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New Long Beach Courthouse, Built w/ "Public Private Partnership" Praised By Local Pols, May Cost As Much As $160 Million More Than Using Traditional Procurement, State Legislative Analyst Office Says


VIDEO TELLS AMECO SOLAR'S STORY. AND CLICK HERE TO HEAR AMECO PRESIDENT PATRICK REDGATE EXPLAIN WHY SOLAR MAKES SUCH GOOD SENSE.

(Nov. 11, 2012, 11:55 a.m.) -- The new L.A. County courthouse being built in Long Beach, cited by various Long Beach political figures and state judicial officials as an example of the benefits of a "public-private" development arrangement, may cost as much as $160 million more than under a traditional procurement approach, says a report by state Legislative Analyst's office (LAO).

The report by the LAO (an office that anlayzes legislation and makes recommendations to the legislature) states that in applying state legislation, the Administrative Office of the Courts [as well as Caltrans on a separate project] "did not use clear P3 [public-private partnership] processes and appear to have selected projects not well suited for a P3 procurement. In addition, we find that the analyses done to compare project costs under different procurement options were based on several assumptions that are subject to significant uncertainty and interpretation, and tended to favor the selection of a P3 approach."

It concludes, "Our analysis indicates that utilizing a different set of assumptions than those discussed [details below] (such as excluding the assumed federal tax adjustment and leasing costs) would result in the cost of the Long Beach courthouse project being less -- by as much as $160 million in net present value terms -- in the long run under a traditional procurement approach than the chosen P3 approach."

The Nov. 8 LAO report, which can carries the wonkish title "Maximizing State Benefits From Public-Private Partnerships," can be viewed here.

The LAO report states in pertinent part:

Long Beach Courthouse Selection Was Problematic. According to AOC [Administrative Office of the Courts] staff, the Long Beach courthouse project was selected as a P3 candidate based primarily on two criteria: (1) it was one of the largest court construction projects considered at that time and (2) the Long Beach area has a competitive market for the type of property management staff needed to operate a P3...[T]he selection process for the Long Beach courthouse project did not include much of the recommended best practice criteria. For example, the selection process did not evaluate whether the project is technically complex. While the ideal level of complexity for a P3 is difficult to define in specific terms, the Long Beach courthouse project lacks unique or complex features that would likely benefit from innovative design and construction techniques. Accordingly, our analysis indicates that if AOC utilized best practice criteria in its selection process, the Long Beach courthouse project would have been found to be inappropriate for P3 procurement...

Assumptions in Long Beach Courthouse Analysis Favored P3. Some of the key assumptions in the VFM analysis of the Long Beach courthouse that tended to favor P3 procurement include:

  • Unjustified Tax Adjustment. ...[T]he VFM analysis for the Long Beach courthouse project included a $232 million adjustment to account for increased tax revenues that would be paid for by the private developer under the P3 approach. A major component of this adjustment reflects revenues from federal taxes. Since additional federal tax revenues would not directly benefit the state, there appears to be little to no justification for increasing the cost of using a traditional procurement approach to reflect the federal taxes that would be paid by a private developer.

  • Overstated Cost Overruns. The VFM analysis assumed that using AOC's more traditional procurement approach of construction manager at risk -- rather than a P3 procurement approach -- would result in construction cost overruns for the Long Beach courthouse project totaling $128 million (about 30 percent of the project's estimated cost). However, given that AOC has procedures in place to prevent such cost overages and has not experienced them with recent court construction projects, this assumption has the effect of overstating the cost of the project under a construction management at risk approach.

  • Leasing of Additional Space. The AOC's VFM analysis assumes that under the P3 approach, the courthouse project would include space that would initially be leased by the private developers to other entities, but could eventually be used by the court. The VFM analysis also assumes this additional space would be needed by the court in Long Beach in the future, and builds the cost of leasing this additional space into its estimates. This factor adds $260 million in costs to a traditional procurement of the Long Beach courthouse project, but only $69 million to the cost of the P3. The higher cost under a traditional approach assumes that a separate building would be leased and that the leased building would need substantial modifications. The analysis for the traditional procurement also assumes increased costs for security officers to monitor the leased building. While there is some basis for estimating a higher cost for the potential need to lease additional space under a traditional procurement approach, the AOC has not conclusively demonstrated that all of this additional space would be needed by the court in Long Beach. Moreover, AOC's other courthouse construction projects ordinarily do not include this kind of extra space.

  • Project Completion. The AOC's VFM analysis assumes that it would take 14 months longer to complete the Long Beach courthouse under construction manager at risk procurement than as a P3 project. Accordingly, the analysis uses different timelines to discount the costs of the project under each type of procurement. The way the VFM analysis adjusts for these assumed differences in timing effectively increases the cost of a traditional procurement in net present value terms. However, it is not evident that such a procurement would necessarily take 14 months longer -- especially in view of the considerable flexibility state law gives AOC with respect to its construction contracting methodology. Our analysis indicates that utilizing a different set of assumptions than those discussed above (such as excluding the assumed federal tax adjustment and leasing costs) would result in the cost of the Long Beach courthouse project being less -- by as much as $160 million in net present value terms -- in the long run under a traditional procurement approach than the chosen P3 approach.

A video (below) touting the project on its groundbreaking, embedded on the Judicial Council of CA's website and uploaded onto YouTube.com, states: "The project's unique financing arrangement is attracting attention from all over the country."


April 7, 2011 photo on MayorBobFoster.com

The use of "P3" type public-private partnerships has also been suggested as a funding mechanism by some advocates of building a new Long Beach Civic Center (government complex).

As previously detailed by LBReport.com, the new courthouse has previously drawn local attention for its failure to include a replacement tunnel (which exists in the current courthouse) to convey prisoners from Long Beach's jail, leaving this sizable cost item to Long Beach taxpayers. After Councilwoman Schipske spotted the item in an otherwise routine budget document and inquired about it, city management acknowledged that city staff had been aware of this, repeatedly asked to have the cost item included...but the Administrative Office of the Courts refused. In public Council colloquy on the item, City Manager West added that the decision on whether to put the new courthouse in Long Beach, or elsewhere, came right down to the wire.

On October 4, 2011, after being told the tunnel's construction cost was estimated to be at least $5 million (with a feasibility study still to be completed), the City Council approved (6-3, Schipske, Neal, Gabelich dissenting) allocating $1 million in oil revenue for initial work on the tunnel.

In late June 2012, city management told the Council [non-agendized memo] said it would be less costly to tranfer prisoners one block from the LB jail to the courthouse by van-vehicles at an annual continuing cost estimated to be roughly $240,000 (plus $270,000 to buy the needed vehicles).

Roughly six weeks later in mid-August 2012, LBReport.com spotted a line item near the end of a five page spradsheet given to the Council's Budget Oversight Committee on how FY12 oil revenue had been used. The line item indicated that of the $1 million allocated by the Council for initial tunnel expenses, roughly $942,000 has been spent...for a tunnel that now isn't scheduled to be built.

Developing. Further to follow.


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