Business groups in L.A. and around the state reacted with dismay late Tuesday to news that a legislative committee had defeated the governor’s proposal to enable more private investment and greater use of private contractors in public infrastructure projects.

Governor Arnold Schwarzenegger’s proposal, carried in AB 2600 by Assemblyman Roger Niello, R-Fair Oaks, was defeated in the Assembly Committee on Business and Professions after a strong lobbying effort by unions, especially the Professional Engineers in California Government.

The bill would have given state agencies more authority to seek private investment in major infrastructure projects, such as highways, bridges, light rail lines or water facilities. It also would have given agencies more flexibility to contract engineering and construction work on these projects to the private sector, a provision that drew fire from state engineers.

Supporters touted the potential cost savings to the state at a time when the state is confronting a $20 billion deficit over the next 18 months. “This legislation would have allowed California to build, operate and maintain infrastructure better, faster and for less,” said John Kabateck, president of the California chapter of the National Federation of Independent Business.

In 2006, California voters approved $42 billion in infrastructure projects, including more than $20 billion in road and goods movement projects. Last year, three former governors George Deukmejian, Pete Wilson and Gray Davis came out in support of the increased use of public-private partnerships on major infrastructure projects.