Legislature(2005 - 2006)SENATE FINANCE 532
03/02/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB232 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 232 | TELECONFERENCED | |
| += | SB 264 | TELECONFERENCED | |
| += | SB 243 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
March 2, 2006
9:05 a.m.
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:05:01
AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: ROBIN TAYLOR, Deputy Commissioner/Director of
Marine Operations, Marine Highway System, Department of
Transportation and Public Facilities and Former State Senator;
NANCY SLAGLE, Director, Division of Administrative Services,
Department of Transportation and Public Facilities
Attending via Teleconference: From an offnet site: RICHARD
LEARY, Business Development Manager, Marine Highway System,
Department of Transportation and Public Facilities
SUMMARY INFORMATION
SB 232-APPROPS: ENERGY-RELATED, PIPELINE & MISC.
The Committee heard from a presentation from the Alaska Marine
Highway System, Department of Transportation and Public
Facilities. The bill was held in Committee.
SB 264-FAST TRACK SUPPLEMENTAL APPROPS
The bill was scheduled but not heard.
SB 243-TOBACCO REV. FOR UNIV. & CORR. FACILITIES
The bill was scheduled but not heard.
SENATE BILL NO. 232
"An Act making special, supplemental, capital, and other
appropriations, amending appropriations, and making
appropriations to capitalize funds; and providing for an
effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed the Committee that the committee
substitute for this "double fast track" supplemental bill is
nearly complete. However, there is "an obvious hole" in it in
regards to the large supplemental request presented by the
Alaska Marine Highway System (AMHS). Therefore, the decision was
made to focus today's discussion on the AMHS component. In
recognition of the fact that many items in the bill involved
"sensitive timing issues", he stressed that the committee
substitute would be completed in a timely manner.
9:07:12 AM
ROBIN TAYLOR, Deputy Commissioner/Director of Marine Operations,
Marine Highway System, Department of Transportation and Public
Facilities and former State Senator introduced himself.
Co-Chair Wilken assured Senator Taylor that the Committee was
aware the AMHS would require funding assistance this month.
Nonetheless, the dilemma he and other members of the Legislature
are facing is whether to provide the AMHS with "a dollar or a
hundred million." Therefore, having Senator Taylor explain AMHS
funding needs was deemed important.
Co-Chair Wilken noted that in addition to requesting
approximately $15 million in the FY 2006 supplement bills, AMHS
would be presenting approximately $19 million in new FY 2007
requests. The Legislature would prefer to understand the
situation rather than make "wild guesses" about it. He noted
that in order to more thoroughly "refine" the needs of the AMHS,
the forthcoming committee substitute would include a $1 million
AMHS "placeholder"; the final number would be provided later,
possibly through the amendment process. The question is "where
do we go from here? You brought us to sort of a crossroads and I
think it's more than just throwing money at it." In essence,
Senator Taylor has been invited today to "sell" the Committee on
the AMHS double fast track request, its regular fast track
request, and the requests that would be presented in the FY 07
budget.
9:10:19 AM
Senator Taylor declared that the Legislature is not alone in its
struggle on how to address the needs of the AMHS. The AMHS has
been "in transition" for several years, "but it has been a
halting process … with one step forward and almost two steps
back." AMHS has not received "good clear direction" from either
the executive body or the Legislature for the last ten to twelve
years. In approximately 1993, AMHS began increasing fares with
the anticipation of increasing revenues to support its
unchanging system. Unfortunately, this resulted in a
"significant decline in ridership". While more than 400,000
passengers used the system in 1993, ridership declined to
296,000 passengers in 2005. No other transportation system has
experienced a similar loss.
Senator Taylor stated that while fares increased 17 percent in
2005, ridership decreased and the system lost revenue. Prior to
2005, fare increases had generated small revenue increases in
spite of carrying fewer passengers and vehicles.
Senator Taylor communicated that "the transition" he had
referred to could be characterized as a "mindset". Over the
years, each of the State's transportation plans for Southeast
Alaska had called for the "incremental development of small road
segments that would allow us to run from road head to road head
instead of from city to city." This approach would shorten the
routes the ferries must transit. Currently the 170-mile run from
Petersburg to Sitka on one of the System's displacement hulled
vessels takes approximately ten hours or longer if tides were a
consideration.
Senator Taylor continued that, while a great deal of thought has
been given to where roads might be constructed, no process to
implement the plan has occurred. The previous Administration had
a "very strong philosophy" not to build roads. The technological
alternative being promoted six or seven years ago for marine
transportation was "some type of high speed vessel such as a
catamaran". State Senator Bill Ray arranged for a Boeing
hydrofoil to conduct trial tests in Southeast Alaska in 1986.
$3,500,000 was spent on that unsuccessful venture.
Senator Taylor noted that, due to the "strong desire" not to
construct roads, "the transition" began with the purchase of two
high-speed ferries, the M/V Fairweather and the M/V Chenega.
Unfortunately, these boats have not performed well in the
State's winter weather. This is substantiated by the fact that
while the older 17-knot displacement hulled vessel, the M/V
LeConte, has been able to operate from point to point, the M/V
Chenega's runs up Lynn Canal were cancelled. Cancellation of
these trips did not reduce expenses as the boat's crew and
maintenance expenses must be paid.
Senator Taylor reminded the Committee that except for
maintenance or upgrade work, the State's ageing displacement
hulled vessels operate 24-hours a day. One of those vessels is
43 years old. However, for the past five years, as a result of
the decision to transition to a fast ferry delivery system, "the
majority" of AMHS money "has gone into not only building those
boats but building" or modifying terminals to fit those boats.
The overall investment for this concept would amount to
approximately $150,000,000. While the concept might work in the
summer, "it would certainly not work in the winter" when the
fast ferries could not operate due "to weather, because of
sucking up logs as we did in Ketchikan, because of high costs
and low ridership."
Senator Taylor informed the Committee that a system utilizing
shuttle ferries, new short distance roads, and some new
terminals would benefit the State. The idea is not new; it has
been presented in Southeast Alaska transportation plans for
twenty years. Unfortunately the idea had not been carried out.
The system "is stuck halfway between an existing fleet, a new
configuration of that fleet or some other fleet". This is also
one of the most expensive periods facing the Marine Highway
System, as the older boats must be maintained while new
traditional style shuttle ferries are brought into servicing
shorter runs. The shuttle ferry M/V Lituya and the Inner-Island
Ferry Authority operations have proven that the shuttle system
would work very efficiently in comparison to the current system.
Senator Taylor informed the Committee that the M/V Lituya
provides roundtrip shuttle service between Metlakatla and
Ketchikan two times a day. The vessel is currently experiencing
a 90 percent "cash box ratio". In other words, it is generating
nine dollars for each ten dollars of operating costs. No vessel
in the fleet "even comes close to that."
Senator Taylor expressed that routes could be configured for the
M/V Chenega and the M/V Fairweather for the summer of 2006 that
might recoup and perhaps generate more revenue than their
operational expenses. It was unlikely that this could be
accomplished in the wintertime however.
Senator Taylor shared with the Committee that when he assumed
his position with AHMS in 2005, decreasing ridership was an
issue of concern. The system was losing money and losing riders.
In an effort to change that situation, special promotions were
implemented. For example, the fares on the trip to Pelican were
reduced fifty percent, and, as a result, a boat that for a
decade had historically carried an average of ten people per
trip, experienced passenger loads of 195 people. The run's
revenues increased from $1,000 to approximately $13,000 per
trip. Progress is being made. Rates on other routes were
reduced, and a significant increase in volume into communities
such as Cordova was experienced. The increase in ridership
provided economic benefits to both the AMHS and the community.
However, there is a limit to how far such promotions could be
taken. The good news is that by reducing roundtrip rates for
Alaskans by 30 percent, the M/V Columbia experienced full
sailings northbound out of Bellingham, Washington for the
majority of January and February. At this point, the car deck
space on that vessel is completely sold out for the month of
March and is 80 percent full for April. This volume of traffic
has never been experienced before in the wintertime.
Senator Taylor stated that because of a $500,000 FY 06
allocation, AMHS was able to contract with a marketing firm and
hire a marketing specialist. Concentrated efforts are being made
to increase ridership. In addition, the AMHS website has been
improved and bookings made on the site have increased. AMHS is
able to track the response to discounted fares offered on the
website.
Senator Taylor pointed out however that the "systemic line is
still the same." AMHS is comprised of a series of older vessels,
some new "very expensive boats", and must accommodate
unpredictable fuel prices. Based on prior year prices, AMHS fuel
was budgeted at $1.14 per gallon in FY 06. The volume of fuel
budgeted for was 10,300,000 gallons. However, the system has
actually used 13,500,000 gallons, an increase of approximately
30 percent, and the price of fuel increased to a high of $2.65
in the summer of 2005. The current price is approximately $2.05
per gallon. Prices ranging between $2.10 and $2.20 are
anticipated in the future.
Senator Taylor stated that shutting down vessels would not be
the answer due to such things as the conditions of the union
contracts. Due to the success of the promotions, AMHS is
currently reflecting an 18 percent net increase in winter
service. All things considered, it is cheaper to operate a boat
than it is to tie it up. Even when a vessel is tied up, expenses
are still incurred as a captain and crew must be on board and
line handlers must be available. When those expenses are coupled
with the loss of revenue, the more economical choice would be to
operate the vessel rather than to tie it up.
Senator Taylor noted that, while consideration had been given to
taking the M/V Chenega out of service, the decision was made to
keep it operating in order to keep its crews trained for summer
time service. In order to operate, each fast ferry must have two
17 member fulltime trained crews available, and, in order for
the crew to be certified by the United States Coast Guard, each
fast ferry must make 12 empty runs on each route. Each empty run
costs $10,000 per day for fuel. While training was initially
estimated to cost $500,000, actual training costs have amounted
to $3,200,000 to date.
Senator Taylor shared that the M/V Fairweather is currently in
dry dock having three of its engines and other equipment
repaired. It is expected to resume its duties in April 8, 2006.
That is an important date, as the M/V Fairweather would assume
the M/V Chenega's Southeast Alaska routes when the M/V Chenega
moves to Prince William Sound to train, hire another crew, and
be ready for revenue service in May.
9:25:28 AM
Senator Taylor addressed Co-Chair Wilken's question about "where
do we go from here" by opining that "there had been very little
coordination in the past between the highways portion" of the
Department of Transportation and Public Facilities and the AMHS.
Over the past several months, the Department, under the
leadership of Commissioner Mike Barton, has been "struggling …
to develop federal contracts" that would allow for the
construction of the short connection roads, including the
construction of a 1.2 mile road on Wrangell Island and a
terminal that would be served by "a dayboat shuttle" operating
out of Ketchikan. Another road and temporary terminal location
being discussed would relate to the Juneau Access Road study.
Having a temporary terminal in Berner's Bay would reduce by more
than fifty percent "the operating costs and time to operate"
between Juneau and Haines. This route has the "highest volume of
traffic" of any of the AMHS routes.
Senator Taylor communicated to the Committee that during the
summer, AMHS has more than 320 fulltime employees on vessels
operating in Lynn Canal. A terminal located in Berner's Bay
would allow a small shuttle ferry to make two round trips
between Juneau and Haines in a twelve hour work day. Another
small ferry could operate between Haines and Skagway. In
addition, the crews could go home at night rather than being
required to live on the boat. This scenario would require a
total crew of approximately 50 people, including maintenance and
stand-by employees.
Co-Chair Wilken understood therefore that this scenario would
require approximately 50 employees rather than 300.
Senator Taylor affirmed. Continuing, he noted that rather than
being required to operate 400-foot vessels, the proposed
scenario would operate approximately 250-foot vessels that could
carry 100 vehicles. With the exception of the M/V Columbia,
which can carry 130 vehicles, no other vessel in the fleet
currently has the capacity to carry 100 vehicles. The Berner's
Bay terminal would allow other AMHS vessels to run northward
from southern ports and terminate in Juneau where their
passengers could connect to the Lynn Canal route. This scenario
would mirror the connection currently in place with the M/V
Lituya and the Inner-Island Ferry Authority ferry that travels
to Hollis. Another important consideration would be that the
ferries could have definitive schedules.
Co-Chair Wilken asked the route assigned to the M/V Lituya.
Senator Taylor responded that the M/V Lituya transits between
Ketchikan and Metlakatla. While Metlakatla is "one of the
poorest, highly unemployed communities" in Southeast Alaska, the
M/V Lituya's car deck is practically full on each run. He avowed
that the AMHS's 30 percent off and "Driver Rides Free"
wintertime promotion on this route has contributed to this
scenario.
Senator Taylor declared that "significant efficiencies" would be
experienced were the shuttle system expanded in Southeast
Alaska.
Senator Taylor recalled that, in 1999, he and Senator John
Torgerson had tried to implement a shuttle system program
without success.
9:29:34 AM
Senator Taylor declared that this is the time to "implement that
type of program". The Marine Transportation Advisory Board has
also provided input to the Department on this project. The
project is becoming closer to being a workable plan. "There is a
bright horizon" ahead. He disclosed that a Request For Proposal
(RFP) to hire a consultant would be advertised in a few days
with the anticipation that "a contract would be let this spring
for a shuttle vessel". "It makes absolutely no sense to have a
boat that's got 60 some crewmembers on it going into a village
with less than 35 people." This is currently the case.
Senator Taylor commented that, "politically, I don't know what
would be the appropriate level of essential services. I can't
set that. It just kinda of gets set by pressures being brought
on this system."
9:30:39 AM
Senator Dyson voiced appreciation for "the thought" that has
been provided to the AMHS situation. Continuing, he voiced
concern regarding the loss of ridership AMHS has experienced. To
that point, he asked whether people have opted instead to fly or
have chosen not to travel.
Senator Taylor responded that in addition to flying, people are
choosing to drive an alternate route through Canada. Canadian
roads have improved and the trip is less expensive than riding
the AMHS. Those desiring access to Juneau or other communities
in northern Southeast Alaska are choosing to drive to either
Haines or Skagway and riding the ferry from there rather than
riding the AMHS north from southern terminals.
9:32:08 AM
Co-Chair Wilken noted Commissioner Mike Barton had joined the
hearing.
Senator Taylor provided cost comparisons between the AMHS and
other travel options. The cost for two people to travel
roundtrip on the AMHS between the southern terminus in
Bellingham, Washington to Juneau with a two-berth stateroom
would be $1,940. Meals for the six-day trip might amount to
$600. The total cost would be $2,540.
9:33:16 AM
Senator Taylor stated that traveling to Juneau on the cruise
Norwegian Sun would be $1,000 cheaper, and would include meals
and entertainment. Other ships offered lower prices. Due to the
rate increases, the AMHS could no longer be referred to as "a
poor man's tour ship." The people riding AMHS vessels "are
desperate; they can't get from point A to point B any other
way". Were there another option, they would take it. When
options such as flying or using barges are available, people are
taking them. The system has lost ridership and must woo it back
in order "for this system to be justified by this Legislature."
9:34:25 AM
Senator Dyson asked the percent of AMHS costs resulting from
labor.
Senator Taylor deferred to Richard Leary of the Department.
9:34:41 AM
RICHARD LEARY, Business Development Manager, Alaska Marine
Highway System, Department of Transportation and Public
Facilities, testified via teleconference from an offnet site and
stated that wages and other labor expenses account for "64
percent of the total dollars spent" by the ferry system.
Senator Taylor informed the Committee that Mr. Leary was hired
in July 2005 to fill the newly created Business Manager
position. Since that time, Mr. Leary has restructured the AMHS
accounting system. Other changes that were long considered have
been implemented. One important issue that has been addressed is
the manner in which AMHS conducts its dispatching. In 2005,
Senator John Torgerson, who at the time was Special Assistant to
Commissioner Mike Barton, conducted a study in regards to AMHS
overtime. That study found that AMHS overtime amounted "to 22.5
percent of total payroll".
Senator Taylor shared that due to vessel operation demands and
the fact that a substantial amount of employees have retired,
overtime has been required while new employees were being
recruited and trained. Therefore, he surmised the current
overtime rate to be "significantly higher" than 22.5 percent. He
informed the Committee that within the last week, a contract was
signed that would implement a computerized dispatch program that
would determine employee schedules on a quarterly basis.
Employees would be able to plan vacations and have a predictable
schedule. This program would assist in addressing overtime
expenses.
9:38:26 AM
Mr. Leary informed the Committee he would be available to
respond to questions.
9:38:43 AM
Senator Stedman characterized the issues facing the AMHS as "a
deep and complex quagmire". Nonetheless, it is critical that
there be "long-term viability" in regards to the AMHS, as it is
a critical piece of the transportation "infrastructure" for
State coastal communities. To that point however, the
Legislature must oversee the State's resources in a prudent
manner. The AMHS is challenged by a variety of issues including
scheduling.
Senator Stedman recalled the Department touting the benefits
that would be provided by the fast ferries the M/V Fairweather
and the M/V Chenega: they would improve service and they would
be able to operate in areas such as Lynn Canal, which is known
for high winds, Clarence Straits which has floating logs, and
Stephen's Passage which has icing conditions. "These are not
easy waters to transverse on thin-skinned hulls at high speeds."
Thus he asked regarding the vessels' speeds and wave height
capabilities as presented in their design specifications as
opposed to the actual running conditions in which the vessels
could be operated.
9:40:48 AM
Senator Taylor stated that, when he was a member of the
Legislature, he was on record in opposition to the purchase of
the fast ferries. "It is more than ironic" that he now is in the
position of attempting to conduct "due diligence on these
vessels" which were supported by both the Legislature and the
Southeast Alaska Transportation Plans. He noted that the AMHS
recently decided not to purchase two additional fast ferries as
allowed by an "alleged option agreement within the contract".
Governor Frank Murkowski's Administration tasked him with
developing a report on the fast ferries that would include such
things as costs and performance. While the fast ferries have had
a limited amount of operational time and more years would be
required in which to thoroughly conduct trials, records have
been compiled and the report has been finalized. The State has,
to date, expended in excess of "$150,000,000 on this experiment
and has endeavored to make it work, regardless of his personal
view of the vessels. The answer to the question of whether the
fast ferries are working or not "is still evolving". The
experience, to date, has "not been really good in some areas. I
think they can perform if you give them a short enough run, a
high enough volume of people, and you can charge a fair enough
price." The vessels could operate in the summer on heavy traffic
routes. That is in essence where they are assigned. The M/V
Fairweather would be operating out of Juneau serving Sitka and
Lynn Canal. The Department is optimistic that this summer time
route would work well.
Senator Taylor affirmed that both vessels have experienced wave
damage to date. Due to bow damage experienced by the M/V
Fairweather, the M/V Chenega's bow had been reinforced prior to
leaving the shipyard. Unfortunately, waves hitting under the
catamaran style vessel resulted in under-carriage damage. While
wave damage to both vessels has been repaired, corrosion
problems were recently discovered in three of the M/V
Fairweather's four engines. Addressing this issue has caused
further delay in getting the vessel back in operation. Cracks in
the vessel's reduction gears were discovered when the engine
work was being conducted. This might cause further delay. The
manufacturers of the engines and the gearboxes are working to
correct the problems while the vessel is in the Ketchikan
shipyard. The repairs might require approximately $600,000 in
labor. While the cost of the parts is unknown at this time, this
work to rebuild the engines could exceed $750,000. Thus, the
AMHS is concerned about future major maintenance costs, major
operational costs, and high fuel costs.
Senator Taylor stated that some have argued that, since the fast
ferries travel twice as fast as traditional vessels, the fuel
expenses would be the same; however, that is not the case. Fuel
on a traditional vessel might amount to 25 percent of the
operating expenses, fuel expenses on the fast ferries is 37
percent. The fast ferries are consuming approximately 600
gallons an hour. Each roundtrip between Juneau to Sitka would
cost $10,000 for fuel. A high passenger count would be required
to offset such operating expense.
9:47:59 AM
Senator Taylor declared that the fast ferries could work were
they operated on shorter runs in the summer.
Co-Chair Wilken concluded from the remarks that the average
speed of the fast ferries would not be double that of
traditional ferries.
Senator Taylor replied "yes."
Co-Chair Wilken asked whether the engine and reduction gear
repairs being conducted was warranty work.
Senator Taylor responded that quite a discussion has transpired
in this regard. The Division of Risk Management, Department of
Administration, became involved when the manufacturer denied
being "responsible since it was past the warranty period". The
State argued that the parts should not have failed after one and
a half years of usage. While the engine manufacturer has agreed
to underwrite the necessary repairs, no agreement has yet been
reached with the reduction gear manufacturer.
AT EASE 9:48:57 AM / 9:49:44 AM
Co-Chair Wilken stated that in order to thoroughly discuss the
AMHS, the other bills scheduled for today's hearing would not be
heard.
Senator Stedman stated that the fact that the fast ferry M/V
Chenega could not conduct its route today due to high seas
underscored the concern that the actual performance of the fast
ferries differs from the benefits initially lauded. Continuing,
he recalled there being a document that compared the gross
revenues verses expenses experienced by the AHMS in the summer
and in the winter. He asked that this information be provided.
He understood that the revenues generated by the traditional
hulled vessels was 60 percent of the operating costs as compared
to revenues amounting to 17 percent of operating costs of the
fast ferries.
9:51:28 AM
Senator Stedman stated that in order to make the "best decision
we can under difficult circumstances", the Committee must be
provided "as much information as possible" regardless of how
"difficult or unattractive" the information; particularly in
regards to "the issue of the fast ferries being a substantial
cash draw on the system". Continuing, he understood that the M/V
Le Conte is also a lost leader in the mono-hulled arena.
9:52:08 AM
Senator Taylor informed the Committee that AMHS could now
provide costs and revenues per week per vessel for the past
year.
Senator Taylor communicated that it would cost $250,000 per
week, or one million dollars a month, to operate the two fast
ferries. Were training expenses "loaded in", the weekly costs
would amount to $278,000. Were one to assume that the same
employees would man the ship for five to ten years, the costs
could be "amortized" to $230,000 per week. Thus the average
would be $250,000 per week. The M/V Chenega generated $10,000 in
revenue per week on winter runs from Ketchikan to Juneau. People
have argued that the vessel had been placed on the wrong run. He
countered by asking which run would have been better suited, as
that run was determined to have the best potential number of
travelers. The question that needed to be answered at the time
was whether or not the vessels' performances would warrant the
expenditure of another $100,000,000 for two more fast ferries.
The third fast ferry would have transited the route between
Petersburg and Ketchikan. That route is notorious for logs, as
supported by the fact that in 29 days, the fast ferry running
that route sucked up 14 logs. Other trips on that route were
cancelled due to high waves.
Senator Taylor stated that the fast ferries were initially
designed to handle 13-foot seas. Furthermore, he disclosed that
Coast Guard requirements dictate that these vessels must take
shelter when seas exceed ten feet. "That makes a dramatic
difference in Southeast operations." The original 13-foot seas
design specification was changed and the vessels' "wet deck was
lowered three feet". He recalled that when he had raised a
question about the fast ferries' docking needs, the response
from Department of Transportation and Public Facilities
officials at the time had been "don't worry about it Senator
Taylor, these boats will fit these docks." Nonetheless, new
docks, each costing approximately $13,000,000, were constructed
in Whittier, Valdez, Cordova, and Petersburg. The dock in
Petersburg was constructed in an area that could not accommodate
other State ferries 176 days a year when tides were low.
9:56:57 AM
Senator Taylor stated that other design specification changes
were made. The original vessel design would have provided fresh
water domestic sewer services on the fast ferries. "The
manufacturer decided that was going to be too much weight" for
the vessels to carry around, and instead, a saltwater flush
system was installed. The result of this is that each night when
the fast ferry docks, a private sewer pumping truck must pump
off approximately 3,000 gallons of saltwater sewage. That load
is then transferred in a controlled manner to the community's
sewer system, as otherwise dumping a concentrated amount of salt
water into the sewage system would harm the sewer system's
ecosystem. While he was uncertain of the cost for this sewage
transport contract, such change orders have had a tremendous
impact on the operating costs of the fast ferries. The AMHS
mono-hulled vessels have certified fresh water sewer systems and
do not have such a problem.
Senator Taylor noted that in order to remove 20,000 pounds from
the fast ferry's weight, another change order removed the hard
ramps on the boat. Thus, each shore ramp had to be rebuilt and
equipped with that ramp. The boats' original design would have
allowed them to transit Sergius Narrows at any tide. Now,
however, due to a liability concern, fast ferry captains refuse
to transit Sergius Narrows when the tide action running through
it exceeds 5.2 knots. The consequence of this is that rather
than the boat being stationed in Sitka as originally planned,
the boat now operates out of Juneau and runs to Sitka must be
scheduled to accommodate the Sergius Narrows tidal flow. This
constraint on the fast ferry's operating schedule also increases
operating expenses. In addition, the public cannot be provided a
regular scheduled run.
Senator Taylor stated that the decision has been to concentrate
on determining the most efficient way to operate the fast
ferries rather than to dwell on who made the design changes.
10:01:05 AM
Co-Chair Wilken asked that the discussion now be directed toward
the financial status of the operation.
10:01:12 AM
Senator Stedman declared that it would be unreasonable to expect
AMHS, or any highway for that matter, "to run at a positive cash
flow". Nonetheless, he requested that a financial statement on
the AMHS system be developed in a similar fashion to that, for
example, of a community's water system or "any type of
enterprise funds at city hall". The objective of this endeavor
would be to determine "how bad of a quagmire we are dealing
with". This financial statement should present the AMHS "as a
standalone enterprise" and include shore costs and training
expenses; thereby making it easier to "concentrate on the
financial end" of the issue in order to continue to provide a
"transportation system for the coastal communities".
10:02:25 AM
Senator Taylor, stating that a financial statement could be
provided, noted that Mr. Leary designed and implemented an
enterprise fund accounting system.
10:02:43 AM
Mr. Leary stated that the January 2006 financial statement was
available. The February 2006 statement would be finalized within
a few days.
10:03:07 AM
Co-Chair Wilken asked whether Mr. Leary was headquartered in
Ketchikan.
Mr. Leary responded that he was.
10:03:23 AM
Senator Hoffman requested that a breakout of Alaskan verses non-
Alaskan ridership throughout the year be provided. This would be
helpful in determining "who is actually benefiting" from the
service.
Senator Taylor responded that while it has been difficult "to
nail" that information down, "good approximations" could be
provided.
10:04:22 AM
Co-Chair Green recalled the numerous times Senator Taylor
questioned the feasibility of fast ferries during and prior to
his time as a member of this Committee.
Co-Chair Green observed that, to this point, no encouraging
information has been provided about the fast ferries. Thus, she
questioned whether "there might be a point in time" at which the
State should "cut our losses" and further other options; in
other words was "there a bail out plan?"
10:05:17 AM
Senator Taylor stated that the Murkowski Administration has
indicated that at some point a business decision regarding the
future of the fast ferries must be made. He, as the
representative of AMHS, has requested "a little more patience."
The desire would be that AMHS be allowed to operate the fast
ferries through the summer of 2006. A decision could be made in
the fall of 2006 after both vessels have had an opportunity to
operate for a sufficient amount of time on a "stable" run.
Senator Taylor declared that considering the investment the
State has made in the fast ferries and the modifications that
have been made at ferry terminals, the decision "not to use" the
fast ferries would really place the system in "a jam". Other
boats would be required to provide "some level of essential
service" were the fast ferries removed from service. Service on
the Lynn Canal route would be an issue. This "complex issue"
would require further consideration. Thus, a bailout plan has
not been developed.
Senator Taylor also communicated that the State would be
required to reimburse the federal government were the fast
ferries sold.
Co-Chair Green asked when the State would be dismissed from that
obligation.
Senator Taylor understood that the State must operate the
vessels for five years before they could be "surplused out".
Senator Taylor stated that due to the fact the vessels are
expensive to operate and dangerous in the winter, the current
plan would be to tie them up next winter. The question is
whether that would be the proper solution. Other options could
include identifying shoulder season routes the vessels could
operate less expensively than another AHMS vessel "that carries
more crew". "Right now, the long-term plan is about six months".
A decision could be made about what to do with the vessels then.
Senator Taylor declared that, "the decision must only be made
based on good hard factual evidence of running experience,
revenues, maintenance costs." The person holding his position
should be "required" to provide "a good solid series of
information and numbers so that you can look your constituents
and the people of the State of Alaska in the eye and say we
gave'em a fair trial, here's what it costs, and we had to make a
decision." While insufficient data is currently available upon
which to make a decision, sufficient data would be available by
the fall of 2006. The fast ferries have a "huge impact" on the
State's budget, as, excluding training expenses, their year-
round operating costs would amount to $24 million per year.
10:08:33 AM
Senator Dyson, a boating enthusiastic, noted that a substantial
amount of the world's commerce is efficiently transited by sea.
However, he suggested that flying and barging wares and vehicles
during times of inclement winter weather might better serve
State residents. To that point, he asked whether information is
being compiled upon which "to predict when the State would be
better off flying the people and/or subsidizing that rather than
subsiding the vessels".
Senator Taylor stated that such information is being compiled.
Senator Dyson stressed that this information should be "part of
our long term analysis to figure out how we get out of this very
expensive dilemma".
Senator Taylor remarked that, had the decision been made not to
operate the M/V Chenega, the State could have chartered planes
to transport people "and moved their cars by sky crane
helicopter and saved money". The real out-of-pocket expense per
capita "was pretty horrendous". Continuing, he voiced
uncertainty as to "how relevant that was to this Committee". He
could provide "a whole series of different operations" conducted
by AMHS in which it would be more "efficient to transport those
people by barges" or airplanes "than to operate the boat".
However, the fact is that ferry service "is the essential
transportation system" for certain communities. Continuing, he
noted that airplane service could also be unreliable and when
airline service was unavailable, "people get on board our
boats". The very first question asked by people on a plane that
overflies a community due to such things as fog is, "Hey is
there a ferry going someplace? Could I go on that one?" The
ferry system is an essential service.
10:11:27 AM
Senator Stedman pointed out that the employees of the AMHS are
dedicated to providing good service. In addition, they are "very
concerned about the viability" of the system. They should be
assured that the Legislature is not "ready to pull the bilge
plug and walk off the boat on the Marine Highway System". The
Legislature "would work through this issue." Older AMHS vessels
such as the M/V Taku, the M/V Malaspina, the M/V Matanuska, and
the M/V Columbia have served reliably for a long time. One issue
that must be addressed is the two new fast ferries. The second
issue would regard the smaller AMHS ships the M/V Aurora and the
M/V LeConte. The decision would likely be that there are areas
in which alternative options would work better.
Co-Chair Wilken thanked Senator Stedman for his remarks as they
reflect the reason for these discussions. The Committee should
not "take the easy way out".
10:12:35 AM
Senator Olson asked whether older financial statements were
available.
Senator Taylor responded that "there have always been methods of
allocating cost and expense and providing for revenue reflection
within this system, but they were carried in about six or seven
different aspects" including Administration, shore side
operations, and reservations. "They were reflected as different
component parts" rather than as "one single enterprise fund type
approach". The recently implemented accounting system could
answer the question "of for how many dollars you bring in
through the cash box, how many dollars does it cost to run" each
vessel. Costs are now allocated per vessel, including the cost
of insurance for each vessel. A vessel the size of the M/V
Columbia would incur a larger insurance premium that the smaller
vessel the M/V Lituya. While such information was available
previously in different components of the budget, the new
business approach accounting system could provide consolidated
per-vessel information.
Senator Olson opined that the numbers present "a fairly
pessimistic picture". He asked the affect the fast ferries have
had on people who use the system; specifically whether they have
experienced a "dramatic change" in service. While the Committee
must address the situation from a financial position, the impact
of the fast ferries should be a consideration.
Senator Taylor shared that the fast ferries have been well
received by people. He has "not met one person who has rode that
boat that didn't just think it was wonderful." Trips could be
made in half the time it might take the mono-hulled vessels.
Riders would request that the vessels run "more frequently on a
regular schedule just to their town." The issue is that at some
point the process must include the real cost of that service.
While both the State of Washington and British Columbia, Canada
had utilized high-speed ferries in their systems, none of those
boats are being operated today.
Senator Olson agreed that the convenience factor is important;
however, his question was more directed at whether businesses
have come to rely on fast ferry service for getting their
"commodity to market" or receiving supplies quicker.
Senator Taylor stated that the fast ferries have not operated
long enough to develop that market.
10:16:49 AM
Senator Stedman affirmed that users "really like" the boat's
comfort and speed. However, the issue is whether or not the
revenue being generated is sufficient. Another issue is that the
fast ferries generate huge wakes that are dangerous to small
boats. He recalled assurances being made that wakes would not be
a problem.
10:17:44 AM
Senator Dyson affirmed that the high-speed vessels once operated
by the State of Washington and British Columbia also caused wake
damage in their areas of operation. Those boats were eventually
sold at auction for approximately ten or fifteen cents on the
dollar.
10:18:22 AM
Senator Taylor readdressed his earlier comments regarding ferry
operations in Lynn Canal. The results of a ten or 12 year
Environmental Impact Study (EIS) on the Juneau Access Road
project would soon be available. Were the report to support a
road being constructed in the Lynn Canal corridor, and absent
any litigation stopping the project, there would still be a
period of five to seven years before a ferry could be operated
at the "Katzehin River, which is the preferred alternative
destination of the road at this point". This river is across
Lynn Canal from Haines. When the terminal at Katzehin River is
completed, a minimum of two 60 or 70-car 17-knot shuttle ferries
could transit from the terminal to Haines and Skagway on a
regular basis. The vessel the AMHS is anticipating to contract
out this spring would be utilized for this route. This vessel
would initially operate from Juneau's existing Auke Bay
terminal. The construction of a temporary terminal in Berner's
Bay would reduce the vessel's Lynn Canal transit time by fifty
percent. Since this vessel would eventually operate from the
Katzehin River, it must be designed as a drive-on drive-off
boat. That boat would be replicated at other locations such as
Hoonah.
Senator Taylor continued by stating that rather than the people
in Hoonah being served once a week, a shuttle vessel could be
home-ported in Hoonah; demand might allow it to make daily runs
to Juneau. Such a vessel could potentially generate a 90 percent
of cost return revenue as opposed to the $250,000 a week expense
associated with serving that community with the M/V LeConte,
which is one of AMHS's "biggest loss leaders". The infrequent
schedule currently provided to Hoonah is inconvenient and
therefore people traveling to Juneau opt to fly.
Senator Taylor declared "there is nothing cheaper to run than a
road". Echoing his opening remarks, he stressed the efficiency
that short connecting roads with shuttle ferries would provide.
"Tight coordination between" Department of Transportation and
Public Facilities highways and the AMHS could facilitate such
things as the construction of the five-mile road between Kake
and Petersburg. Connecting those communities by road would allow
AMHS to stop at one ferry terminal rather than two. While there
would always be a need for mainline ferry runs from Washington,
the short road and shuttle ferry endeavors would produce cost
savings and efficiencies to benefit the AMHS system, which has
been operating relatively unchanged for 70 years.
10:23:30 AM
Senator Taylor reiterated that the construction of a temporary
terminal in Berner's Bay would sufficiently reduce operating
costs in Lynn Canal. The eventual road to Katzehin River would
enable AMHS to operate short shuttle service between Katzehin
River and Haines and Skagway for even more efficiency and cost
savings. Each mainline boat's roundtrip up Lynn Canal currently
takes 16 to 18 hours and requires crews of approximately 50
people working 24 hours a day. "It just makes no sense!"
10:24:24 AM
Co-Chair Wilken asked how the 30 percent round trip rate
reduction promotion affected revenue and ridership.
Senator Taylor responded that fleet-wide ridership increased 48
percent. The M/V Columbia has experienced an even higher
increase. Net revenue return to the System has been 18 percent.
In response to a question from Co-Chair Wilken, Senator Taylor
clarified that gross winter revenue has increased 18 percent.
Co-Chair Wilken understood that the winter timeframe being
referenced would be from October 2005 to date.
Senator Taylor communicated that the 30 percent round-trip
discount program was initiated November 3, 2005. The Driver
Rides Free promotion began October 1, 2005. AMHS is anticipating
offering the 30 percent round trip winter discount this year on
October first.
Senator Taylor stated that the 48 percent ridership increase is
based on "units of sale"; this would include passengers,
stateroom purchases, and car deck space. Each of these were
discounted 30 percent.
Co-Chair Wilken asked how AMHS measured head counts;
specifically whether it was measured for each port of call.
Senator Taylor replied that AMHS has accurate flow-through and
port-to-port numbers. The numbers could become confusing were a
person to get off, spend a few days in a port, and get back on.
The numbers are reported annually.
Co-Chair Wilken asked that this information be provided to the
Committee.
Senator Taylor affirmed.
Co-Chair Wilken surmised that the information should reflect an
increase in the number of vehicles getting on and off the
ferries.
Senator Taylor concurred. Continuing, he stated that the
information would "dramatically show" how few people AMHS is
moving on certain runs.
Co-Chair Wilken stated that this information would be
interesting to review.
Senator Taylor noted that the limited ridership being
experienced in some ports would further substantiate the
question regarding "what level of service should we be providing
here since we don't seem to be building any".
Co-Chair Wilken understood that the Legislature had, years
prior, provided funds toward the boat utilized by the Inner-
Island Ferry Authority (IFA), which is an entity separate from
AMHS.
Senator Taylor affirmed.
Co-Chair Wilken asked whether the operational status of the IFA
is successful. Continuing, he asked whether IFA service could be
duplicated other places in Southeast Alaska.
Senator Taylor responded that "not only could it be but it would
be were" the State to "continue to stumble and halt and not move
forward with our existing system … People will turn to other
systems that are more efficient." The IFA "is efficient because
it's doing what every planner has told us to do with this system
for years." That would be to provide a regular and consistent
roundtrip daily ferry schedule with a "decent fare structure".
Currently the IFA ferry leaves Hollis for Ketchikan each morning
and returns to Hollis later in the day. The funding provided by
the Legislature was actually a federal funding pass through to
the IFA. The State has also allowed the IFA to utilize its docks
and other AMHS facilities. The IFA would be receiving an
additional vessel, the Stikine, in April. The Stikine would be
providing service from Coffman Cove, where the State recently
completed the construction of a new terminal, to Wrangell, and
to the new State terminal in Blind Slough. The Stikine is
anticipated to operate four days a week for four months.
Unfortunately, that schedule would require AMHS to provide
duplicate services, as year-round services to these communities
must be provided.
Co-Chair Wilken asked whether AMHS could utilize a system
similar to that of the IFA on AMHS routes that "are grossly
unprofitable".
Senator Taylor stated that while this could be done,
consideration must be given to the overall system. He likened
AMHS to "a telephone system": the desire would be to manage only
the big trunk lines and allow someone else to manage the lines
that do not pay. However, the fact that AMHS provides a public
service and essential transportation would require the
Legislature to play a role in the decision-making. "Otherwise,
arbitrary decisions" such as providing service only on certain
days of the week for a limited number of months a year would be
made. That would not work. "The model that could work" and has
proven itself is one of basing the boat in the community "that
needs to travel". For example, 100 percent of the residents of
Hoonah "want to or need to" travel to Juneau. Conversely, 100
percent of the people living in Juneau do not need to go to
Hoonah. Previous planners had furthered "a hub and spoke
scenario" in which the boat would be based in Juneau and on
occasion would travel to Hoonah. "Wrong. Lituya has proven that
to be backwards. You base the boat in the community where the
people need to come to town. It takes them in in the morning, it
brings them home in the evening." AMHS employees would be
allowed to go home at night rather than being housed on a
vessel. The M/V LeConte, with 24 crew members, is currently
providing service two times a week to communities and
transporting fewer than five people. In contrast, more people
might use the AMHS were a boat based in that same community and
roundtrip service provided every day.
Senator Taylor stated that "the scariest statistic" provided
today is that the two crewman vessel the Oral Freeman which
provides shuttle service between Ketchikan and the airport
carries 100,000 more people a year than all the vessels in the
AMHS.
10:32:59 AM
Co-Chair Wilken asked whether federal money might be available
to assist in replacing the State's older vessels.
Senator Taylor responded in the affirmative. The Alaska
Congressional delegation has been instrumental in the past in
providing specific earmarks for State vessels. In addition, due
to language modifications, SHAKWAK funds could now be utilized
for "marine vessels, terminals, and roads that connect thereto."
This could further the endeavor to extend roads to ferry
terminals.
Co-Chair Wilken asked whether accessing that money for new
smaller shuttle vessels is being considered.
Senator Taylor responded in the affirmative. $13,500,000 in
SHAWAK funds is currently earmarked for the construction of the
shuttle ferry for Lynn Canal.
10:34:21 AM
Co-Chair Wilken asked whether AMHS has established a
reservations system that could be accessed by private entities
such as recreational vehicle (RV) park operators.
Senator Taylor responded yes. Continuing, he noted that major
improvements in the AMHS reservation system have occurred.
Individuals are able to make reservations and purchase tickets
on the AMHS Internet website. In the near future, people would
be able to print their tickets on their printer at home, in a
manner similar to that provided by major airlines.
Co-Chair Wilken asked whether business entities would be paid a
commission for tickets sold on the AMHS.
Senator Taylor understood that some sort of commission had been
paid but that commissions are now limited to travel agents.
Co-Chair Wilken understood that the private entities that had
sold AMHS tickets on commission had been pleased with the
process; however, the system had changed and become more
cumbersome and the effort was no longer worth the five percent
commission they were paid. RV operators have shared with him
that while most RV travelers drive the road system northward,
many of them opt to ride the AMHS on the return leg of their
trip.
Senator Taylor agreed. Continuing, he noted that AMHS staff has
recently been provided opportunities to implement changes they
had long sought. In addition, the AMHS online reservation system
has benefited from the experiences of numerous businesses
including Alaska Airlines. While the current abilities of the
AMHS website are tremendous, the goal is to have the upgraded
website completed by summer 2006. A significant portion of the
tickets sold by AMHS are sold online.
Co-Chair Wilken asked the type of fuel utilized by ferries.
10:38:18 AM
Senator Taylor replied that the ferries utilize Number Two
diesel fuel.
Co-Chair Wilken asked whether AMHS has the ability to "hedge"
its fuel purchases.
Senator Taylor responded that the purchase price utilized by
AMHS is the Seattle Oil Price Information Service (OPIS) price
plus a delivery fee, dependent on the port the fuel is purchased
in. Some delivery expenses are 16 or 17 cents per gallon. The
OPIS price is the best price available to AMHS. He recalled that
AMHS has utilized hedging practices in the past when it
purchased a quantity of fuel upfront at a fixed price. He was
uncertain whether this practice would continue in the future.
"It's a risky business," as the upfront price paid might be
higher than a future price.
Co-Chair Wilken asked whether the OPIS price is publicly posted.
NANCY SLAGLE, Director, Division of Administrative Services,
Department of Transportation and Public Facilities understood
that a person must register for the OPIS service. The Department
would provide that information.
Senator Taylor communicated that AMHS has tracked OPIS prices
for several years. A spreadsheet summarizing the history could
be provided.
Mr. Leary affirmed that the information would be provided.
Co-Chair Wilken shared with the Committee that a 16 percent fuel
surcharge is being added to all goods shipped through the Port
of Anchorage. It would be nice to have the OPIS information to
better grasp the situation, specifically in regards to the
surcharge price charged by other shippers.
Senator Taylor noted that AMHS has been adding a ten percent
fuel surcharge to its customers.
Co-Chair Wilken asked whether the M/V Chenega had encountered
icing conditions in Prince William Sound.
Senator Taylor responded not at this point. The Coast Guard
assisted AMHS in designing routes to avoid ice "as best we can."
Co-Chair Wilken noted that the Legislature provided $500,000 in
FY 05 to support the promotion efforts. He asked whether this
endeavor would be continued.
Senator Taylor affirmed that the program would be continued. He
also predicted that AMHS revenues would exceed projections.
Further route restructuring and better utilization of equipment
would further benefit the system.
10:42:06 AM
Senator Olson asked how AMHS, which is actively promoting
construction of new roads and shuttle service, is addressing the
concerns voiced by those in opposition to roads. His office has
received numerous phone calls from people opposed to the road.
Senator Taylor stated that his "goal is to run the most
efficient ferry system we can have that will provide the
greatest level of service for the least cost." The Department
has determined a cost comparison for transporting a car and a
passenger on a ferry for one mile verses the cost of maintaining
a road. It costs approximately one penny per mile for the State
to plow and maintain a road. It costs a minimum of $2.50 a mile
to carry that same person on a ferry. That is a ratio of 250 to
one of actual costs to the people of Alaska. Better ratios could
be accomplished by running more efficient ferries. He voiced
being mindful of the difference in maintaining a busy road
between Anchorage and Wasilla and maintaining a rural road in
Southeast Alaska. The costs of operating a boat or plane are
much higher than that of maintaining a road. "Roads have to be
our future." Nonetheless, "any idiot that looks at a map, knows
that you can't build bridges to every island" in Southeast
Alaska. Thus, both roads and ferries are needed.
10:45:01 AM
Co-Chair Wilken stated that this is his eighth year as a member
of the Senate Finance Committee. The first year the subsidy to
the AMHS was $32,000,000. Today it is in excess of $82,000,000.
Southeast demographics are not growing for a variety of reasons.
Many people are choosing to fly rather than drive. And traveling
on a cruise ship is cheaper than the cost of travel on a ferry.
These issues are the reason for this discussion today. "We are
at a crossroads in what we are going to do with this $80 plus
million dollar subsidy and how we are going to control it."
Co-Chair Wilken communicated that the Committee would work hard
to get AMHS through FY 06 as well as to address its FY 07 needs.
Co-Chair Green reviewed the following morning's bill hearing
schedule. In addition, she noted that the March 3, 2006
afternoon Joint Meeting with Senate Resources has been
cancelled.
ADJOURNMENT
Co-Chair Wilken adjourned the meeting at 10:46:30 AM.
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