Paving the way for privatization - Page 2


But two years later, Legg concluded in his report that the plant not only failed to turn a profit, it was facing a $100,000 shortfall to repay its investment.

Demand might be picking up, though: city officials expressed their intention to make up for years of neglect in the upkeep of San Francisco streets by introducing a $368 million safe street and road repair bond measure for the November ballot. The plan would boost the number of blocks to be resurfaced from 100 to 400 for the next 10 years, something that might make the city-owned plant more cost-effective. But Legg skeptically points out that the plant still requires replacement of some key components.

"Last year we had a $60 million capital budget for all capital improvement needs in the city from the general fund sources. This year, we've got $22 million," Legg says. "They're scarce dollars. I can't speak for what the Board [of Supervisors] will chose to do, but it's challenging to get capital money."

Legg also noted the city plant's "frequent breakdowns" and limited capacity to store raw materials, criticism countered by Santana. "The plant was modernized in 1993. Sure, some equipment does date to 1953, and I've been pushing to replace them for years. But it's nothing the city can't afford. Yes, it does sometimes go down. That's part of operating a plant. But we've never run out of material because I always make sure to have some on ground or en route."

Brad Benson, project manager at the Port of San Francisco, discounts the recent limited asphalt consumption in the city, noting major development proposals in the city's future. "Think about shipyard development, Treasure Island development, Caltrain, parking lots," Benson says. "If there's not the demand, there won't be bids. No one is going to invest $3 [million] to $10 million, whatever it costs to build an asphalt plant, if they don't perceive a market."

But what might also hook prospective bidders is the provision, stated in the RFP, that the "risk capital to construct the facility (may be offset by city financing)." Benson explains that "this concept was introduced here in the midst of the financial crisis when people were having trouble finding sources of capital. The city may have access to some lower cost sources of debt."

Benson said he doesn't know if city financing would be needed. "Obviously, the port prefers bidders that come in with their own sources of financing. That has been the model to build the neighboring concrete plants. The only reason to consider it is if the city combines lower-cost financing and could get lower cost asphalt in return. Then it might be worth doing."

It's an interesting paradox: the city wouldn't have funds to upgrade its plant, but would be ready to chip in to outsource?

But there are other issues driving the proposal. Karen Pierce, a Bayview- Hunters Point community activist who sits on the port's Southern Waterfront Advisory Committee, told us she would "like to see the municipal plant move away from where people live. There needs to be a buffer area. A newer plant on port property would be further away, and we would have the opportunity to make sure it uses technologies that reduce the amount of pollution."

The municipal asphalt plant, which has never received complaints for pollution, currently incorporates 15 percent of recycled asphalt in its production. The RFP requests its potential tenant raise this amount up to 45 percent.

The proposed lot is also three times bigger than the existing one on Jerrold Avenue and has the advantage of being located near a maritime terminal where sand and gravel, the aggregates mixed with tar to produce asphalt, are imported.

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