Paving the way for privatization

City officials consider closing the municipal asphalt plant and backing a private replacement

City officials are considering shutting down the municipal asphalt plant — the source of material for repaving roads and fixing potholes — in order to facilitate construction of a private plant on the waterfront that the city would agree to help finance and support over the long term.

While the privatization plan is being billed by project proponents as a way to save money during tough financial times, it raises questions about whether relying on the private sector for this essential material could hurt the city's ability to make emergency repairs and ultimately end up costing taxpayers even more.

For the cash-strapped Port of San Francisco, which will make millions of dollars leasing land for the new facility, this is unquestionably a good deal. But for the rest of the city, which is losing a potentially valuable public resource it has operated since 1909 when the first municipal plant opened, the answer is a bit less clear.

Douglas Legg, manager of finance and budget at the Department of Public Works (DPW), argues that the municipal plant is not cost-effective and that the city would pay less if it contracts with an outside vendor. In a 2006 study, Legg found that the city's cost to produce a ton of asphalt was $75 while private plants offered it for $67.

"It's true that E.B.I. Aggregates and Graniterock are a little cheaper because they have a market advantage: they own their own gravel quarries," admits Ben Santana, who has managed the municipal plant in the Bayview for the last 21 years. But he still thinks his facility plays an important role. "Otherwise they would have gotten rid of us long ago. We can mobilize in a few hours and city trucks don't have to wait in line with other clients."

In the aftermath of the 1989 Loma Prieta earthquake, the municipal plant proved to be a valuable asset. "The plant wasn't damaged. We sent our crews to take care of cracks and voids that had suddenly opened up," Santana recalls. "So the city didn't have to go south to get material, or pay to get the private plants to open."

Indeed, in 2006, DPW held off the proposed shutdown in order to maintain its access to asphalt in emergencies. Officials worried about being dependant on plants outside city limits, especially since E.B.I. in Brisbane was slated to cease operations in the upcoming years, which would have left Graniterock potentially enjoying a monopoly that could result in price increases.

Although the agency recognizes that it has to have an asphalt plant inside city limits to function well, it is losing the political will to maintain its own. So when port officials approached DPW with their plan to attract a private asphalt operator, the threat to close down the municipal plant resurfaced.

The port has issued a request for proposal (RFP) for an asphalt-batching plant to be built on Pier 94. The selected bidder would be bound to negotiate a long-term contract with the city guaranteeing it would supply asphalt at a price tied to the Northern California asphalt price index.

The port and DPW assume the potential market for asphalt in the city will be large enough to draw private operators. But that belief seems to contradict the rationale behind the decision to close the municipal plant in the first place, which was that it couldn't produce volumes large enough to bring the price per ton down.

"The demand from the street resurfacing program was nowhere near as high as we thought it would be," Legg says. In 2004, DPW installed two silos on the site to store hot asphalt and increase production. DPW was hoping to generate additional revenue for the department by selling asphalt to private contractors and other agencies.

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