senate Local Government Committee for a hearing on the
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Assembly's amendments. At its September 9 hearing, the
Committee has four choices:
Send the bill back to the Senate Floor,
recommending concurrence.
Send the bill back to the Senate Floor,
recommending nonconcurrence.
Send the bill back to the Senate Floor, without
recommendation.
Hold the bill.
Assembly Actions
Assembly Rules Committee: 6-3
Assembly Local Government Committee: 5-2
Assembly Floor: 56-14
Support and Opposition (9/8/09)
Support : San Francisco 49ers, Santa Clara & San Benito
Counties Building & Construction Trades Council, Silicon
Valley Leadership Group, State Building and Construction
Trades Council of California; Santa Clara Mayor Patricia M.
Mahan, Santa Clara Vice Mayor Jamie L. Matthews, Santa
Clara City Councilmember Kevin Moore.
Opposition : William Bailey, Henry Cate, Mary Emerson,
Erlinda Anne Estrada, John Hogle, Santa Clara City
Councilmember Will Kennedy, David Kline, Christine
Koltermann, Santa Clara City Councilmember Jamie McLeod, Au
Nguyen, Ciaran O'Donnell.