Legislature(2019 - 2020)BARNES 124
02/20/2020 01:00 PM House TRANSPORTATION
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB249 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 249 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 249-MARINE HIGHWAY CORPORATION
1:03:40 PM
CHAIR STUTES announced that the only order of business would be
HOUSE BILL NO. 249, "An Act relating to the Alaska marine
highway system; establishing the Alaska Marine Highway System
Corporation; and providing for an effective date."
1:04:58 PM
SARA PERMAN, Staff, Representative Louise Stutes, Alaska State
Legislature, presented HB 249 on behalf of Representative
Stutes, prime sponsor. She informed the committee that HB 249
is the product of decades of work from many Alaskans.
MS. PERMAN informed the committee that the First Alaska State
Legislature approved the Alaska Ferry Transportation Act in 1959
and the first ferry became operational in 1963. As early as
1984, she continued, Governor Bill Sheffield's AMHS task force,
established to assess AMHS's structure and rates in the face of
growing public demand and reduced operating budgets, determined
that the system was "archaic" and that there was a "definite
lack of continuity or purpose."
MS. PERMAN added that the task force had suggested the
consideration of a public authority or corporation. A 1989
memorandum from then-Department of Transportation & Public
Facilities (DOTPF) Commissioner Mark Hickey, acknowledging that
the system "[had] suffered greatly due to its overall lack of
continuity in top management since its inception, had been
included in packets provided to committee members, Ms. Perman
informed them.
MS. PERMAN stated that a lack of new boats being added to the
system has also contributed to the problem. The AMHS system has
several vessels built in the 1960s, there is more than a two-
decade span when no new vessels were built, and today half of
AMHS ships are more than 40 years old and the repair costs are
substantial. Ms. Perman pointed out that 11 out of the 12
vessels are currently in lay-up or overhaul for repairs.
1:06:46 PM
MS. PERMAN went on to say that since the 1980s the state has
asked the question "How [should Alaska] better operate the
[AMHS]?" again and again. In 2019, she informed committee
members, a report prepared by Northern Economics and
commissioned by Governor [Mike] Dunleavy entitled "Reshaping the
AMHS" determined that it isn't feasible to fully privatize
marine ferry service. Backing up a bit, Ms. Perman added that
beginning in 2016, Southeast Conference has led a statewide AMHS
reform initiative ["reform initiative"] with a steering
committee of 12 members from around the state, working with
McDowell Group and Elliot Bay Design to study other ferry
systems from around the world. After looking at several other
systems, notably the British Colombia (BC) Ferries and the
Scottish CalMac Ferries, the initiative determined that the
public corporation model actually is a viable solution for the
AMHS.
MS. PERMAN brought up the fact that public corporations aren't
new to Alaska: there are the Alaska Railroad Corporation, the
Alaska Gas line Development Corporation, and the Alaska Housing
Finance Corporation, just to name a few. The reform initiative
looked at several existing models and made recommendations
accordingly. The model presented along with HB 249, she stated,
is largely based off of the Alaska Railroad Corporation's model;
with a seven-member, governor-appointed Board of Directors,
benefits of this model include infusing private sector expertise
and generating consistent leadership with a longer-term planning
power. The corporation model also internalizes labor
negotiations, improving the ability to quickly react to any
management-labor disputes, she added.
MS. PERMAN added that HB 249 has 84 sections, including an
entirely new chapter in Alaska Statute 42: Public Utilities and
Carriers. What HB 249 would do is transfer the duties and
responsibilities currently held by DOTPF relating to the AMHS
over to the AMHS Corporation. It would put in place a seven-
member board of directors made up of one commissioner, five
public members appointed by the governor, and one representative
of labor. The public members would serve on staggered five-year
terms, and four of the five would have expertise in
transportation, finance, and business operations, with the
remaining member representing the general public, she added.
1:09:33 PM
MS. PERMAN informed the committee that the AMHS Corporation
would be tasked with managing the AMHS and its assets in a safe
and efficient manner. It must provide continuous transportation
services to coastal communities and support the overall
transportation needs of the state, while simultaneously
providing public accountability. The Board of Directors would
be responsible for the legal and financial obligations of the
corporation, she continued; these would include overseeing labor
contracts, leases, issuance of bonds, and any other financial
transactions. The board would also be required to establish
corporate objectives and secure sustainable funding from earned
income, legislative appropriations or other revenue sources.
Last, the board shall appoint an executive director to be
responsible for the corporation's management.
MS. PERMAN imparted that the AMHS Corporation would remain
accountable via the Alaska Executive Branch Ethics Act and the
Executive Budget Act and that executives of the AMHS Corporation
would be required to conduct business to the highest moral and
ethical standards. Since the AMHS Corporation would own all of
its assets, continued access to funding would be ensured.
Notably, as a public corporation, it would still have access to
federal transportation funds, she added. The powers of the AMHS
Corporation would include, but not be limited to, adopting
regulations, issuing bonds, negotiating leases, entering into
loan agreements or contracts, and suing or being sued.
MS. PERMAN concluded by mentioning that a board of directors and
a consistent CEO would give the AMHS Corporation significant
stability. The fast ferries, the M/V Chenega and the M/V
Fairweather, as well as the new Alaska Class ferries, the M/V
Tazlina and the M/V Hubbard, with their constantly changing
designs, exemplify what instability in the political climate has
done, Ms. Perman stated. She also mentioned that labor relation
management should be taken into consideration. Personal
services represents approximately 70 percent of the operating
budget of the AMHS. Significant savings are anticipated under
the AMHS Corporation model through the development of new
contracts. Currently the general manager and the deputy
commissioners of DOA and DOTPF are responsible for overseeing
labor relationships on top of their other job duties: this
could be condensed to one labor relations manager, such as the
Alaska Railroad Corporation has.
1:12:02 PM
REPRESENTATIVE STORY asked why it was decided that that five
members would be appointed by the governor, and that she had
thought it would have been more appointees by stakeholders.
1:12:44 PM
MS. PERMAN responded to Representative Story by suggesting that
the staggering of governor's appointees ought to off-set any one
governor's ability to stack the board with chosen appointees.
1:14:09 PM
ROBERT VENABLES, Executive Director, Southeast Conference,
stated that there is no one system available to "copy," but
there are principles of several from which the AMHS would be
able to glean. In 1960, he pointed out via the presentation,
Alaska voters said marine transportation was a viable component
of the transportation system, approving a bond proposition to
invest in what would become the AMHS, with additional ferries
and docking facilities [slide 3]. Operations of the AMHS began
in 1963 with four vessels, and it has been a critical component
of the state's transportation since. Then, Mr. Venables
continued, state funding received gradual, assimilated cuts, to
30 percent over five years, and these days no other system in
the Western world has a fleet as aged as [that of the AMHS,
slides 4-6]. The initiative should have taken place fifteen
years ago, he added.
1:18:34 PM
MR. VENABLES said he thought he should go back and address what
the mission of the AMHS reform initiative group is. The
initiative group contains at least 150 people who subscribed to
regular updates House Bill 412 [sponsored by the House
Transportation Standing Committee in 2018]; now HB 249 takes it
one step further. It all started with the people, according to
Mr. Venables: first recommendations were made following a
summit in Anchorage, and then a case study was conducted on
governance models across the world and in-depth in the U.S.
[slides 7-8].
MR. VENABLES paraphrased the reform initiative's mission
statement: the AMHS should deliver safe, reliable, and
sustainable marine transportation for its residents, visitors,
and commercial customers [slide 9].
1:21:18 PM
SUSAN BELL, CEO, McDowell Group, explained that Phase II of the
initiative involved a team from Elliot Bay Design group who
focused on operations and were able to look at ferries from a
business perspective [slide 10]. Addressing Representative
Story's question, she said that McDowell group, with its
understanding of and expertise in dealing with public
corporations, "dove deeply" into the structure and benefits of
said corporations, analyzing revenue and looking at the AMHS
from different perspectives such as route, vessel, resident, and
non-resident.
1:24:48 PM
MS. BELL referenced slide 11, which showed the AMHS carrying
Alaska residents from 175 different communities. She pointed
out that non-residents using the AMHS were using the system
quite extensively. She added that 51 percent of non-residents
were going to Anchorage, she added, 36 percent to Denali
National Park, and 25 percent to Fairbanks [slide 12]. In slide
13, "Public Corporation Analysis," Ms. Bell pointed out that the
reform initiative hoped to preserve the inter-departmental
coordination, public purpose, and access to federal funding that
have heretofore been a benefit of the AMHS being housed in
DOTPF. It was also the hope that limitations of frequent
turnover in senior leadership, the short-term planning horizon,
and indirect labor negotiations would be addressed.
Furthermore, she added that incorporating board expertise,
including one member chosen from current AMHS employees;
operating in a businesslike manner; aligning labor and
management interests; and reducing labor costs strategically
would all be additional benefits of moving to the public
corporation model.
1:28:05 PM
MS. BELL imparted that in order to provide safe and reliable
transportation given Alaska's geography and population, the AMHS
would always require public funding. She added that a market
analysis and more businesslike focus were needed for AMHS
operations moving forward. Actions that can be taken while HB
249 is under consideration, in terms of empowering management to
control costs, were also broken down: stabilizing funding;
standardizing fleet and terminal; labor relations; board
development; corporation development; employee communication;
exploring new revenue sources; and communicating with the public
[slides 14-17].
MS. BELL pointed out that through an economic impact study
McDowell Group conducted it was determined that the AMHS
provides local employment and wages, makes purchases from a wide
variety of Alaska businesses, and is key to the seafood
transport industry and community viability at large in terms of
reducing the cost of goods and services with regard to time-
sensitive shipping. The AMHS plays a key role, she added, in
people moving from place to place for medical, recreational, and
school-related travel reasons. She concluded by sharing some
quotes from the report, which can be summed up by saying that
the AMHS is critical to the community, economy, workforce, and
even to the population stability of Alaska [slides 18-20].
1:31:14 PM
MR. VENABLES directed the committee to the 150 known public
corporation initiative reform project sponsors, which include
the State of Alaska, and which can be found in more detail on
the website www.amhsreform.com. He added that it is timely to
introduce HB 249 at this time as it is "in step" with the
governor's "reshaping" report, which stated that privatizing the
AMHS was "not likely," but that there did exist corporations
which could be looked to as models. Mr. Venables pointed out
that the Alaska Railroad Corporation also had state law and
constitutional guidance to come up with a professional board
[slide 22].
MR. VENABLES told the committee that [privatizing the AMHS] was
not a new idea, referencing a letter from Nickum & Spaulding
Associates, Inc., Naval Architects/Marine Engineers, from 1982,
which points to the genesis of the process [of privatization]
beginning in the early 1970s and 1980s when the professional
marine architects and naval engineers were replaced by political
appointees. Mr. Venables added that nothing disparaging was
meant by pointing out this change, but that the level of
expertise was no longer always present, and that with a
$100,000,000-plus enterprise, expertise is a necessary
component. He related anecdotally that "time and time again"
the engineers were overruled by the political appointees when it
came to ferry engine and part selection. These choices led to
"extreme costs" for the state, he added. The report concluded
that DOTPF engineers were very focused on land-based
infrastructure needs, and for the AMHS's success it should be
divorced from the DOTPF altogether. Contrasting with Governor
Dunleavy's report, the Nickum & Spaulding report concluded: "It
is not good management to expect bridge and highway engineers
with their training to oversee marine operations and ship
instruction with [ships'] broad base of technical requirements."
1:36:12 PM
REPRESENTATIVE CLAMAN asked whether a different reform bill had
been introduced in a previous legislature.
1:36:31 PM
MR. VENABLES answered that HB 249 is a new rendition of House
Bill 412.
1:37:02 PM
REPRESENTATIVE STORY asked Mr. Venables to summarize some of the
models of other ferry systems that were looked at before the
current model was chosen.
1:37:02 PM
MR. VENABLES replied that the Washington State model with its
high volumes of traffic and the British Columbia model, to which
the government provides a fee for its service, were looked at,
as well as some models on the East Coast.
1:38:53 PM
CHAIR STUTES told the committee it was clear that with the
ongoing maintenance and operational issues, it has been very
difficult for DOTPF to make long-term decisions regarding the
AMHS and its ridership. She added that HB 249 "opens the door"
to conversations about restructuring the AMHS for the purpose of
creating stability within the system, but that it was imperative
to act as communities are currently in a crisis situation.
1:41:04 PM
REPRESENTATIVE CLAMAN added that he has been wondering about
the decisions to buy the fast ferries and the Alaska class
ferries, which do not have the capability for the crew to sleep
on them, and thinking about the benefit of going toward a
corporate model in terms of internal operational consistency and
the benefit of long-term planning instead of "just looking back
in retrospect and wondering" why a certain decision had been
made.
1:43:29 PM
REPRESENTATIVE STORY added that it was clear that the AMHS
"[needed] a new start," and that people were ready for something
that has the mechanism to take into consideration more
stakeholder engagement. She also emphasized the short-term need
and the work that must be done in the near term.
1:44:51 PM
CHAIR STUTES announced that HB 249 would be held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 249 Version M 2.20.2020.PDF |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Sponsor Statement Version M 02.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Presentation - AMHS Reform Initiative 2.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Supporting Documents - AMHS Authority Memo 8-89 02.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Supporting Documents - The Case for AMHS Reform 2.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Supporting Documents AMHS Stratefic Business and Operational Plan Phase 2 Report 2.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |
| HB 249 Supporting Documents - Northern Economics Reshaping the Alaska Marine Highway System 2.20.2020.pdf |
HTRA 2/20/2020 1:00:00 PM |
HB 249 |