In California, a Road to Recovery Stirs Unrest--From the Wall Street Journal--Ianthe Jeanne Dugan

For construction workers in California, the new highway being built to the Golden Gate Bridge from San Francisco should have been great news—bringing thousands of jobs at a time when the state is furloughing workers to cope with a record deficit.
But the "Gateway to San Francisco" is being built in a partnership with foreign investors under a new law that allows private firms to build public roads in California. And state engineers, who are missing out on much of the design work, are suing to stop it.

The case is among the first brought by a union to stop a public project being handled by private investors, an area that is growing in the U.S. as cities and states struggle financially. Lawyers for the state who are fighting the lawsuit and others familiar with the case say it poses a threat to the $1 billion project, which is among the first public-private partnerships in California and a model nationwide for how municipalities can rebuild crumbling roads.
Daniel Near, a lawyer for the state's transportation department, says that the state's contract is legal. "They don't like the idea of losing control of state engineers designing and overseeing construction of projects," he says.

The union, which represents 9,000 public workers, brought the suit in State Superior Court in November claiming that state and county transportation agencies are "illegally proceeding with a public- private partnership." The suit is asking the court to force the state to put the project up for bid and stop work in the meantime. While the case awaits a hearing, construction is proceeding.

"They are holding the project hostage," says Paul Meyer, executive director of the American Council of Engineering Companies of California, a trade group representing private engineers. "If a judge temporarily stops this project, it will be a disaster." Michael Likosky, a professor at New York University who is a specialist in public finance, says that the case holds ramifications for similar projects around the country. "Municipalities are rejiggering the way they handle construction of roads, bridges and other infrastructure—and this project is a watershed," he says. "If it is derailed, it could make it harder to put together these deals around the country."

Private investors, seeking alternative ways to make a profit, are teeing up more money than ever to invest in roads and other infrastructure projects. They are buoyed by new state laws allowing these deals as well as federal programs that are financing them.

President Obama's economic stimulus program pumped $100 billion into infrastructure and energy partnerships and has attracted nearly three times as much in private money to fund a total of $380 billion in projects, according to federal figures.

With budget deficits growing—California's shortfall rose to $25.4 billion—Mr. Near says that such partnerships are the only ways for cash-strapped states to embark on new projects now.
The hard times inspired California to turn to a private firm when it decided to replace Doyle Drive, the 75-year-old, 1.6-mile road leading to the Golden Gate Bridge. The new six-lane road will be known as Presidio Parkway and wind through the Golden Gate National Recreation Area, connecting the city to the iconic bridge. The project was made possible last year when the state passed a law allowing private investment in public projects.

House Speaker Nancy Pelosi, the congresswoman from the district, was at the unveiling in 2009. "Together, we will build not only a new bridge," she said, "but a new opportunity for job creation and economic recovery here in San Francisco." The project is projected to create 13,000 jobs over the next 30 years—between construction, maintenance and administration. While construction and planning began last year, it was only in recent weeks that the state announced it was entering a partnership with Germany-based Hochtief Concessions and Luxembourg's Meridiam Infrastructure to design, construct, operate and maintain the road.

California is to give the group a lump sum when the project is completed, scheduled for 2014, and pay off the rest over 30 years, saving the cost of selling bonds for the already cash-strapped state.

Bruce Blanning, executive director of the state engineers' union, is worried about the fate of state workers as more jobs move into private hands. In California, state-employed construction workers—like all state workers—were recently mandated to start staying home three days a month without pay.

"My paycheck was cut by 15% this year," says Matt Hanson, an engineer who is president of the Professional Engineers in California Government, a labor union that brought the lawsuit. "It is frustrating because the state could have floated a bond and done this project for less money with state workers."

Mr. Blanning said the issues go beyond state versus private workers doing the project. "Much of the design work can be done overseas," he says. "This isn't about union versus nonunion jobs; this is about taking away American jobs."

Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com