California funds Presidio Parkway PPP

California Governor Arnold Schwarzenegger has signed into law an $87.5 billion budget which includes money for the Presidio Parkway public-private partnership.

The money, about $1.1 billion, is continuously appropriated over 30 years, meaning that legislators have green-lighted the state to make payments toward the project over the course of its life.

The continuous appropriation marks an important milestone for the Presidio Parkway because the state has structured the project as an availability payment deal. That means the winning bidder will receive annual payments from the state for designing and building and then operating and maintaining the parkway for 30 years.

The availability payment structure, long used in similar projects in Canada and Europe, was so novel in California that some questioned its legality. The Professional Engineers In California Government, a union that staunchly opposes the project, argued in May the project could not go forward because “there is no provision” in California’s law governing public-private partnerships “to make payments to private entities”, including availability payments.

Others simply worried whether the state would appropriate the money needed for the project in one bite or leave it up to the legislature to decide each year whether to ok the annual payments for the project. This year, the California budget involved a 100-day standoff between the legislators and the governor over a $19 billion deficit. So the idea of asking for an annual appropriation from legislators was not very attractive to investors.

California’s Business Transportation and Housing Agency, one of the procuring authorities for the Presidio Parkway, said in a statement that the $1.1 billion includes all the money necessary to cover the state’s obligations for the project.

“While there has been much speculation and debate surrounding appropriation risks and the legality of availability payments, the Governor and Legislature have now mitigated these risks by making sure that all monies needed to cover future obligations for the Presidio Parkway Project will be available when needed,” Dale Bonner, Secretary of the Business, Transportation and Housing Agency, said in the statement.

“The degree to which availability payments will be used in future projects is yet to be determined,” Bonner added. But for now, there is no doubt that it’s an “appropriate mechanism for this project,” he said.

The project aims to replace the southern access road to San Francisco’s Golden Gate Bridge, the Doyle Drive, with a new road called the “Presidio Parkway” that will be safer to drive. Doyle Drive, already 73 years old, is near the end of its useful life and vulnerable to earthquakes.

California began procuring a private partner for the project earlier this year and is in the process of evaluating financial proposals, according to a business, transportation and housing agency spokesperson.

California will hold a public hearing on the project on 21 October in San Francisco. The meeting will be an opportunity for the public to provide its input on the project.