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Private Financing of Doyle Drive Project Draws Fire

Despite controversy, state says more public-private partnerships are planned

Doyle DriveThis spring, construction crews will demolish Doyle Drive, the elevated freeway between San Francisco and the Golden Gate Bridge.

A mass of concrete that flies over the picturesque waterfront, Doyle Drive opened in May 1937. It was one of Franklin Delano Roosevelt’s New Deal projects, paid for in part with federal funds intended to lift the country out of the Great Depression.

The replacement for Doyle Drive, the 1.5-mile Presidio Parkway, is radically different. The roadway, scheduled to open in 2015, has been designed to be earthquake resistant and to fit more harmoniously into the natural surroundings, dipping twice into tunnels on its way to the iconic bridge.

But the most striking contrast is the way the $1.1 billion project is being paid for. The $488 million second phase of the project is being financed up front by a group of private investors from Europe that will design, build and maintain the Presidio Parkway for three decades before handing it back to the state. The government eventually will pay Golden Link Partners $173 million upon completion and then an estimated $28.5 million annually for 30 years. Some of those future payoffs are from federal stimulus money.

To critics of the public-private partnership, the Presidio Parkway is an affront to the legacy of the New Deal: a chance for private industry to profit at the public’s expense. But to supporters, tapping the private sector to invest in public infrastructure is a necessity as California struggles with enormous budget shortfalls.

Last month, the agencies leading the Doyle Drive replacement project, the San Francisco Transportation Authority and Caltrans, revealed that they did not have all the future payments pledged to close the deal by the April 1 deadline. The ultimately successful scramble to cobble together $54 million in missing financing once again raised questions about the deal.

“Sounds like it’s not going well,” said Bruce Blanning, the executive director of the Professional Engineers in California Government, a labor union.

Blanning’s group sued to stop the deal in 2010. Although the lawsuit was dismissed in August 2011, Blanning said that the deal would cost twice the traditional method of building highways, in which Caltrans designs and finances a project and then requests bids for the work from construction companies. The California Legislative Analyst's Office agreed in a 2010 report, saying the public-private partnership was “not likely to be a good fiscal deal for the state.” They said the second phase would cost the state $594 million.

But Jose Luis Moscovich, the executive director of the San Francisco Transportation Authority who is also a Grammy-nominated opera conductor, said that taxpayers would actually save money because the agreement with the private companies was designed to protect the state from cost overruns that often accompany big highway projects.

“It provides a safety valve for all of those things that go wrong and ricochet back to the public sector,” Moscovich said.

Despite the controversy, Caltrans officials say more highway projects could be built with private investment, including $4 billion worth of toll lanes planned for the Bay Area. Gov. Jerry Brown is encouraging private investment in high-speed rail, the state’s biggest and most financially pressed transportation project.

“High-speed rail is one of the largest public-private partnerships in the state’s history,” said Jim Evans, deputy secretary of communications for the state’s Business, Transportation and Housing Agency. “Public-private partnerships are something in the toolkit.”

Democrats are normally reluctant to support these types of deals, but Evans said that the state would be moving ahead with the “commitment to do some projects” made under the Republican administration of Gov. Arnold Schwarzenegger.

California and other states should proceed with caution, said Hiroyuki Iseki, an assistant professor of urban studies and planning at the University of Maryland, who has written papers on public-private partnerships.

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