California mulls ongoing funding for PPPs

The state’s Business, Transportation and Housing Agency is working with legislators on a proposal that could set aside 10% to 15% of the state’s transportation budget toward payments for the Presidio Parkway and other PPPs.

California may dedicate a portion of its transportation budget to funding public-private partnerships over a long-term period as a way to assure investors the state’s fiscal woes will not endanger their investments in the state's infrastructure.

“We’re going to be working with the legislature to pursue a continuous budget appropriation that would set aside a certain amount of our state revenues over about a 30-year period from which we would be making payments toward [Presidio Parkway] and other PPP projects,” Dale Bonner, Secretary of California’s Business, Transportation and Housing Agency, said in an interview.

The Presidio Parkway project would grant a private sector partner a stream of payments over a 30-year term in exchange for operating and maintaining a new road next to the Golden Gate Bridge near San Francisco. A continuous appropriation for the project “would be one way that the state might provide some additional assurance that the payments won’t be subject to annual appropriations requests”, Bonner said.

“We’re roughly seeking . . . to be putting aside maybe 10- or about 15 percent of our [transportation] programme to be available to make payments for PPP projects,” he added.

Bonner cautioned it is still early in the budgetary process and his agency is working with the Department of Finance and the legislature on the scope of the proposal, which may end up covering only the Presidio Parkway project.

Fresh from painfully stitching up a $26 billion budget deficit last year, the state already faces another $20 billion budget hole for the remainder of its current and upcoming fiscal years. It also holds the lowest credit scores of any state in the US, according to a list on the California treasurer’s website, and had to temporarily result to issuing IOUs for payments last year.

“This notion of having a dedicated source, I think, is a really good notion,” said Jane Garvey, chairman of North America for Meridiam Infrastructure, an infrastructure fund that focuses on PPPs.

It wouldn’t be the first time the state has set aside dedicated sources of funding to specific projects. The California Department of Transportation has previously enacted continuous appropriations for projects funded with GARVEEs, or Grant Anticipation Revenue Vehicles – a type of bond that allows states to borrow against future payments from the Federal government. Their name is a tribute to Garvey, who championed the concept while serving as the deputy administrator for the Federal Highway Administration in the mid-90s.

Garvey said a “dedicated source of funding” was one of the rationales behind GARVEEs, which allow “states to get moving with projects but allow them the flexibility to pay back over time with future payments”.

For California, that kind of flexibility could prove fortuitous.

“As we’re starting now to see the early signs of recovery, we expect the state to be in an increasingly stronger financial position between now and the time the first [Presidio Parkway] payments are due,” Bonner said.

The outcome of any continuous appropriation proposal won’t be known until later in the year, when the legislature votes on the budget.