Legislature(2011 - 2012)HOUSE FINANCE 519

03/22/2012 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 5:00 pm Today --
+ HB 158 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Moved CSHB 158(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 9 IN-STATE GASLINE DEVELOPMENT CORP TELECONFERENCED
<Bill Held Over to 5:00 pm Today>
** Meeting will Recess @ 3:30 pm Today and will
Reconvene @ 5:00 pm for HB 9 Public Testimony **
HOUSE BILL NO. 158                                                                                                            
                                                                                                                                
     "An Act  relating to the  authority and  obligations of                                                                    
     the Knik  Arm Bridge  and Toll  Authority, to  bonds of                                                                    
     the authority,  and to reserve funds  of the authority;                                                                    
     authorizing the  state to  provide support  for certain                                                                    
     obligations  of the  authority; relating  to taxes  and                                                                    
     assessments  on  a  person  that   is  a  party  to  an                                                                    
     agreement  with  the  authority; and  establishing  the                                                                    
     Knik Arm Crossing fund."                                                                                                   
                                                                                                                                
1:39:07 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough  MOVED  to ADOPT  proposed  committee                                                                    
substitute  for  HB  158, Work  Draft  27-LS0431\T  (Martin,                                                                    
3/22/12) as a working document.                                                                                                 
                                                                                                                                
Co-Chair Stoltze OBJECTED for purpose of discussion.                                                                            
                                                                                                                                
JOE  MICHEL,  STAFF,  CO-CHAIR  STOLTZE,  relayed  that  the                                                                    
committee   substitute  (CS)   included  two   changes.  The                                                                    
following  language  was  deleted  from  the  original  bill                                                                    
(Section 1 part of AS 19.75.111(a)):                                                                                            
                                                                                                                                
     Monetary  obligations incurred  by the  authority under                                                                    
     the  partnership or  contract  are  obligations of  the                                                                    
     state  and  satisfactions  of  those  obligations  from                                                                    
     funds  other   than  authority  funds  is   subject  to                                                                    
     appropriation.                                                                                                             
                                                                                                                                
Mr.  Michel shared  that the  additional  bill sections  had                                                                    
been renumbered.  The second change  was on page 4,  line 25                                                                    
where  the  words "ad  valorem  taxes  on real  or  personal                                                                    
property   and  special   property  tax   assessments"  were                                                                    
inserted following the words "shall be exempt from all."                                                                        
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, it was so ordered.                                                                                           
                                                                                                                                
1:41:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MARK  NEUMAN,  SPONSOR, presented  the  bill                                                                    
relating to bonds  and the authority of the  Knik Arm Bridge                                                                    
and Toll Authority  (KABATA). He relayed that he  had been a                                                                    
non-voting member  on the  KABATA board  for five  years. He                                                                    
believed  the state  had opportunities  moving forward  with                                                                    
the  bridge   and  that   it  was   part  of   the  critical                                                                    
infrastructure development. The bridge  would cross the Knik                                                                    
Arm and would  provide access to the  potential gas pipeline                                                                    
terminus, opportunities to move  into western Alaska, gas or                                                                    
coal reserves, and a potential  gas pipeline from Cook Inlet                                                                    
into the Interior. He stated  that the bridge connected many                                                                    
of  the  different  infrastructure  projects  together.  The                                                                    
bridge would also link the  Port of Anchorage (that received                                                                    
the majority  of freight imported  into the state)  and Port                                                                    
MacKenzie (an industrial  port with 14 square  miles of land                                                                    
designated  for industry).  He  stressed  that the  industry                                                                    
utilizing Port  MacKenzie could help support  an instate gas                                                                    
pipeline, oil and  gas storage facilities, a  gas to liquids                                                                    
facility,  and  other.  He   communicated  that  there  were                                                                    
experts  available  to  discuss   the  issue  in  depth.  He                                                                    
communicated the  intent to  address the  state's obligation                                                                    
in relation  to the  project; the  section had  been removed                                                                    
from the legislation.                                                                                                           
                                                                                                                                
Representative Neuman  discussed that a portion  of the bill                                                                    
proposed  an increase  in the  bonding  authority from  $500                                                                    
million to  $600 million. He  furthered that the  bill would                                                                    
create a  reserve fund, but  funds were not  being requested                                                                    
currently; work  continued to determine how  to progress. He                                                                    
emphasized that  the project  represented an  opportunity to                                                                    
provide income to the state;  within the first ten years the                                                                    
bridge was expected to bring  in over $1 billion for instate                                                                    
transportation projects (e.g. ferry,  airport, road, or port                                                                    
projects). He opined  that with a drop in  throughput in the                                                                    
Trans-Alaska  Pipeline System  (TAPS)  it  was important  to                                                                    
diversify  the economy  and locate  new revenue  streams for                                                                    
the  future. He  accentuated that  the bridge  "literally is                                                                    
free to  the state government"  and would be funded  by toll                                                                    
revenues  that  would cover  maintenance  for  the first  35                                                                    
years.  Additionally, within  the  first 35  years over  $10                                                                    
billion in  revenue projects were  estimated for  the state;                                                                    
the excess  revenue would  go through  the general  fund for                                                                    
designation by the  legislature for transportation projects.                                                                    
He  stressed  that  the  bridge would  not  cost  the  state                                                                    
government money. He introduced  individuals involved in the                                                                    
project development.                                                                                                            
                                                                                                                                
Co-Chair  Stoltze  asked  several mayors  to  provide  brief                                                                    
statements regarding their position on the legislation.                                                                         
                                                                                                                                
LARRY  DEVILBISS,  MAYOR,   MAT-SU  BOROUGH,  supported  the                                                                    
bridge. He  pointed to road  and traffic problems  in Palmer                                                                    
and Wasilla that  would need to be addressed by  a bridge or                                                                    
significant  improvements  to  the  Glenn  Highway;  if  the                                                                    
industrial  traffic going  north could  bypass the  areas it                                                                    
would  be a  huge relief.  He emphasized  that the  economic                                                                    
element  in Mat-Su  was significant;  Port MacKenzie  was an                                                                    
industrial  port  and  a   direct  connection  to  Anchorage                                                                    
provided great potential for  economic expansion. He relayed                                                                    
that  the   economic  development  would   eventually  occur                                                                    
without the  bridge; however,  the project  would accelerate                                                                    
the  development,  jobs,  and  revenue.  He  reiterated  the                                                                    
borough's support for the project.                                                                                              
                                                                                                                                
DELENA JOHNSON, MAYOR,  CITY OF PALMER, spoke  in support of                                                                    
the bridge. She  explained that all residents  from the Mat-                                                                    
Su  Valley drove  the  road frequently  to  reach the  major                                                                    
facilities in  Anchorage. She opined  that it  was important                                                                    
to  have an  alternate  route to  Anchorage  for safety  and                                                                    
population  expansion   reasons.  She  was   concerned  that                                                                    
currently  there was  only one  way to  reach the  valley by                                                                    
road  for emergency  response vehicles.  She encouraged  the                                                                    
committee to help "make something happen."                                                                                      
                                                                                                                                
1:51:06 PM                                                                                                                    
                                                                                                                                
Mr.   DeVilbiss  communicated   that  Wasilla   Mayor  Verne                                                                    
Rupright and the Mayor of  Houston were also very supportive                                                                    
of the project.                                                                                                                 
                                                                                                                                
Co-Chair  Stoltze  believed  the two  mayors  had  litigated                                                                    
against some "forces" in the  City of Anchorage on behalf of                                                                    
the project in the past.                                                                                                        
                                                                                                                                
Representative  Gara noted  that approach  roads, a  tunnel,                                                                    
and  possibly a  second  bridge were  also  included in  the                                                                    
project. He  wondered what  necessary improvements  would be                                                                    
made on the  Wasilla side of the bridge to  get drivers from                                                                    
the  bridge to  Wasilla and  Willow. He  asked about  a cost                                                                    
estimate related to the items.                                                                                                  
                                                                                                                                
Mr. DeVilbiss  answered that the  legislature had  set aside                                                                    
$250,000 for the  items the prior year. The  "Port to Parks"                                                                    
project was  of "imminent"  importance and  the goal  was to                                                                    
bypass the  traffic heading  north around  the west  side of                                                                    
Big Lake.  Currently the project  terminated where  the Knik                                                                    
Goose Bay  road turned towards  Wasilla. He stated  that the                                                                    
project was not a road to nowhere.                                                                                              
                                                                                                                                
Representative Gara  asked about the required  length of the                                                                    
road to  Willow from the  bridge drop-off and  its estimated                                                                    
cost.  Mr. DeVilbiss  replied that  he did  not have  a cost                                                                    
estimate.                                                                                                                       
                                                                                                                                
Co-Chair   Stoltze   remarked   that   the   Department   of                                                                    
Transportation and  Public Facilities (DOT) would  be better                                                                    
equipped to answer the question.                                                                                                
                                                                                                                                
Mr. DeVilbiss continued that the  road would be less than 30                                                                    
miles;  the rail  extension was  32  miles and  went to  the                                                                    
port. The bridge included a  road component of approximately                                                                    
11 miles that went considerably away from the port.                                                                             
                                                                                                                                
Representative Gara wondered  whether any improvements would                                                                    
be required on  Knik Goose Bay Road in  order to accommodate                                                                    
the  bridge.  Mr.  DeVilbiss replied  that  "that's  already                                                                    
scheduled and in  the in design process." He  added that DOT                                                                    
could speak better to the question.                                                                                             
                                                                                                                                
Co-Chair Stoltze commented that  the projects were a highway                                                                    
safety  corridor and  were irrespective  of the  Knik bridge                                                                    
project. He  relayed that Representative Neuman  had put the                                                                    
$250,000  through for  an  impact study  and  to help  local                                                                    
communities plan and be involved in the process.                                                                                
                                                                                                                                
1:54:52 PM                                                                                                                    
                                                                                                                                
Representative Neuman addressed what  would happen after the                                                                    
bridge was built. He explained  that if a new road followed,                                                                    
(such  as  the  railroad  corridor)  it  could  help  reduce                                                                    
traffic by  25,000 to 30,000  vehicles per day on  the Glenn                                                                    
Highway. He  furthered that the  state spent $40  million to                                                                    
$50  million every  five  years  on highway  rehabilitation,                                                                    
which could be extended out  further if traffic was funneled                                                                    
onto a new road that continued  north off of the bridge.  He                                                                    
surmised that  the cost of  the road would  be substantially                                                                    
less  than  the  maintenance  that   would  be  required  on                                                                    
existing roads. He discussed  increasing safety and reducing                                                                    
traffic congestion.                                                                                                             
                                                                                                                                
DAN SULLIVAN,  MAYOR, ANCHORAGE,  vocalized support  for the                                                                    
legislation.  He had  been  a proponent  of  the bridge  for                                                                    
decades  and  believed  it  was  timely  for  the  state  to                                                                    
complete  the  project.  He  discussed   that  the  Port  of                                                                    
Anchorage  brought in  approximately 240,000  containers per                                                                    
year and that a significant  number were sent up the highway                                                                    
to  Palmer, Wasilla,  Fairbanks,  and other;  unfortunately,                                                                    
each  of  the  shipments  had  to  travel  through  downtown                                                                    
Anchorage;   therefore,  reducing   the  number   of  trucks                                                                    
traveling  through downtown  would increase  the quality  of                                                                    
life in  the city. He  opined that a secondary  access route                                                                    
through  the two  most  populated areas  of  the state  made                                                                    
sense; he  pointed to  Glenn Highway  road closures  (due to                                                                    
accidents  or  other)  that resulted  in  18,000  to  20,000                                                                    
people being  stranded for up  to many hours; time  is money                                                                    
and  when people  were stranded  economic loss  resulted. He                                                                    
furthered  that there  were significant  resources north  of                                                                    
Anchorage and  access by road,  rail, and port  provided the                                                                    
critical infrastructure needed to get the items to market.                                                                      
                                                                                                                                
Mr.  Sullivan expounded  that Anchorage  was running  out of                                                                    
developable land.  He stated that  there were  large numbers                                                                    
of people  moving to  the Mat-Su Valley  and access  to more                                                                    
available  land  for  residential and  industrial  use  made                                                                    
sense from  an economic  standpoint. He  was a  "100 percent                                                                    
supporter" of the  project. He would prefer  that the bridge                                                                    
was  not   a  toll  bridge   and  believed  the   state  was                                                                    
responsible for  building critical infrastructure  that were                                                                    
essential  to  the  developmental   needs  of  its  regions;                                                                    
however,  he was  confident  that after  a  number of  years                                                                    
there would  be an  economic benefit to  the state  from the                                                                    
tolls that would then help fund projects statewide.                                                                             
                                                                                                                                
Co-Chair Stoltze  asked Mr. DeVilbiss to  confirm that there                                                                    
was no  plan to annex  any part of Anchorage.  Mr. DeVilbiss                                                                    
affirmed.                                                                                                                       
                                                                                                                                
2:00:05 PM                                                                                                                    
                                                                                                                                
MICHAEL  FOSTER,   CHAIRMAN,  KNICK  ARM  BRIDGE   and  TOLL                                                                    
AUTHORITY,  appreciated  the   opportunity  to  testify.  He                                                                    
discussed that  KABATA had  been established  by legislation                                                                    
in 2003  with a mission to  connect the east and  west sides                                                                    
of the inlet.  The property boundary was  a bridge structure                                                                    
of  approximately 14,000  feet  and 18  miles of  connecting                                                                    
road. He relayed  that there had been some  changes from the                                                                    
previous bill  version offered  the prior  year and  that he                                                                    
had  worked diligently  with the  governor's  office on  the                                                                    
legislation. He relayed  that the bill had  three parts. The                                                                    
first part  was the  increase of  the private  activity bond                                                                    
from $500 million  up to $600 million. The  bond would allow                                                                    
a private equity  and partner to be a conduit  for the bond;                                                                    
the  entity would  be able  to access  the bond  through the                                                                    
federal  government. The  limit was  currently $600  million                                                                    
and the legislation  allowed the limit to be  available to a                                                                    
private partner.                                                                                                                
                                                                                                                                
Mr. Foster  relayed that KABATA  was pursuing a  public (the                                                                    
state)  and  private   (private  investor)  partnership.  He                                                                    
reiterated  that the  project  was a  conduit  and that  the                                                                    
state  had  no  obligation   or  risk  associated  with  the                                                                    
project; the bill  provided a conduit for  a private partner                                                                    
to  access  cheaper money;  if  the  money was  cheaper  the                                                                    
state's  payments would  be  less. The  second  part of  the                                                                    
legislation clarified that  the bridge would be  part of the                                                                    
state's transportation system and  was therefore not subject                                                                    
to property tax.  The language was to ensure  that a private                                                                    
developer would not apply a  risk factor that would cost the                                                                    
state more money.  The third part of the  bill established a                                                                    
reserve fund.  Excess revenue generated by  the bridge would                                                                    
go into the  fund. He relayed that according  to the project                                                                    
model  the reserve  fund needed  to have  approximately $150                                                                    
million  by  the   time  the  bridge  opened;   it  was  the                                                                    
equivalent  to a  secured  line of  credit  that showed  the                                                                    
developer the state could make  its payments if toll revenue                                                                    
was  not sufficient.  He relayed  that a  secured a  line of                                                                    
credit  would  lead  to  cheaper  money  and  a  lower  cost                                                                    
proposal to the state.                                                                                                          
                                                                                                                                
Mr. Foster informed the committee  that the project had been                                                                    
approved by the Federal  Highway Administration; it had also                                                                    
received   a  no-jeopardy   determination  related   to  the                                                                    
endangered Beluga  whale species.  The entity  was currently                                                                    
working to obtain core and  coast guard permits and a letter                                                                    
of   authorization  from   the  National   Marine  Fisheries                                                                    
Service.  The project  was in  the right-of-way  acquisition                                                                    
phase;  phase  1  on  the  east  side  had  two  residential                                                                    
properties, a  strip-mall, and two business  properties; one                                                                    
of  the  properties had  been  acquired  and KABATA  was  in                                                                    
negotiations to  purchase the remaining four.  He noted that                                                                    
some relocation  had been done  as part of  the right-of-way                                                                    
acquisition. He  relayed that the  project was in  line with                                                                    
the federal  highway's right of  way process. He  noted that                                                                    
his colleague would talk more extensively about the issue.                                                                      
                                                                                                                                
Mr.  Foster  explained  that  KABATA   was  currently  in  a                                                                    
solicitation  process.  The   solicitation  had  received  a                                                                    
substantial  response   from  six  highly   qualified  firms                                                                    
(designers,  financers,  operators,  and builders)  and  the                                                                    
list  had  been  reduced  to   three.  The  entity  and  the                                                                    
governor's  office were  working  on the  draft Request  for                                                                    
Proposal (RFP)  process; he provided detail  on the process.                                                                    
He expressed that population was  the key word. He explained                                                                    
that the  bridge was built  for the  future and not  for the                                                                    
current population. He stated  that population models by the                                                                    
University  of  Alaska  Anchorage Institute  of  Social  and                                                                    
Economic Research (ISER), Department  of Labor and Workforce                                                                    
Development, Woods & Poole, and  Wilbur Smith all showed the                                                                    
same  data  for  the  Mat-Su   Borough.  He  referenced  the                                                                    
Anchorage   Metro  Area   Transportation  Solution   (AMATS)                                                                    
Metropolitan  Transportation  Plan,  which showed  that  the                                                                    
Mat-Su Borough  had approximately 90,000 residents  in 2010;                                                                    
models  showed  that  the  borough  would  increase  by  118                                                                    
percent  to 190,000  by 2035.  He  relayed that  all of  the                                                                    
population models were very similar.  The same models showed                                                                    
that the  Eagle River  to Eklutna would  grow by  74 percent                                                                    
(from  39,000   to  68,000).  He  stated   that  the  models                                                                    
indicated that  the Anchorage area  was running out  of room                                                                    
(the  models  showed  15 percent  growth  in  the  Anchorage                                                                    
"bowl"  area).  He  stressed  that  the  models  showed  the                                                                    
population growth would occur with or without a bridge.                                                                         
                                                                                                                                
2:10:20 PM                                                                                                                    
                                                                                                                                
Mr. Foster  highlighted what  things would  look like  in 25                                                                    
years  related  to population  and  traffic  growth with  no                                                                    
bridge. Currently  at the Eklutna  Bridge the  average daily                                                                    
traffic count was 30,000; the  daily average had been 15,000                                                                    
25  years earlier  (the Mat-Su  Borough population  had been                                                                    
almost half of the current  population). He discussed what a                                                                    
population growth of  119 percent would mean  for traffic at                                                                    
the  Eklutna Bridge;  the  KABATA model  showed  that in  25                                                                    
years the  average daily traffic  would be  65,000 vehicles.                                                                    
For  context he  explained that  in 2010  the average  daily                                                                    
traffic  was 52,000  by the  weigh station  at the  Highland                                                                    
Bridge in Eagle River; 25  years earlier it had been 39,000;                                                                    
projections showed  that without  a bridge the  number would                                                                    
go to 110,000.  According to a 2008  DOT study, improvements                                                                    
to  the  Glenn  Highway  would cost  $3  billion  and  would                                                                    
include 8  traffic lanes to  handle the traffic if  a bridge                                                                    
was not built.  He stated that the Glenn  Highway would slow                                                                    
down without  a bridge to  handle the population  growth. He                                                                    
did  not  know  whether   federal  highway  money  would  be                                                                    
available  to  fund  the  Glenn  Highway  improvements;  the                                                                    
state's match would be at  least $300 million if the federal                                                                    
money was available.                                                                                                            
                                                                                                                                
Mr. Foster addressed what no  bridge would mean for traffic,                                                                    
safety, and  corridors. The $3  billion in  improvements did                                                                    
not include  impacts to Eagle River,  Chugiak, Peters Creek,                                                                    
or  Eklutna. He  pointed  to the  argument  that the  bridge                                                                    
would  require significant  work  on the  west  side of  the                                                                    
inlet and stressed  that the state would have  to spend more                                                                    
money  on  infrastructure if  a  bridge  was not  built.  He                                                                    
emphasized  that  the commute  would  be  closer from  Point                                                                    
MacKenzie than it  was from Eagle River.  He reiterated that                                                                    
there was available  commercial, industrial, and residential                                                                    
land in  the west. He  accentuated that the bridge  would be                                                                    
utilized  by  traffic  in  both  directions;  trucks  moving                                                                    
containers  from the  Port of  Anchorage  would utilize  the                                                                    
bridge  instead of  driving through  the city  to the  Glenn                                                                    
Highway. He  observed that the  cost to the state  without a                                                                    
bridge  was  "pretty  phenomenal." The  bridge  is  "private                                                                    
equity"  and it  "cost the  state nothing."  He stated  that                                                                    
there was  risk and the state  did have "skin in  the game,"                                                                    
but  risk  represented reward.  The  project  was a  public-                                                                    
private  partnership.  The  state's   risk  was  related  to                                                                    
whether  there  would  be  sufficient  traffic  to  generate                                                                    
enough  revenue  to make  the  annual  payments; the  KABATA                                                                    
model showed  that there  was. He relayed  that there  was a                                                                    
choice; without a bridge there  was a definite cost and with                                                                    
a bridge using private  equity there was infrastructure that                                                                    
paid a return back to the  state. He expounded that a bridge                                                                    
would create economy.                                                                                                           
                                                                                                                                
Mr. Foster  continued to discuss the  project. He referenced                                                                    
a conversation with a Kenai  assembly member who had relayed                                                                    
that 47  percent of  the Kenai Borough  land was  located on                                                                    
the west  side of the  inlet and the bridge  represented the                                                                    
first  connection to  the  west side.  He  detailed that  28                                                                    
miles from the  bridge on the west side was  a connection to                                                                    
existing  roads.  He  had  met with  the  governor  and  had                                                                    
communicated that the  road would be the first  true road to                                                                    
resources.                                                                                                                      
                                                                                                                                
2:18:04 PM                                                                                                                    
                                                                                                                                
JEFF OTTESON,  DIRECTOR, PROGRAM DEVELOPMENT,  DEPARTMENT OF                                                                    
TRANSPORTATION  AND PUBLIC  FACILITIES (DOT),  addressed the                                                                    
concept  of a  public-private partnership  (P3s), which  was                                                                    
new to the  state. He explained that P3s  were used globally                                                                    
in many  jurisdictions (e.g. Korea, Australia,  New Zealand,                                                                    
South America, Europe, British Columbia,  and other). He had                                                                    
visited  an  office  called   Partnership  B.C.  in  British                                                                    
Columbia (B.C.); the purpose of  the office was to determine                                                                    
whether an infrastructure project should  be done by P3 (the                                                                    
default   choice  was   P3).  The   province  used   P3  for                                                                    
infrastructure, utility  projects, hospitals, and  all types                                                                    
of  government  built  construction.   He  referred  to  the                                                                    
availability  model approach,  which  meant  the owner  (the                                                                    
state) was  responsible for making  the annual  bond payment                                                                    
if the  revenue was not  there; B.C. also used  the approach                                                                    
as a default and preferred  method in conjunction with a P3.                                                                    
He explained  that the approach  lowered financial  risk and                                                                    
in turn provided  a better financing rate.  He addressed why                                                                    
a P3 would be used if the  revenue risk was taken off of the                                                                    
builder  and   placed  on  the   owner.  He   detailed  that                                                                    
Partnership B.C.  liked the idea  of giving a  single entity                                                                    
responsibility  for all  parts  of a  project (i.e.  design,                                                                    
financing,  construction,  and long-term  maintenance);  the                                                                    
risk involved was  placed on the P3. He  elaborated that the                                                                    
"best and brightest" were brought  in from around the globe;                                                                    
he stated  that the listed  teams represented a  "who's who"                                                                    
of  infrastructure.  The   partnerships  were  widely  used;                                                                    
Canada had  approximately one-tenth of the  U.S. population,                                                                    
but  its dollar  volume of  P3s  was 10  times greater  (per                                                                    
capita Canada was using P3s 100 times the U.S. rate).                                                                           
                                                                                                                                
Mr. Otteson  pointed to the availability  payment issue that                                                                    
required some  amount of  state money  backing the  bonds to                                                                    
cover the difference between earnings  and the bond payments                                                                    
in  the early  years  of  the bridge.  He  relayed that  the                                                                    
concept was  not unusual  and that  it was  used in  B.C. He                                                                    
referred  to  the   Red  Dog  Mine  as  an   example  of  an                                                                    
infrastructure project  where the  state made payments  to a                                                                    
private  investor;  state  funds   to  supplement  the  mine                                                                    
revenue after 19 years (it took  19 years for the project to                                                                    
break even). He believed the  project had been very good for                                                                    
the state and Nenana region.                                                                                                    
                                                                                                                                
Mr. Otteson discussed that the  project was the only surface                                                                    
transportation project  in the  state that was  proposing to                                                                    
pay  for   its  operating,  maintenance,  and   capital.  He                                                                    
stressed  that  all  other projects  that  came  before  the                                                                    
committee required the  entire capital cost to  be funded by                                                                    
the  state.  He  expounded  that the  bridge  was  the  only                                                                    
project  that would  provide a  dividend to  the state  when                                                                    
revenues exceeded  the payments  in the future;  he believed                                                                    
there  was  approximately  $9   billion  in  excess  revenue                                                                    
expected  that would  begin  in about  20  years; the  funds                                                                    
would  then   be  available  to   fund  any   other  surface                                                                    
transportation   projects  (ferries,   roads,  bridge,   and                                                                    
transit). He  referenced an earlier  question about  how the                                                                    
road to  Willow/Houston would be  funded. He  explained that                                                                    
if the  bridge was not  built other  roads would need  to be                                                                    
built in  the Mat-Su  area to deal  with the  population. He                                                                    
relayed  that   the  road  cost   would  be   determined  by                                                                    
population and not the project.  He stressed that population                                                                    
led  to traffic  and  traffic led  to  investment needs.  He                                                                    
emphasized  that  rebuilding costs  would  be  higher to  go                                                                    
around the Parks/Glenn Interchange  because the distance was                                                                    
longer.                                                                                                                         
                                                                                                                                
2:24:29 PM                                                                                                                    
                                                                                                                                
Representative  Doogan asked  whether Mr.  Otteson currently                                                                    
worked   for  the   state.  Mr.   Otteson  replied   in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative Doogan  asked whether the  governor supported                                                                    
the  legislation. Mr.  Otteson  answered  that the  governor                                                                    
supported the  project and  intended to  make a  decision on                                                                    
the financing model once permits had been obtained.                                                                             
                                                                                                                                
Representative  Doogan  asked   for  verification  that  the                                                                    
governor supported the  project but did not want  to fund it                                                                    
with state  dollars at present.  Mr. Otteson  responded that                                                                    
the governor  had not proposed  any state funding in  the FY                                                                    
13 capital budget.                                                                                                              
                                                                                                                                
Co-Chair  Stoltze asked  whether the  project was  currently                                                                    
waiting  on some  federal processes.  Mr. Otteson  responded                                                                    
that the project  was awaiting permits from  the Corps [Army                                                                    
Corps of Engineers] and the  Coast Guard, which could change                                                                    
the overall cost due to  mitigation or changes in structural                                                                    
design.                                                                                                                         
                                                                                                                                
2:25:37 PM                                                                                                                    
                                                                                                                                
Representative Gara noted that  the committee had only heard                                                                    
from  supporters  of  the project  and  requested  that  Bob                                                                    
French  be allowed  to present  his  side of  the story.  He                                                                    
relayed that Mr.  French had worked on the  project for many                                                                    
years  and   was  the  president  of   the  Government  Hill                                                                    
Community Council.                                                                                                              
                                                                                                                                
Co-Chair Stoltze agreed.                                                                                                        
                                                                                                                                
Representative Gara expressed  frustration that although the                                                                    
project  had  not  gone  forward,   KABATA  had  engaged  in                                                                    
imminent domain  and had purchased and  made property offers                                                                    
to  residents in  Government Hill;  the  gas station,  mall,                                                                    
hotel, and  two homes were  being purchased so  KABATA could                                                                    
build  a  tunnel  through  the area.  He  asked  Mr.  Foster                                                                    
whether  it was  premature  to spend  the  money before  the                                                                    
project had been secured.                                                                                                       
                                                                                                                                
Mr.  Foster responded  in the  negative. He  elaborated that                                                                    
DOT was  currently working  on the  right-of-way acquisition                                                                    
for the state,  which had begun after the  state had federal                                                                    
authorization.  The process  entailed that  the right-of-way                                                                    
acquisition was  to occur during  the project  design phase.                                                                    
Typically  under a  P3 model  the right-of-way  was acquired                                                                    
and  established prior  to the  contract. He  corrected that                                                                    
the infrastructure  would be a  cut-and-cover tunnel  with a                                                                    
greenbelt on  top. He noted  that Mr. Otteson  could expound                                                                    
on the federal highway process.                                                                                                 
                                                                                                                                
2:28:25 PM                                                                                                                    
                                                                                                                                
Mr. Otteson  explained that the right-of-way  stage occurred                                                                    
after  the environmental  documents and  record of  decision                                                                    
had been received.  He detailed that the  record of decision                                                                    
had a three-year shelf life;  the environmental document may                                                                    
need to  be redone if  a project  did not go  forward during                                                                    
the  three-year period,  which could  be time  consuming and                                                                    
expensive. He  stressed that once  a record of  decision had                                                                    
been issued those  involved were "under the  gun" to execute                                                                    
the next  steps of  the project.  The right-of-way  had been                                                                    
authorized  by   the  Federal  Highway   Administration.  He                                                                    
emphasized the  importance of moving forward  and noted that                                                                    
there were  many items that  tended to act as  roadblocks to                                                                    
major infrastructure projects.                                                                                                  
                                                                                                                                
Vice-chair Fairclough inquired  whether the right-of-way was                                                                    
similar to the  one at Lake Otis and Tudor  when a motel and                                                                    
gas station  had been  removed prior to  the road  work. Mr.                                                                    
Otteson  replied in  the affirmative.  He  relayed that  the                                                                    
properties  had   been  bought   by  the   Municipality  [of                                                                    
Anchorage] several years in advance of the project.                                                                             
                                                                                                                                
Representative  Gara   asked  how  much  time   remained  to                                                                    
purchase the  Government Hill property under  federal rules.                                                                    
Mr. Otteson  answered that work  would need to  begin within                                                                    
approximately 21 months. He reiterated  that if the work had                                                                    
not  begun there  was risk  that the  environmental document                                                                    
would go stale.                                                                                                                 
                                                                                                                                
Representative Gara  believed KABATA should have  waited for                                                                    
the  legislation  to  pass  prior  to  "condemning  people's                                                                    
property and businesses in  the city's oldest neighborhood."                                                                    
He  pointed  to a  $600  million  bonding allowance  in  the                                                                    
legislation and  wondered who was responsible  for the money                                                                    
if the private party defaulted.  Mr. Foster replied that the                                                                    
state  had no  fiscal responsibility  for the  bond; if  the                                                                    
private  developer  defaulted  the  issue  was  between  the                                                                    
private  party and  the  federal  government. He  reiterated                                                                    
that  the  state  was  only  a conduit  and  had  no  fiscal                                                                    
responsibility for the bond.                                                                                                    
                                                                                                                                
Representative  Gara  asked  for verification  that  if  the                                                                    
private  developer defaulted  the  state would  not be  held                                                                    
liable  for the  money  under any  circumstance. Mr.  Foster                                                                    
responded in the affirmative.                                                                                                   
                                                                                                                                
Representative Gara  asked for verification  that (according                                                                    
to  the original  KABATA studies)  the time  travel estimate                                                                    
would  be longer  to Palmer  and Wasilla  if the  bridge and                                                                    
road upgrades were  completed than it would be  on the Glenn                                                                    
Highway.                                                                                                                        
                                                                                                                                
Mr.  Foster believed  so. He  thought there  was a  point in                                                                    
Wasilla  where there  would be  a  7 minute  savings if  the                                                                    
bridge   were  constructed.   He   referenced  his   earlier                                                                    
testimony that the  bridge would provide a  time savings for                                                                    
future populations. He did not  expect people in Eagle River                                                                    
or Wasilla to quit using  the Glenn Highway unless there was                                                                    
a road closure.                                                                                                                 
                                                                                                                                
Representative  Gara  pointed  to use  estimates  that  were                                                                    
relevant to  determine whether the private  party would make                                                                    
sufficient money on toll revenue.  He surmised that for many                                                                    
years to  come with  a limited population  in the  Knik area                                                                    
nobody would  want to spend money  on a toll bridge  if they                                                                    
could  drive a  highway for  free and  could get  home at  a                                                                    
similar time in the Palmer and Wasilla areas.                                                                                   
                                                                                                                                
2:32:48 PM                                                                                                                    
                                                                                                                                
Mr.  Foster believed  the statement  was  fair; however,  he                                                                    
opined  that businesses  would build  in the  area near  the                                                                    
bridge site if the project  went forward. He remarked that a                                                                    
bridge was not needed if a  person did not believe in Alaska                                                                    
or that its population would grow.                                                                                              
                                                                                                                                
Representative Gara hoped that Mr.  Foster did not mean that                                                                    
people  who  disagreed with  the  plan  did not  believe  in                                                                    
Alaska. Mr. Foster replied in  the negative. He believed the                                                                    
population growth  would occur  and that  new infrastructure                                                                    
was needed.                                                                                                                     
                                                                                                                                
Representative  Gara  wondered  whether   it  would  be  the                                                                    
state's  responsibility   to  pay   for  the   approach  and                                                                    
departure roads on  both sides of the bridge.  He pointed to                                                                    
a previous  proposal that would have  privately financed the                                                                    
roads in addition  to the bridge. He listed  the tunnel from                                                                    
Government  Hill, a  bridge from  Ingra and  Gamble Streets,                                                                    
roads to  Wasilla and Willow.  He wondered what  the private                                                                    
contractor would pay for.                                                                                                       
                                                                                                                                
Mr. Foster  responded that the cut-and-cover  bridge and the                                                                    
approach roads were covered under  phase one of the project.                                                                    
The  Ingra/Gamble   connection  under  phase  two   was  not                                                                    
included in  the existing  P3; it  may be  added at  a later                                                                    
time. He  furthered that  the Ingra/Gamble  connection would                                                                    
not be  built until  user revenue  had been  created. Phases                                                                    
one and  two were  through KABATA; phase  one was  through a                                                                    
contract with KABATA and a  private partner; phase two would                                                                    
be paid for with project user fees.                                                                                             
                                                                                                                                
Representative Gara took Mr. Foster's  testimony to be up to                                                                    
date,  but   noted  that  written  plans   showed  that  the                                                                    
Ingra/Gamble connection  would be built ten  years after the                                                                    
bridge. He asked  for the total cost to  public entities for                                                                    
roads to Wasilla  and Willow, Knik Goose  Bay Road upgrades,                                                                    
and roads on the Anchorage side.                                                                                                
                                                                                                                                
Mr. Otteson  addressed each road individually.  He explained                                                                    
that the  Knik Goose Bay  Road needed  to be widened  due to                                                                    
current traffic.  He noted that environmental  documents for                                                                    
the work were underway.                                                                                                         
                                                                                                                                
Co-Chair Stoltze  asked for discussion to  focus on projects                                                                    
that   were  currently   in  the   Statewide  Transportation                                                                    
Improvement Program (STIP) to accurately reflect costs.                                                                         
                                                                                                                                
Mr.  Otteson  did  not  have  an  exact  cost  estimate.  He                                                                    
discussed that there were a  couple of possibilities for the                                                                    
alignment  of the  connection to  the Big  Lake and  Houston                                                                    
areas.  There   was  a  right-of-way  along   the  new  rail                                                                    
alignment that  had been made  available by the  borough; he                                                                    
noted it would be a huge  cost savings to have the right-of-                                                                    
way  already available.  Projects would  be driven  based on                                                                    
how soon  they were needed.  He relayed that  initially Vine                                                                    
Street  would be  used, which  bypassed  congested areas  of                                                                    
Wasilla and the Knik Goose Bay Road.                                                                                            
                                                                                                                                
2:38:11 PM                                                                                                                    
                                                                                                                                
Mr. Otteson  furthered that as the  bridge generated traffic                                                                    
it would  generate enough  revenue to begin  to pay  for the                                                                    
additional improvements. He detailed  that the timing of the                                                                    
Ingra/Gamble connection  would be determined by  the pace of                                                                    
traffic growth; it could be in 8 years, 12 years, or other.                                                                     
                                                                                                                                
Representative  Gara  noted  that  he had  not  received  an                                                                    
answer related to the cost estimate.                                                                                            
                                                                                                                                
Co-Chair  Stoltze  explained  that  the  projects  were  all                                                                    
ongoing  and he  believed that  the answer  would only  be a                                                                    
speculation.  He asked  Mr. Otteson  if  the assessment  was                                                                    
fair.                                                                                                                           
                                                                                                                                
Mr. Otteson  agreed. He added  that many of the  roads would                                                                    
be needed regardless of the bridge.                                                                                             
                                                                                                                                
Representative  Gara  doubted  a  highway  was  needed  from                                                                    
Willow to Knik in the absence of a bridge.                                                                                      
                                                                                                                                
Co-Chair Stoltze  remarked that  there was  a rail  spur and                                                                    
encouraged committee members to drive out to look at it.                                                                        
                                                                                                                                
2:39:50 PM                                                                                                                    
                                                                                                                                
Representative Costello  asked how important it  was for the                                                                    
bridge  to  self-finance  its operations,  maintenance,  and                                                                    
capital costs.                                                                                                                  
                                                                                                                                
Mr. Otteson  replied that  the project  would bring  its own                                                                    
money  to  the  table,  would solve  a  transportation  need                                                                    
between Mat-Su and Anchorage, and  would be funded by a non-                                                                    
state or  non-federal source. He  expounded that  the bridge                                                                    
would allow  money to  be spent elsewhere  in the  state. He                                                                    
added that  the project would self-fund  operating costs for                                                                    
the life of the P3, which always constrained projects.                                                                          
                                                                                                                                
Representative  Costello asked  whether there  were examples                                                                    
of the state backing bonds  on private investors in relation                                                                    
to transportation  in Alaska. Mr.  Otteson was not  aware of                                                                    
any apart from  the Red Dog Mine. He believed  that the fact                                                                    
that Red  Dog had  required state support  of the  bonds for                                                                    
close to 20 years was a good example.                                                                                           
                                                                                                                                
Representative  Costello  asked  which  other  projects  the                                                                    
state  would look  at  and  how they  would  be financed  if                                                                    
KABATA did not go forward.                                                                                                      
                                                                                                                                
Mr. Otteson  responded that it  would be necessary  to widen                                                                    
the Glenn  and Parks Highways  sooner. He believed  that the                                                                    
widening  would occur  with  or without  the  bridge due  to                                                                    
population  growth   in  Mat-Su.  He  furthered   that  even                                                                    
postponing  the widening  would allow  other projects  to go                                                                    
forward across  the state. He  believed that the  ability to                                                                    
postpone  the  widening  for  5  or  10  years  would  be  a                                                                    
"powerful benefit" for Alaskans.                                                                                                
                                                                                                                                
Representative  Costello  enquired whether  assumptions  had                                                                    
been  built into  the projections  that related  to pipeline                                                                    
throughput.  She pointed  to ISER's  research on  the Alaska                                                                    
economy and  that one out of  three jobs was related  to one                                                                    
industry. Mr. Otteson did not have the information.                                                                             
                                                                                                                                
2:42:40 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg asked  about  the foundation  for                                                                    
the  legal  justification  that   the  state  would  not  be                                                                    
responsible for debt if the private entity defaulted.                                                                           
                                                                                                                                
Mr. Foster answered  that the private activity  bonds were a                                                                    
conduit. The private partner would  apply for the bonds from                                                                    
the federal government  and the activity did  not fall under                                                                    
the  state's books.  He furthered  that  in the  event of  a                                                                    
private  partner default,  the  state (as  the owner)  would                                                                    
have a commitment  to make payments, but  the liabilities of                                                                    
the private partner would not come back to the state.                                                                           
                                                                                                                                
JEFF    STARK,    CHIEF    ASSISTANT    ATTORNEY    GENERAL,                                                                    
TRANSPORTATION SECTION,  DEPARTMENT OF LAW,  elaborated that                                                                    
the  protection  was  in  the type  of  bond  sold;  private                                                                    
activity bonds  were a relatively  common form  of financing                                                                    
and the protection was in  the documentation included in the                                                                    
bond  sale. He  discussed  2003 legislation  that had  given                                                                    
KABATA the  authority to sell  up to $500 million  in bonds;                                                                    
the current  bill increased the  authority by 20  percent to                                                                    
$600  million. The  legislation did  not limit  the type  of                                                                    
bonds that would be sold;  theoretically if the P3 structure                                                                    
fell apart,  KABATA would have  the legal authority  to sell                                                                    
bonds that  it would  be responsible for;  however, KABATA's                                                                    
current focus was on requiring  a private developer to raise                                                                    
all of the  financing. The entity would have  the ability to                                                                    
secure the financing  of its choice (i.e. through  a bank or                                                                    
other) and the state would  have no involvement. He detailed                                                                    
that private  activity bonds issued  by a state  entity were                                                                    
free  from federal  income taxes;  therefore,  the rate  and                                                                    
deal for the  state were much better. The  state would issue                                                                    
the bonds,  but under the terms  of the bonds it  would have                                                                    
no obligation  to pay them;  the sole obligation  would fall                                                                    
to  the private  developer.  He furthered  that the  state's                                                                    
only obligation  would be the  availability payments  to the                                                                    
developer. He  detailed that if  the developer  defaulted on                                                                    
the bonds,  the bond  investors would  have a  claim against                                                                    
the developer, but  not the state. He explained  that if the                                                                    
state defaulted on  its payments to the  developer, the bond                                                                    
holders  would   have  no  right  against   the  state;  the                                                                    
developers  would have  the right  to pursue  the state.  He                                                                    
reiterated that  the financing technique was  common and was                                                                    
not unique to Alaska.                                                                                                           
                                                                                                                                
Representative  Guttenberg communicated  that he  was always                                                                    
concerned when  states were compared because  each state has                                                                    
different laws.                                                                                                                 
                                                                                                                                
2:48:22 PM                                                                                                                    
                                                                                                                                
Representative   Doogan   asked  whether   the   information                                                                    
provided by Mr.  Stark represented a settled  matter of law.                                                                    
Mr.  Stark responded  in the  affirmative. He  detailed that                                                                    
the types  of bonds were issued  on a regular basis  and the                                                                    
public entity did not have a  liability if they were sold as                                                                    
private activity bonds.                                                                                                         
                                                                                                                                
Representative  Doogan queried  whether the  issue had  been                                                                    
litigated  and that  courts had  agreed with  the assessment                                                                    
provided.  Mr.  Stark  replied  that he  did  not  know  the                                                                    
answer. He stressed that it  was his firm understanding from                                                                    
talking to  innumerable lawyers  and financial  experts that                                                                    
the technique  was common  and that  there was  no liability                                                                    
[to the public entity].                                                                                                         
                                                                                                                                
Representative Doogan  requested any information  on whether                                                                    
or  not the  issue had  been  litigated. He  wanted to  know                                                                    
whether the issue  was a settled matter of  law, an economic                                                                    
assumption, or  other. Mr.  Stark would  follow up  with the                                                                    
information.                                                                                                                    
                                                                                                                                
Representative  Gara  queried  earlier  testimony  that  the                                                                    
state would be liable for obligation payments.                                                                                  
                                                                                                                                
Mr. Stark answered  that KABATA would enter  into a contract                                                                    
with a  private developer  under a  public-private agreement                                                                    
(PPA); the agreement would require  KABATA to make quarterly                                                                    
or monthly  availability payments  to the  private developer                                                                    
once  the  bridge  was  in use.  He  clarified  his  earlier                                                                    
testimony that the  payments would be KABATA's  (and not the                                                                    
state's) only  obligation. He explained that  if the private                                                                    
developer chose  to issue public  activity bonds,  the bonds                                                                    
would be  issued by KABATA,  but only the  private developer                                                                    
would have an obligation to  pay the bonds. The bond holders                                                                    
would  have  no  claim  or lawsuit  against  KABATA  if  the                                                                    
private  entity  defaulted on  payments.  He  added that  if                                                                    
KABATA  failed  to  pay   the  developer  [the  availability                                                                    
payments]  the  private  developer   could  sue  KABATA.  He                                                                    
summarized  that  there  was  one  contractual  relationship                                                                    
between KABATA and the developer  and a separate contractual                                                                    
relationship between the developer and the bond holders.                                                                        
                                                                                                                                
2:51:54 PM                                                                                                                    
                                                                                                                                
BOB  FRENCH, CHAIRMAN,  GOVERNMENT  HILL COMMUNITY  COUNCIL,                                                                    
clarified that  his testimony was  on behalf of  himself. He                                                                    
stated  that although  the removal  of  language that  would                                                                    
have made any obligations of  KABATA into obligations of the                                                                    
state  may  have  made  the  bill  more  palatable,  it  was                                                                    
important  look  at what  KABATA  had  promised the  federal                                                                    
government  and the  prospective P3  partners. He  read from                                                                    
KABATA's  pro forma  that  had been  included  in its  TIGER                                                                    
[Transportation  Investment  Generating  Economic  Recovery]                                                                    
grant  application  (page 8)  related  to  the $150  million                                                                    
reserve fund proposed under the  legislation: "If the ending                                                                    
balance  falls below  $50 million  the state  will replenish                                                                    
the  account  back  to  $50   million."  He  encouraged  the                                                                    
committee to look  at the entity's next  loan application to                                                                    
determine  whether the  information was  still included.  He                                                                    
believed that  KABATA would probably  give assurance  of the                                                                    
state   guarantee   even   if   language   making   KABATA's                                                                    
obligations into obligations of the state was removed.                                                                          
                                                                                                                                
Mr. French stated that it was  clear that the full faith and                                                                    
credit of  the state  was still being  pledged if  the bonds                                                                    
were  issued through  a state  agency. He  communicated that                                                                    
the  obligation  of  the  state  was  to  make  availability                                                                    
payments to  the developer. He  continued that  KABATA's pro                                                                    
formas showed  that the availability payments  totaled $2.98                                                                    
billion  over the  life of  the project;  the payments  were                                                                    
intended to be  paid for with tolls; however,  they would be                                                                    
paid by  the state if  tolls were not sufficient.  He stated                                                                    
that   data  disputed   the  accuracy   of  future   traffic                                                                    
estimates.  Two separate  traffic projections  done for  DOT                                                                    
showed  traffic  counts  of   approximately  half  of  those                                                                    
predicted by  KABATA; the forecasts  had been  conducted for                                                                    
the most  recent Anchorage MTP  [Metropolitan Transportation                                                                    
Plan] and  Mat-Su LRTP [Long Range  Transportation Plan]. He                                                                    
noted  that  DOT had  not  released  the Mat-Su  information                                                                    
despite multiple  requests; the  council had filed  a public                                                                    
records  act in  an  effort to  obtain  the information.  He                                                                    
stated that  having half of  the traffic prediction  come to                                                                    
fruition  would be  more accurate  than 12  other nationwide                                                                    
toll project  projections that KABATA's  traffic consultants                                                                    
Wilbur Smith Associates  had made. He referred  to an exposé                                                                    
that had been  released in January 2012  showing that Wilbur                                                                    
Smith's projections were 2.27  times greater than the actual                                                                    
traffic in the first five years of operation.                                                                                   
                                                                                                                                
Mr.  French related  that two  toll roads  Wilbur Smith  had                                                                    
provided projections for  (one in South Carolina  and one in                                                                    
California) had  gone bankrupt; two  others had  been forced                                                                    
into  changes in  ownership  and/or  debt restructuring.  He                                                                    
referred to  a KABATA graph  (copy on file); the  green line                                                                    
showed a  projection that toll revenues  would significantly                                                                    
exceed cost. He  explained that if only half  of the traffic                                                                    
showed up,  the cost (red  line) would be below  the revenue                                                                    
line for the  entire life of the project.  He discussed that                                                                    
in a  2011 traffic and  revenue forecast for a  traffic zone                                                                    
on the  Mat-Su side  of the  bridge, Wilbur  Smith predicted                                                                    
13,828 new  jobs for  2035, which was  1,000 jobs  less than                                                                    
the entire  employment in  the Mat-Su  Borough in  2009. The                                                                    
number was also  673 jobs more than there were  in the Kenai                                                                    
Peninsula and 3,000 jobs more  than there were in Juneau. He                                                                    
noted that  in 2007  Wilbur Smith  had predicted  6,740 jobs                                                                    
for the  same areas for  the same time period.  He addressed                                                                    
what had  changed between 2007  and 2011. He  explained that                                                                    
in  2007 KABATA  had  a population  estimate  for Mat-Su  of                                                                    
approximately  250,000 and  in  2011 the  estimate had  gone                                                                    
down to  200,000.  He believed  the entity had to  boost its                                                                    
traffic projections  somehow and that it  looked like KABATA                                                                    
was trying to show that  there were additional jobs in Point                                                                    
Mackenzie that  would create  traffic going  both directions                                                                    
on  the  bridge.  He  stated   that  the  numbers  were  not                                                                    
compatible  with the  14 square  mile  industrial zone  that                                                                    
Representative Neuman  had discussed.  He stressed  that the                                                                    
industrial zone would not support the high job number.                                                                          
                                                                                                                                
Mr.  French referred  to a  real cost  paper that  showed an                                                                    
average annual shortfall of $55  million. He emphasized that                                                                    
it was  important to  note that the  $55 million  would come                                                                    
from the state  in order to make  the availability payments.                                                                    
He  surmised  that there  would  be  a number  of  necessary                                                                    
statewide projects that would not  have funding if the state                                                                    
had  to  fund the  availability  payments.  He referenced  a                                                                    
Legislative  Budget and  Audit Committee  (LB&A) audit  that                                                                    
was underway and  opined that it was worthwhile  to wait for                                                                    
its completion. He thought it was  a good idea to review the                                                                    
accuracy  of the  population and  toll  numbers that  KABATA                                                                    
used for  its financial plan.  He also believed  LB&A should                                                                    
conduct  an  audit of  past  spending  and predicted  future                                                                    
spending  to determine  whether KABATA's  projected rate  of                                                                    
return  made  sense.  He  opined that  LB&A  should  make  a                                                                    
recommendation  on  whether  further  state  investment  was                                                                    
justified.  He noted  that in  KABATA's absence,  there were                                                                    
currently approximately $58  million in transportation funds                                                                    
that   could   be   used  for   other   federally   eligible                                                                    
transportation projects throughout the  state; he pointed to                                                                    
alternatives   (e.g.  bridge   upgrades  over   Eagle  River                                                                    
estimated at $60 million).                                                                                                      
                                                                                                                                
3:00:58 PM                                                                                                                    
                                                                                                                                
Representative  Neuman  asked  whether Mr.  French  had  any                                                                    
credentials or  background in traffic  studies or if  he was                                                                    
an engineer. Mr.  French answered that he  is a professional                                                                    
engineer, but not a traffic engineer.                                                                                           
                                                                                                                                
Vice-chair Fairclough  thanked Mr. French for  his testimony                                                                    
and  participation in  community  council.  She was  curious                                                                    
about  the $55  million shortfall  that would  occur if  the                                                                    
traffic did  not show up.  She asked about the  formula that                                                                    
had been used to determine the number.                                                                                          
                                                                                                                                
Mr. French  replied that the formula  was fairly complicated                                                                    
and had been  developed by Jamie Kenworthy.  He deferred the                                                                    
question to Mr. Kenworthy.                                                                                                      
                                                                                                                                
Vice-chair Fairclough asked for  detail regarding the number                                                                    
just  under  $3 billion  if  no  tolls were  collected.  Mr.                                                                    
French  answered that  KABATA's 2011  pro forma  showed that                                                                    
the availability  payments would  be $2.98 billion  over the                                                                    
life of the P3 process.                                                                                                         
                                                                                                                                
Representative  Gara asked  how the  state would  be on  the                                                                    
hook for  availability payments if  the tolls did  not match                                                                    
the cost  to the  contractor. Mr.  French believed  that the                                                                    
availability  payments were  the obligation  that the  state                                                                    
said  would happen.  He  equated the  payments  to having  a                                                                    
guaranteed  income  when  applying   for  a  home  loan.  He                                                                    
detailed that  payments would be  made to the  developer and                                                                    
the developer  would acquire the private  activity bonds for                                                                    
financing.                                                                                                                      
                                                                                                                                
Representative   Gara  queried   where  the   state's  legal                                                                    
obligation to make the availability  payments was located in                                                                    
the  legislation. Mr.  French deferred  the question  to Mr.                                                                    
Stark.                                                                                                                          
                                                                                                                                
3:04:38 PM                                                                                                                    
                                                                                                                                
LYN CARDEN, WASILLA, EXECUTIVE  DIRECTOR, WASILLA CHAMBER OF                                                                    
COMMERCE  (via  teleconference),  spoke in  support  of  the                                                                    
bill. She  stated that the  project would  support Wasilla's                                                                    
expanding  population and  economy and  would provide  jobs,                                                                    
housing, and  reliable transportation across the  state. She                                                                    
relayed that  Port MacKenzie was  a strategic  port designed                                                                    
to  export  bulk  commodities  (e.g.  base  and  rare  earth                                                                    
mineral ores,  coal, wood chips,  and gravel); the  port was                                                                    
also  utilized to  import materials  (e.g. cement  and steel                                                                    
pipe). The project would  support freight handling capacity,                                                                    
mobility,   and   improved  regional   operations;   thereby                                                                    
supporting  airport,  military,  and  consumer  needs  while                                                                    
improving  safety  for  Southcentral  residents  through  an                                                                    
alternate  north-south   emergency  response   and  disaster                                                                    
evacuation  route.  She  furthered that  the  project  would                                                                    
support  a transportation  infrastructure  for existing  and                                                                    
projected  population  and  economic growth  statewide.  She                                                                    
believed that  the bridge would foster  economic development                                                                    
at  Port MacKenzie  on  the  west side  of  Cook Inlet.  She                                                                    
explained  that port's  industrial district  had over  8,000                                                                    
available acres for future economic development expansion.                                                                      
                                                                                                                                
Ms. Carden  relayed that additional projects  (including the                                                                    
Port MacKenzie  rail extension)  were currently  underway to                                                                    
take  advantage  of  the port's  "strategic"  location.  She                                                                    
opined that  the bridge would  provide a  unique opportunity                                                                    
for Alaska  to expand its  economy. She urged  the committee                                                                    
to pass the legislation.                                                                                                        
                                                                                                                                
PETE MULCAHY, PRESIDENT, CHUGIAK  AND EAGLE RIVER CHAMBER OF                                                                    
COMMERCE (via  teleconference), voiced  support of  the bill                                                                    
on behalf of the chamber.  He discussed that the chamber was                                                                    
focused on projects that would  increase the economic health                                                                    
and  vitality   of  the  local  community   and  Alaska.  He                                                                    
addressed the importance  of appropriate infrastructure that                                                                    
would support the development of  resources. He relayed that                                                                    
the  board had  not  made  a final  approval  of the  KABATA                                                                    
project;  its   last  resolution  had  been   in  2001  that                                                                    
supported  the project's  fact  finding  phase. The  chamber                                                                    
understood that  there were some fiscal  concerns, but noted                                                                    
that it had  consensus on several of the  aspects related to                                                                    
KABATA. He relayed  that the chamber had  always agreed that                                                                    
the creation  of a beltway  road system would  ease pressure                                                                    
on the  Glenn Highway and  would provide a second  access in                                                                    
and  out   of  Anchorage.  He  stated   that  transportation                                                                    
infrastructure needed  to move  forward with  large resource                                                                    
development projects was not in  place. He stressed that the                                                                    
projects  would  demand  much  greater  capacity  than  what                                                                    
currently  existed. The  chamber  believed  that the  bridge                                                                    
would  solve  multiple  problems   that  would  benefit  the                                                                    
Chugiak/Eagle  River   area  including   increased  economic                                                                    
activity  and solving  the congestion  issues  on the  Glenn                                                                    
Highway.                                                                                                                        
                                                                                                                                
Mr. Mulcahy  understood and liked  that the bill  provided a                                                                    
funding framework  and state oversight  of the  project. The                                                                    
chamber liked  that the  bill clarified  the process  of the                                                                    
public-private partnership.  He relayed  that the  issue was                                                                    
on  the March  2012 board  meeting agenda;  the board  would                                                                    
discuss a resolution at that time.                                                                                              
                                                                                                                                
3:11:02 PM                                                                                                                    
                                                                                                                                
AVES   THOMPSON,   EXECUTIVE   DIRECTOR,   ALASKA   TRUCKING                                                                    
ASSOCIATION  (ATA) (via  teleconference), vocalized  support                                                                    
for the bill.  The ATA saw the Knik Arm  crossing as a vital                                                                    
link  in  the  state's future  transportation  network  that                                                                    
would provide an  alternative route to and from  the Port of                                                                    
Anchorage  for  northbound  freight and  would  improve  the                                                                    
ability to safely  and efficiently move freight  on the road                                                                    
system.  He believed  the project  represented a  once in  a                                                                    
generation   opportunity    to   build   on    the   state's                                                                    
transportation  system.   He  urged   the  passage   of  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
DARCIE   SALMON,  ASSEMBLY   MEMBER,  MAT-SU   BOROUGH  (via                                                                    
teleconference), voiced  support for the  bill on  behalf of                                                                    
himself. He relayed that when  Port MacKenzie had been built                                                                    
there had  been discussion  that it would  increase economic                                                                    
activity to justify  the Knik Arm Bridge. He  stated that he                                                                    
had been working on the issue  for over 25 years. He likened                                                                    
Point  Mackenzie  to the  fulcrum  of  a teeter-totter  with                                                                    
Fairbanks,  the  Interior,  and resources  on  one  end  and                                                                    
Anchorage and the workforce on  the other end; he pointed to                                                                    
the "natural  ebb and  flow of  economic activity"  that the                                                                    
analogy depicted. He communicated  that the project had been                                                                    
titled a  "360 degree  economic transportation  corridor" to                                                                    
create a cyclical flow. He pointed  to the new prison in the                                                                    
area that  would create jobs.  He believed a new  city would                                                                    
be created  in the future  in Point MacKenzie;  he discussed                                                                    
that the combination of the  Point MacKenzie Port, Anchorage                                                                    
Port, rail spur,  Knik Arm Bridge, labor  force, and natural                                                                    
resources  would   result  in  progress,   opportunity,  and                                                                    
prosperity.  Additionally,  he  believed there  would  be  a                                                                    
pipeline to  Point MacKenzie in  the future. He  opined that                                                                    
the benefits outweighed the negatives.  He stressed that the                                                                    
bridge,  rail, and  port brought  together 500,000  Alaskans                                                                    
economically.  He reiterated  his "ardent"  support for  the                                                                    
project.                                                                                                                        
                                                                                                                                
3:17:22 PM                                                                                                                    
                                                                                                                                
JAMES  KENWORTHY,  SELF,   ANCHORAGE  (via  teleconference),                                                                    
relayed  that his  total bridge  deficit  estimate was  $2.5                                                                    
billion  or  $55  million  per   year  until  2035.  He  had                                                                    
determined the  number based  on three  calculations. First,                                                                    
he pointed  to the 2011  KABATA pro forma done  by Citigroup                                                                    
(page  7)  that  showed  $4.5  billion  in  cumulative  toll                                                                    
revenue to 2050; he estimated  that the number would be half                                                                    
of the $4.5  billion. He elaborated that when  CH2M Hill had                                                                    
modeled the  ISER demographic data it  included 17,700 trips                                                                    
crossing the  bridge in 2035  as opposed to  KABATA's 36,000                                                                    
trips (the  KABATA figure was  103 percent  higher). Second,                                                                    
he shared that  the former CIA economist  who tracked Wilbur                                                                    
Smith's national  projects reported  that the company  had a                                                                    
118 percent over-estimation error  rate. Third, he addressed                                                                    
a land conflict issue at  Point MacKenzie, which he believed                                                                    
was  appropriately zoned  for industrial  and manufacturing;                                                                    
however, the KABATA data showed  $1.7 million square feet of                                                                    
retail at Point MacKenzie,  which he thought conflicted with                                                                    
the industrial  plan. He  opined that  the degree  of retail                                                                    
would  not  work  next  to coal  processing  and  Liquid  to                                                                    
Natural Gas (LNG) plants.                                                                                                       
                                                                                                                                
Mr. Kenworthy summarized that his  toll revenue estimate was                                                                    
$2.3 billion;  he believed that  KABATA would not  receive a                                                                    
$308  million federal  TIFIA [Transportation  Infrastructure                                                                    
Finance and  Innovation Act]  loan it  had been  turned down                                                                    
for in 2007,  2010, and 2011 (the loan was  included on page                                                                    
1  of KABATA's  financial  plan); and  that  he had  reduced                                                                    
KABATA's estimate of the return  on investment the developer                                                                    
would receive  from 12  percent to  10 percent,  which would                                                                    
add $150  million back in. He  pointed to page 1  of the pro                                                                    
forma and noted  that KABATA was counting on  $79 million of                                                                    
equity going  in, but the  developer was projected to  get a                                                                    
net  cash  flow (page  5)  of  $920  million going  out.  He                                                                    
wondered why the  state with a AA credit  rating (that could                                                                    
borrow long  at less than  4 percent) would pay  a developer                                                                    
10 or 12 percent to finance  the project. He referred to the                                                                    
committee's  questions related  to what  would occur  if the                                                                    
developer defaulted  and advised  that a better  focus would                                                                    
be on  the state's ability  to make the  annual availability                                                                    
payments,  which totaled  $3 billion  (page 4).  He believed                                                                    
that the  focus should be  on the toll shortfall  and opined                                                                    
that it would suck money out of the transportation budget.                                                                      
                                                                                                                                
Co-Chair   Thomas   asked    whether   Mr.   Kenworthy   was                                                                    
representing  himself.   Mr.  Kenworthy  responded   in  the                                                                    
affirmative. He provided his credentials.  He was the former                                                                    
director of  the Alaska  Science and  Technology Foundation,                                                                    
had read business  plans for a living for 30  years, and was                                                                    
a private investor.                                                                                                             
                                                                                                                                
Representative Gara asked how  the state would become liable                                                                    
for  the  availability  payments. He  wondered  whether  the                                                                    
state had signed a contract related to the payments.                                                                            
                                                                                                                                
Mr. Kenworthy  responded that the contract  would presumably                                                                    
be  signed after  KABATA conducted  a  request for  proposal                                                                    
(RFP). The contract would not  pledge a direct state credit.                                                                    
Like a  Alaska Industrial  Development and  Export Authority                                                                    
(AIDEA)  or  a  Alaska Housing  Finance  Corporation  (AHFC)                                                                    
bond,  KABATA  would be  on  the  hook  to make  the  annual                                                                    
availability payment  that was  estimated at $3  billion. He                                                                    
noted that  the appropriate  question was what  would happen                                                                    
if the toll revenue shortfall  occurred and the state had to                                                                    
appropriate $55  million per year  to make up the  money. He                                                                    
likened the situation  to what would occur if  AIDEA or AHFC                                                                    
did  not make  payments on  their bonds.  He noted  that the                                                                    
agency  bonds clearly  indicated  that the  purchase of  the                                                                    
bonds was not a direct  obligation to the state; however, he                                                                    
believed there  was a  moral obligation to  the state  as it                                                                    
would impact the state's credit rating.                                                                                         
                                                                                                                                
3:23:48 PM                                                                                                                    
                                                                                                                                
BEN NORTHEY,  PRESIDENT, COLASKA  INC., spoke in  support of                                                                    
the bill. He stressed that it  was time to build the bridge.                                                                    
He had  worked in the  infrastructure industry for  30 years                                                                    
and  wanted  to be  able  to  travel  safely to  the  Mat-Su                                                                    
Valley.  He  quoted a  slogan  that  "Anchorage is  only  15                                                                    
minutes from the true Alaska."                                                                                                  
                                                                                                                                
ROBERT DUN,  ENGINEER, COLASKA INC.,  urged support  for the                                                                    
bill. He  stated that there  would be a  population increase                                                                    
in the  Anchorage and Mat-Su  areas. He opined that  it made                                                                    
sense to have  the population growth as close  to the center                                                                    
of Anchorage as  possible and believed the  closest area was                                                                    
directly across the Knik Arm.  He discussed that alternative                                                                    
areas for  development were to increase  population in Eagle                                                                    
River and in  Wasilla. He emphasized that there  was no zero                                                                    
cost alternative to  the bridge. He stated  that the failure                                                                    
to  perform   long-term  planning   could  be   painful  (as                                                                    
experienced in  the effort to  connect the Glenn  and Seward                                                                    
Highways);  the  project  was stuck  because  there  was  no                                                                    
right-of-way  in the  area. He  believed  that the  problems                                                                    
would only  be exacerbated  by time and  further development                                                                    
in the Government Hill area.  He encouraged the committee to                                                                    
view the bridge  as an investment for the future  and in the                                                                    
short-term health of the state.  He related that the project                                                                    
construction timeline  was parallel  to the time  that there                                                                    
would be a decrease in  federal highway funding. He surmised                                                                    
that from  a jobs perspective  that the future  looked bleak                                                                    
without the bridge.  He stressed that the  benefits that the                                                                    
bridge  would  bring  to  the state  would  be  provided  by                                                                    
funding from private investment.                                                                                                
                                                                                                                                
Representative  Gara asked  whether  the  state or  KABATA's                                                                    
obligation to  make the availability  payments in  the event                                                                    
of toll revenue deficits would  be included in contract. Mr.                                                                    
Dun replied that Colaska Inc.  was on the technical side and                                                                    
could not answer the question.                                                                                                  
                                                                                                                                
3:28:50 PM                                                                                                                    
                                                                                                                                
Kirk    Zerkel,   Project    Manager,   Alaska    Interstate                                                                    
Construction, voiced his support  for the project. He stated                                                                    
that  the   bridge  would  provide  thousands   of  valuable                                                                    
construction  jobs  and would  be  funded  by the  user.  He                                                                    
believed  that   the  project  would  eventually   create  a                                                                    
surplus, which  could fund other statewide  projects thereby                                                                    
providing  for ongoing  jobs. He  stressed that  the project                                                                    
would provide  invaluable training and expertise  needed for                                                                    
Alaska's future. He communicated  that the bridge would free                                                                    
up   quality   land   for   residential,   commercial,   and                                                                    
recreational purposes  in Mat-Su;  he opined that  the items                                                                    
would increase the quality of  life and decrease the cost of                                                                    
living  in Anchorage.  He expounded  that  the bridge  would                                                                    
ease  congestion of  large  truck  traffic through  downtown                                                                    
Anchorage  and  would  decrease   traffic  along  the  Glenn                                                                    
Highway,  thereby  decreasing  the  safety  hazards  in  the                                                                    
areas. The project  would decrease the burden  of record gas                                                                    
prices facing  Alaskans. He emphasized that  the project was                                                                    
for  future  Alaskans  and urged  the  legislature  to  help                                                                    
continue  to  grow and  develop  the  state to  provide  for                                                                    
future jobs and commerce.                                                                                                       
                                                                                                                                
3:31:33 PM                                                                                                                    
                                                                                                                                
DOUG SMITH,  PRESIDENT and CEO,  LITTLE RED  SERVICES, spoke                                                                    
in support  of the  bill on behalf  of the  Alliance [Alaska                                                                    
Support  Industry  Alliance].  He   noted  that  there  were                                                                    
several gates  left in the  process and that the  passage of                                                                    
the bill did  not mean the state was committed  to build the                                                                    
bridge  or to  make up  the difference  in tolls  before the                                                                    
commercial  terms were  known.  The Alliance  felt that  the                                                                    
bridge was so  important to the state that  it would warrant                                                                    
building it  without a  toll. He  relayed that  the Alliance                                                                    
did not see the risk as a  reason not to go forward with the                                                                    
project; if the state had to  make up a slight difference in                                                                    
availability payments  the investment  level was  lower than                                                                    
would   be  required   without  private   participation.  He                                                                    
discussed  Alaska's bright  future. He  believed that  Outer                                                                    
Continental Shelf  resource development would happen  in the                                                                    
future. He  had participated  in construction in  Alaska for                                                                    
years, some  of which would  not have been  possible without                                                                    
AIDEA  investment. He  believed that  the types  of projects                                                                    
brought   opportunities   but    the   overall   value   was                                                                    
significant. The  industrial zone  that would be  created by                                                                    
the bridge  would help support fabrication  and large module                                                                    
development  to support  offshore  drilling.  He pointed  to                                                                    
landlocked areas that had no  way to expand in Anchorage and                                                                    
opined  that a  better footprint  was needed  to participate                                                                    
fully in development for Alaska's future.                                                                                       
                                                                                                                                
Co-Chair Thomas CLOSED public testimony.                                                                                        
                                                                                                                                
3:35:08 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked for  KABATA to confirm  where the                                                                    
potential state liability came from.                                                                                            
                                                                                                                                
Mr. Foster  clarified that the availability  payment was not                                                                    
on  top of  a return  on investment.  He explained  that the                                                                    
availability payment was  like a lease payment;  a return on                                                                    
investment  was not  guaranteed. Under  the PPA  the private                                                                    
partner was responsible  for financing, designing, building,                                                                    
operating, and  collecting tolls for  35 years; in  turn the                                                                    
state  paid  the  developer an  availability  payment  (also                                                                    
known as  a lease payment).  He elaborated that  the state's                                                                    
obligation was to  make the payment to  a private developer.                                                                    
From the time the developer  began spending the $700 million                                                                    
to  $800 million  it was  approximately four  or five  years                                                                    
before  the  developer  would  receive  the  first  payment;                                                                    
availability  payments would  not be  made until  the bridge                                                                    
opened for use.  He relayed that the total  payment would be                                                                    
approximately $3 billion;  he equated it to  a house payment                                                                    
- payments  needed to  be made or  the owner  would default.                                                                    
The state would  be in default if payments  to the developer                                                                    
were not made. He reiterated that  the model was not tied to                                                                    
return  on investment  or toll  shortfall;  the state  would                                                                    
still  be required  to make  the payment  in the  absence of                                                                    
traffic. He furthered that KABATA's  model showed that there                                                                    
would be enough toll in  the long-term to make the payments;                                                                    
however, in the beginning there would be a shortfall.                                                                           
                                                                                                                                
Representative  Gara queried  whether the  state's liability                                                                    
would be  $1.5 billion if  tolls fell short  of construction                                                                    
by that  amount. Mr.  Foster answered  that the  state would                                                                    
make up  the difference if  the tolls fell short.  The state                                                                    
would have  to invest approximately $100  million in capital                                                                    
if it  chose to  build the bridge  itself using  the federal                                                                    
highway model that provided matching  funds; the state would                                                                    
also  be   responsible  for  the  ongoing   maintenance  and                                                                    
operation of the facility, including  the toll collection if                                                                    
applicable. When comparing  a state built project  with a P3                                                                    
model it was  necessary to look at apples to  apples; if the                                                                    
traffic was short and a  deficit resulted the state would be                                                                    
required to  pay; if  the state built  the bridge  itself it                                                                    
would be  responsible for a  portion of the project.  He had                                                                    
trouble understanding how people  could expect the developer                                                                    
to invest over $1 billion, but  did not want the state to be                                                                    
obligated to  make payments. One  could argue  whether there                                                                    
would be enough  toll revenue to make the  payments, but the                                                                    
obligation of  the state  was to pay  the developer  for its                                                                    
investment in the project.                                                                                                      
                                                                                                                                
3:40:50 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough  asked whether  there was  an estimate                                                                    
for the annual payment.                                                                                                         
                                                                                                                                
Mr. Foster referred to a  KABATA graph and answered that the                                                                    
payment  cost built  over time.  He relayed  that the  graph                                                                    
showed a shortfall  for the first seven  years of operation;                                                                    
the  proposed  reserve  fund  would   make  up  the  initial                                                                    
shortfall.   The   total    availability   payment   equaled                                                                    
approximately $3 billion over 35  years. He pointed out that                                                                    
the  contract would  contain a  termination for  convenience                                                                    
clause,  which would  allow the  state to  terminate at  any                                                                    
point; if  the state  decided it wanted  to own  the project                                                                    
the total  exposure was roughly  $1 billion. He  likened the                                                                    
purchase  to   a  home  purchase  and   explained  that  the                                                                    
principle  would  go  down annually  after  the  initial  $1                                                                    
billion payment.                                                                                                                
                                                                                                                                
Vice-chair Fairclough asked for  verification that the terms                                                                    
to be  negotiated would fall  under a 30 year  contract. Mr.                                                                    
Foster answered that the contract would be 35 years.                                                                            
                                                                                                                                
Vice-chair Fairclough  asked for  a copy  of the  KABATA pro                                                                    
forma  that  had been  generated  by  Citigroup. Mr.  Foster                                                                    
replied that it could be provided to committee members.                                                                         
                                                                                                                                
Vice-chair Fairclough  asked for an explanation  on the loan                                                                    
that  KABATA  had applied  for.  Mr.  Foster responded  that                                                                    
TIFIA [Transportation Infrastructure  Finance and Innovation                                                                    
Act] was  part of the  federal highway program  and provided                                                                    
low   cost  financing   for   infrastructure  projects.   In                                                                    
reference  to earlier  testimony he  explained that  a TIGER                                                                    
grant  was  another part  of  the  major projects  or  TIFIA                                                                    
program for  federal highways. The TIFIA  was funded through                                                                    
Congress and was  a leveraging of money at  a 10-to-1 ratio.                                                                    
He  believed   Alaska  received   up  to  two   TIGER  grant                                                                    
applications in the prior DOT  submittal. He elaborated that                                                                    
the  grants  were a  process;  his  team  had met  with  the                                                                    
administrators  of   the  program   in  December   2011.  He                                                                    
explained that  every time KABATA  had applied for  the loan                                                                    
in the  past it had expected  to be turned down  because the                                                                    
project  had not  been ready  (right-of-way and  procurement                                                                    
had not  been achieved  and permits  were still  needed). He                                                                    
expounded that  as the  project matured  it got  "closer and                                                                    
closer to that TIFIA gate";  the process was competitive. He                                                                    
relayed that  KABATA felt positive  about its  current TIFIA                                                                    
application and  that the legislation  helped it  get closer                                                                    
to obtaining the loan. He relayed  that in terms of low cost                                                                    
financing,  TIFIA was  worth approximately  $300 million  to                                                                    
private partners;  if the loan  was obtained it  would lower                                                                    
the cost of the availability  payments and the obligation of                                                                    
the state.                                                                                                                      
                                                                                                                                
Vice-chair   Fairclough  asked   whether  KABATA   had  been                                                                    
provided  feedback  when  its grant  applications  had  been                                                                    
rejected.  She  wondered  whether  feedback  had  given  the                                                                    
entity a better outlook on  the possibility of acquiring the                                                                    
financing.                                                                                                                      
                                                                                                                                
Mr.  Foster responded  in the  affirmative. He  relayed that                                                                    
KABATA always  asked to  know what it  was missing  from the                                                                    
application.   He  added   that   a   current  U.S.   Senate                                                                    
transportation  bill included  approximately $1  billion for                                                                    
TIFIA, which would increase the  available pool of money. He                                                                    
had  met with  U.S. Department  of Transportation  Secretary                                                                    
LaHood twice on TIFIA; at  the prior meeting KABATA had been                                                                    
told  that  the project  was  mature  and  was the  type  of                                                                    
project the  administration looked  for (i.e. toll  type and                                                                    
private investment  projects). He  felt confident  about the                                                                    
KABATA team and that the project  would be at the top of the                                                                    
list if the TIFIA money was be available.                                                                                       
                                                                                                                                
Vice-chair  Fairclough discussed  the  need  to manage  mega                                                                    
projects  carefully due  to their  susceptibility to  exceed                                                                    
their original  cost. She asked  whether KABATA  was looking                                                                    
at the  lowest cost bid  or whether it  had a way  to ensure                                                                    
that quality individuals were managing the project.                                                                             
                                                                                                                                
Mr.  Foster answered  that the  issue had  been included  in                                                                    
KABATA's statement of qualifications.  He expounded that six                                                                    
firms  had submitted  applications  and  through a  rigorous                                                                    
review process,  three had been selected.  He furthered that                                                                    
all three  were quality  firms made  up of  local, national,                                                                    
and    international     firms    (including    engineering,                                                                    
construction,  and operation  firms). He  reiterated earlier                                                                    
testimony that responsibility of  the private partner was to                                                                    
finance,  design, build,  and  operate  the bridge;  project                                                                    
cost  overruns  would  not be  the  state's  liability.  The                                                                    
state's   commitment  to   the   developer   would  be   the                                                                    
availability  payments.  He   detailed  that  the  expansive                                                                    
contract included penalties for  items such as clearing snow                                                                    
too  slowly, lane  closures, failure  to collect  tolls, and                                                                    
other, all of  which were the responsibility  of the private                                                                    
partner. Through DOL  the state had been  diligent in making                                                                    
sure its  liabilities were protected; therefore,  it did not                                                                    
have   liability    for   construction,    operations,   and                                                                    
maintenance overruns.  He hoped the developer  and the state                                                                    
would both  make money.  He opined  that a  good partnership                                                                    
was one in  which both parties did well;  both parties would                                                                    
have their own risk and returns.                                                                                                
                                                                                                                                
3:50:14 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thomas  asked  whether   there  was  someone  from                                                                    
Legislative Legal present.                                                                                                      
                                                                                                                                
Representative  Doogan pointed  to page  2, line  29 of  the                                                                    
legislation that  read "deposits made into  the reserve fund                                                                    
established under this section  must include" and provided a                                                                    
list of sources;  one source was money  that the legislature                                                                    
had appropriated for  "that purpose." He had  never seen the                                                                    
language "must include" and asked for an explanation.                                                                           
                                                                                                                                
Mr. Stark explained  that the intent was  to create security                                                                    
for  the developer.  He furthered  that the  developer would                                                                    
enter into  the agreement with KABATA,  which would describe                                                                    
the   developer's  responsibility   in  great   detail  (the                                                                    
agreement  was  approximately  1,000 pages).  The  developer                                                                    
would be responsible for building  and financing the project                                                                    
and would  have to put  10 percent of  its own money  in; it                                                                    
would be  on the  hook for  over $700  million and  would be                                                                    
required to  operate and maintain  the bridge for  35 years.                                                                    
He  related that  KABATA's only  responsibility was  to make                                                                    
the availability  payments. The legislation was  intended to                                                                    
create  a level  of  certainty for  the  developer that  the                                                                    
money  would be  there.  The legislation  and  the PPA  both                                                                    
included an obligation for KABATA  to place the toll revenue                                                                    
into  a reserve  account  to  be held  as  security for  the                                                                    
payments owed  to the developer.  In the event of  a revenue                                                                    
shortfall,  KABATA  would need  to  request  funds from  the                                                                    
legislature to fund the reserve  account. He reiterated that                                                                    
the design was  intended to lower the risk  to the developer                                                                    
and  investors and  to  reduce the  cost  of the  developer,                                                                    
which would reduce the cost to KABATA.                                                                                          
                                                                                                                                
Representative  Doogan   was  concerned  about   the  bill's                                                                    
prescriptive language  that required the state  to pay money                                                                    
that the legislature would appropriate  for the purpose. Mr.                                                                    
Stark clarified  that the  purpose was for  the money  to go                                                                    
into the reserve account.                                                                                                       
                                                                                                                                
Representative Doogan understood what  the language was for;                                                                    
however,  he  believed  it  read that  the  state  would  be                                                                    
required  to put  money in  the reserve  account. He  opined                                                                    
that  the  wording should  be  revised  if  it was  not  the                                                                    
intent.                                                                                                                         
                                                                                                                                
Mr.  Stark replied  that  he did  not  believe the  language                                                                    
meant that  the legislature must appropriate  money. Section                                                                    
5(l) included language  that the KABATA chair  would come to                                                                    
the legislature or  governor in the event of  a shortfall in                                                                    
revenue.  The section  provided  that  the legislature  "may                                                                    
appropriate  to the  authority the  amount certified  by the                                                                    
chair of the board that is  needed to restore a reserve fund                                                                    
to  the reserve  fund  requirement." He  expounded that  the                                                                    
obligation  of the  legislature was  a "may";  there was  no                                                                    
legal  obligation to  appropriate  the  funds. He  clarified                                                                    
that  the funds  must go  into  the reserve  account if  the                                                                    
funds were appropriated.                                                                                                        
                                                                                                                                
Representative  Doogan wondered  why  the  language did  not                                                                    
read "may." Mr.  Stark answered that the funds  must go into                                                                    
the  reserve fund  if the  funds were  appropriated; if  the                                                                    
funds were not appropriated they would not.                                                                                     
                                                                                                                                
Representative  Doogan  surmised  that the  language  should                                                                    
read "may include" rather than  "must include" as it related                                                                    
to the establishment of a  reserve fund. Mr. Stark clarified                                                                    
that  the intent  was  to provide  certainty  to assure  the                                                                    
developer that  the money would  be available;  the stronger                                                                    
the  language,  the  more  assurance  was  provided  to  the                                                                    
developer, which meant cost would be lower to KABATA.                                                                           
                                                                                                                                
Representative  Doogan  believed   Mr.  Stark's  explanation                                                                    
conflicted itself.  He thought Mr.  Stark had said  that the                                                                    
language required the legislature  to appropriate money into                                                                    
the reserve fund  and that he had  previously indicated that                                                                    
it  "may" put  the  money  in the  reserve  fund. Mr.  Stark                                                                    
responded in the negative.                                                                                                      
                                                                                                                                
Vice-chair Fairclough  clarified that  the state  may choose                                                                    
to appropriate the money; however,  once KABATA received the                                                                    
money  could not  put it  into any  account but  the reserve                                                                    
fund.                                                                                                                           
                                                                                                                                
Representative Neuman  MOVED to report CSHB  158(FIN) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
                                                                                                                                
Representative  Gara OBJECTED  for discussion.  He had  been                                                                    
surprised  that  language  naming  the state  liable  for  a                                                                    
shortfall  if  toll  revenue  did  not  cover  the  cost  of                                                                    
operation  and construction;  however, he  had learned  that                                                                    
the  requirement  would  be included  in  the  contract.  He                                                                    
appreciated   Mr.  French's   explanation  of   the  state's                                                                    
liability related to the  availability payment. He discussed                                                                    
that  in a  free enterprise  system companies  were free  to                                                                    
take  risk,  but  he  opined  that it  was  no  longer  free                                                                    
enterprise  when the  government guaranteed  that a  company                                                                    
would not lose any money.  He had initially thought the bill                                                                    
had been  substantially changed from the  prior version, but                                                                    
he believed  that was not  the case; the  state's obligation                                                                    
to  pay  for  shortfalls  that could  be  $1.5  billion  was                                                                    
included in  the contract.  He was  unhappy that  a straight                                                                    
forward answer had  not been provided by  KABATA. He relayed                                                                    
that he would vote against the bill on the House floor.                                                                         
                                                                                                                                
Representative Gara WITHDREW his OBJECTION.                                                                                     
                                                                                                                                
Representative Doogan  OBJECTED for  discussion. He  did not                                                                    
believe  in  the concept  that  putting  more money  into  a                                                                    
project would guarantee success; he  pointed to a fish plant                                                                    
in  his  district that  had  failed  despite a  $50  million                                                                    
investment  by the  state. He  listed  additional items  the                                                                    
state had  invested in  that had  failed including,  a Point                                                                    
MacKenzie  milk facility,  grain  terminals,  and other.  He                                                                    
stressed  that  he could  not  vote  for something  of  that                                                                    
nature. He referenced  a saying "fool me once,  shame on me.                                                                    
Fool me twice, shame on you";  he had been fooled before and                                                                    
did not  believe that  the current  argument was  either the                                                                    
"best  job  that's been  done  or  the most  compelling  job                                                                    
that's been done."                                                                                                              
                                                                                                                                
Representative  Doogan WITHDREW  his OBJECTION.  There being                                                                    
NO further OBJECTION, it was so ordered.                                                                                        
                                                                                                                                
CSHB  158(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation and with one  new zero fiscal note from                                                                    
the Department of Transportation and Public Facilities.                                                                         
                                                                                                                                
4:04:46 PM                                                                                                                    
RECESSED                                                                                                                        
                                                                                                                                
5:12:33 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
Short Version CS HB 158 3 12 12.docx HFIN 3/22/2012 1:30:00 PM
HB 158
Letters of Support for HB 158.pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB 158 Sponsor Statement.docx HFIN 3/22/2012 1:30:00 PM
HB 158
HB 158 Handout for 3 22 12 CSHB 158.pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB158 CS WORKDRAFT 27-LS0431T.pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB 158 Denali Drilling Inc Support ltr.docx HFIN 3/22/2012 1:30:00 PM
HB 158
hb 158 AGC ltr of Support.pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB9 Military Power.docx HFIN 3/22/2012 1:30:00 PM
HB 9
HB158 Toll-Road-News-Wilbur Smith Assoc forecasting record slammed-Jan-27-2012 (4).pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB158 Toll-Road-News-Wilbur Smith Assoc forecasting record slammed-Jan-27-2012 (3).pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB158 Toll-Road-News-Wilbur Smith Assoc forecasting record slammed-Jan-27-2012 (2).pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB158 Toll-Road-News-Wilbur Smith Assoc forecasting record slammed-Jan-27-2012 (1).pdf HFIN 3/22/2012 1:30:00 PM
HB 158
HB158 Bob French Testimony Handout 3.22.12.pdf HFIN 3/22/2012 1:30:00 PM
HB 158