The State Worker

‘A fiasco from the beginning’ — Caltrans’ costs soar on $1.1 billion San Francisco tunnels

Transportation commissioners lash out over private-public partnership of infrastructure project gone bad

California transportation commissioners have harsh words for the private financing of a public infrastructure project that seems to have gone wrong. The $1.1 billion project is $200 million over budget.
Up Next
California transportation commissioners have harsh words for the private financing of a public infrastructure project that seems to have gone wrong. The $1.1 billion project is $200 million over budget.

Former Gov. Arnold Schwarzenegger celebrated when the California Transportation Commission voted, despite a host of warnings, to pay a contractor more than $1 billion to build two tunnels and a stretch of road outside San Francisco nine years ago.

Schwarzenegger said the project’s new approach, which aimed to cap public expenses and shift responsibility to the private sector, would serve as a “shining example” of an innovative way to improve the state’s highways while saving taxpayer dollars.

Now the project, known as the Presidio Parkway, is more than two years late and $208 million over budget. When the commission approved another $34 million in delay-related spending last month, two commissioners who originally opposed the project lamented their predictions had come true.

“This has been a fiasco from the beginning,” Commissioner Bob Alvarado said at the March 14 meeting.

Before Schwarzenegger got involved, the project had an estimated cost of $473 million to $499 million. It would replace a 1.6-mile section of U.S. Highway 101 south of the Golden Gate Bridge that had deteriorated since it was built in 1936 and no longer met earthquake standards.

The project was moving forward during the recession, when the price of materials fell and contractors were hungry for work.

Schwarzenegger wanted to try something different, calling for a public-private partnership. Unlike other state highway projects, which Caltrans would design, put out for bid and then pay a contractor to build, the partnership approach would select a contractor at a lower upfront cost to design, build and maintain the project for more than 30 years.

Proponents of Schwarzenegger’s approach, including Caltrans leaders, said it would give the project a better chance of being completed on time and on budget than the state’s traditional approach while shifting risks of delays and future problems to a contractor.

Caltrans selected San Francisco-based contractor Golden Link Concessionaire to do the project for $1.1 billion, and then asked the Transportation Commission and the Legislature to approve the agreement.

The commission’s staff, the Legislative Analyst’s Office and Professional Engineers in California Government all warned that the details of the contract didn’t match the rhetoric surrounding the project, while warning of its risks.

The commission’s staff said the contract would circumvent “procedures designed to ensure statewide funding accountability and equity,” and recommended against it in May 2010.

“We found that the agreement does not appear to achieve as many goals or benefits as Caltrans has claimed,” the LAO said in its December 2010 analysis, concluding, “the state should consider not signing the contract.”

Both bodies approved the project anyway, authorizing the state to pay the contractor about $173 million once construction was done and then $35 million to $40 million per year for 33 years.

The project became the first public-private partnership following 2009 legislation that authorized the partnerships. The best fits for the partnerships, analysts said, were projects that included upfront contributions from contractors and continuous revenue streams, such as tolls. The Presidio Parkway is near the Golden Gate Bridge toll, but the parkway is not funded by ongoing fees.

“We do not think the Presidio project is a good fit for a (partnership) procurement approach because the project is already very far along in its schedule and it does not rely on a toll or user fee to fund the work,” the LAO said in its analysis.

Now the state is paying for the Parkway through 2043 from its general highway account.

“That’s hundreds of projects that could be built in every part of the state that will not be built because they’re paying for a project in San Francisco that’s two to three times as much as it should have been,” said Ted Toppin, Professional Engineers in California Government’s executive director. The union represents Caltrans engineers.

Transportation Commission member James Ghielmetti said at the March meeting that he was supportive of public-private partnerships but opposed the Presidio Parkway project from the beginning.

“We’ve done a terrible job. And it’s a reflection, unfortunately, on the future of doing (public-private partnerships) in California, Ghielmetti said. “And I’m ashamed this thing got as far as it did, as messed up as it did.”

Commissioners approved seven supplemental fund requests for the project from 2013 through 2018.

They made an eighth at the March meeting, bringing total over-budget spending to $208 million, after being told that each of the two prior allocations would settle all outstanding claims and disputes. The project was supposed to be finished in December 2016.

“The well is dry; don’t come back” Alvarado said after the latest approval.

Commission staffers and Caltrans said the Presidio Trust, the national park that owns the land, required 46 additional permits since then, which each took an average of five months to obtain.

In response to questions this week, Presidio spokesman Patrick Hannan said the trust was attempting to meet Caltrans’ schedule by issuing multiple permits instead of one, as it would have preferred.

“Congress designated the Presidio a national park and national historic landmark district, and the original environmental commitments honored that designation,” Hannan said in a statement. “In midstream, Caltrans decided to unilaterally complete delivery of the partially constructed Presidio Parkway via a public private partnership, introducing a profit motive into a project that was not fully designed. Any delays in the permitting process were driven by business disputes between Caltrans and its contractor and the project’s unwillingness to live up to all of their original environmental commitments to the Presidio and the public.”

Caltrans spokeswoman Lindsey Hart said project costs over the next 30 years will be more predictable than the construction phase.

The Legislature’s authorization for public-private partnerships, sometimes called P3s, expired in 2017, but new calls have emerged to renew it.

“This approach is still viable for the right project if all criteria for a successful P3 project are met; otherwise, there can be greater risk,” Hart said in the statement. “The intent of the P3 program was to introduce private sector capital and expertise to the building of transportation infrastructure. Some risk on this project did materialize as an impact to the department but working with our regional transportation partners, resulted in a seismically safe lifeline corridor through a national park that will provide a high level of service over the next few decades.”

Related stories from Sacramento Bee