BILL ANALYSIS �
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THIRD READING
Bill No: SB 475
Author: Wright (D) and Emmerson (R)
Amended: 5/3/11
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-2, 4/27/11
AYES: Wolk, Huff, Fuller, Kehoe, La Malfa, Liu
NOES: DeSaulnier, Hancock
NO VOTE RECORDED: Hernandez
SUBJECT : Infrastructure financing
SOURCE : Author
DIGEST : This bill revises statutes governing local
governments' public-private infrastructure agreements.
ANALYSIS : Local governments may solicit 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], Chapter 1040, Statutes of 1996).
I. Leases . A public-private 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.
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This bill clarifies that a public-private
infrastructure agreement may - but is not required to -
provide for the lease, license, or other permissive use
of facilities constructed under the agreement.
This bill allows the maximum period of ownership,
leasing, licensing, or other permissive use allowed
under a public-private infrastructure agreement for up
to 35 years.
This bill also repeals a local agency's authority to
provide for ownership of the facility by a private
entity during the term of the agreement.
II. Selection criteria . A local government must use a
private sector contractor's "demonstrated competence
and qualifications" as the primary selection criterion
when selecting a private-sector contractor with which
to enter into an agreement for the study, planning,
design, financing, construction, maintenance,
rebuilding, improvement, repair, or operation of
fee-producing infrastructure.
This bill requires a local agency to use criteria that
it identifies in the solicitation documents when
selecting a private-sector contractor. These selection
criteria must include the following factors, as
applicable to the proposed project:
Financial or price proposal or approach
Features
Life cycle costs
Technical approach
Acceptable safety record as determined by the
government agency
Experience and qualifications of the private
entity to perform the services under the agreement
The local government may identify other specific
selection criteria in the
solicitation documents. �Section 6.]
III. Eligible projects . A local agency may enter into
agreements with private entities for the following
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types of fee-producing infrastructure projects:
Irrigation
Drainage
Energy or power production
Water supply, treatment, and distribution
Flood control
Inland waterways
Harbors
Municipal improvements
Commuter and light rail
Highways or bridges
Tunnels
Airports and runways
Purification of water
Sewage treatment, disposal, and water recycling
Refuse disposal
Structures or buildings, except structures or
buildings used primarily for sporting or
entertainment events
This bill adds sanitary sewer systems to the types of
fee-producing infrastructure that are eligible for
public-private infrastructure agreements �Section 5]
IV. Private sector financing . The 1996 Aguiar legislation
used the term "private sector investment capital" to
describe what types of new financial resources that
private sector entities could provide through a
public-private infrastructure agreement.
This bill replaces the term "private sector investment
capital" with "private sector financing" and clarifies
that local governments may use private sector
financing, public financing, or any combination of
those financing sources to study, plan, design,
construct, develop, finance, maintain, rebuild,
improve, repair, or operate fee-producing
infrastructure facilities.
This bill also specifies that private sector financing
may include:
"cash, cash equivalents, loans, debt assumption,
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letters of credit, capital investment, in-kind
contributions of materials or equipment, construction
or equipment financing, carrying of costs during
construction, or any combination thereof." �Sections
1, 2, and 3]
V. Fees . A public-private infrastructure agreement must
ensure a local government's authority to impose user
fees that are sufficient to protect the revenue streams
necessary to cover the costs of projects or facilities.
This bill clarifies that:
User fees may be paid to the local
government or the private entity.
User fees must be used exclusively to pay
the government agency and private entity's direct
and indirect costs for project construction,
financing, operations, fee collection,
administration, maintenance, a reasonable rate of
return to the private entity, and other project
related costs.
The reasonable return to the private entity
must be stated specifically in the public-private
infrastructure agreement or included as part of
the costs and fees, as set during the procurement
process. �Section 7]
VI. Exemption . The 1996 Aguiar legislation exempted
public-private infrastructure agreements, with
specified exceptions, from any provisions of the
California Public Contract Code or the California
Government Code that relates to public procurements.
This bill expands that exemption to any statutory
provision that relates to public procurements. �Section
6]
VII. Public notice . Before imposing or increasing a user
fee on infrastructure that is subject to a
public-private agreement, a local government must
conduct a public hearing regarding the proposed fee.
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This bill requires a local government to hold two
public hearings. Current law requires that notice of a
hearing relating to transportation projects must be
published four consecutive times in a newspaper of
general circulation.
This bill applies the notice requirement to hearings
related to all infrastructure projects. �Section 7]
VIII Validation . State law allows an agency to file a
validation action, asking a superior court to determine
the validity of its actions.
This bill adds a cross-reference to the standard
procedures that allow for a government agency to
initiate a validating proceeding. �Section 12]
IX. Prohibited projects . State law prohibits the state,
and any state agency, from directly or indirectly
entering into any public-private infrastructure
agreement under the 1996 Aguiar legislation.
Governmental entities can't use the Aguiar statute to
design, construct, finance, or operate state projects,
including:
Toll roads on state highways
State water projects
State park and recreation projects
State financed projects
This bill states that these prohibitions must not be
construed to prohibit a government agency from using
public-private infrastructure agreements to accomplish
projects that are not expressly prohibited by the
statute. �Section 11]
Comments
Confronted by aging infrastructure, growing populations,
and limited revenue sources, local governments want to use
public-private partnerships to finance, build, replace or
operate public infrastructure. In 1996, the Legislature
authorized local governments to enter into public-private
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partnerships for fee-producing infrastructure projects that
might not be feasible without private-sector involvement.
In addition to making new projects feasible by providing
additional financing options, public-private agreements can
facilitate new infrastructure projects through cost-savings
and the opportunity to transfer project risks from local
governments to their private sector partners. In
completing projects using these provisions, local agencies
and private entities have encountered some statutory
ambiguities and obstacles that hamper their ability to use
public-private infrastructure agreements.
Related legislation
This bill is similar to AB 1261 (Caballero) of 2007, which
died on the Senate Inactive File. SB 693 (Dutton) of 2011,
expresses the Legislature's intent that local governments
may use a combination of public funding and private sector
financing to finance infrastructure projects through a
public-private infrastructure agreement.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/4/11) (per committee analysis)
American Water
Associated General Contractors
Bay Area Council
California Association of Sanitation Agencies
California Chamber of Commerce
California State Council of Laborers
California Taxpayers Association
California Water Association
League of California Cities
Skanska Infrastructure Development
Suburban Water Systems
Veolia Water
Western Council of Construction Consumers
OPPOSITION : (Verified 5/4/11) (per committee analysis)
American Federation of State, County, and Municipal
Employees AFL-CIO
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California School Employees Association
Professional Engineers in California Government
Western Electrical Contractors Association
AGB:do 5/4/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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