Long Beach city officials broke ground for the construction of a new city hall and extensive new civic center Friday, one that will be designed, built and maintained by a private company.
With its $530 million price tag, Long Beach's new Civic Center is one of the largest of a growing number of major public construction projects in Southern California created via a public private partnership, or P3, deal.
Putting so much fiscal, design and long-term management in the hands of private companies is seen by advocates as shifting the financial uncertainties of big construction projects to the private sector, even though they don't necessarily reduce the cost of building.
Plenary-Edgemoor Civic Partners will front the money to build City Hall, a new library and a headquarters for the Port of Long Beach on property near the existing city hall. The project will remake the adjacent downtown Lincoln Park, and include parcels for profit-making enterprises including homes, shops and restaurants.
"Los Angeles has become the hub for public-private partnerships," said Los Angeles attorney Seth Merewitz, a partner with Best, Best & Krieger whose practice represents developers and governments in P3 deals. Big agencies like the Los Angeles Metropolitian Transportation Authority and the city of Los Angeles are considering projects.
"The upside opportunity for the developer is monetizing the land that's in the deal for future development." His firm had considered involvement in the Long Beach project but withdrew while it was still in early development and is not now associated with it.
Plenary-Edgemoor Civic Partners will manage the civic assets for 40 years, after which the operations revert to the city. Long Beach City Hall, 14 floors of concrete and tinted-glass, was completed in 1977, but was deemed several years ago to be too vulnerable to earthquakes to renovate. It will be demolished once the new construction is finished in about June 2019.
Once the new city buildings are constructed, the parcel holding the existing city hall will be sold to Plenary-Edgemoor Civic Partners, for development of homes and businesses.
Long Beach's approach to pricing out the public private partnership was a bit like buying a car based on 40 years of monthly payments rather than the cost and resale value of the vehicle.
The city decided on a maximum annual payment, or MAP, "allowing the private developers to offer the project that could be built within the MAP," said Long Beach city spokesman Edward Kamlan. "Additionally, the City also chose to include a 40-year maintenance requirement within the MAP, including capital reinvestment into the building systems. Consequently, a direct comparison of DBB (traditional design-bid-build) versus P3 was not easily determined," he said.
In deciding on a P3 deal, Long Beach city is following a local example set by the Judicial Council of California, which contracted with a private company to design, finance, build, operate and maintain the new Gov. George Deukmejian Superior Court building.
Los Angeles city is considering the possibility of P3 deals to build a new convention center, civic center, LA Streetcar, and a people mover for Los Angeles International Airport.
Some P3 deals can be compared against what a traditional approach would cost.
For example, Los Angeles City Administrative Officer Miguel Santana is presenting the City Council with a price tag of $1.5 billion for the traditional approach of putting the city's convention center revamp project out to bid. He estimates it would cost $100 million more to do the public private partnership in a deal that would include the developer constructing and operating a hotel, homes and other businesses along with the convention center.
These P3 deals can help cities provide public buildings and important structures like convention centers, roads and water treatment plants without actually having to be in the business of operating buildings or complicated plants. That function is hired out to a for-profit entity.
Merewitz said a new wastewater treatment plant in Santa Paula in Ventura County was an example of a P3 that worked well. "That project was delivered ahead of schedule, below budget and was operated very efficiently."
However, the Santa Paula City Council decided last year to end the deal. The city paid $71 million dollars to buy the plant from its P3 partner following a dispute over the type of treatment the water should get. The buyout was expected to lower residents' sewer bills by several hundred dollars a year.
Putting so much design and decision-making authority in private hands carries its own risk, said Priscila Izar, a doctoral candidate in planning at Virginia Tech. As occurred in Santa Paula, important details were not foreseen or included in the original contract, and a dispute followed.
She said P3 deals to build things like affordable housing tend to be exceptionally complicated, with the financial feasibility sometimes taking on more importance than the livability of the final project. That can leave the public out of the loop, she said.
"Once its presented to the public and the public wants to change it, it means changing the financial feasibilities of this model and it becomes tricky," Izar said.
Correction: An earlier version of this story misstated the term of the maintenance contract between Plenary-Edgemoor Civic Partners and the city. The city has since corrected the information it originally presented. The private company will provide 40 years of maintenance. The original version also misstated which parcels of city land would be owned by the developer. Plenary Edgemoor Civic Partners would own the site of the existing City Hall. KPCC regrets the errors.