Legislature(2013 - 2014)HOUSE FINANCE 519

03/28/2013 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:45 p.m. Today --
+ HB 23 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Heard & Held
-- Open Public Testimony --
+= HB 112 REPEAL FILM PRODUCTION TAX CREDIT TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 4 IN-STATE GASLINE DEVELOPMENT CORP TELECONFERENCED
Heard & Held
HOUSE BILL NO. 23                                                                                                             
                                                                                                                                
     "An Act  relating to bonds  of the Knik Arm  Bridge and                                                                    
     Toll  Authority;  relating  to  reserve  funds  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."                                                                                                                     
                                                                                                                                
1:54:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MARK NEUMAN,  SPONSOR, communicated  that HB
23  primarily  worked  on  the  Knik  Arm  Bridge  and  Toll                                                                    
Authority (KABATA) and  the effort to build  a bridge across                                                                    
Cook   Inlet.  The   bill  would   allow  a   public-private                                                                    
partnership to move forward.                                                                                                    
                                                                                                                                
Co-Chair Stoltze clarified that  the bridge would cross Knik                                                                    
Arm.                                                                                                                            
                                                                                                                                
Vice-Chair  Neuman confirmed  that  the  bridge would  cross                                                                    
Knik Arm.  He detailed that  the bill would allow  KABATA to                                                                    
form a partnership with a  private investor. The legislation                                                                    
would also  increase the  authority of  pass-through federal                                                                    
bonds from  $500 million  to $600  million. He  relayed that                                                                    
his staff would provide a sectional analysis.                                                                                   
                                                                                                                                
Co-Chair   Stoltze  noted   that   an  extensive   committee                                                                    
conversation on HB 23 would occur at a subsequent meeting.                                                                      
                                                                                                                                
Vice-Chair  Neuman discussed  that  the goal  was to  reduce                                                                    
costs in  safety corridors.  He spoke to  the danger  of the                                                                    
current highway  systems and to  the importance  of reducing                                                                    
traffic.  He shared  that the  Mat-Su  Borough had  provided                                                                    
information on  future expansions into Point  MacKenzie; the                                                                    
information   showed  a   prospective   town-site  plan   in                                                                    
anticipation of  the bridge. The  area was located  north of                                                                    
the  14  square  mile  industrial  port  where  a  potential                                                                    
pipeline could run.  He expounded that a rail  spur would be                                                                    
located in the  area and modules for Prudhoe  Bay were built                                                                    
there  as  well. He  pointed  to  new information  from  the                                                                    
Department of  Revenue (DOR)  related to  moral obligations.                                                                    
He looked  at the  last page  of a  DOR letter  and observed                                                                    
that the commissioner had  tremendous confidence in KABATA's                                                                    
revenue  projections and  financial  analysis. He  discussed                                                                    
earlier testimony  by Representative Mike Hawker  related to                                                                    
the  benefits  of  moving a  project  forward  with  private                                                                    
sector help.  He stated that the  public-private partnership                                                                    
was  a new  model being  used  across the  United States  to                                                                    
provide increased  funds for transportation  projects; users                                                                    
also paid for the projects.                                                                                                     
                                                                                                                                
1:58:57 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Neuman  emphasized   the   importance  of   the                                                                    
legislation to his community and  further west into the Mat-                                                                    
Su region. He relayed that one of the goals was to turn                                                                         
state resources into jobs for Alaskans.                                                                                         
                                                                                                                                
Co-Chair Stoltze noted that a slideshow would not be                                                                            
presented during the meeting.                                                                                                   
                                                                                                                                
REX SHATTUCK, STAFF, REPRESENTATIVE MARK NEUMAN, provided a                                                                     
sectional analysis:                                                                                                             
                                                                                                                                
     Section  1   repeals  and  reenacts   AS  19.75.211(a).                                                                    
     Authorizes  the authority  to  borrow  money and  issue                                                                    
     refund bonds  on which the  principal and  interest are                                                                    
     paid  out  of and  secured  by  (1) the  gross  revenue                                                                    
     derived from  fees, rents,  tolls, rates,  charges, and                                                                    
     other  revenue;  (2)  revenue  received  by  a  private                                                                    
     person or  enterprise that has  entered into  a public-                                                                    
     private  partnership agreement  with the  authority; or                                                                    
     (3) any revenue or  money appropriated to the authority                                                                    
     for that purpose, except a state tax or license.                                                                           
                                                                                                                                
     Section 2 raises the limit  on the amount of aggregated                                                                    
     bonds the authority may issue to $600,000,000.                                                                             
                                                                                                                                
     Section 3  adds a new  subsection to AS  19.75.211 that                                                                    
     requires  the authority  to submit  to  the state  bond                                                                    
     committee  a  description  of  the  bond  issue  before                                                                    
     issuing bonds. The  bonds may not be  issued unless the                                                                    
     state  bond  committee  finds   that  the  revenue  can                                                                    
     reasonably be  expected to be  adequate for  payment of                                                                    
     principle and interest on the bonds.                                                                                       
                                                                                                                                
     Section 4  amends AS 19.75.221(h) to  specify what must                                                                    
     be  deposited  in  the  reserve  fund,  which  includes                                                                    
     revenue  derived by  the  authority  from fees,  rents,                                                                    
     tolls,  rates, charges,  or other  revenue appropriated                                                                    
     for that  purpose; and other  revenue available  to the                                                                    
     authority.                                                                                                                 
                                                                                                                                
     Section  5  adds  new   subsections  to  AS  19.75.221.                                                                    
     Subsection  (i)  specifies  the specific  purposes  for                                                                    
     which  the  money in  the  reserve  fund can  be  used.                                                                    
     Subsection (j) allows the  authority to transfer income                                                                    
     or interest earned  by the reserve fund  to other funds                                                                    
     or accounts  of the authority  as long as  the transfer                                                                    
     does  not reduce  the  reserve fund  to  less than  the                                                                    
     reserve fund requirement.  Subsection (k) specifies how                                                                    
     to value securities the fund  is invested in to compute                                                                    
     the  amount   of  the  reserve  fund.   Subsection  (1)                                                                    
     requires the chair of the  board to notify the governor                                                                    
     annually of the amount  required to restore the reserve                                                                    
     fund to  the reserve  fund requirement.  Subsection (m)                                                                    
     defines "reserve fund requirement."                                                                                        
                                                                                                                                
     Section 6  amends AS 19.75.261  to exempt any  real and                                                                    
     personal property,  assets, income, or  other interests                                                                    
     held by a private person  or enterprise under a public-                                                                    
     private partnership  from all ad valorem  taxes on real                                                                    
     or  personal property  and special  tax assessments  of                                                                    
    the state or a political subdivision of the state.                                                                          
                                                                                                                                
     Section  7  adds  a new  section,  AS  19.75.345,  that                                                                    
     establishes the Knik Arm Crossing fund.                                                                                    
                                                                                                                                
Representative Gara  asked whether  there was  a cap  on the                                                                    
reserve fund.                                                                                                                   
                                                                                                                                
2:03:38 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman replied  that the fund would  be capped at                                                                    
$150  million.  He  detailed that  the  governor's  proposed                                                                    
transportation  plan included  $10 million  for the  current                                                                    
year and $35 million for the next four years.                                                                                   
                                                                                                                                
Representative Gara  asked whether the fund  could go beyond                                                                    
$150 million. He asked for the location in the bill.                                                                            
                                                                                                                                
Vice-Chair Neuman replied that it  was not expected to reach                                                                    
$150 million.  He did not know  whether there was a  cap. He                                                                    
noted  that  the  KABATA  board   chair  was  available  for                                                                    
technical questions.                                                                                                            
                                                                                                                                
Co-Chair Stoltze  noted there  was not  an effort  to exceed                                                                    
the $10 million appropriation [for the current year].                                                                           
                                                                                                                                
Vice-Chair Neuman  agreed. He added  that if the  bill moved                                                                    
forward, but  the governor  did not  sign the  contract, the                                                                    
money would be returned to the general fund.                                                                                    
                                                                                                                                
Representative Gara surmised  that there was no  cap [on the                                                                    
reserve fund],  but that people  would be careful  about the                                                                    
amount. He  pointed to past  testimony by some  stating that                                                                    
the project could be short by  $1.5 billion due to a lack in                                                                    
toll revenue;  he understood that KABATA  disagreed with the                                                                    
statement. He  asked whether the state  would be responsible                                                                    
for making up  the difference if tolls were  not adequate to                                                                    
cover the cost  of bridge operation and  construction in the                                                                    
long-term.                                                                                                                      
                                                                                                                                
MICHAEL FOSTER,  CHAIR, BOARD OF DIRECTORS,  KNIK ARM BRIDGE                                                                    
AND  TOLL AUTHORITY,  replied in  the affirmative.  He added                                                                    
that the funding would be subject to appropriation.                                                                             
                                                                                                                                
Representative  Gara noted  that  the bill  did not  contain                                                                    
language specifying that  the state could owe  the money. He                                                                    
wondered  if the  moral obligation  was related  to how  the                                                                    
bonds worked.                                                                                                                   
                                                                                                                                
Mr.  Foster  answered  that the  public-private  partnership                                                                    
financial plan  model specified that KABATA  was responsible                                                                    
for making the availability  payments. He explained that the                                                                    
reserve fund  would cover payments to  the private developer                                                                    
in  the initial  years  when a  shortfall  in revenue  would                                                                    
occur. He  expounded that the  financial market  was reliant                                                                    
on the "subject to  appropriation" language, specifying that                                                                    
the state  would secure any  payments that KABATA  could not                                                                    
make.                                                                                                                           
                                                                                                                                
2:06:53 PM                                                                                                                    
                                                                                                                                
LARRY    DEVILBISS,     MAYOR,    MAT-SU     BOROUGH    (via                                                                    
teleconference),   testified  in   strong  support   of  the                                                                    
legislation.  He  stated  that  every mayor  in  the  Mat-Su                                                                    
Borough  supported  the  project.   He  discussed  that  the                                                                    
community was  in the process  of laying out  two town-sites                                                                    
that would  be located at  the northern end of  the project;                                                                    
the  location included  new high  school  and middle  school                                                                    
projects.  He stated  that without  the infrastructure  from                                                                    
KABATA  the  community  was  paying a  price  in  blood.  He                                                                    
stressed that  current transportation  infrastructure needed                                                                    
to be  taken in  a different  direction because  the fastest                                                                    
growing areas  were on the west  side of the region.  He was                                                                    
shocked to see that the  fatal injury rate per 100,000 miles                                                                    
was 22.48  on the Knik  Goose Bay  Road compared to  17.3 on                                                                    
the Parks  Highway, 13.1 on  the Turnagain Arm  Highway, and                                                                    
13.2  on   the  Seward  Highway.  He   emphasized  that  the                                                                    
infrastructure   was  needed   for  residents'   safety.  He                                                                    
reminded  the committee  that the  importance  of the  issue                                                                    
went  much further  than the  borough; the  Alaska Municipal                                                                    
League  Conference of  Mayors had  voted in  support of  the                                                                    
project the prior year.                                                                                                         
                                                                                                                                
Co-Chair   Stoltze  commented   on   the  tragic   [highway]                                                                    
statistics from the Mat-Su Valley.                                                                                              
                                                                                                                                
2:11:46 PM                                                                                                                    
                                                                                                                                
DAN    SULLIVAN,    MAYOR,    CITY   OF    ANCHORAGE    (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
stated that the project would  create over 1,000 jobs during                                                                    
its  construction  phase.  He  discussed  that  people  were                                                                    
stranded when  Glenn Highway  closures occurred;  the bridge                                                                    
would provide an important  alternate route. He communicated                                                                    
that  the Port  of  Anchorage was  the  primary state  port,                                                                    
which  generated  significant   truck  traffic  through  the                                                                    
downtown  area; the  bridge would  divert  the traffic  away                                                                    
from downtown.  He believed the  reduction in  truck traffic                                                                    
would improve  the quality  of life in  the city.  He stated                                                                    
that  over 98  percent of  Anchorage's developable  land had                                                                    
been developed; he believed the  bridge would provide access                                                                    
to new  undeveloped land for commercial  and residential use                                                                    
in  Mat-Su.  He   opined  that  a  bridge   with  access  to                                                                    
developable land  was a  great economic  development concept                                                                    
in  light of  population growth  in Mat-Su.  He communicated                                                                    
that  with population  growth in  Anchorage and  Mat-Su, the                                                                    
Glenn  and Parks  Highways would  be expanded;  the projects                                                                    
would cost  billions of  dollars. He  believed accommodating                                                                    
an  alternate  route that  would  provide  toll revenue  and                                                                    
would not require highway expansions was a "win-win."                                                                           
                                                                                                                                
Representative    Gara    referred    to    Department    of                                                                    
Transportation  and  Public  Facilities testimony  that  the                                                                    
highway  expansions would  take  place with  or without  the                                                                    
bridge. Mr.  Sullivan replied that a  near-term expansion in                                                                    
conjunction with  the bridge may preclude  another expansion                                                                    
later on.                                                                                                                       
                                                                                                                                
2:15:35 PM                                                                                                                    
                                                                                                                                
VERNE    RUPRIGHT,    MAYOR,    CITY   OF    WASILLA    (via                                                                    
teleconference),   vocalized   strong    support   for   the                                                                    
legislation.  He spoke  to population  growth in  the Mat-Su                                                                    
region. He  stated that the  project would provide  a second                                                                    
route  to and  from Anchorage  and would  provide a  shorter                                                                    
trucking  route from  the Anchorage  port  to Fairbanks.  He                                                                    
mentioned the  potential for heavier cargo  and freight from                                                                    
Point MacKenzie.  He remarked that  if the project  had been                                                                    
done over 30 years earlier  it would have been significantly                                                                    
less expensive.  He opined that population  growth in Alaska                                                                    
would  not let  up. He  believed that  the expansion  of the                                                                    
Parks Highway  corridor in tandem  with the bridge  would be                                                                    
helpful.  He  stressed  that   wider  and  faster  multilane                                                                    
highways were not the answer  as discovered in the Lower 48.                                                                    
He stated that  a bridge would save truckers  time and would                                                                    
open a  better connectivity at  a lower rate. He  was unsure                                                                    
how  the  financing would  all  work,  but he  believed  the                                                                    
project  was  needed for  the  state's  economic health  and                                                                    
growth. He emphasized that the  project would be a strategic                                                                    
piece  of infrastructure  on  an  American national  defense                                                                    
level. The bill would tie  Port of Anchorage and Mat-Su into                                                                    
the Fairbanks  area. He shared  that the project  would have                                                                    
been stalled for  an undetermined period if  Wasilla had not                                                                    
brought  actions  against  the Anchorage  Metropolitan  Area                                                                    
Transportation System (AMATS) in 2009.                                                                                          
                                                                                                                                
Co-Chair  Stoltze  thanked  Mr. Rupright  for  standing  his                                                                    
ground.                                                                                                                         
                                                                                                                                
2:19:12 PM                                                                                                                    
                                                                                                                                
SUSANNE  DIPIETRO,  SELF,  ANCHORAGE  (via  teleconference),                                                                    
spoke in  opposition to the legislation.  She suggested that                                                                    
the bill was  not about building the bridge,  given that the                                                                    
legislature had  previously passed enabling  legislation for                                                                    
KABATA; the bill related to  the financing mechanism for the                                                                    
project. She believed  Sections 4 and 5 of the  bill took an                                                                    
unprecedented and needless approach  that would obligate the                                                                    
state  to   cover  unlimited   shortfalls  in   the  project                                                                    
expenses. She detailed that the  bill would create a reserve                                                                    
fund to  be funded  by legislative appropriation  and KABATA                                                                    
would use  the money to pay  its debts and obligations  to a                                                                    
private  partner. She  referenced language  in Section  5(l)                                                                    
detailing   that  KABATA   would  tell   the  governor   and                                                                    
legislature  the amount  needed in  the reserve  fund on  an                                                                    
annual basis  to cover  debts. She  noted that  the language                                                                    
may  seem  innocuous;  however,  it  provided  a  pledge  to                                                                    
ratings agencies  that the legislature would  be responsible                                                                    
for  covering any  debt due  to  insufficient revenues.  The                                                                    
markets would understand  that the debts would  be backed by                                                                    
the state.                                                                                                                      
                                                                                                                                
Ms.  Dipietro  acknowledged  that the  legislation  did  not                                                                    
require  the  legislature  to  appropriate  money  annually;                                                                    
however,  a  failure  by  the   state  to  honor  the  moral                                                                    
obligation  would be  treated  as  a default.  Subsequently,                                                                    
markets  would  downgrade  the state's  credit  rating.  She                                                                    
cited  a DOR  letter to  former Senator  Joe Thomas  warning                                                                    
about the hazard  (dated March 30, 2011, copy  on file). She                                                                    
believed  passing the  bill would  set  the state  up for  a                                                                    
"Hobson's   choice";  the   legislature   could  refuse   to                                                                    
appropriate  funds,  which would  result  in  damage to  the                                                                    
state's credit  rating or it  could continue to  spend money                                                                    
that the  state may  not be able  to afford.  She emphasized                                                                    
that  using  a  moral   obligation  reserve  fund  to  cover                                                                    
operating  expenses had  never  been allowed  in Alaska  and                                                                    
should  not  be  allowed  for   the  [KABATA]  project.  She                                                                    
expounded  that   the  project  would  greatly   expand  the                                                                    
existing financial  risk the  state would  be exposed  to by                                                                    
the  project.  She  stressed that  passing  the  bill  could                                                                    
create financial  exposure that could cause  rating agencies                                                                    
to  negatively respond  when  reviewing  the state's  credit                                                                    
rating  for future  bonds. She  pointed to  existing statute                                                                    
that  currently  allowed KABATA  to  create  a reserve  fund                                                                    
without   committing    the   legislature    to   continuous                                                                    
appropriations for  the life of  the project. She  urged the                                                                    
committee  to   delete  Sections   4,  5,   and  7   of  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
2:23:39 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  noted that the letter  mentioned by                                                                    
Ms.  DiPietro did  not  appear to  be  included in  members'                                                                    
packets.  Ms. DiPietro  believed  the  information had  been                                                                    
provided to committee members, but  could follow up with the                                                                    
letter.                                                                                                                         
                                                                                                                                
Co-Chair  Stoltze  noted  that  the [DOR]  letter  would  be                                                                    
provided to the committee.                                                                                                      
                                                                                                                                
2:24:19 PM                                                                                                                    
                                                                                                                                
AVES   THOMPSON,   EXECUTIVE   DIRECTOR,   ALASKA   TRUCKING                                                                    
ASSOCIATION,  ANCHORAGE (via  teleconference), testified  in                                                                    
support  of the  legislation on  behalf of  the association.                                                                    
The organization believed the  bridge would provide a needed                                                                    
link  to  the  Mat-Su  area,  that  it  would  establish  an                                                                    
efficient freight corridor to  Interior and northern Alaska,                                                                    
and would offer a new route  to the Port of Anchorage, which                                                                    
would  alleviate   truck  traffic  in   downtown  Anchorage.                                                                    
Additionally, the  association hoped that the  project would                                                                    
provide congestion relief on the Glenn and Parks Highways.                                                                      
                                                                                                                                
Co-Chair Stoltze asked  Mr. Thompson if he liked  both SB 23                                                                    
and HB 23. Mr. Thompson replied in the affirmative.                                                                             
                                                                                                                                
2:26:26 PM                                                                                                                    
                                                                                                                                
PAUL  GROSSI, LOBBYIST,  IRON WORKERS  OF  ALASKA, spoke  in                                                                    
support of  the legislation.  The organization  believed the                                                                    
bill would provide  jobs for Alaskans and  would establish a                                                                    
corridor  towards  development  that would  increase  future                                                                    
jobs.  Additionally, the  organization believed  the project                                                                    
was vital for  [highway] safety. He told  an anecdotal story                                                                    
related to the highway;  the organization's manager had been                                                                    
stuck  on the  highway as  a result  of a  closure due  to a                                                                    
police  chase for  over 8  hours. He  urged the  committee's                                                                    
support for the bill.                                                                                                           
                                                                                                                                
Co-Chair Stoltze recalled the specific highway closure.                                                                         
                                                                                                                                
2:29:00 PM                                                                                                                    
                                                                                                                                
TOM BRICE,  ALASKA DISTRICT COUNCIL OF  LABORERS, ANCHORAGE,                                                                    
testified in  support of  the legislation  on behalf  of the                                                                    
council. He  cited safety concerns, the  need for additional                                                                    
access,   and   the   opportunity   for   further   economic                                                                    
development as reasons for the council's support.                                                                               
                                                                                                                                
Representative  Gara  asked  for  verification  that  safety                                                                    
concerns on  Knik Goose  Bay Road and  other areas  could be                                                                    
alleviated  by  widening  roads.   Mr.  Brice  replied  that                                                                    
laborers generally  appreciated expanding  access throughout                                                                    
Alaska including Lynn Canal Highway and Knik Arm.                                                                               
                                                                                                                                
Co-Chair  Stoltze remarked  that a  right-of-way acquisition                                                                    
related  to the  Palmer  Wasilla Highway  corridor had  been                                                                    
estimated to cost over $150 million.                                                                                            
                                                                                                                                
2:31:31 PM                                                                                                                    
                                                                                                                                
BOB FRENCH,  SELF, ANCHORAGE (via teleconference),  spoke in                                                                    
opposition  to  the  legislation.  He  stated  that  it  was                                                                    
important to keep in mind  that the bill related to KABATA's                                                                    
current   financial  plan   that  would   require  a   moral                                                                    
obligation of  the state. He stated  that the lack of  a low                                                                    
interest   federal   TIFIA  [Transportation   Infrastructure                                                                    
Finance  and Innovation  Act] loan  would  result in  higher                                                                    
financing costs.  He stated  that the  key missing  piece of                                                                    
information  was  how  the  factors   and  the  accuracy  of                                                                    
KABATA's  toll  revenue  predictions would  result  in  some                                                                    
unknown cost  to the state.  He remarked that  a legislative                                                                    
audit  intended to  provide guidance  on the  issue had  not                                                                    
been released  to the  public. He referred  to a  DOR letter                                                                    
addressed   to  Senator   Joe   Thomas   stating  that   the                                                                    
authorization  used in  the  legislation  should be  further                                                                    
defined  to eliminate  the  ability of  a  private party  to                                                                    
securitize  the monetary  obligations  of  KABATA. He  noted                                                                    
that DOR had  come out with a Request for  Proposal (RFP) in                                                                    
January that was supposed to:                                                                                                   
                                                                                                                                
     ...review,  verify, and  confirm recommended  financing                                                                    
     structures for  the state's  participation in  the Knik                                                                    
     Arm   crossing.  The   selected   consultant  will   be                                                                    
     providing  assistance  to   the  state  in  comparative                                                                    
     financial analysis of certain  aspects of the project's                                                                    
     financing proposals.  It will  advise on the  impact of                                                                    
     the state finances by participating  in the project and                                                                    
     advise on  the most advantageous terms  for the state's                                                                    
     participation.                                                                                                             
                                                                                                                                
Mr.  French  stated  that unfortunately  there  had  been  a                                                                    
protest  of the  bid  award, which  meant  that the  finance                                                                    
committee would  not receive the information  unless the RFP                                                                    
was   reissued.  He   recommended   waiting   to  hear   the                                                                    
legislation until  KABATA had submitted a  current financial                                                                    
plan and independent, expert reviews were available.                                                                            
                                                                                                                                
2:34:37 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  why the  current financial  plan                                                                    
was  different than  the prior  plan.  Mr. French  responded                                                                    
that  the  current plan  relied  on  $500 million  in  TIFIA                                                                    
financing,  which represented  roughly half  of the  project                                                                    
financing.  He continued  that when  KABATA had  been denied                                                                    
the federal funding  the prior year, the  authority had been                                                                    
told that  if any federal  money was provided that  it would                                                                    
be  no more  than  33  percent of  the  project's costs.  He                                                                    
furthered  that  as  a  result, at  least  $200  million  in                                                                    
funding  would   be  missing.  He  stated   that  any  other                                                                    
financing  option  for  the $200  million  would  result  in                                                                    
higher costs.  He communicated that KABATA  had testified in                                                                    
prior meetings that  the reserve fund could  exceed the $150                                                                    
million by $100 million or  more due to the higher financing                                                                    
costs.  He believed  the cost  could  be approximately  $2.6                                                                    
billion more.                                                                                                                   
                                                                                                                                
2:36:15 PM                                                                                                                    
                                                                                                                                
LOIS EPSTEIN,  SELF, ANCHORAGE,  testified in  opposition to                                                                    
the  legislation.  She stated  that  the  proposed Knik  Arm                                                                    
bridge  was  not  ready  for  construction  and  was  not  a                                                                    
financially sound investment  using the so-called innovative                                                                    
financing mechanism. She relayed  that it was not reasonable                                                                    
to  assume   that  the  bridge   would  improve   safety  on                                                                    
Southcentral  roads; there  were many  ways to  improve road                                                                    
safety and  building an additional  road was not one  of the                                                                    
strongest solutions. She stated  that the bridge's financial                                                                    
plan  showed  KABATA  receiving   a  $500  million  low-cost                                                                    
federal  loan; however,  it had  not been  approved for  the                                                                    
loan during  its five prior attempts.  She communicated that                                                                    
the  proposed toll  was among  the highest  in the  country;                                                                    
therefore,  many drivers  would likely  take the  free Glenn                                                                    
Highway  alternative.  She   furthered  that  KABATA's  toll                                                                    
revenue forecasts were based  on its consultant's projection                                                                    
of  Mat-Su population  growth, which  was  far greater  than                                                                    
projections  from other  sources including  DOR and  the UAA                                                                    
Institute of Social and Economic Research.                                                                                      
                                                                                                                                
Ms. Epstein  continued that  its bridge  revenue projections                                                                    
were inconsistent  with all  other experts  including AMATS.                                                                    
She noted  that KABATA's  consultant put most  future growth                                                                    
in  the   western  region  of   the  borough,  not   in  the                                                                    
Wasilla/Palmer areas  where most  experts believed  the most                                                                    
growth would  occur. She was  disappointed that  the state's                                                                    
plan to conduct an independent  audit of bridge toll revenue                                                                    
was  recently canceled.  She relayed  that any  needed Glenn                                                                    
Highway  expansion could  be  toll-funded including  levying                                                                    
tolls only  at peak  times in order  to spread  out traffic;                                                                    
electronic tolling  could be used,  which would  prevent the                                                                    
need for drivers to slow down.                                                                                                  
                                                                                                                                
Ms. Epstein  pointed to a  project cost of $2.6  billion and                                                                    
noted there  were substantial  costs to  the state  that had                                                                    
been unaccounted for by KABATA.  She urged committee members                                                                    
to spend  time analyzing the  project to ascertain  how much                                                                    
the project  would cost  the state on  an annual  basis. She                                                                    
stressed  that inaccurate  traffic projections  had resulted                                                                    
in  an  annual subsidy  of  more  than  $2 million  for  the                                                                    
Whittier  tunnel, which  was a  much  smaller toll  project;                                                                    
traffic had  peaked in 2007.  She emphasized that  a subsidy                                                                    
could reach $4  million per month. She  accentuated that the                                                                    
bridge was  not a wise fiscally  conservative investment and                                                                    
that    it   would    harm   the    state's   transportation                                                                    
infrastructure  as  a whole  by  syphoning  away money  that                                                                    
would  otherwise be  spent on  maintenance  and upgrades  to                                                                    
existing roads and bridges.                                                                                                     
                                                                                                                                
2:39:52 PM                                                                                                                    
                                                                                                                                
JAMES  KENWORTHY,  SELF,   ANCHORAGE  (via  teleconference),                                                                    
testified  in  opposition  to the  bill.  He  addressed  the                                                                    
state's liability  in the project  and pointed to  Section 5                                                                    
of the  bill. He relayed that  the state would have  a moral                                                                    
obligation  and  KABATA  would  annually  certify  how  much                                                                    
working capital it needed the  legislature to appropriate to                                                                    
the  reserve  fund;  the  state's  credit  rating  would  be                                                                    
adversely impacted  if the  legislature did  not appropriate                                                                    
the money.  He expected that the  contingent liability would                                                                    
cut  the state's  credit rating  if  the bill  passed and  a                                                                    
contract was signed in the  fall. He recommended obtaining a                                                                    
DOR  opinion  in  writing  related  to  the  effect  of  the                                                                    
provision  on  the  state's   credit  rating.  He  suggested                                                                    
looking  to other  reserve  fund  legislation that  included                                                                    
language specifying  that it did  not include  an obligation                                                                    
of the  state. He  emphasized that HB  23 included  the most                                                                    
open-ended blank  check of all  reserve funds  considered by                                                                    
the state.                                                                                                                      
                                                                                                                                
Mr. Kenworthy addressed the size  of the cost related to the                                                                    
project.  He  referenced a  memorandum  he  had provided  to                                                                    
committee members (dated March 27,  2013, copy on file) that                                                                    
documented a minimum cost of  $2.6 billion. He stressed that                                                                    
Wilbur Smith (the  traffic consultant used by  KABATA) had a                                                                    
record  on all  of its  national projects  of overestimating                                                                    
toll revenue by 118 percent;  two projects in South Carolina                                                                    
and  California had  gone bankrupt  and  others were  having                                                                    
their finances  restructured. He  believed the  $600 million                                                                    
extra to finance the bridge  through a private party made no                                                                    
sense; KABATA's August 2012 financial  sheet showed that the                                                                    
private  partner would  put  in $72  million  in equity  and                                                                    
would take  out $737  million in cash  flow. He  stated that                                                                    
the  difference between  the State  of  Alaska (which  could                                                                    
borrow long  at less than  4 percent) and  KABATA's estimate                                                                    
(that they  would finance  at a  12 percent  annual payment)                                                                    
was $600 million sent outside the state.                                                                                        
                                                                                                                                
Mr. Kenworthy  continued that KABATA  had 17,000  fewer jobs                                                                    
than the Mat-Su Borough's  current forecast. He relayed that                                                                    
KABATA's  forecasts assumed  over  4  people per  household,                                                                    
while the  actual number  had been between  2.6 and  2.8. He                                                                    
stated that  KABATA's projection of 36,000  bridge trips per                                                                    
day  in 2035  was  a result  of  inflated numbers  including                                                                    
larger  families and  more people.  He  noted that  KABATA's                                                                    
number  was  twice  the amount  projected  by  CH2MHill.  He                                                                    
concluded that the  tolls would be off by a  factor of 2. He                                                                    
believed the  legislature should  wait to review  the audit;                                                                    
KABATA had a copy and comments were due on April 4, 2013.                                                                       
                                                                                                                                
Mr. Kenworthy spoke to how  the project's liability compared                                                                    
to other  projects under consideration including  a dam, the                                                                    
pipeline,  and other.  He cautioned  that the  credit rating                                                                    
hit  would raise  the  price of  other  projects before  the                                                                    
upcoming   year.    He   estimated   that    deficits   were                                                                    
approximately  $55 million  per  year until  2035 and  would                                                                    
increase to $90 million per  year due to substantial balloon                                                                    
payments included  in the availability payment.  He stressed                                                                    
that the deficits were more  than the state was providing to                                                                    
AMATS  in  Anchorage or  to  Mat-Su;  therefore, the  bridge                                                                    
deficits would be  more than the state aid.  He wondered how                                                                    
the  issue would  be sorted  out.  He wondered  if the  cost                                                                    
would be  put on  the state debt  service for  allocation to                                                                    
pay  $3,500   over  a  35-year   period.  He   stressed  the                                                                    
importance  of obtaining  financial  plan if  the state  was                                                                    
considering financial guarantee. He  relayed that the August                                                                    
2012  plan contained  four  lanes of  revenue  and only  two                                                                    
lanes of cost. He  believed the Legislative Finance Division                                                                    
should  review the  information  or  the legislature  should                                                                    
wait for  the release of  a recent audit. He  emphasized the                                                                    
need for a financial plan that  did not factor in TIFIA as a                                                                    
loan source and  that only included traffic  from four lanes                                                                    
of  revenue  when  the  cost  of  a  four  lane  bridge  was                                                                    
included. He stated that showing  four lanes of traffic on a                                                                    
two lane bridge equated to an extra $1.9 billion.                                                                               
                                                                                                                                
Mr. Kenworthy concluded that the  plan should be for a 9,200                                                                    
foot bridge;  estimates in  2007 had  been conducted  for an                                                                    
8,200  foot  bridge.  He discussed  a  settlement  with  the                                                                    
Municipality of Anchorage  that would add costs  to the east                                                                    
approach road. He  relayed that KABATA had  not followed its                                                                    
geotechnical  consultant's advice  to conduct  more drilling                                                                    
on the  east side of the  inlet; there was clay  in the area                                                                    
and it was not known how deep the pilings would need to be.                                                                     
                                                                                                                                
2:46:16 PM                                                                                                                    
                                                                                                                                
Representative Gara was concerned  about the potential state                                                                    
liability  related   to  toll   revenue  and  the   cost  of                                                                    
construction  and operation.  He wondered  if Mr.  Kenworthy                                                                    
had an estimate and asked about his qualifications.                                                                             
                                                                                                                                
Mr.  Kenworthy  replied  that  KABATA's  estimate  for  toll                                                                    
revenue was  $4.2 billion over  35 years. He pointed  to his                                                                    
memo and  relayed that the  figures had been  volatile since                                                                    
2007; the projection had been as  high as $6 billion; it was                                                                    
$4.8 billion  in 2011.  He stated  that all  other estimates                                                                    
were half of  the estimate. The second issue  related to the                                                                    
four  lane/two  lane  financial calculations.  He  explained                                                                    
that  it  was necessary  to  get  the  balance sheets  to  a                                                                    
minimum bond-cover  ratio of  approximately 1.3  (i.e. $1.20                                                                    
to  $1.40  of revenue  to  cover  $1.00 of  cost);  KABATA's                                                                    
traffic studies showed over 22,000  trips per day. He stated                                                                    
the number  was much  higher than  capacity on  a restricted                                                                    
highway by 2026; there were  four lanes of traffic with only                                                                    
two lanes paid for through 2051.                                                                                                
                                                                                                                                
Representative  Gara asked  for an  estimate of  the state's                                                                    
moral obligation.  Mr. Kenworthy estimated the  figure to be                                                                    
$2.6 billion, which  he had provided in a  paper titled "The                                                                    
Real  Cost of  the  Knik  Arm Bridge."  He  pointed to  $2.1                                                                    
billion in KABATA's  projected toll revenue that  he did not                                                                    
believe  would  come to  fruition.  He  reiterated an  issue                                                                    
related  to  the  projection  for a  four  lane  bridge.  He                                                                    
addressed the  lack of a  TIFIA loan that had  been included                                                                    
in KABATA's financial plan. He  stated that TIFIA loans were                                                                    
currently  3.2  percent;  however,  private  market  revenue                                                                    
bonds were  approximately 7 percent. He  believed the bottom                                                                    
line did  not relate to the  traffic or the TIFIA  loan, but                                                                    
to the  fact that  the bill would  provide a  complete state                                                                    
guarantee to  pay whatever KABATA communicates  is necessary                                                                    
to fund the availability  payments under a 35-year contract.                                                                    
He  emphasized  that  the  cost of  the  contract  with  the                                                                    
consortium  was not  known; the  current  estimate was  $2.7                                                                    
billion and  previous estimates  on KABATA's  balance sheets                                                                    
had been  up to $4  billion. He  added that the  state would                                                                    
suffer  a  credit  downgrade  if  it did  not  make  up  the                                                                    
difference to the availability payments.                                                                                        
                                                                                                                                
2:51:11 PM                                                                                                                    
                                                                                                                                
DARCY   SOLOMON,  MEMBER,   MAT-SU  BOROUGH   ASSEMBLY  (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
believed   that  testimony   against   the  bill   contained                                                                    
fallacies. He had  been one of the  original KABATA members.                                                                    
He   discussed  vision   that  had   been  responsible   for                                                                    
developing  infrastructure  in  the  United  States  and  in                                                                    
Alaska.  He  recalled  the vision  to  create  a  360-degree                                                                    
intermodal  transportation  corridor  that would  bring  the                                                                    
economies  of Anchorage  and Mat-Su  together; the  plan had                                                                    
begun  with  Port MacKenzie.  He  stated  that there  was  a                                                                    
three-legged stool including the port,  the rail spur to the                                                                    
Interior, and the Knik Arm  Bridge. He believed that numbers                                                                    
presented by opposition did not  take into consideration the                                                                    
value of  what the vision  brought to Alaskan  residents. He                                                                    
emphasized that the people  of Alaska overwhelmingly favored                                                                    
the  bridge. He  discussed that  former Senator  Ted Stevens                                                                    
had stated that the bridge  could be built if Port MacKenzie                                                                    
was   constructed.   He   addressed   transporting   natural                                                                    
resources from the Interior and  bringing the workforce over                                                                    
from  Anchorage. He  pointed to  a 1,500  bed prison  in the                                                                    
area that  was one-third full and  employed 400 individuals.                                                                    
He stressed  that it was  necessary to focus on  the benefit                                                                    
that the  vision would bring  and not  the cost. He  did not                                                                    
believe  prior  testifiers  had been  in  support  of  other                                                                    
infrastructure projects  including the rail spur.  He opined                                                                    
that the  bridge would be  explosive and worthy  for Mat-Su,                                                                    
Anchorage, and  the North Star  Borough. He  emphasized that                                                                    
the project  would benefit the  state. He stressed  that the                                                                    
project was one  of the Mat-Su Borough's  top priorities. He                                                                    
believed  the   project  would  move  the   economy  forward                                                                    
exponentially.                                                                                                                  
                                                                                                                                
2:56:36 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Representative Gara noted  he had a question  related to the                                                                    
moral   obligation.   Co-Chair  Stoltze   communicated   his                                                                    
preference to have the discussion when there was more time.                                                                     
                                                                                                                                
Vice-Chair  Neuman stated  that  none of  the testifiers  in                                                                    
opposition to the bill were  experts in traffic analysis. He                                                                    
read  from  a DOR  letter  written  by Commissioner  Butcher                                                                    
dated March 30, 2011 (copy on file):                                                                                            
                                                                                                                                
     Finally, you  asked about by confidence  in the revenue                                                                    
     projections and  financial analysis provided  by KABATA                                                                    
     in its  March 1  TIFIA letter  of interest.  KABATA has                                                                    
     retained CITI,  one of the largest  and most successful                                                                    
     financial services  firms in  the world,  especially as                                                                    
     it  relates to  government financing  of infrastructure                                                                    
     projects,  to  develop  its  financial  models.  KABATA                                                                    
     retained Wilbur Smith, a firm  that has advised on many                                                                    
     successful projects to do its  traffic and toll models.                                                                    
     I  am  confident  that   the  revenue  projections  and                                                                    
     financial  analysis  are  objective  and  done  to  the                                                                    
     highest of professional standards.  This is the type of                                                                    
     work  that will  be  accepted and  relied  upon by  the                                                                    
     institutional  investors  that  may  be  interested  in                                                                    
     financing this project.                                                                                                    
                                                                                                                                
Vice-Chair Neuman expressed  emotion over misstatements that                                                                    
he believed  had been made.  He discussed  current financial                                                                    
restraints  and  the  search  for  ways  to  supplement  and                                                                    
diversify revenue.  He stressed that the  bridge development                                                                    
would   provide  over   $1  billion   in  private   industry                                                                    
investment and  1,500 jobs for  the state. He  remarked that                                                                    
the state was close to $1  billion in deficit and pointed to                                                                    
the increased number  of people on food  stamps. He stressed                                                                    
that the number  would continue to increase.  He believed it                                                                    
was important  to do everything  the state could  to partner                                                                    
with private  industry to create  jobs. He  mentioned safety                                                                    
issues.                                                                                                                         
                                                                                                                                
Co-Chair Stoltze noted that the  date on the DOR letter from                                                                    
Commissioner Butcher  should be changed from  March 30, 2010                                                                    
to March 30, 2011.                                                                                                              
                                                                                                                                
3:01:09 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman noted  that  the bill  moved the  project                                                                    
forward to  a final  design and contractual  agreements that                                                                    
would   be  reviewed   by   the   Departments  of   Revenue,                                                                    
Transportation, and  Law. He stated that  road projects were                                                                    
not  typically  brought  back  before  the  legislature  for                                                                    
approval;  he   believed  that  doing   so  would   be  time                                                                    
consuming.  He  noted  that  the   bill  allowed  the  chief                                                                    
executive under  the Department  of Law  to ensure  that the                                                                    
state's interests were protected.                                                                                               
                                                                                                                                
Co-Chair Stoltze stated that the  bill would be revisited in                                                                    
the near future.                                                                                                                
                                                                                                                                
HB  23  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
3:02:41 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:22:06 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
HB 23 2012 Gov TIFIA Letter of Interest (2).pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Common Myths of Knik Arm Crossing.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Importance of Legislation for TIFIA Loan.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 KABATA Fact Slides.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 KABATA Summary of Legislation.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Sponsor Statement.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Testimony Opposition.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Memo to House Finance Kenworthy.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23-KABATA House Finance Presentation (PDF).pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Traffic Safety Corridors.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Pt. MacKenzie Townsite.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Answers to Recents Comments.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
CS WORKDRAFT HB 4 FIN R.pdf HFIN 3/28/2013 1:30:00 PM
HB 4
HB 23 DOR Letter SB 80 dated 3-30-11.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
SB 80
HB4-RCAbackground.pdf HFIN 3/28/2013 1:30:00 PM
HB 4
HB 112 Support.pdf HFIN 3/28/2013 1:30:00 PM
HB 112
HB 112 Letters-Opposition Pkt 1.pdf HFIN 3/28/2013 1:30:00 PM
HB 112