In 2009, the California legislature amended Section 143 of the Streets and Highways Code and greatly expanded availability of the public-private partnership ("P3") as a mechanism to finance transportation infrastructure projects. In early 2010, under the authority of the newly amended Section 143, the California Department of Transportation ("CalTrans") began to implement part of the Presidio Parkway Project ("Project") as a P3.
The two-phase Project involves replacement of the 75-year-old,
seismically-deficient southern approach to the Golden Gate Bridge
(also known as Doyle Drive). Phase I (which is currently underway)
will be delivered via a traditional design-bid-build model. Phase
II, however, is set to be financed and constructed through a P3
contract between CalTrans and its selected bidder, Golden Link
Partners.
The process of implementing Phase II as a P3 was attacked on
November 2, 2010, when Professional Engineers in California
Government ("PECG") (a union representing state-employed
engineers and other professionals) challenged the P3 as violating
various provisions of Section 143.
PECG's combined petition for writ of mandate and complaint for
declaratory and injunctive relief was dismissed at the trial level
and PECG appealed. The appeal was expedited (so as not to delay the
Project or interfere with CalTrans' negotiated rights of entry
on surrounding federal land) and, on August 8, 2011, the Court
issued a succinct opinion, in which it rejected all three of
PECG's arguments employing basic canons of statutory
construction. Professional Engineers in California Government
v. Department of Transportation (August 8, 2011, A131449)
Cal.App.4th
PECG first argued that the P3 was invalid because CalTrans was not
acting as the "responsible agency" as required by Section
143(f)(1)(A). PECG argued that because CalTrans did not actually
perform preliminary (i.e., pre-P3) engineering work on the Project
(consultants did) it could not be the responsible agency. The Court
employed a "common sense" reading of the statute and
determined that CalTrans was only required to be responsible
for the work, not to actually perform the work.
Furthermore, the Court found it "unreasonable to invalidate an
earlier phase of a lengthy, ongoing project because of a change in
the law meant to enhance and encourage such projects."
PECG next argued that the Project did not qualify as a P3 because
it would rehabilitate or reconstruct an existing facility and not
"supplement an existing facility" as required by Section
143(a)(6). The Court agreed that Section 143 does require a project
to supplement existing facilities. Because the Project involves a
series of supplemental new improvements to existing facilities,
however, it meets this requirement "under any standard
definition."
Finally, PECG argued that in order to be a valid P3, the Project
must "require" funding through tolls and user fees. The
argument stemmed from language found in Section 143(j)(1), which
provides that P3 agreements "shall authorize" the
imposition of tolls and user fees and "shall require"
that such authorized fees be applied to payment of various costs.
The Court quickly rejected this argument, finding that "the
clause providing [that] P3 agreements 'shall require' any
toll revenues be used to defray certain costs . . . falls short of
requiring the use of tolls and user fees as a
necessary funding element or the sole funding
source in every P3."
Comment: This is the first appellate case
construing Senate Bill 2X4 (2010) which greatly expanded authority
for the state of California and regional transportation agencies to
utilize P3 agreements. Most significant is the Court's holding
that tolls or user fees are not required. This opens the door for
public agencies to use creative financing techniques such as
availability payments or lease provisions to pay the P3 entity for
the project's costs.
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