UNFINISHED BUSINESS  

Bill No: SB 128

Author: Beall (D), et al.

Amended: 7/10/19

Vote: 21

PRIOR SENATE VOTES NOT RELEVANT

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 8/28/19 (Pursuant to Senate Rule 29.10)

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

ASSEMBLY FLOOR: 76-0, 8/22/19 - See last page for vote

SUBJECT: Public contracts: Best Value Construction Contracting for Counties Pilot Program

SOURCE: Author

DIGEST:

This bill extends the best-value contracting pilot program until January 1, 2025, and adds Santa Clara and Monterey Counties to the program.

Assembly Amendments delete the initial contents of this bill and insert the current language relating to best-value contracting.

ANALYSIS:

Existing law:

1. Requires, pursuant to the Local Agency Public Construction Act (Act), local agencies to invite bids for construction projects and award contracts to the lowest responsible bidder, unless otherwise specified.
2. Creates a pilot program for Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano, and Yuba Counties to:
   1. Award contracts for construction projects in excess of $1 million using the best-value method.
   2. Award individual annual contracts for repair, remodeling, or other repetitive work to be done according to unit prices – also known as “job order contracting.” If a county uses the best-value method for job order contracts, the contracts must: (i) not exceed $3 million, adjusted for inflation; (ii) not be for new construction; and (iii) apply the best-value method criteria to the annual contract for construction services, not to an individual project. Additionally, participating counties can extend annual contracts for two annual terms at a maximum of $6 million over that period. Counties must adjust contract values annually to reflect the percentage change in the California consumer price index.
3. Provides that participating counties must satisfy a number of requirements to use this authority, including to:
   1. Adopt and publish procedures and required criteria that ensure local agencies select bids in a fair and impartial manner;
   2. Evaluate at a public meeting the alternative of awarding the contract on the basis of the lowest bid price;
   3. Make a written finding that awarding the contract on the basis of best value will reduce project costs, expedite project completion, and/or provide features not achievable via the low-bid method;
   4. Prepare bid solicitations and providing notice as required by the Act, and complying with the Subcontracting Fair Practices Act regarding subcontractors identified in a bid;
   5. Establish prequalification procedures in accordance with the Act;
   6. Include in bid solicitations the criteria and rating system a county will consider in evaluating bids;
   7. Prequalify or shortlist only those contractors who provide an enforceable commitment to use a skilled and trained workforce to perform all work on the project that falls within an apprenticeable occupation, with specified exceptions;
   8. Appoint an evaluation committee, which must evaluate bidders solely upon the criteria in the bid solicitations and assign a qualifications score to each bid;
   9. Determine best value by dividing each bidder’s price by its qualifications score, with the lowest cost per quality point representing the best-value bid;
   10. Announce bid awards publicly, including the score of the selected contractor in relation to all other bidders; and,
   11. Submit a report to the Legislature, including information about the county’s use of the bill’s authority before the pilot program sunsets on January 1, 2020.

This bill:

1. Adds the County of Santa Clara and the County of Monterey to a pilot program allowing the Counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano, and Yuba to utilize the best value method for construction projects in excess of $1 million dollars and for job order contracting.
2. Extends the sunset date on this pilot program from January 1, 2020, to January 1, 2025.
3. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances relating to construction projects in participating counties.

Background

Local agencies typically use the traditional design-bid-build method for constructing public works. This approach splits construction projects into two distinct phases: design and construction. During the design phase, the local agency prepares detailed project plans and specifications using its own employees or by hiring outside architects and engineers. Once project designs are complete, local agencies invite bids from the construction community and award the contract to the lowest responsible bidder.

Over the last couple of decades, legislators have gradually expanded local agencies’ authority to procure construction projects using various alternatives to the design-bid-build project delivery method. These alternatives include:

• “Design-build” contracting allows local agencies to procure both design and construction services from a single company before the development of complete plans and specifications (SB 785, Wolk, Chapter 931, Statutes of 2014); and,
• “Construction manager at risk” contracting allows local agencies to retain a construction manager, who provides pre-construction services during the design period, who later becomes the general contractor during the construction process, and is responsible for delivering the project within an agreed upon price, thereby assuming the risk for cost overruns (SB 328, Knight, Chapter 517, Statutes of 2013).

During the bidding phase, these alternative procurement methods allow a local agency to evaluate bids on a “best-value” basis, incorporating technical factors, such as qualifications, in addition to price. For example, the statutes authorizing design-build contracting allow local agencies to award a contract based on consideration of objective criteria that include features, functions, lifecycle costs, experience, and past performance.

Comments

1. Purpose of the bill. According to the author, “This bill builds upon prior legislation and will allow more counties to use the best value construction contracting program. This program creates a much larger and stronger contractor bidding pool, reduces bad actors during the contractor selection process and increases the percentage of skilled craftworkers on county construction projects. Furthermore, we can expect reduced administrative cost and time by increasing contract terms through renewal options and ultimately increases capacity to achieve more projects in less time.”
2. Putting the cart before the horse. When the Legislature authorized the best-value contracting pilot program in 2015 (SB 762, Wolk, Chapter 627, Statutes of 2015), it did so in a select group of counties and required those counties to submit reports to the Legislature to help evaluate the program. However, only Solano County reports using the pilot. According to Solano County, it expects to submit the statutorily required information by October 2019. SB 128 extends the program without providing the Legislature with a meaningful opportunity to evaluate whether the current program is effective or changes are necessary to improve the program. While the Legislature could wait to act until after it receives the statutorily required reporting, any delay would only result in information on the single project Solano County used the pilot program to complete, and not provide sufficient information for a conclusive evaluation of the program. In addition, SB 128 does not just allow existing counties more time to participate in the existing pilot, but adds Monterey and Santa Clara to the list of participating counties. Adding new counties to the program before evaluating existing counties’ use of the program could be premature and leave the additional counties with less time to work through the comprehensive set of policies the program requires participating counties to implement before using it.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee, negligible state costs. Any local costs are not reimbursable by the state.

SUPPORT: (Verified 8/28/19)

California State Association of Counties

County of San Bernardino

County of San Diego

County of San Mateo

County of Santa Clara

County of Solano

Gordian Group

State Building and Constructions Trades Council

OPPOSITION: (Verified 8/28/19)

None received

ASSEMBLY FLOOR: 76-0, 8/22/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Frazier, Gray, Low

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

8/29/19 11:29:11

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Public contracts: Best Value Construction Contracting for Counties Pilot Program

Extends the best-value contracting pilot program until January 1, 2025, and adds Santa Clara and Monterey counties to the program.

Background

Contracting. The Local Agency Public Construction Act (the Act) generally requires local agencies to invite bids for construction projects and award contracts to the lowest responsible bidder. Local agencies typically use the traditional design-bid-build method for constructing public works. This approach splits construction projects into two distinct phases: design and construction. During the design phase, the local agency prepares detailed project plans and specifications using its own employees or by hiring outside architects and engineers. Once project designs are complete, local agencies invite bids from the construction community and award the contract to the lowest responsible bidder.

Over the last couple of decades, legislators have gradually expanded local agencies’ authority to procure construction projects using various alternatives to the design-bid-build project delivery method. These alternatives include:

• “Design-build” contracting allows local agencies to procure both design and construction services from a single company before the development of complete plans and specifications (SB 785, Wolk, 2014); and,
• “Construction manager at risk” contracting allows local agencies to retain a construction manager, who provides pre-construction services during the design period, who later becomes the general contractor during the construction process, and is responsible for delivering the project within an agreed upon price, thereby assuming the risk for cost overruns (SB 328, Knight, 2013).

During the bidding phase, these alternative procurement methods allow a local agency to evaluate bids on a “best-value” basis, incorporating technical factors, such as qualifications, in addition to price. For example, the statutes authorizing design-build contracting allow local agencies to award a contract based on consideration of objective criteria that include features, functions, lifecycle costs, experience, and past performance.

County best-value contracting pilot. SB 762 (Wolk, 2015) established a pilot program until January 1, 2020, that allowed the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, Solano, and Yuba to award contracts for construction projects in excess of $1 million using the best-value method. SB 793 (Hill, 2017) expanded the pilot program in two ways: (1) adding San Mateo County to the program, and (2) allowing counties to use the program to award individual annual contracts for repair, remodeling, or other repetitive work to be done according to unit prices – also known as “job order contracting.” If a county uses the best-value method for job order contracts, the contracts must: (1) not exceed $3 million, adjusted for inflation; (2) not be for new construction; and (3) apply the best-value method criteria to the annual contract for construction services, not to an individual project. Additionally, participating counties can extend annual contracts for two annual terms at a maximum of $6 million over that period. Counties must adjust contract values annually to reflect the percentage change in the California consumer price index.

Participating counties must satisfy a number of requirements to use this authority, including to:

• Adopt and publish procedures and required criteria that ensure local agencies select bids in a fair and impartial manner;
• Evaluate at a public meeting the alternative of awarding the contract on the basis of the lowest bid price;
• Make a written finding that awarding the contract on the basis of best value will reduce project costs, expedite project completion, and/or provide features not achievable via the low-bid method;
• Prepare bid solicitations and providing notice as required by the Act, and complying with the Subcontracting Fair Practices Act regarding subcontractors identified in a bid;
• Establish prequalification procedures in accordance with the Act;
• Include in bid solicitations the criteria and rating system a county will consider in evaluating bids;
• Prequalify or shortlist only those contractors who provide an enforceable commitment to use a skilled and trained workforce to perform all work on the project that falls within an apprenticeable occupation, with specified exceptions;
• Appoint an evaluation committee, which must evaluate bidders solely upon the criteria in the bid solicitations and assign a qualifications score to each bid;
• Determine best value by dividing each bidder’s price by its qualifications score, with the lowest cost per quality point representing the best-value bid;
• Announce bid awards publicly, including the score of the selected contractor in relation to all other bidders; and,
• Submit a report to the Legislature, including information about the county’s use of the bill’s authority before the pilot program sunsets on January 1, 2020.

So far, Solano County is the only county to report using the pilot. The County used the program to construct a $26 million vocational training facility for the county sheriff. While the County is not required to submit information about its use of the program until January 1, 2020, the Solano County Board of Supervisors reports that, “It is unlikely that the process of constructing this detention-grade project would have gone as well, or delivered equivalent value, by way of a more traditional low-bid contract award process.” Other counties have indicated their plans to use the authority in the future should the program continue.

The author wants to extend the sunset date on the pilot to allow counties to continue to use the best-value contracting method and add additional counties to the pilot.

Proposed Law

Senate Bill 128 extends the existing best-value contracting pilot program until January 1, 2025. The bill also changes the date that a participating county must submit a report to the Legislature to March 1, 2024, and adds Santa Clara and Monterey counties to the existing pilot program.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “This bill builds upon prior legislation and will allow more counties to use the best value construction contracting program. This program creates a much larger and stronger contractor bidding pool, reduces bad actors during the contractor selection process and increases the percentage of skilled craftworkers on county construction projects. Furthermore, we can expect reduced administrative cost and time by increasing contract terms through renewal options and ultimately increases capacity to achieve more projects in less time.”

2. Putting the cart before the horse. When the Legislature authorized the best-value contracting pilot program in 2015, it did so in a select group of counties and required those counties to submit reports to the Legislature to help evaluate the program. However, only Solano County reports using the pilot. According to Solano County, it expects to submit the statutorily required information by October 2019. SB 128 extends the program without providing the Legislature with a meaningful opportunity to evaluate whether the current program is effective or changes are necessary to improve the program. While the Legislature could wait to act until after it receives the statutorily required reporting, any delay would only result in information on the single project Solano County used the pilot program to complete, and not provide sufficient information for a conclusive evaluation of the program. If more counties use the program before the new sunset date SB 128 provides, the Legislature may have additional information to evaluate the program at that time.

3. Why expand? SB 128 does not just allow existing counties more time to participate in the existing pilot, but adds Monterey and Santa Clara to the list of participating counties. Adding new counties to the program before evaluating existing counties’ use of the program could be premature and leave the additional counties with less time to work through the comprehensive set of policies the program requires participating counties to implement before using it. However, the Legislature previously added San Mateo County to the program and it does not appear that having less time to implement the pilot explains why San Mateo County has not used it. Santa Clara County indicates that it plans to use the program to help manage its job order contracts, which it uses for a variety of deferred maintenance and relatively minor construction projects. Since it does not have the authority to use the best-value contracting method for these contracts, it awards contracts to the lowest responsible bidder. The County reports that this method encourages bidders to undercut each other’s bids, and has made it difficult for successful bidders to provide the necessary staffing and quality of work the County needs. The County expects that using the best-value method could help improve the overall quality of contractors it uses for job order contracts and the quality of labor and work performed.

4. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Section 16 of Article IV). SB 128 contains findings and declarations explaining the need for legislation that applies only to the unique circumstances relating to construction projects in the Counties of Alameda, Los Angeles, Monterey, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Solano, and Yuba.

5. Mandate. The California Constitution requires the state to reimburse local agencies for the costs of new or expanded state mandated local programs. The measure states that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency will be incurred because this act creates a new crime or changes an existing crime.

6. Gut and amend. As introduced and approved by the Senate, SB 128 contained provisions relating to the enhanced infrastructure financing districts. Amendments taken in the Assembly deleted the initial contents of SB 128 and inserted the current language relating to best-value contracting. Because this topic was never heard in the Senate, the Senate Rules Committee referred the amended bill under Senate Rule 29.10(d) to the Senate Governance and Finance Committee for a hearing on the Assembly’s amendments. At its August 28 hearing, the Committee has two choices:

• Hold the bill.
• Return the bill to the Senate Floor.

Assembly Actions

Assembly Local Government Committee: 8-0

Assembly Appropriations Committee: 18-0

Assembly Floor: 76-0

Support and Opposition

(8/26/19)

Support: California State Association of Counties; County of San Bernardino; County of San Diego; County of San Mateo; County of Solano; Gordian Group; State Building and Constructions Trades Council;

Opposition: Unknown.

-- END --

SENATE THIRD READING

STR Bill Id:SB 128

Author:(Beall)

As Amended Ver:July 10, 2019

Majority vote

SUMMARY:

Expands and extends a pilot program allowing specified counties to utilize best value contracting.

Major Provisions

Adds the counties of Monterey and Santa Clara to an existing pilot program allowing the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano and Yuba to utilize the "best value" method for construction projects in excess of $1 million, and for job order contracts of up to $3 million.

Extends the sunset date on the pilot from January 1, 2020, to January 1, 2025, and correspondingly adjusts the dates for required reports to the Legislature regarding the pilot.

COMMENTS:

SB 762 (Wolk), Chapter 627, Statutes of 2015, established a pilot program until January 1, 2020, that allowed the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, Solano, and Yuba to award contracts for construction projects in excess of $1 million to the bidder representing the best value. Traditionally, construction projects have been bid out and awarded based upon a lowest-cost approach. Best value, a competitive contracting process, allows projects to be awarded to the contractor offering the best combination of price and qualifications, instead of just the lowest bid. In addition to submitting bids for project cost, prospective contractors also submit technical proposals. The technical proposals are evaluated based on objective criteria and scores are compiled. The scores are then used to weigh or adjust the submitted bid price. The contract is awarded to the contractor that represents the best value to the contracting agency. Participating counties must satisfy a number of requirements in order to use this authority.

SB 793 (Hill), Chapter 627, Statutes of 2017, expanded the pilot program by adding San Mateo County and allowing counties in the pilot program to also use the program's best value contracting method to award individual annual contracts for repair, remodeling, or other repetitive work to be done according to unit prices – also known as job order contracting or a job order contract. These contracts cannot exceed $3 million.

Solano County is the only county to have used the best value pilot, but other counties indicate plans to use it in the near future and/or a desire to retain the authority as an option going forward.

According to the Author:

"This bill builds upon prior legislation and will allow more counties to use the best value construction contracting program. This program creates a much larger and stronger contractor bidding pool, reduces bad actors during the contractor selection process and increases the percentage of skilled craftworkers on county construction projects. Furthermore, we can expect reduced administrative cost and time by increasing contract terms through renewal options and ultimately increases capacity to achieve more projects in less time."

Arguments in Support:

The Solano County Board of Supervisors, sponsor of this bill, writes, "A 'best value' construction contract is one that allows counties to select the lowest responsible bidder on the basis of a number of measurable, verifiable criteria. These criteria include management competency, financial condition, labor compliance, qualifications, experience, and safety record. Factoring in these criteria will allow counties that participate in the pilot program to choose contractors that provide the best combination of price and quality."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, "Negligible state costs. Any local costs are not reimbursable by the state."

VOTES:

SENATE FLOOR: 25-8-5

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Wieckowski, Wiener

NO: Bates, Chang, Grove, Jones, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Borgeas, Hertzberg, Mitchell, Moorlach, Umberg

ASM LOCAL GOVERNMENT: 8-0-0

YES: Aguiar-Curry, Lackey, Bloom, Boerner Horvath, Ramos, Luz Rivas, Robert Rivas, Voepel

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

UPDATED:

VERSION: July 10, 2019

CONSULTANT: Angela Mapp / L. GOV. / (916) 319-3958 FN: 0001319

Date of Hearing: August 14, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 128

Author:(Beall) – As Amended Ver:July 10, 2019

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill adds the counties of Monterey and Santa Clara to an existing pilot program allowing the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano and Yuba to utilize the “best value” method for construction projects in excess of $1 million and job order contracts up to $3 million. This bill also extends the sunset date on the pilot from January 1, 2020, to January 1, 2025.

FISCAL EFFECT:

Negligible state costs. Any local costs are not reimbursable by the state.

COMMENTS:

1. Purpose. This bill seeks to extend and expand a pilot program allowing certain counties to use “best value” contracting as an alternative bidding process for construction projects. According to the author:

This bill builds upon prior legislation and will allow more counties to use the best value construction contracting program. This program creates a much larger and stronger contractor bidding pool, reduces bad actors during the contractor selection process and increases the percentage of skilled craftworkers on county construction projects. Furthermore, we can expect reduced administrative cost and time by increasing contract terms through renewal options and ultimately increases capacity to achieve more projects in less time.

1. Background. SB 762 (Wolk), Chapter 627, Statutes of 2015, established a pilot program until January 1, 2020, allowing the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, Solano and Yuba to award contracts for construction projects in excess of $1 million to the bidder representing the best value. Traditionally, construction projects have been bid out and awarded based upon a lowest-cost approach. Best value, a competitive contracting process, allows projects to be awarded to the contractor offering the best combination of price and qualifications, instead of just the lowest bid. In addition to submitting bids for project cost, prospective contractors also submit technical proposals. The technical proposals are evaluated based on objective criteria, and scored. The scores are then used to weigh or adjust the submitted bid price. The contract is awarded to the contractor that represents the best value to the contracting agency.

SB 793 (Hill) Chapter 627, Statutes of 2017, among other items, expanded the pilot to include the County of San Mateo and to allow the use of best value contracting method for job order contracting for up to $3 million contracts.

Solano County is the only county to have used the best value pilot, but other counties indicate plans to use it in the near future and a desire to retain the authority as an option going forward.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: July 3, 2019

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

SBPCA Bill Id:SB 128

Author:(Beall) – As Amended Ver:June 19, 2019

SENATE VOTE: Vote not relevant

SUBJECT: Public contracts: Best Value Construction Contracting for Counties Pilot Program.

SUMMARY: Expands and extends a pilot program allowing specified counties to utilize best value contracting. Specifically, this bill:

1. Adds the County of Santa Clara to a pilot program allowing the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano, and Yuba to utilize the best value method for construction projects in excess of $1 million dollars and for job order contracting.
2. Extends the sunset date on this pilot program from January 1, 2020, to January 1, 2025.
3. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances relating to construction projects in the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Solano, and Yuba.

FISCAL EFFECT: This bill is keyed fiscal and contains a state mandated local program.

COMMENTS:

1. Bill Summary and Author’s Statement. This bill adds the County of Santa Clara to a pilot program allowing the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, San Mateo, Solano, and Yuba to utilize the best value method for construction projects in excess of $1 million dollars and for job order contracting. This bill also extends the sunset date on this pilot program from January 1, 2020, to January 1, 2025. This bill is sponsored by the Solano County Board of Supervisors.

According to the author, “This bill builds upon prior legislation and will allow more counties to use the best value construction contracting program. This program creates a much larger and stronger contractor bidding pool, reduces bad actors during the contractor selection process and increases the percentage of skilled craftworkers on county construction projects. Furthermore, we can expect reduced administrative cost and time by increasing contract terms through renewal options and ultimately increases capacity to achieve more projects in less time.”

1. Background. SB 762 (Wolk), Chapter 627, Statutes of 2015, established a pilot program until January 1, 2020, that allowed the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, Solano, and Yuba to award contracts for construction projects in excess of $1 million to the bidder representing the best value. Best value contracting has generally been recognized as a viable alternative for construction projects. Traditionally, construction projects have been bid out and awarded based upon a lowest-cost approach. Best value, a competitive contracting process, allows projects to be awarded to the contractor offering the best combination of price and qualifications, instead of just the lowest bid. In addition to submitting bids for project cost, prospective contractors also submit technical proposals. The technical proposals are evaluated based on objective criteria, and scores are compiled. The scores are then used to weigh or adjust the submitted bid price. The contract is awarded to the contractor that represents the best value to the contracting agency.

Participating counties must satisfy a number of requirements in order to use this authority, including:

• 1. Adopting and publishing procedures and required criteria that ensure all selections are conducted in a fair and impartial manner;
  2. Evaluating at a public meeting the alternative of awarding the contract on the basis of the lowest bid price;
  3. Making a written finding that awarding a contract on the basis of best value will reduce project costs, expedite project completion, and/or provide features not achievable via the low-bid method;
  4. Preparing bid solicitations and providing notice as required by the Local Agency Public Construction Act (LAPC Act), and complying with the Subcontracting Fair Practices Act regarding subcontractors identified in a bid;
  5. Establishing prequalification procedures in accordance with the LAPC Act;
  6. Including in bid solicitations the criteria and rating system a county will consider in evaluating bids;
  7. Prequalifying or shortlisting only those contractors who provide an enforceable commitment to use a skilled and trained workforce to perform all work on the project that falls within an apprenticeable occupation, with specified exceptions;
  8. Appointing an evaluation committee, which must evaluate bidders solely upon the criteria in the bid solicitations and assign a qualifications score to each bid;
  9. Determining best value by dividing each bidder's price by its qualifications score, with the lowest cost per quality point representing the best value bid;
  10. Publicly announcing bid awards, including the score of the selected contractor in relation to all other bidders; and,
  11. Submitting a report to the Legislature, including information about the county’s use of the bill’s authority, before the pilot program sunsets on January 1, 2020.

1. First Expansion of the Pilot. SB 793 (Hill) Chapter 627, Statutes of 2017, expanded the pilot program with the following provisions:
   1. Adding San Mateo County to the list of counties authorized to use the pilot program; and,
   2. Allowing counties in the pilot program to also use the program’s best value contracting method to award individual annual contracts for repair, remodeling, or other repetitive work to be done according to unit prices – also known as job order contracting or a job order contract. These contracts cannot exceed $3 million, adjusted for inflation, and must be based on plans and specifications for typical work. They also cannot be for new construction. Best value criteria must be applied to the annual contract for construction services, rather than to an individual, specific project. Annual contracts may be extended or renewed for two subsequent annual terms at a maximum of $6 million over the subsequent terms. Contract values must be adjusted annually to reflect the percentage change in the California CPI.
2. How is the Pilot Progressing? According to the Solano County Board of Supervisors, sponsor of this bill, “Solano County has benefited from the authority provided under SB 762 with the recent delivery and completion of the Rourk Vocational Training Center in Fairfield, a detention-grade re-entry facility constructed for the Solano County Sheriff to provide vocational training to jail inmates. The 46,000 square foot, $26M inmate vocational training center was funded with SB 1022 Adult Local Criminal Justice Facilities Construction Program funding authorized on June 27, 2012 as part of the FY2012/13 State budget.

“This pilot Best Value delivery opportunity attracted five well-qualified contractors to submit Best Value proposals (bids) to Solano County, competing on the basis of published Best Value criteria. Hensel Phelps Construction Company was awarded the construction contract on the overall strength of their proposal, representing best value to the County. Hensel Phelps worked in a professional and diligent manner to effectively deliver the project despite certain unforeseen challenges that arose in the course of construction. It is unlikely that the process of constructing this detention-grade project would have gone as well, or delivered equivalent value, by way of a more traditional low-bid contract award process. Solano County is in the final stages of completion of the project and is slated to approve the ‘Notice of Completion’ at their June 25, 2019 Board of Supervisors meeting. Solano County will also submit the required report to the Legislature on or before the January 1, 2020 report deadline.”

While Solano County is the only county to have used the best value pilot, other counties indicate plans to use it in the near future and/or a desire to retain the authority as an option going forward.

1. Committee Amendments. This bill extends the sunset date on the best value pilot program for the specified counties, but does not update the reporting requirements. The Committee may wish to amend the bill to update the reporting requirement to March 1, 2024, to allow the Legislature adequate opportunity to review the pilot program before any additional changes are made to its sunset date or other provisions.
2. Arguments in Support. The Solano County Board of Supervisors, sponsor of this bill, writes, “A ‘best value’ construction contract is one that allows counties to select the lowest responsible bidder on the basis of a number of measurable, verifiable criteria. These criteria include management competency, financial condition, labor compliance, qualifications, experience, and safety record. Factoring in these criteria will allow counties that participate in the pilot program to choose contractors that provide the best combination of price and quality.”
3. Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

Solano County Board of Supervisors [SPONSOR]

Counties of San Bernardino, San Diego, San Mateo, and Santa Clara

State Building and Construction Trades Council

Opposition

None on file

Analysis Prepared by: Angela Mapp / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 128

Author: Beall (D), et al.

Amended: 3/21/19

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 3/20/19

AYES: McGuire, Beall, Hertzberg, Hurtado, Nielsen, Wiener

NO VOTE RECORDED: Moorlach

SUBJECT: Enhanced infrastructure financing districts: bonds: issuance

SOURCE: California Association for Local Economic Development

DIGEST:

This bill authorizes Enhanced Infrastructure Financing Districts to issue bonds without voter approval.

ANALYSIS:

Existing law:

1. Allows allow local officials to create Enhanced Infrastructure Financing Districts (EIFDs) to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community.
2. Establishes that an EIFD is governed by a public financing authority with a specified membership comprising both public members and members from the legislative body of a participating taxing entity or entities.
3. Requires the legislative body of a city or county to adopt a resolution of intention to establish the EIFD. The resolution must state a time and place for a hearing on the proposal, the proposed district’s boundaries, the types of facilities and development to be financed, the need for the district, the goals the district proposes to achieve, and that incremental property tax revenues may be used to finance the EIFD’s activities.
4. Requires the city or county to create the public financing authority at the same time it adopts the resolution of intention and directs an official to prepare an infrastructure financing plan.
5. Allows the EIFD to receive funding from property tax increment revenue. However, under the EIFD framework, local agencies must approve of the plan and the EIFD cannot access the school share of property tax revenue that would be backfilled by the General Fund.
6. Allows EIFDs to issue bonds and requires 55 percent voter approval to issue bonds.

This bill:

1. Requires the public financing authority to hold three public hearings to hear and comment on all public comments to consider the EIFD infrastructure plan.
2. Requires the public financing authority terminate the EIFD infrastructure plan if there is a majority protest. A majority protest exists if protests have been filed representing over 50 percent of the combined number of landowners and residents in the area who are at least 18 years of age.
3. Requires an election if between 25 percent and 50 percent of the combined number of landowners and residents in the area who are at least 18 years of age file a protest.
4. Repeals the 55 percent voter approval requirement for an EIFD to issue bonds after the public finance authority approves the bond issuance.
5. Requires only the public finance authority to approve a bond before it can issue the bond.

Background

Generally, property tax increment financing involves a city or county forming a tax increment-financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local agency that receives a share of property tax revenues from property within a project area is “frozen” at the amount it received from that property prior to the project area’s formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues—the so-called property tax “increment” revenues—flow to the tax increment financing district instead of other local agencies. After the bonds have been fully repaid using the property tax increment revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local agencies and property tax revenues again flow directly to each local agency that receives a share of the property tax.

After the state dissolved redevelopment agencies (RDAs) in 2011, local officials sought other ways to use tax increment financing to raise the capital they need to fund public works projects. In response, the Legislature enacted SB 628 (Beall, Chapter 785, Statutes of 2014) to allow local officials to create EIFDs, which augment the tax increment financing powers available to local agencies under existing infrastructure financing district statutes.

Comments

1. Purpose of the bill. According to the author, SB 128 “EIFDs are an important economic development finance tool since their structure and use allow jurisdictions to move economic development projects forward that would otherwise remain inactive. EIFDs provide local agencies a way to finance needed infrastructure projects with tax increment financing (TIF). The tax increment can be used to make infrastructure investments, inducing private investment. EIFDs are empowered to provide financing for a broad range of infrastructure work, and public use economic development projects. Presently, EIFDs require a 55% vote approval to issue bonds. The vote requirement is burdensome for implementing the key purpose of EIFDs—issuing bonds for infrastructure projects. It adds an element of uncertainty and restricts the ability of the EIFD to make long-term commitments. The solution is to eliminate the vote requirement to issue EIFD bonds. The property taxes allocated to EIFDs are not new taxes or special assessments, and EIFDS bonds do not result in an increased burden on taxpayers. Public oversight and transparency are built in to the EIFD process. SB 128 streamlines the EIFD tool, making it a more practical and attractive tool for economic growth. SB 128 will help California realize the full potential of EIFDs.”
2. Sure, but will it work? RDAs were widely adopted for two reasons. First, they allowed cities and counties to take increment from the school share of the property tax, which the state backfills from the General Fund. This generated billions of dollars in additional funds that cities and counties could only access through redevelopment. Second, they allowed cities and counties to skirt voter approval requirements on debt issuance. SB 128 moves EIFDs closer to RDAs on the second consideration, but does not grant them any funds beyond what would be otherwise available, making them significantly less attractive. Additionally, there may be other barriers to establishing EIFDs that SB 128 does not fix. Some observers suggest that EIFD formation has been slow due to legal uncertainty over their bonding capacity. They suggest that there is concern over whether making payments to an EIFD counts as a debt obligation for participating cities or counties, which would require two-thirds voter approval. It is unclear whether removing the vote threshold without addressing some of the other challenges faced by EIFDs will increase their utilization.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 3/22/19)

California Association for Local Economic Development (source)

American Planning Association

California Special Districts Association

California State Association of Counties

California Transit Association

City of Indio

City of Lakeport

City of Merced

City of Sacramento

City of West Hollywood

City/County Association of Governments of San Mateo County

County of Stanislaus

Greater Sacramento Economic Council

League of California Cities

Madera County Economic Development Commission

OPPOSITION: (Verified 3/22/19)

Howard Jarvis Taxpayers Association

Southwest California Legislative Council

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

3/22/19 11:20:19

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Enhanced infrastructure financing districts: bonds: issuance

Authorizes Enhanced Infrastructure Financing Districts to issue bonds without voter approval.

Background

Redevelopment agencies. From the early 1950s until they were dissolved in 2011, California redevelopment agencies (RDAs) used property tax increment financing to pay for economic development projects in blighted areas pursuant to the provisions of the Community Redevelopment Law. Generally, property tax increment financing involves a city or county forming a tax increment-financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local agency that receives a share of property tax revenues from property within a project area is “frozen” at the amount it received from that property prior to the project area’s formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues—the so-called property tax “increment” revenues—flow to the tax increment financing district instead of other local agencies. After the bonds have been fully repaid using the property tax increment revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local agencies and property tax revenues again flow directly to each local agency that receives a share of the property tax.

Citing a significant State General Fund deficit, Governor Brown’s 2011-12 budget proposed eliminating RDAs and returning billions of dollars of property tax revenues to schools, cities, and counties to fund core services. Among the statutory changes that the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld AB X1 26, but invalidated AB X1 27 (Blumenfield, 2011), which would have allowed most RDAs to avoid dissolution.

RDAs’ dissolution deprived many local agencies of the primary tool they used to eliminate physical and economic blight, finance new construction, improve public infrastructure, rehabilitate existing buildings, and increase the supply of affordable housing.

Enhanced Infrastructure Financing Districts. After RDAs were dissolved in 2011, local officials sought other ways to use tax increment financing to raise the capital they need to fund public works projects. In response, the Legislature enacted SB 628 (Beall, 2014) to allow local officials to create Enhanced Infrastructure Financing Districts (EIFDs), which augment the tax increment financing powers available to local agencies under existing infrastructure financing district statutes. City or county officials can create an EIFD to finance public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community. An EIFD is governed by a public financing authority with a specified membership comprising both public members and members from the legislative body of a participating taxing entity or entities.

To create an EIFD, the legislative body of a city or county must adopt a resolution of intention to establish the financing district. The resolution must state a time and place for a hearing on the proposal, the proposed district’s boundaries, the types of facilities and development to be financed, the need for the district, the goals the district proposes to achieve, and that incremental property tax revenues may be used to finance the EIFD’s activities. The city or county must create the public financing authority at the same time it adopts the resolution of intention. The public financing authority then provides public notice, as specified, and directs an official to prepare an infrastructure financing plan that includes:

• A map and legal description of the proposed district;
• A description—including location, timing, and costs—of the public facilities and other forms of development or financial assistance that is proposed in the district, including those to be provided by the private sector, by governmental entities, or jointly; and
• A finding that the development and financial assistance are of communitywide significance and provide significant benefits to an area larger than the area of the district,

The plan must also include a financing section that incorporates the following information:

• The maximum annual tax revenues contributed to the EIFD;
• A plan for financing the public facilities to be assisted by the district, including a detailed description of any intention to incur debt;
• A limit on the total amount of taxes that may be allocated to the district pursuant to the plan; and
• A date on which the district will cease to exist, by which time all tax allocation to the district will end. This date cannot be more than 45 years from the date on which voters approve the EIFD’s bond issuance.

Voter approval of EIFD bonds. Once approved by the initiating city or county, an EIFD receives funding from three revenue streams to fund its infrastructure financing plan. Similar to Redevelopment Agencies, EIFDs can use a portion of the property tax increment. However, under the EIFD framework, local agencies must approve of the plan and the EIFD cannot access the school share of property tax revenue that would be backfilled by the General Fund. They may also use revenue that the infrastructure project generates, such as money generated from user fees, public-private partnerships, loans, and grants. Finally, an EIFD may receive the local share of sales and use taxes (SUT) and transactions and use taxes (TUTs). Like an RDA, an EIFD may issue bonds backed by these revenues to pay for projects. However, unlike an RDA, an EIFD requires 55 percent voter approval to do so. If a city or county wanted to issue debt for similar purposes without forming an EIFD, that city or county would typically need two-thirds of voters to approve the debt issuance.

EIFD formation has been slow. Nearly five years has passed since the passage of SB 628; in that time, three EIFDs have formed: West Sacramento, La Verne, and San Diego (Otay Mesa). To date, none of these EIFDs have issued bonds. Other local entities are considering forming EIFDs. The author wants to create incentives for additional EIFDs to form and start financing projects by removing the voter approval requirement for an EIFD to issue bonds.

Proposed Law

Senate Bill 128 repeals the 55 percent voter approval requirement for an EIFD to issue bonds after the EIFD board approves the bond issuance. In its place, SB 128 requires the EIFD board to approve a bond before it can issue the bond.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “EIFDs are an important economic development finance tool since their structure and use allow jurisdictions to move economic development projects forward that would otherwise remain inactive. EIFDs provide local agencies a way to finance needed infrastructure projects with tax increment financing (TIF). The tax increment can be used to make infrastructure investments, inducing private investment. EIFDs are empowered to provide financing for a broad range of infrastructure work, and public use economic development projects. Presently, EIFDs require a 55% vote approval to issue bonds. The vote requirement is burdensome for implementing the key purpose of EIFDs—issuing bonds for infrastructure projects. It adds an element of uncertainty and restricts the ability of the EIFD to make long-term commitments. The solution is to eliminate the vote requirement to issue EIFD bonds. The property taxes allocated to EIFDs are not new taxes or special assessments, and EIFDS bonds do not result in an increased burden on taxpayers. Public oversight and transparency are built in to the EIFD process. SB 128 streamlines the EIFD tool, making it a more practical and attractive tool for economic growth. SB 128 will help California realize the full potential of EIFDs.”

2. Sure, but will it work? RDAs were widely adopted for two reasons. First, they allowed cities and counties to take increment from the school share of the property tax, which the state backfills from the General Fund. This generated billions of dollars in additional funds that cities and counties could only access through redevelopment. Second, they allowed cities and counties to skirt voter approval requirements on debt issuance. SB 128 moves EIFDs closer to RDAs on the second consideration, but does not grant them any funds beyond what would be otherwise available, making them significantly less attractive. Additionally, there may be other barriers to establishing EIFDs that SB 128 does not fix. Some observers suggest that EIFD formation has been slow due to legal uncertainty over their bonding capacity. They suggest that there is concern over whether making payments to an EIFD counts as a debt obligation for participating cities or counties, which would require two-thirds voter approval. It is unclear whether removing the vote threshold without addressing some of the other challenges faced by EIFDs will increase their utilization.

3. Alphabet soup. After the Supreme Court’s 2011 Matosantos decision dissolved all RDAs, legislators enacted a slew of measures creating new tax increment financing tools to pay for local economic development. In 2014, the Legislature authorized the creation of EIFDs, quickly followed by Community Revitalization and Investment Authorities (CRIAs) in 2015 (AB 2, Alejo). Similar to EIFDs, CRIAs use tax increment financing to fund infrastructure projects, with two big differences: CRIAs may only be formed in economically depressed areas, but lack the voter approval requirement. Two years ago, the Legislature authorized the formation of Affordable Housing Authorities (AHAs), which may use tax increment financing exclusively for rehabilitating and constructing affordable housing and also do not require voter approval to issue bonds (AB 1598, Mullin). Last year, SB 961 (Allen) removed the vote requirement for a subset of EIFDs to issue bonds and required these EIFDs to go through a robust process for soliciting public input. SB 961 also required the Governor’s Office of Planning and Research (OPR) to evaluate the effectiveness of the various tax increment financing tools that have sprung up in the wake of RDAs dissolution. Local agencies have had only a year or two to determine whether the most recently enacted frameworks will work for their purposes. In light of the recent creation of numerous other similar agencies—including some that do not require voter approval for debt—it may be premature to make additional changes to EIFDs or other tools until the OPR report required by SB 961 has been completed.

4. Sins of the father. A number of factors contributed to the downfall of redevelopment. Chief among them were fiscal concerns: by 2009-10, the state paid over $2 billion a year to backfill property taxes that RDAs captured from K-14 schools. But examples of poor spending by redevelopment agencies also figured into legislators’ decisions. Studies of redevelopment by the Legislative Analyst’s Office, the State Controller, the Public Policy Institute of California, and others found that redevelopment often subsidized private development—such as car dealerships, large retail chain stores, and bars—with dubious public benefits. Seeking to enhance public scrutiny of redevelopment-like expenditures, the Legislature affirmatively required EIFDs to seek voter approval to issue bonds. Removing the vote requirement may lead to a resurgence of questionable decisions with public funds. Related programs, such as CRIAs and NIFTI-2s, which do not require voters to approve bond issuances, include a robust protest process to ensure that the bonding authority of EIFDs is not misused the same way some redevelopment funds were. The Committee may wish to consider amending SB 128 to require a more robust process for soliciting public input like what the Legislature included for SB 961 and CRIAs.

5. Related legislation. The Governor has also proposed budget trailer legislation to remove the vote requirement for EIFDs to issue debt. In addition, legislators have introduced bills to create new infrastructure financing tools for local agencies to replace the revenue local agencies lost after RDAs were dissolved. SB 5 (Beall) allows local agencies to reduce contributions of local property tax revenue to schools to build affordable housing and related infrastructure. The State General Fund would backfill these reductions. AB 11 (Chiu) creates Affordable Housing and Infrastructure Agencies and allow local agencies to freeze property tax revenue in an area and allocate any additional property tax revenue to the agency for various uses and set aside funds for affordable housing.

Support and Opposition

(3/13/2019)

Support: California Association for Local Economic Development (sponsor); American Planning Association; California Special Districts Association; California State Association of Counties; California Transit Association; City of Indio; City of Lakeport; City of Merced; City of West Hollywood; County of Stanislaus; Greater Sacramento Economic Council; Madera County Economic Development Commission.

Opposition: Southwest California Legislative Council.

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