Judge upholds legality of Presidio project

The decision by Alameda County Superior Court Judge Wynne Carvill hands a victory to the California Department of Transportation and its private partners, Hochtief and Meridiam, in pursuit of the state's first PPP. However, the vitory may be short-lived, as the engineers' union that challenged the legality of the project is already planning an appeal.

A California judge ruled that the Presidio Parkway project—the state’s first major public-private partnership since a 2009 law enabling such partnerships came into effect—is legal.

The decision is a victory for both the state department of transportation, CalTrans, and the San Francisco County Transportation Authority. Professional Engineers in California Government (PECG), a union which represents 13,000 state workers, had sued the state and regional transportation authorities, arguing that the Presidio Parkway agreement violated rules about how private operators could be paid, among other claims. 

“We think that the judge came up with the wrong conclusion,” Bruce Blanning, executive director of PECG, said in an interview. He added that PECG will appeal the ruling.

California agreed to fund the project with both a $173 million “milestone” payment and quarterly availability payments that total $28.5 million annually. PECG had charged that only tolls and user fees could provide revenue for a public-private partnership such as Presidio. 

In his ruling, Alameda County Superior Court Judge Wynne Carvill said the law allows for tolls as a funding mechanism, but “falls short of requiring the use of tolls and user fees as a necessary funding element or the sole funding source” for all public-private partnerships.

“If that were the legislative intent, it would have been easy to state,” he wrote.

PECG's Blanning countered that the purpose of a public-private partnership is to bring a new source of revenue to a state project by, for example, charging tolls. By using availability payments instead, which are annual fees made by CalTrans out of its transportation budget, the Presidio Parkway does not bring any new funds to the project, Blanning said.

PECG also challenged the Presidio agreement on the grounds that public-private partnerships could only be used for amplification of existing projects, not for new construction, and that some services had been provided by a contractor rather than by CalTrans. But Carvill also dismissed those claims.

PECG filed their lawsuit against the transportation authorities in November and then filed a temporary injunction at just before year’s end. The injunction prevented the state from signing the project agreement with the winning bidder, Golden Link Partners, a joint venture between German infrastructure developer Hochtief and French infrastructure fund manager Meridiam Infrastructure.

But the temporary injunction was lifted in early January, enabling CalTrans and the San Francisco County Transportation Authority to sign an agreement with Golden Link Partners just hours before the new governor took over.

Blanning said PECG is not planning to file another injunction.

Construction costs for Presidio Parkway public-private partnership are estimated at $358 million, with Hochtief and Meridiam contributing $45 million in equity, according to an October financing plan. The project involves reconstructing a stretch of road that leads up to the Golden Gate Bridge as well as the construction of new tunnels and other works. Golden Link Partners will also have 30-year operation and maintenance rights for the rebuilt raod, which will be called Presidio Parkway. 

Barring a legal victory by PECG, the project is expected to reach financial close in the summer and begin construction should later this year.

Cezary Podkul contributed reporting to this story.