Los Angeles County Metropolitan Transportation Authority (“LA Metro”) is pursuing new public-private partnership (P3) legislation, Assembly bill ABX 1-12 (“Bill 12”).  Bill 12, introduced and read for the first time on August 26, 2015 at the California extraordinary session on transportation, would give LA Metro greater flexibility and autonomy to procure and finance transportation infrastructure in the LA Metro region.

LA Metro currently has authority under Section 143 of the Streets & Highway Code (“Section 143”) to deliver transportation projects using a P3 model with the use of comprehensive development lease agreements.[1]  This authority will lapse on December 31, 2016, unless this sunset is lifted or extended by the California legislature.[2]  Governor Brown has proposed an extension through 2027.

The authority provided by Section 143 has proven difficult to implement and has not resulted in a steady stream of P3 projects for the delivery of transportation infrastructure.  Rather, various requirements built into Section 143 have proven restrictive and cumbersome, as illustrated by the cancelled ARTI project.[3]

Bill 12 zeroes in on certain key limitations of Section 143.  Bill 12 would provide LA Metro with authority that is in addition to and separate from LA Metro’s existing authority under Section 143.

Broad project scope

Bill 12 would expand the scope of eligible projects to better align with LA Metro’s broad responsibility for transportation infrastructure within Los Angeles County.  It includes rights-of-way, high-occupancy toll lanes, rail lines, monorails, bus lines, stations, terminals, tunnels, parking lots, air rights, land rights, development rights, entrances and exits, and any other facilities together with any physical structures necessary for, incidental to, or convenient for, the access of persons and vehicles to those facilities.[4]  This broad scope of eligible projects can be contrasted with Section 143 which defines “transportation projects” as highway, public street, rail, or related facilities supplemental to existing facilities currently owned and operated by Caltrans or regional transportation agencies.[5]

No California Transportation Commission Approval

Bill 12 would authorize LA Metro to pursue P3 models without seeking approval from the California Transportation Commission (the “CTC”).  Section 143, on the other hand, requires that potential P3 projects be nominated as candidates for review and approval by the CTC based on satisfaction of certain objectives,[6] and further provides that the CTC will establish evaluation criteria for each project.[7]  CTC guidelines and practice require submission of an extensive project proposal report, which consumes considerable time and resources to prepare.  Because LA Metro primarily uses local sales tax revenue to fund capital outlays for its projects, CTC supervision of its decisions to fund P3 projects seems out of place.

Cooperation with Caltrans on state highway projects

For projects on the state highway system, Bill 12 would require that LA Metro (a) cooperate with Caltrans pursuant to an agreement that addresses matters related to design, construction, maintenance, and operation of state highway system facilities in connection with the project; and (b) comply with Caltrans’ standards for state transportation projects.  Bill 12 provides that LA Metro would establish appropriate performance measures for ensuring optimal use of the state highway system within the LA Metro region.[8]  Significantly, Bill 12 would not restrict LA Metro from using its own employees and consultants to perform the full range of project development services.

Section 143, on the other hand, places considerably more control in the hands of Caltrans by (a) designating Caltrans as the responsible agency for providing predevelopment services (including performance specifications, preliminary engineering, pre-bid services, the preparation of project reports and environmental documents, and construction inspection services); and (b) designating Caltrans as the responsible agency for preparing project technical documents setting forth the size, type, and desired design character of the project and including performance specifications covering the quality of materials, equipment, and workmanship, and preliminary plans.[9]  These provisions have caused friction between Caltrans and regional transportation agencies like LA Metro, and engendered litigation by the Professional Engineers in California Government that unsuccessfully challenged the use of Section 143 for the Presidio Parkway project.

Tolling flexibility

Bill 12 would allow LA Metro to impose tolls and user fees for use of a facility constructed pursuant to Bill 12.[10]  Further, Bill 12 would include among eligible projects additional high-occupancy vehicle lanes or the conversion of existing lanes to high-occupancy vehicle lanes, conversion of existing high-occupancy vehicle lanes to high-occupancy toll lanes, additional toll roads, toll lanes, and transit projects.[11]  Section 143 prohibits converting currently non-tolled lanes into tolled lanes, with the exception of HOV to high occupancy toll lane conversions.[12]

Section 143 places additional restrictions on tolling.  For example, Section 143 authorizes tolling by private parties,[13] but does not speak to tolling by Caltrans or regional transportation agencies, with one exception.  After a comprehensive lease agreement expires, the regional transportation agency may continue tolling, but only if continuation is approved by the CTC or regional transportation agency.  Further, those post-expiration tolls may be used only for the improvement, continued operation or maintenance of the tolled facility.[14]  Section 143 also restricts use of excess toll revenues received during the term of the comprehensive lease agreement to improving the tolled project, improving public transportation in and near the project boundaries or returning the revenue to the State Highway Account.[15]

Under Bill 12, LA Metro would have express authority, without need for CTC approval, to toll highway P3 projects constructed pursuant to the bill, with no limitation on tolling after expiration of the P3 transaction.  It would also increase LA Metro’s flexibility in the use of toll revenues during and after the term of the P3 agreement.  Bill 12 would authorize use of toll revenue in excess of that needed for project capital, operating, maintenance and administrative costs for any other purposes allowed under federal law.[16]  Federal law, specifically 23 U.S.C. §129, provides that as long as the tolled facility is adequately maintained, excess toll revenues may be used for any other purpose for which federal funds may be obligated by a state under Title 23. This means that excess toll revenues under Bill 12 could be used for any other LA Metro project eligible for federal aid under Title 23.

Bill 12 would not authorize Caltrans to impose tolls on LA Metro’s state highway P3 projects pursued under Bill 12.  The implication is that the decision to toll such state highways, the toll rate structure and toll ownership would rest entirely with LA Metro.  The ownership and use of tolls from the ARTI project became a contentious issue between Caltrans and LA Metro and contributed to the difficulties that led to its cancellation.

Procurement options

Bill 12 would authorize LA Metro to engage in solicited and unsolicited proposals for P3 projects.[17]  It declares that the procurement rules in the state’s Public Contract Code would not apply,[18] leaving LA Metro free to adopt its own procurement, evaluation and selection procedures.  LA Metro’s existing policy allows sole source negotiation of unsolicited proposals.  In contrast, Section 143, while allowing unsolicited proposals, requires a competitive procurement if the unsolicited proposal is of interest to the public agency, and prohibits award to an unsolicited proposer unless at least one other responsible bid is received.[19]

No sunset

In the spirit of a truly enabling and flexible approach, Bill 12 does not include a sunset clause.

Concluding thoughts

The enactment of Bill 12 would greatly improve LA Metro’s ability to more quickly and efficiently improve transportation infrastructure in LA County through the development of a sustainable P3 program.  Bill 12’s flexible approach to deal structures, asset combinations and use of toll revenues would enable solutions designed by LA Metro to address specific regional transportation issues.  This new legislative tool would also reduce political risk and improve market certainty by eliminating certain approval requirements imposed by Section 143 and by clarifying the respective roles of LA Metro and Caltrans for state highway system projects within the LA Metro region.