BILL ANALYSIS �
SB 475
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Date of Hearing: June 29, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 475 (Wright) - As Amended: June 20, 2011
SUBJECT : Infrastructure financing.
SUMMARY : Changes the statutory authorization for local
governmental agencies to utilize private sector financing alone
or in concert with public financing, to study, plan, design,
construct, develop, finance, maintain, rebuild, improve, repair,
or operate, or any combination thereof, fee-producing
infrastructure facilities. Specifically, this bill :
1)States that private financing may be used alone or in concert
with public financing to construct publicly owned,
fee-producing infrastructure.
2)Provides that the facilities constructed using this mechanism
may be leased to the private sector partner, but does not
require it.
3)Defines "fee-producing infrastructure project" or
"fee-producing infrastructure facility" to mean that the
operation of the infrastructure project or facility will be
paid for, in whole or in part, by the persons or entities
benefited by or utilizing the project or facility.
4)Adds sanitary sewer systems to the types of fee-producing
infrastructure that may be constructed under the provisions of
the relevant statutes.
5)Requires that the competitive negotiation process utilize
criteria that the governmental agency identifies in the
solicitation documents.
6)Requires the selection criteria, to the extent applicable to
the proposed project, to include the following factors:
a) Financial approach or price proposal;
b) Features;
c) Life cycle-costs;
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d) Technical approach,
e) An acceptable safety record;
f) An acceptable labor compliance record;
g) Experience and qualifications of the private entity to
perform the services under the agreement; and
h) Any other criteria specifically identified by the
governmental agency.
7)Requires, that prior to entering into an agreement with a
private entity for a proposed project that will include some
public financing and relates to a project for which public
financing is available to finance the entire project, the
governmental agency to assess whether the agreement provides
greater benefits or value for money as compared to a project
that is finance entirely with public financing and is subject
to competitive bidding.
8)Provides that an agreement may include provisions for the
lease, license, or other permissive use of rights away in, and
airspace over, property owned by a governmental agency, for
the granting of necessary easements, and for the issuance of
permits or other authorizations to enable the private entity
to construct, maintain, rebuild, improve, or repair
infrastructure facilities supplemental to existing
government-owned facilities.
9)Requires that all public works constructed pursuant to this
bill shall comply with the provisions of the Labor Code
pertaining to public works.
10)Provides that user fees may be paid to the governmental
agency or the private entity, and that the fees must be
dedicated exclusively to the payment of all parties' direct
and indirect costs associated with construction, operation and
maintenance of the facility, in addition to a reasonable
return on the private sector partner's investment, which is
negotiated in the procurement process.
11)Increases the number of public hearings regarding user fees
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from one to two.
12)Authorizes a governmental entity to determine the validity of
any permits, authorizations or approvals, contracts and
agreements, user fees, and other actions taken under these
statutes through the validation process established in
existing law.
EXISTING LAW :
1)Permits a governmental agency to solicit proposals and enter
into agreements with private entities for the design,
construction or reconstruction by private entities for
specific types of fee-producing infrastructure projects.
2)Permits these agreements to provide for private entities to
lease or operate these fee-producing infrastructure facilities
that are owned by a governmental entity constructed by a
private entity, for a period of up to 35 years.
FISCAL EFFECT : None
COMMENTS :
1)In 1996 the Legislature passed AB 2660 (Aguiar), Chapter 1040,
Statutes of 1996, which permitted a governmental agency to
solicit proposals and enter into agreements with private
entities for the design, construction or reconstruction by
private entities for specific types of fee-producing
infrastructure projects that could provide for private
entities to lease or operate these fee-producing
infrastructure facilities for a period of up to 35 years.
These provisions have been essentially unchanged since their
enactment.
2)According to the author, over the past decade, local agencies
and private entities seeking to build projects using these
provisions have encountered a series of situations where the
law
has been ambiguous, which made use of the statute frustrating.
Questions and issues that have arisen in the implementation of
this act include the following:
a) Is 100% private financing always required, or can the
governmental agency contribute financing as well?
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b) Must the financing always be in the form of equity
(cash) or could contributions include loans, carrying
costs, assumptions of risks, or any combination thereof?
c) Numerous terms generated confusion. For example, does
"agreement" include a "license?"
d) Concern arose that the limitation on the lease/operation
period was too short, and that the statute was ambiguous as
to whether leasing to a private entity is allowed ("may")
or required ("shall") when facilities are constructed under
the statutory terms.
The purpose of this bill is to facilitate use of the original
statutory scheme. As such, the bill contains a series of
technical clarifications, the purpose of which are not to
expand the existing statute, but facilitate its use.
3)According to the author, while the need to build new
infrastructure is daunting, the need to replace existing
infrastructure is equally important and, in most instances,
more expensive. Private investment is critical if the state
is to meet the mounting infrastructure needs of a growing
population. During the past decade, innovative financing
techniques have emerged to meet these financing challenges.
This bill is designed to acknowledge this change and allay the
concerns of local officials that the original law does not
inadvertently constrain deployment of new financing
arrangements that will help them meet their infrastructure
needs.
4)The bill was recently amended on June 20, 2011, to include
provisions that state that if a governmental entity is going
into an agreement with a private entity where there are public
funds available to cover the entire cost of the project, then
the governmental entity is required to assess whether the
agreement provides greater benefits or value for money than if
the work was financed entirely through public funds and
subject to competitive bidding. However, the bill is silent
on what the governmental entity must use to make that
assessment. Should the assessment be done by evidence in the
public record? If the governmental entity has to determine
what the cost would be if the project was done through
competitive bid, what criteria should they be using to
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determine these costs since an actual bid will not have
occurred? The Committee may wish to consider asking the
author to clarify the assessment process.
5)SB 475 is similar to AB 1261 (Caballero, 2007), which this
Committee passed 7-0. AB 1261 died on the Senate Inactive
File.
6)Support arguments: Supporters argue that with the downturn
in the economy, local government agencies are having an
increasingly difficult time delivering vital infrastructure
projects. Local agencies need a wide variety of tools made
available to them so they can deliver the infrastructure
projects their communities need. Effective public-private-
partnership (P3) authority is one such tool that can help them
to deliver vital projects despite declining revenues.
Opposition arguments: Opposition argues that there is already
sufficient state and local P3 authority. Moreover, opposition
argues that P3s do not generate new money and by adding in
"public financing" to the revenues that are eligible to be
used in local P3s this just proves yet again that P3s lack the
ability to generate new revenues. Furthermore, the opposition
argues that so-called P3s have cost taxpayers hundreds of
millions of dollars and it makes no sense to create a new P3
authority.
REGISTERED SUPPORT / OPPOSITION :
Support
American Council of Engineering Companies of California
American Fence Association, California Chapter
American Water
Associated General Contractors
Bay Area Council
California Association of Sanitation Agencies
California Chamber of Commerce
California Conference of Carpenters
California Fence Contractors' Association
California-Nevada Conference of Operating Engineers
California State Council of Laborers
California Taxpayers Association
California Water Association
Chambers of Commerce Alliance
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CH2M Hill
Engineering Contractors' Association
Flasher Barricade Association
Irvine Chamber of Commerce
League of California Cities
Marin Builders Association
National Association of Water Companies
Orange County Transportation Authority
PERC Water
San Jose Water Company
Skanska Infrastructure Development
Suburban Water Systems
Veolia Water North America - West, LLC
Western Council of Construction Consumers
W.M. Lyles Co.
Opposition
American Federation of State, County and Municipal Employees,
AFL-CIO
California Professional Firefighters
California School Employees Association, AFL-CIO
California State Pipe Trades Council
Food & Water Watch
Glendale City Employees Association
International Brotherhood of Electrical Workers
Laborers' International Union of North America, Locals 777 and
792
Organization of SMUD Employees
Peace Officers Research Association of California
Professional Engineers in California Government
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
State Building and Construction Trades Council of California
Western Electrical Contractors Association
Western States Council of Sheet Metal Workers
Analysis Prepared by : Katie Kolitsos / L. GOV. / (916)
319-3958
SB 475
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