Local governmental agencies have experienced a significant decrease in available tax revenues to fund necessary infrastructure improvements. If local governmental agencies are going to maintain the quality of life that this infrastructure provides, they must find new funding sources. One source of new money is private sector investment capital utilized to design, construct, maintain, rebuild, repair, and operate infrastructure facilities. Unless private sector investment capital becomes available to study, plan, design, construct, develop, finance, maintain, rebuild, improve, repair, or operate, or any combination thereof, fee-producing infrastructure facilities, some local governmental agencies will be unable to replace deteriorating infrastructure. Further, some local governmental agencies will be unable to expand and build new infrastructure facilities to serve the increasing population.
Chapter 14Infrastructure Financing
Section § 5956
This law highlights the financial challenges faced by local government agencies in funding infrastructure projects due to declining tax revenues. To maintain infrastructure like roads and bridges, these agencies need new sources of funding.
One solution is to attract private sector investment to help design, build, operate, and maintain vital infrastructure facilities. This is crucial for local governments to replace aging infrastructure and meet the demands of a growing population.
local government infrastructure funding private sector investment tax revenue decline public-private partnerships infrastructure improvements maintenance and operation infrastructure facilities investment capital population growth rebuilding infrastructure infrastructure expansion deteriorating infrastructure fee-producing facilities new funding sources
Section § 5956.1
This law allows local government agencies in California to use private investment money for projects related to infrastructure. It covers a wide range of activities like studying, planning, designing, constructing, developing, financing, maintaining, rebuilding, improving, repairing, or operating infrastructure that generates fees. The aim is to ensure that local agencies can handle and improve infrastructure projects effectively, even when funding is tight.
It is the intent of the Legislature that local governmental agencies have the authority and flexibility to utilize private investment capital to study, plan, design, construct, develop, finance, maintain, rebuild, improve, repair, or operate, or any combination thereof, fee-producing infrastructure facilities. Without the ability to utilize private sector investment capital to study, plan, design, construct, develop, finance, maintain, rebuild, improve, repair, or operate, or any combination thereof, fee-producing infrastructure facilities, the Legislature finds that some local governmental agencies will not be able to adequately, competently, or satisfactorily retrofit, reconstruct, repair, or replace existing infrastructure and will not be able to adequately, competently, or satisfactorily design and construct new infrastructure.
local government agencies private investment infrastructure development fee-producing facilities infrastructure maintenance infrastructure improvement infrastructure repair infrastructure finance infrastructure construction private sector involvement public-private partnership infrastructure planning local infrastructure projects infrastructure design infrastructure operation
Section § 5956.10
This law prohibits California state or any related agencies from using certain authority to design, build, finance, or manage state projects under this chapter, including toll roads on state highways, water projects, state parks, and state-financed projects. However, they can still act under other legal authorizations. This rule took effect on January 1, 2020.
(a)CA Government Code § 5956.10(a) Notwithstanding any other provision of this chapter, neither the state or any state agency shall directly or indirectly use the authority in this chapter nor shall any governmental agency, as defined in Section 5956.3, use the authority in this chapter to design, construct, finance, or operate a state project. For purposes of this section, a state project includes any of the following:
(1)CA Government Code § 5956.10(a)(1) Tollroads on state highways.
(2)CA Government Code § 5956.10(a)(2) State water projects.
(3)CA Government Code § 5956.10(a)(3) State park and recreation projects.
(4)CA Government Code § 5956.10(a)(4) State financed
projects.
(b)CA Government Code § 5956.10(b) These limitations shall not prohibit the state, any state agency, or any governmental agency, as defined in Section 5956.3, from utilizing authorizations contained in other provisions of law.
(c)CA Government Code § 5956.10(c) This section shall become operative on January 1, 2020.
tollroads state highways state water projects state park projects recreation projects state-financed projects governmental agency public-private partnerships project financing construction authority restrictions state projects limitation operative January 2020 Section 5956.3 state agencies authority public project management
Section § 5956.2
This law aims to give local government agencies more power to involve private funding in projects for building and maintaining infrastructure, like roads or utilities that generate fees. It's meant to add to the current powers these agencies already have without taking away from them. Importantly, it's up to each agency to decide if they want to use this new option, and it doesn't create any new government bodies.
It is the intent of the Legislature that this chapter be construed as creating a new and independent authority for local governmental agencies to utilize private sector investment capital to study, plan, design, construct, develop, finance, maintain, rebuild, improve, repair, or operate, or any combination thereof, fee-producing infrastructure facilities. To that end, this authority is intended to supplement and be independent of any existing authority and does not limit, replace, or detract from existing authority. This chapter may be used by local governmental entities when they deem it appropriate in the exercise of their discretion. It is the intent of the Legislature that this act create no new governmental entities.
private sector investment local government agencies infrastructure facilities fee-producing projects supplement existing authority independent authority study and plan infrastructure design and construct develop and finance maintain infrastructure rebuild and improve repair infrastructure operate infrastructure government discretion no new governmental entities
Section § 5956.3
This statute defines terms related to public-private partnerships. It specifies that a 'governmental agency' can be various public bodies like cities, counties, school districts, and more. A 'private entity' includes individuals and businesses working alone or together. Lastly, a 'fee-producing infrastructure project' is one where the users or beneficiaries of the infrastructure pay for its operation.
(a)CA Government Code § 5956.3(a) For purposes of this chapter, “governmental agency” includes a city, county, city and county, including a chartered city or county, school district, community college district, public district, county board of education, joint powers authority, transportation commission or authority, or any other public or municipal corporation.
(b)CA Government Code § 5956.3(b) For purposes of this chapter, “private entity” includes a person, business entity, combination of persons and business entities, or a combination of business entities.
(c)CA Government Code § 5956.3(c) For purposes of this chapter, “fee-producing infrastructure project” or “fee-producing infrastructure facility” means the operation of the infrastructure project or facility will be paid for by the persons or entities benefited by or utilizing the project or facility.
public-private partnerships governmental agency private entity fee-producing infrastructure chartered city school district community college district public district joint powers authority transportation commission municipal corporation private businesses infrastructure operation project beneficiaries infrastructure funding
Section § 5956.4
This law allows government agencies to partner with private companies to plan and build infrastructure projects that can generate fees. These projects can include things like energy facilities, water treatment plants, flood control systems, and public transit like trains and highways. It covers a wide range of structures, but specifically excludes buildings mainly used for sports or entertainment.
A governmental agency may solicit proposals and enter into agreements with private entities for the design, construction, or reconstruction by, and may lease to, private entities for the following types of fee-producing infrastructure projects:
(a)CA Government Code § 5956.4(a) Irrigation.
(b)CA Government Code § 5956.4(b) Drainage.
(c)CA Government Code § 5956.4(c) Energy or power production.
(d)CA Government Code § 5956.4(d) Water supply, treatment, and distribution.
(e)CA Government Code § 5956.4(e) Flood control.
(f)CA Government Code § 5956.4(f) Inland waterways.
(g)CA Government Code § 5956.4(g) Harbors.
(h)CA Government Code § 5956.4(h) Municipal improvements.
(i)CA Government Code § 5956.4(i) Commuter and light rail.
(j)CA Government Code § 5956.4(j) Highways or bridges.
(k)CA Government Code § 5956.4(k) Tunnels.
(l)CA Government Code § 5956.4(l) Airports and runways.
(m)CA Government Code § 5956.4(m) Purification of water.
(n)CA Government Code § 5956.4(n) Sewage treatment, disposal, and water recycling.
(o)CA Government Code § 5956.4(o) Refuse disposal.
(p)CA Government Code § 5956.4(p) Structures or buildings, except structures or buildings that are to be utilized primarily for sporting or entertainment events.
government partnerships private entities infrastructure projects fee-producing design and construction leasing agreements irrigation systems energy production water supply flood control harbors light rail highways sewage treatment water recycling
Section § 5956.5
This section explains that when a government agency in California seeks proposals and enters into contracts with private companies for fee-based infrastructure projects, it must use a competitive negotiation process instead of traditional competitive bidding. This process focuses on choosing contractors based on their skills and experience. Additionally, the chosen contractor must ensure infrastructure services remain fairly priced for users. Unlawful practices such as bribes or kickbacks are prohibited, and government employees with conflicts of interest cannot partake in the selection process. Apart from security provisions related to construction, agencies do not have to follow other public procurement rules under the Public Contract Code for these projects.
Notwithstanding Chapter 10 (commencing with Section 4525) of Division 5, or Part 2 (commencing with Section 10100) or Part 3 (commencing with Section 20100) of Division 2 of the Public Contract Code, the governmental agency soliciting proposals and entering into agreements with private entities for the studying, planning, design, developing, financing, construction, maintenance, rebuilding, improvement, repair, or operation, or any combination thereof, by private entities for fee-producing infrastructure projects shall ensure that the contractor is selected pursuant to a competitive negotiation process. Projects may be proposed by the private entity and selected by the governmental agency at the discretion of the governmental agency. Projects may be proposed and selected individually or as part of a related or larger project. The competitive negotiation process shall utilize, as the primary selection criteria, the demonstrated competence and qualifications for the studying, planning, design, developing, financing, construction, maintenance, rebuilding, improvement, repair, or operation, or any combination thereof, of the facility. The selection criteria shall also ensure that the facility be operated at fair and reasonable prices to the user of the infrastructure facility services. The competitive negotiation process shall not require competitive bidding. The competitive negotiation process shall specifically prohibit practices that may result in unlawful activity including, but not limited to, rebates, kickbacks, or other unlawful consideration, and shall specifically prohibit governmental agency employees from participating in the selection process when those employees have a relationship with a person or business entity seeking a contract under this section that would subject those employees to the prohibition of Section 87100. Other than these criteria and applicable provisions related to providing security for the construction and completion of the facility, the governmental agency soliciting proposals is not subject to any other provisions of the Public Contract Code or this code that relates to public procurements.
competitive negotiation infrastructure projects fee-producing private entities contractor selection competence and qualifications fair pricing unlawful practices conflict of interest public procurement rebates kickbacks government agency infrastructure facility services security provisions
Section § 5956.6
This law explains how agreements between a government agency and a private company can be structured to allow the private entity to construct and operate infrastructure projects on public land. The private company may lease or own the facility for up to 35 years, after which ownership reverts to the government. During the lease, the private company must comply with certain requirements, like having financial stability, completing environmental assessments, and maintaining the facility. The government can charge user fees, which must be fair and used specifically for covering various project costs. There must be public hearings before new fees are set. Any excess revenue over the costs and reasonable returns must be used wisely, including reducing fees, paying off debts, or maintaining reserves. Provisions also include bond requirements for project completion, annual financial reports, dispute resolutions, insurance, indemnity, and options for buyouts or adjustments in case of default or termination.
(a)CA Government Code § 5956.6(a) For purposes of facilitating projects, the agreements specified in Section 5956.4 may include provisions for the lease of rights-of-way in, and airspace over, property owned by a governmental agency, for the granting of necessary easements, and for the issuance of permits or other authorizations to enable the private entity to construct infrastructure facilities supplemental to existing government-owned facilities. Infrastructure constructed by a private entity pursuant to this chapter shall, at all times, be owned by a governmental agency, unless the governmental agency, in its discretion, elects to provide for ownership of the facility by the private entity during the term of the agreement. The agreement shall
provide for the lease of those facilities to, or ownership by, the private entity for up to 35 years. In consideration therefor, the agreement shall provide for complete reversion of the privately constructed facility to the governmental agency at the expiration of the lease at no charge to the governmental agency. Subsequent to the expiration of the lease or ownership period, the governmental agency may continue to charge fees for use of the infrastructure facility. If, after the expiration of the lease or ownership period, the governmental agency continues to lease airspace rights to the private entity, it shall do so at fair market value.
(b)CA Government Code § 5956.6(b) The agreement between the governmental agency and the private entity shall include, but need not be limited to, provisions to ensure the following:
(1)CA Government Code § 5956.6(b)(1) Compliance with the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code). Neither the act of selecting a proposed project or a private entity, nor the execution of an agreement with a private entity, shall require prior compliance with the act. However, appropriate compliance with the act shall thereafter occur before project development commences.
(2)CA Government Code § 5956.6(b)(2) Performance bonds as security to ensure completion of the construction of the facility and contractual provisions that are necessary to protect the revenue streams of the project.
(3)CA Government Code § 5956.6(b)(3) Adequate financial resources of the private entity to design, build, and operate the facility, after the date of the agreement.
(4)CA Government Code § 5956.6(b)(4) Authority for the governmental agency to impose user fees for use of the facility in an amount sufficient to protect the revenue streams necessary for projects or facilities undertaken pursuant to this chapter. User fee revenues shall be dedicated exclusively to payment of the private entity’s direct and indirect capital outlay costs for the project, direct and indirect costs associated with operations, direct and indirect user fee collection costs, direct and indirect costs of administration of the facility, reimbursement for the direct and indirect costs of maintenance, and a negotiated reasonable return on investment to the private entity.
(5)CA Government Code § 5956.6(b)(5) As a precondition to the imposition or increase of a user fee, the governmental agency shall conduct at least one public hearing at which public testimony will be received regarding a proposed
user fee revenue or increase in user fee revenues. The public hearing shall precede the action by the governmental agency to actually impose a user fee or to increase an existing user fee. The governmental agency shall consider the public testimony prior to imposing a new or increased user fee. The governmental agency shall provide the following notices and utilize the following procedures:
(A)CA Government Code § 5956.6(b)(5)(A) Notice of the date, time, and place of the meeting, including a general explanation of the matter to be considered, shall be mailed at least 14 days prior to the meeting to any interested party who files a written request with the governmental agency for mailed notice of the meeting on new or increased fees or service charges. Any written request for mailed notices shall be valid for one year from the date on which it is filed unless
a renewal request is filed prior to the expiration of the one-year period for which the written request was filed. The legislative body may establish a reasonable annual charge for sending notices based on the estimated cost of providing the service.
(B)CA Government Code § 5956.6(b)(5)(B) At least 10 days prior to the meeting, the governmental agency shall make available to the public data that supports the amount of the fee or the increase in the fee.
(C)Copy CA Government Code § 5956.6(b)(5)(C)
(i)Copy CA Government Code § 5956.6(b)(5)(C)(i) At least 10 days prior to the meeting, the governmental agency shall publish a notice in a newspaper of general circulation in that agency’s jurisdiction stating the date, time, and place of the meeting, including a general explanation of the matter to be considered.
(ii)CA Government Code § 5956.6(b)(5)(C)(i)(ii) Any costs incurred by the governmental agency in conducting the meeting or meetings required by this section may be recovered from fees charged for the services that are the subject of the fee.
(iii)CA Government Code § 5956.6(b)(5)(C)(i)(iii) For transportation projects specifically authorized by this chapter, at least 10 days prior to the meeting, the governmental agency shall publish for four consecutive times, a notice in the newspaper of general circulation in the affected area stating in no smaller that 10-point type a notice specifying the subject of the hearing, the date, time, and place of the meeting, and, in at least 8-point type, a general explanation of the matter to be considered.
(D)CA Government Code § 5956.6(b)(5)(D) No local agency shall levy a new fee or service charge or increase an existing fee or service charge to an amount that
exceeds the estimated amount required to provide the service for which the fee or service charge is levied and a reasonable rate of return on investment, pursuant to paragraph (4). Any action by a local agency to levy a new fee or service charge or to approve an increase in an existing fee or service charge pursuant to this chapter shall be taken only by ordinance or resolution. The legislative body of a local agency shall not delegate the authority to adopt a new fee or service charge, or to increase a fee or service charge.
(6)CA Government Code § 5956.6(b)(6) Require that if the legislative body of the governmental agency determines that fees or service charges create revenues in excess of the actual cost for which the user fee revenues are dedicated and a reasonable rate of return on investment, pursuant to paragraph (4), those revenues shall either be applied to any indebtedness
incurred by the private entity with respect to the project, be paid into a reserve account in order to offset future operation costs, be paid into the appropriate government account, be used to reduce the user fee or service charge creating the excess, or a combination of these sources.
(7)CA Government Code § 5956.6(b)(7) Require the private entity to maintain the facility in good operating condition at all times, including the time the facility reverts to the governmental agency.
(8)CA Government Code § 5956.6(b)(8) Preparation by the private entity of an annual audited report accounting for the income received and expenses to operate the facility. The private entity shall make that report available to any member of the public for a cost not to exceed the cost of reproduction of the report.
(9)CA Government Code § 5956.6(b)(9) Provision for a buyout of the private entity by the governmental entity in the event of termination or default before the end of the lease term.
(10)CA Government Code § 5956.6(b)(10) Provision for appropriate indemnity promises between the governmental agency and the private entity.
(11)CA Government Code § 5956.6(b)(11) Provision requiring the private entity to maintain insurance with those coverages and in those amounts that the governmental agency deems appropriate.
(12)CA Government Code § 5956.6(b)(12) In the event of a dispute between the governmental agency and the private entity, both parties shall be entitled to all available legal or equitable remedies.
(13)CA Government Code § 5956.6(b)(13) Payment bonds to secure the payment of claims of laborers, mechanics, and
materials suppliers employed on the work under the contract. Payment bonds required under this subdivision shall conform to the requirements of Sections 9550 to 9566, inclusive, of the Civil Code.
infrastructure agreements lease of rights-of-way airspace rights government ownership transfer user fees California Environmental Quality Act compliance performance bonds financial resources requirement public hearings excess fee revenue allocation facility maintenance annual audited report contract termination provisions private entity indemnity payment bonds
Section § 5956.7
This law allows government agencies to use their powers for infrastructure projects, and they can charge for their services when it comes to planning, environmental checks, and designing these projects. If public utility structures need to be moved for a project, the private company must pay for it, excluding any upgrades to current systems.
If there's an existing agreement between the government and a utility company, it's not affected by this law. If a private company disputes the cost of moving utilities, they can ask for an audit by an agreed accountant. If the utility's real costs are under 95% of their claim, the utility pays for the audit; otherwise, the private company does.
(a)CA Government Code § 5956.7(a) The governmental agency may exercise any power possessed by it with respect to the development and construction of infrastructure projects pursuant to this chapter. Agreements for the maintenance and police services entered into pursuant to this chapter shall provide for full reimbursement for services rendered by the governmental agency in accordance with the terms and conditions specified in the agreement. The governmental agency may provide services for which it is reimbursed with respect to preliminary planning, environmental certification, and preliminary design of the infrastructure projects. The governmental agency may consult with legal, financial, and other consultants in the negotiation and development of the agreement. To the extent existing public utility infrastructure is necessarily required to be modified, relocated, or removed in order for an infrastructure project authorized by this chapter to be constructed, the cost of modification, relocation, or removal of the existing infrastructure shall be borne by the private entity and included as a recoverable capital cost of the project. This cost shall not be construed to include costs of increasing the capacity, or upgrading, or improving the existing public utility infrastructure.
(b)CA Government Code § 5956.7(b) The private entity’s responsibility to modify, relocate, or remove existing public utility infrastructure shall not alter any agreements that may be in place between the governmental agency and any public utility regarding projects funded by the governmental agency.
(c)CA Government Code § 5956.7(c) In the event of a dispute regarding the reimbursement required, a private entity may request an audit of the public utility’s costs by a mutually acceptable certified public accountant. The result of the audit shall determine the actual costs. If the audit indicates that the public utility’s actual costs were less than 95 percent of the cost claimed, the cost of the audit shall be borne by the public utility. If the audit indicates that the public utility’s actual costs were 95 percent or more of the cost claimed, the cost of the audit shall be borne by the private entity.
infrastructure projects public utility modification cost reimbursement governmental agency powers private entity responsibilities preliminary planning services environmental certification cost audit process public utility agreements project-related costs mutually acceptable audit capital cost recovery audit results determination dispute resolution mechanism financial consultants
Section § 5956.8
This law states that any infrastructure project done under this chapter must meet existing government design standards. Private companies are responsible for the design, construction, operation, and maintenance, and must hire private design and construction firms to handle these tasks. If a facility is leased to a private entity, it is still considered public property for legal and enforcement purposes during the lease. Also, all public work must adhere to specific labor law requirements.
The plans and specifications for each project constructed pursuant to this chapter shall comply with all applicable governmental design standards for that particular infrastructure project. The private entity designing, constructing, operating, and maintaining infrastructure facilities pursuant to this chapter shall utilize private sector design and construction firms to design and construct the infrastructure facilities. However, a facility subject to this chapter and leased to a private entity shall, during the term of the lease, be deemed to be public property for purposes of identification, maintenance, enforcement of laws and for purposes of Division 3.6 (commencing with Section 810). All public works constructed pursuant to this chapter shall comply with Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code.
infrastructure project design standards private sector design firms infrastructure construction public property identification lease to private entity maintenance of infrastructure enforcement of laws compliance with labor laws Division 3.6 Section 810 Chapter 1 of Part 7 Labor Code compliance public works construction
Section § 5956.9
This section allows a government agency to use private funds to pay for infrastructure projects. These funds can be the only source of money or can be combined with other federal or local funding. The government agency could be a single local agency or several working together. They can collaborate with the California Infrastructure and Economic Development Board on projects, but they don't need the board's approval for these projects.
In order to use the authority conferred by this chapter to the maximum extent, a governmental agency may use private infrastructure financing pursuant to this chapter as the exclusive revenue source or as a supplemental revenue source with federal or local funds. The governmental agency involved may be a local governmental agency or a combination of local governmental agencies. The governmental agency may work cooperatively with the California Infrastructure and Economic Development Board with regard to the design, construction, operation, and financing of privately financed facilities, but the projects will not be subject to the review or approval of that board.
private infrastructure financing governmental agency local governmental agency supplemental revenue California Infrastructure and Economic Development Board infrastructure projects private funds federal funding local funding facility financing project collaboration design and construction operation funding exclusive revenue source cooperative work
