The Evolution of the P3 Project Procurement Approach in California

Unlike in many states across the country, a good share of the money invested in California’s transportation projects is generated locally. In 25 counties, voter-approved local sales taxes fund a sizeable share of transportation needs, including many large-scale capital projects. Historically, California residents and voters have preferred the use of dedicated sales taxes over tolling to fund highway construction. Since tolling has been a major source of revenue for public-private partnership (P3) projects, the state’s funding approach may well have contributed to more limited use of P3 procurement for transportation projects in California as compared to other states. Today, we are seeing a shift towards P3 procurement due to the opportunity of accelerated project delivery for large-scale transportation projects leading up to the 2028 Olympic Games in Los Angeles.

Why So Cautious to Adopt the P3 Model?

While several county transportation agencies have embraced design-build as an alternative project delivery approach, the slow adoption of P3 procurement to deliver California’s highway program is closely connected to the state’s limited use of tolling as a source of revenue. While P3s have typically been financed by toll revenues, a vast majority of tax payers in California would rather be taxed than pay a toll; in fact, the implementation of a dedicated sales tax requires approval by two-thirds of county voters.

Further, the California public has been concerned that private entities may not manage public assets toward the best interests of the public. The experience of the State Route 91 (SR 91) P3 project, which had added two new toll lanes to an existing state highway, bolstered the view that a private concessionaire would put its own interests above those of the traveling public. Some of the terms of that P3 agreement precluded the state from making capacity improvements to the adjacent un-tolled general-purpose lanes because those improvements would be a disincentive to use the toll lanes. While safety improvements were intended to be excepted from this “non-compete” provision, the concessionaire also challenged work proposed by Caltrans to improve roadway safety. Complaints that the agreement was leading to an unsafe condition on the un-tolled portion of the highway led to counties buying out the concessionaire and taking over management of the state road. This unideal situation made many California transportation entities and the public cautious of future P3 projects.

Where Growth Has Started

Where we’re starting to see P3 procurement being pursued now is on the transit side of development. One reason for the shift is a huge acceleration of the capital program in Los Angeles County in advance of the 2028 Olympics. Projects that were intended to be built 30 years from now are being planned with accelerated project delivery timelines. Bringing on concessionaires will help accelerate the private partnerships needed to deliver on the tight schedules and budgets of the capital program. The difference here is that the Los Angeles County Metropolitan Transportation Authority (Metro) is using future sales tax revenues to finance proposed P3 projects rather than user fees like tolls.

Another driver is the positive influence of Metro CEO Phillip A. Washington. Washington was previously CEO of the Denver Regional Transit District where he successfully delivered a couple of very large transit concession P3 projects in the Denver area, including the $2.2 billion Eagle P3. He intends to bring that P3 model to Southern California, and his proven track record is bringing in some much needed confidence to the region.

Another success has been with managed lanes on Interstate 10 and Interstation 110 in Southern California that use variable rate tolling systems. The success of this type of tolling system has lent itself to better P3 operation. Government transportation entities are now looking at expanding those managed lane systems as a viable option for P3 project procurement going forward.

Ultimately, the California transportation agencies are seeking to expand the portfolio of project delivery strategies, including P3 along with progressive design-build and construction manager general contractor (CMGC) procurement, for transportation projects. I think the benefits of these alternative delivery approaches will continue to fuel the building trend. 

 

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  • Rachel Vandenberg
    Rachel Vandenberg
 
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