490 million is just the starting price

Posted on January 8, 2011

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A few weeks ago our friends at the AOC announced that the deal was sealed on a new 490 million dollar courthouse in Long Beach or $1111.00 per square foot.

This figure does not represent the cost of money. It represents the value of the courthouse structure and parking garage improvements. Line any other ppp (public/pivate partnership) and similar to all other ppp’s announced in California, 490 million dollars is only the starting point. If other ppp’s throughout California are any historical indication, the final price will grow to be significantly higher during the course of construction.

Oftentimes in these ppp contracts, the devil is in the details. The savings purported by ppp’s are rooted in the theory that private money can build a project much less expensive than public money. Obviously, at a mere $1,111.00 per square foot of construction, the AOC isn’t saving anything for the construction of the facility and an argument can be made that the project already costs more than if the state themselves built the building.

So where is the promised savings?

Bond money. Bond money is not utilized on ppp projects because the project is privately financed and then leased back. While some day it might change that government could get a better deal using private financing over selling bonds, the reality today is that bond financed projects cost less than privately financed projects because the cost of money is less. The reality of ppp’s is that not a single ppp in California has yet to pay off, with most ppp’s final costs well exceeding what it would have cost the state to go at it alone.

Will Long Beach be an exception or just additional evidence piled on to a growing mound of evidence that ppp’s have never worked in California?

The most disturbing thing I find about Long Beach is already the designers and engineers have done an end-run around Clifford Ham who is leading the effort on behalf of the AOC and shared their own design concerns; blowing the whistle on faulty designs already approved that will result in costly change orders. So before the contract was ever finalized with Meridiam Infrastructure the alarm bells were going off from Meridiam’s own people who bid and were hired for the job.

While we agree that the Long Beach Courthouse is required, we continue to question the method of delivery in light of the last ppp that was built. The Edward R. Roybal learning center, also located in L.A. was a ppp that was slated to come in at $230.00 per square foot. At the time of opening, due to an accumulation of hydrogen sulfide gas in the completed structure, the costs had exploded to more than a thousand dollars a square foot, making Edward R. Roybal learning center the worlds most expensive public school building at just over a billion dollars.

So does a similar fate await Long Beach? Watch and learn.