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5/15/2009
California Cities Back Away from Cost Neutral Contracts
Turlock, California dumps red light camera proposal over cost neutrality litigation fears.

Turlock City CouncilFear of litigation is causing some California cities to think twice about red light camera contracts containing so-called "cost neutrality" provisions. On Tuesday, the Turlock City Council decided to drop the idea of red light cameras for good.

"We will not be bringing them back to you," Turlock Police Chief Gary R. Hampton said. "Litigation on the whole red light camera issue continues and myself and the city attorney just do not see it being advantageous to the the city of Turlock to engage in this effort that could result in us having to expend our valuable city resources defending the city's use of red light cameras at this time."

At issue is a special provision created by the Australian red light camera operator Redflex Traffic Systems to make photo ticketing attractive to municipal leaders. The company agrees to do all the work and take all the financial risk for the undertaking in return for a substantial share of the profit generated.

"A cost neutrality clause provision in the contract assures that the city of Turlock will never be required to pay Redflex more than actual net revenue received from the program," Hampton explained in a memo to the council. "In any given month, if the program cost exceeds collected revenues, the balance will be carried over to the next month in which the cost can be met. That carry-over can continue for the term of the contract... Payment will only be made by the city of Turlock up to the amount of revenue received by the city through the collection of red light citations, up to the total due."

In other words, for each intersection approach, Redflex was to be compensated at 100 percent of the revenue collected from each ticket, with the amount capped at $6000 per intersection approach each month. This scheme ran afoul of state law banning per-ticket compensation, according to a November appellate ruling by a California Superior Court judge. The court found that a similar cost neutrality deal struck between the city of Fullerton and Nestor Traffic Systems (NTS) was illegal and all tickets issued by the system were declared void (view opinion).

Vice Mayor Ted Howze during the April 28 city council meeting asked to the city delay the proposed contract after a concerned citizen warned that a lawsuit over the illegal contract arrangement could result in a multi-million dollar refund, as happened in Minnesota.

"We did receive last minute communications from an individual who has expressed a concern, although after reading this communication I'm still very confident that we've addressed all the issues," Hampton said on the April 28, before having fully explored the issue.

The California Supreme Court currently is considering the question of whether contracts for red light camera services paid on a per-ticket basis are inherently void. Argument on the red light camera question is currently on hold pending resolution of a related case, County of Santa Clara v. Atlantic Richfield. Los Angeles Police Chief William Bratton warned in a February 9 memo that a supreme court ruling against the camera program could cost cities around the state millions in revenue.

"Given the fact that the city had a contingent fee contract with ACS for approximately three and one-half years, a state supreme court ruling in this matter could indirectly impact the city of Los Angeles," Bratton wrote. "A judgment in favor of the plaintiffs could set a legal precedent that may invite action against the city (i.e., a petition to overturn convictions and/or refund fines to those issued citations under the contingency fee based contract)."

Bratton insisted that the supreme court would rule in the cities' favor.




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