Legislature(2011 - 2012)SENATE FINANCE 532
03/26/2012 01:00 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB80 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 80 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 80
"An Act relating to the authority and obligations of
the Knik Arm Bridge and Toll Authority, to bonds of
the authority, and to reserve funds of the authority;
authorizing the state to provide support for certain
obligations of the authority; relating to taxes and
assessments on a person that is a party to an
agreement with the authority; and establishing the
Knik Arm Crossing fund."
1:04:24 PM
Senator Thomas MOVED to ADOPT proposed CS SB 80, work draft
27-LS0430\T, Martin, 3/23/2012.
Co-Chair Stedman OBJECTED for purpose of discussion.
MICHAEL ROVITO, STAFF, SENATOR MENARD, explained the changes
incorporated in the current bill. He stated that the
entirety of Section 1 of the bill had been deleted, removing
the language pertaining to the obligation of the state. He
furthered that on page 2, "must" was replaced by "may", and
remaining sections were renumbered to reflect the deletion
of Section 1.
1:06:21 PM
Senator Ellis asked for clarification concerning the
deletion of the language in Section 1 that had detailed the
state's financial obligation to the project.
Mr. Rovito clarified that what was deleted was the explicit
mention of the obligation of the state. He maintained that
the moral obligation of the state would remain since the
Knick Arm Bridge and Toll Authority (KABATA) was a state
corporation.
Senator Ellis thought that the language in the bill should
more clearly detail where the financial responsibility
would ultimately fall.
1:07:44 PM
Co-Chair Stedman WITHDREW his OBJECTION to adoption of the
committee substitute. There being NO OBJECTION, work draft
27-LS0430\T, Martin, 3/23/2012 was adopted.
SENATOR LINDA MENARD provided a breakdown of the
legislation. She explained that the bill would increase
KABATA's bond authority from $500 million to $600 million.
She said that the bonds would be private equity bonds;
federal, tax exempt bonds, issued by a state agency. She
stressed that the state had no financial obligation tied to
the bonds, but would be a conduit issuer. She continued
that the bill required the State Bond Committee to review
the bonds and make assurances that the bonds conformed to a
sound financial policy. She furthered that Sections 4 and 5
of the bill provided provisions of for a project reserve
fund established under Section 7. She shared that the fund,
titled "The Knik Arm Crossing Fund", would be housed in the
Department of Revenue (DOR) and would be used to satisfy
the availability payment during the initial years of the
bridge until the toll revenue was sufficient to retire the
fund. She added that Section 6 exempted the crossing from
state and local property tax, whether public or privately
operated.
Senator Menard concluded that cost of not proceeding with
the bridge could be $3 to $4 billion based on 2008 figures
to improve the Glen and Park Highways, which would come out
of the Statewide Transportation Improvement Program (STIP).
She shared that the new acronym for the bridge was Bridge
of Statewide Significance (BOSS).
1:10:53 PM
AT EASE
1:15:11 PM
RECONVENED
Co-Chair Stedman noted the zero fiscal note from the
Department of Transportation and Public Facilities
(DOT&PF). He felt that the zero fiscal impact to the state
reflected in the note was questionable.
1:16:12 PM
MICHAEL FOSTER, CHAIRMAN, KNICK ARM BRIDGE AND TOLL
AUTHORITY, testified in support of the legislation. He
observed that the population was expected to grow 118
percent between 2010 and 2035. He stated that the
Metropolitan Transportation Plan (MTP) showed a 74 percent
traffic growth in the area from Eagle River to Ekultna
(39,000 to 68,000). The Anchorage bowl would grow by 15
percent. He said that available land was being depleted in
the Anchorage area. He furthered that growth was predicted
in outlying areas.
Mr. Foster observed that KABATA, state, and MTP models were
based on the Institute of Social and Economic Research's
(ISER) 2009 model. He concluded that "without a doubt" the
South-central area of Alaska was growing.
Mr. Foster spoke to traffic. In 2010, 30,000 vehicles
transited under the Ekultna Bridge; only 15,000 went under
the bridge in 1985. He maintained that the Ekultna Bridge
was the first measuring point of north bound traffic into
Anchorage. He pointed to substantial growth from 1985 to
2010, and concluded that similar growth was expected from
2010 to 2025. Traffic models suggested that the Glenn
Highway Ekultna overpass would grow from 30,000 to
approximately 65,000 vehicles. He stated that six-lane
traffic on the Glenn Highway would increase from 52,000 to
110,000 vehicles, based on the population model without a
bridge. He concluded that the Glenn Highway was at
capacity. He acknowledged that additional vehicles could be
added, but maintained that traffic delays and accidents
would occur.
1:19:50 PM
Mr. Foster discussed the financial repercussions of not
building a bridge. He asserted that the cost of simply
upgrading the Glenn Highway for future population was
estimated by DOT&PF in the 2008 STIP as $3 billion dollars.
Mr. Foster observed that KABATA had been created by the
legislature in 2003, with the mission to connect the east
and west sides of Cook Inlet through a crossing. He
observed that KABATA was in private/public partnership
procurement where a private partner would be responsible
for financing, designing, building, operating, maintaining
and toll collection. The public partnership pertained to
the toll revenue. The current structure worked with an
availability payment; as toll revenue came in, KABATA would
make a payment on a quarterly basis to the developer for
the cost of financing, designing, building, operating, and
maintaining the bridge. He concluded that the state's
obligation would be to pay the developer for their
investment.
Mr. Foster observed that the cost estimates were done by
different independent estimators: DOT&PF, Major Projects
Federal Highways, and two by KABATA. All estimations put
the first phase of the bridge at $720 to $730 million
dollars. Phase 1 would be the bridge, which would span
92,000, and would have connections on both sides (14,000
foot crossing).
1:22:51 PM
Mr. Foster spoke to phase 2, which would be the
Ingra/Gambell connection that would connect the bridge to
Ingra/Gambell.
Mr. Foster observed that the bridge would be built as a
four lane foundation for final completion. The initial deck
would be two lanes, 44 foot wide. Phase 2 would expand the
road to four lanes with pedestrian and bike access on the
bridge.
1:22:57 PM
Mr. Foster concluded that the legislation would allow the
state to be a conduit for the private developer to access
tax exempt bonds. He maintained that the bonds would not be
added to the state's "book" or be part of the state's bond
capacity, but would be strictly pass through private
activity bonds. The legislation would increase authority to
$600 million in tax exempt bonds.
Mr. Foster spoke to property tax. Private developers would
not be liable for any property tax. The bridge would be an
asset of the state and controlled by KABATA or the state of
Alaska. The developer would only have the availability
payment obligation of the state.
1:24:23 PM
Mr. Foster clarified that the reserve fund would represent
the moral obligation of the state. Toll revenue was
anticipated to be $100 million short during the initial
seven years. The state needed to demonstrate the ability to
cover the shortfall to the developer through the
availability payment. The availability payment would be
similar to a lease payment. The reserve fund would be
subject to appropriation. There would be a moral obligation
for the state to appropriate to the fund, and pay for the
infrastructure. The deleted Section 1 had been subject to
the $1 billion, and was changed to the moral obligation
relating to the reserve fund; subject to appropriation, to
handle the shortfall of toll revenue in the initial years.
Mr. Foster observed that the state was estimated to receive
$1.1 billion in net revenue over the 35 years of the
concession, beyond liabilities of KABATA, to pay for
operations and make availability payments to the private
partner. These funds could be used statewide for a variety
of Title 23 projects: roads, ports, harbors, bridges, or
marine highways.
1:27:08 PM
Mr. Foster estimated that were the bridge to be built, over
60 years, $9.9 billion would be available for
transportation needs statewide through the reserve fund or
an established transportation fund. He added that excess
toll revenue would go to the reserve fund and be
appropriated under title 23. He stressed that the bridge
would be built for the needs of the future. He observed
that the Glenn Highway adequately handled current needs,
but without an upgrade, maintenance costs would increase $3
to $4 billion, which would place a burden on STIP funds.
1:29:17 PM
Co-Chair Stedman wondered whether the committee would be
further informed of the financial model and cost
projections for the project. He requested more data to
assure the committee that the exposure to the state was
worth the risk.
Mr. Foster deferred the question to the available experts.
1:32:28 PM
Senator Egan desired a more clear definition of the "moral
obligation of the state" written into the language of the
bill. He noted that he and the Co-Chair both represented
Southeast Alaska, and queried the need for either of them
to feel morally obligated to the project.
Senator Ellis referred to a memorandum from the Institute
of Social and Economic Research (ISER), dated March 22,
2011(copy on file). He noted that Mr. Foster used ISER
research as a justification for the projections. He
observed that the letter strongly objected to the use of
ISER projections in KABATA's presentations on the project.
1:34:39 PM
AT EASE
1:39:43 PM
RECONVENED
Senator Ellis explained that the ISER memo was delivered in
the interest of disclosure.
Mr. Foster responded to concerns presented by the letter.
He maintained that the 2009 ISER numbers were accurate
population numbers. He clarified that when attributing
figures to ISER, he used the institute figures, not the
bridge authority's projections. He noted that he had not
done a comparison between the ISER number and the
authority's numbers.
Co-Chair Stedman understood that the authority was in the
process of drafting a written response to the ISER memo. He
requested copies be distributed to committee members.
Mr. Foster replied in the affirmative. He assured the
committee he would provide the information as soon as was
possible.
1:43:46 PM
DAVID LIVINGSTONE, FINANCIAL ADVISOR, CITIGROUP, spoke to
the development of the projections. He shared that for
KABATA; he had taken capital costs and construction costs,
assumptions that had been created by HDR (a national civil
engineering firm,) and audited by several other firms. The
estimates included a $62 million construction contingency,
which considered any potential cost overruns. He said that
traffic and revenue projections were done by CDM + Wilbur
Smith Associates. He added that Citigroup had been
financing toll roads since the 1950's and had used the
Wilbur Smith projections many times. He relayed that Wilbur
Smith also created operation and maintenance, and capital
expenditure projections, for the cost of running the toll
systems.
1:46:24 PM
Mr. Livingston stated that from the information provided by
Wilbur Smith a financial model was created, financed with a
combination of equity and debt. He stated that conservative
assumptions of 12 percent equity return had been used, as
well as debt rates of 50 to 75 basis points.
1:47:34 PM
Co-Chair Stedman interjected that the stress testing of the
financial models should be discussed.
Mr. Livingston reviewed a graph provided to the committee
titled, "60 Year Cost and Revenue Projection"(copy on
file). He stated that the red bars represented the
availability payments made by KABATA to the private
developer over the next 35 years, from the beginning of
commercial operations. He noted that in 2032 the
availability payments were charted to increase because at
that point the developer would add two additional lanes to
the bridge and connection roads. He referenced the navy
blue line, which represented KABATA administrative costs;
the light blue bars indicated the KABATA total debt
service. He furthered that in 2053 the bars dropped; these
bars detailed the costs after the concession was over and
the private developer would turn the responsibility back
over to KABATA. He concluded that the bars were higher than
the revenue curve in the first eight years; as development
progressed availability payments were expected to be
greater that the toll revenues, $100 million would be drawn
out of the reserve fund during the initial years. He
relayed that surplus revenues, the green area above the
bars, totaled $9 billion which would be available for
future. He added that the majority of the surplus would be
reaped after 2052. He asserted that a conservative set of
assumptions had been used in the development of the
projections and that the sensitivities had been run. He
said that traffic and revenue probabilities had been run
with various assumption percentages. He maintained that
under all the projections done by KABATA the project, over
the first term of the concession, would create a positive
cash-flow for the state.
1:52:24 PM
Co-Chair Stedman queried the dollar amounts assigned to the
equity return target of 12 percent and the cost of debt
aggregate of 6.42 percent.
Mr. Livingston replied that it had been assumed that the
project would be funded with approximately $80 million of
equity and $710 million of debt.
Co-Chair Stedman asked why the bank was not fully
underwriting the project.
Mr. Livingston replied that the state had banks and equity
investors willing to lend approximately $800 million to
build, finance, operate, and maintain the road. In return
annual availability payments from KABATA were expected to
cover the cost of the private parties taking the risk. He
said that the private investors would be responsible for
any cost overruns. He explained that the availability
payments provided assurances that investors would
eventually be paid for the investment. He maintained that
the project would require no future appropriations.
1:55:48 PM
Co-Chair Stedman understood that projects of this size
often had cost overruns, that an overrun of 20 percent
could be considered a success. He assumed that overruns for
the project could reach into the $100 million range. He
queried where extra funding would come from and how the
state could be protected from overrun responsibility.
Mr. Livingston replied that overrun funding would come from
the concession company; if the private investors did not
finish the project on time, and on budget, they would
accept the risk. He stated that KABATA selected the funding
approach specifically to assure that cost overruns did not
become a burden of the state.
Co-Chair Stedman surmised that there would be no risk of
state exposure, overreaching $700 million in debt issuance,
and that stress tests performed by the committee would
mirror the numbers offered by KABATA.
1:58:47 PM
Mr. Livingston replied that that was largely true. He
qualified that there were "uncontrollable circumstantial
events" that could require additional funding from KABATA.
He shared that if there were soil test variations in the
different areas of construction, KABATA could be
responsible for additional payments. He felt that the sub-
set of financial risks were relatively small, compared to
the size of the project.
Co-Chair Stedman probed the potential risk, small or
otherwise, that could be deferred to the state.
Mr. Livingston replied that if the toll revenues came in
lower than the projections, the state could be asked for
future appropriations to cover the availability payments.
2:01:15 PM
Co-Chair Stedman asked if Citigroup had performed stress
test on projects under consideration. He wondered where the
stress test information for the project could be found so
that the committee could assess the impact to the state.
Mr. Livingston reiterated that conservative projections had
been used. He said that there was a significant
construction and operation maintenance expenses
contingencies written into the bill; higher rates than
current markets, and higher equity returns, had been
employed. He maintained that 100's of different projections
for KABATA had been run, including some using lower toll
revenues than indicated in the chart. He said that the
project presented cash-flow neutral over 35 years even
under a 40 percent toll revenue shortfall.
Co-Chair Stedman pointed out that the figures mentioned had
not been made available to the committee. He maintained
concern that an over run in the $100s of millions could
result in additional financial obligation to the state. He
felt even minor exposure to the state should be avoided.
Mr. Livingston could not comment on soil testing bid for
engineers. He asserted that if there was a $200 million
cost overrun, lenders would typically walk away from the
project. He reiterated that the obligation of payments
would not occur if the bridge was not operational.
2:04:31 PM
Co-Chair Stedman noted that $80 million in equity and $700
million in debt would give the lender considerable
leverage.
Mr. Livingston clarified that Citigroup was a financial
advisor to KABATA and could not be a lender due to
conflicts of interest.
2:05:30 PM
Mr. Foster spoke to the procurement process. He stated that
the in 2011, 6 submissions were received for concessions.
Concessions were made up of: equity partners, financial
partners, contractors, designers, builders, toll
collectors, and operators. He shared that three submitters
were invited to submit proposals. He said that the draft
request for proposal (RFP) was being created by the
Department of Law. He added that DOA also had
representation for the contract process. He said that when
the RFP was completed the three proposers would compare
bids, which were primarily the availability payment. He
believed that KABATA would commit to the availability
payment. He reiterated that cost overruns would be the
problem of the builder and not KABATA. He said that KABATA
would not make any payments until the bridge was open. He
furthered that the risk to the authority was the
availability payment and that the state would not be liable
for cost overruns.
2:09:04 PM
Co-Chair Stedman maintained concern with the reality of
cost overrun connected to projects of this magnitude. He
opined the lack of financial impact information in the
presentation. He stressed that the funding under discussion
was significant, with sizeable exposure to the state if the
project should fail.
Mr. Livingston commented that infrastructure developments
cost money. He said that the state could go about the
project on its own, but that the KABATA plan should be
seriously considered.
2:12:05 PM
GRANT HOLLAND, VICE-PRESIDENT, CDM SMITH, stated that CDM
Smith had been conducting traffic and revenue consulting
since 1950, and was considered the primer traffic and
revenue consultant in the industry investment community. He
shared the need for traffic and revenue consulting had
grown out of general lack of knowledge concerning the
management of tolls. He elaborated that CDM Smith had
worked regularly training rating agencies and toll
authorities on the intricacies of traffic revenue
projections.
2:13:55 PM
Mr. Holland explained that the crossing connected a
landmass that was completely bound from a development
standpoint to the nearest area of developable private land.
He remarked that the alternative to the bridge was a 90
mile road, so it seemed that the project was valuable from
a logic point-of-view.
2:15:07 PM
Mr. Holland stated that there had been a quick and
inexpensive initial study of KABATA in 2005. Another study
was done in 2007, and contained every piece of analysis
that would be found in an investment grade study. He
explained that an upgraded study had been done in 2011 to
reflect current market conditions. He listed several
factors considered when conducting the studies: local
forecasts, ISER Studies (the basis of the 2007 study), the
Bureau of Labor numbers, and independent studies. He
detailed that the studies often required independent
economic analysis to verify local bias in forecasts.
2:17:59 PM
Mr. Holland discussed economic modeling. One approach was
to begin from historical numbers and work downwards, the
other was to begin at the bottom and work upwards. He noted
that the analyses were not mutually exclusive. He said that
the CDM Smith analysis started at a traffic analysis level.
The firm had interviewed 23 people responsible for the
planning and management of economic growth in the Anchorage
area. He furthered that they had talked to planning
departments for further collaboration. He said that the
analysis was then built form the bottom up comparing
historical trends. He noted that in the 2007 study the ISER
forecast and the CDM Smith forecast had variations, however
employment forecasts were virtually identical.
2:21:24 PM
Senator Thomas surmised that the projections for population
growth were the anticipated numbers for the Point MacKenzie
area.
Mr. Holland clarified that the estimation had been for the
breaking point for the Knick and Fairview areas.
2:22:25 PM
Senator Thomas understood that a doubling of vehicles
crossing the Knick River was expected by 2035.
Mr. Holland replied that it was an undeniable fact that
economic and population growth would occur in the Mat-Su.
He stressed that the growth would generate traffic. He said
that building the bridge would shift where the growth
occurred.
2:23:59 PM
Mr. Foster interjected that in 1985 it was counted that
15,000 cars travelled under the Eklutna Bridge daily; the
number rose to 30,000 in 2010. He noted that the traffic
would increase to 65,000 by the year 2035. He stressed that
without the bridge, the traffic on the Glenn Highway would
double.
2:25:29 PM
Senator Thomas expressed concern as to how the amount of
expected increased activity was calculated. He felt that
the toll should be reduced once the bridge was paid off. He
wondered what recourse could be taken if the projected
numbers were wrong.
Mr. Holland responded that the bridge would induce growth.
He thought that when the concession was removed in 2035 the
state could determine then whether or not the tolls should
be maintained.
Senator Thomas felt that the idea that the bridge would
spur growth was conceptually unclear. He questioned the 89
miles figure in the study.
2:28:54 PM
Mr. Holland responded that the 89 miles measured from the
edge of a planned intersection on the west side of the
crossing to Central Anchorage. He believed that the growth
would occur in the area because it was a deep water port,
valuable for shipping natural resources. He understood that
the isolation of Port MacKenzie from Anchorage had retarded
growth in the area. He said the bridge would turn the 89
mile trip into a 15 mile trip.
2:30:33 PM
Senator Thomas understood that if the bridge was not built,
people working in Port MacKenzie would have to drive 89
miles to get to Central Anchorage.
Mr. Holland replied in the affirmative.
Senator Ellis referred to the Whittier Tunnel toll charge,
which was a smaller project proposed by KABATA that had
used CDM Smith traffic projections. He asserted that the
traffic projections for the toll facility had been
overestimated, and that someone had "failed spectacularly"
in making accurate estimates for the basis of public policy
and budget decisions. He believed that caution should be
taken in using the projections established by DOT&PF and
CDM Smith on an even larger project.
2:32:30 PM
Mr. Holland replied that he had no information concerning
the Whittier Tunnel. He said that since 1995 there had been
22 green field (new) projects had been financed, 10 of
which had exceeded projections in the first 5 years. He
furthered that 4 were within 95 percent of the projections.
2:33:46 PM
Senator Olson referred to a March 2012 Dittman Research &
Communications survey, page 5, which showed that 58 percent
of people surveyed, did not want the bridge to be built.
Mr. Foster responded that the survey asked three questions:
build it now, build it later, don't build it; the build it
later numbers were assumed as positive. He added that in
the most recent Dittmen survey 65 percent of Alaskans, and
70 percent of South-central Anchorage said the bridge
should be built now.
Co-Chair Stedman reminded the committee that finance policy
decisions were not dictated by polls.
2:36:40 PM
JEFF OTTENSEN, DIRECTOR, DIVISION OF PROGRAM DEVELOPMENT,
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES,
testified that the KABATA project was important to the
entire state in order to provide redundancy for a single
route area. He spoke to the states responsibility for
projects necessitated by the bridge. He felt that the need
for the project was obvious when considering looking the
expected future population growth. He added that the growth
had and would continue to create a demand for roads to be
built in Anchorage, the Glen and Parks Highways, and the
Mat-Su Borough. He asserted that the bridge would not be
built using state general and federal funding sources;
ostensibly bringing new money to the table. He said that
the roads that would need to be built as a result of the
bridge were already needed in the area.
2:40:57 PM
Senator Ellis wondered if DOT&PF could wait till the
Legislative Budget and Audit (LB&A) audit was complete.
Mr. Ottensen acknowledged the audit. He stated that he
would return to the committee with an answer.
Senator Ellis asked about the over inflated traffic
estimations for the Whittier tunnel.
Mr. Ottensen recalled the project was championed by the
governor at the time. He said a senior engineer in DOT&PF
had been asked to move forward with the project over the
objections of the rest of the department.
Senator Ellis surmised that experience could teach that
powerful political interests could pressure DOT&PF into
giving the green-light to projects under dubiously
projected assumptions.
2:44:32 PM
Senator Thomas noted letter from DOT&PF dated April 7, 2011
(copy on file) which summarized the numbers for the
project. He queried how a possible decrease in federal
funding would impact the projected income from the bridge
tolls.
2:46:03 PM
Mr. Ottensen read from the letter:
"The total cost of the projects not covered by toll
revenue that influence bridge and general network
traffic flow is $1.8 million (1.4 million in Anchorage
and $400 million in Mat-Su) to be constructed over a
period of 20 years. Regular federal highway aid
funding requires a 10 percent state match. This leaves
$1,620 million that must be funded from regular
highway aid dollars. Dividing $1,620 over a period of
20 years results in a hypothetical annual federal
highway funding need for these projects of $81 million
per year. The state currently receives $400 million in
regular federal highway aid funding per year.
Allocating $81 million per year for the regional
network projects would amount to 20.25 percent a year
of the overall amount."
2:48:01 PM
Mr. Ottensen observed that future federal funding was
unknown. He stressed that need for transportation projects
were driven by the population growth faced by the state. He
stated that modern urban projects often cost more for non-
construction aspects of the project than the construction
part: the right of way, utility relocation, and traffic
control collectively cost more than actual construction. He
argued that the continual upgrading of the single Glen and
Parks Highway corridor would end up costing the state more
than the cost of building the bridge and the subsequent new
roads.
2:50:38 PM
ANGELA RODELL, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, spoke to the state's financial
exposure if the legislation was passed. She felt that the
project would be a unique opportunity to make serious
investment in major projects. She believed that
understanding the financial impact of all of the projects
that could be generated by the building of the bridge
should be understood. She thought that while the moral
obligation may not require additional funding into the
future, outsiders would be observing the state's investment
commitment on a global basis to grow the state.
Co-Chair Stedman understood that the off balance sheet
financing mechanism would have potential impact.
2:53:30 PM
Ms. Rodell believed that it could have positive impact. She
thought that it would be viewed in the big picture of the
state's overall fiscal health.
Co-Chair Stedman queried whether the department had
reviewed the financial model and performed stress testing
to determine exposure to the state.
Ms. Rodell replied that the department had not done any
stress testing, but had reviewed stress tests performed by
KABATA. She stated that the department had concerns with
some of the revenue forecasts pertaining to what the full
impact would be if a bridge was built and no one showed up
to pay a toll.
2:54:25 PM
Senator Thomas referred to a letter from Commissioner Bryan
Butcher, dated March 8, 2012 (copy on file). He asked if
the department maintained the same opinion on the moral
obligation and responsibility of the state.
Ms. Rodell replied that the department maintained agreement
with the statements in the letter. She noted that the
bridge would belong to the state from day 1, and would
never belong to the independent third party that would
build it.
2:55:49 PM
JEFF STARK, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
testified that he had not prepared testimony.
Co-Chair Stedman reiterated the concern of the exposure to
the state under the project.
Mr. Stark replied that it was generally accurate that the
state would be largely protected. He state that if KABATA
completed the procurement process that it was currently in
the middle of, a contract would be awarded to one of the 3
shortlisted developers. He detailed that then KABATA would
enter into a public-private agreement (PPA) with the chosen
contractor, which was currently being drafted by outside
council. He relayed that PPA agreements were tremendously
complex documents; nearly 1000 pages of technical
provisions. He explained that PPA documents were
comprehensive, and would govern the relationship of the
parties for approximately 40 years: 5 years of construction
and 35 years of operation. He stated that the document was
tightly drafted, taking care of as many contingencies as was
possible. He detailed that the basic structure of the
agreement stated that the developer would be obligated to
design, build, finance, operate, and maintain the bridge,
and would be responsible for most of the cost risks. He
furthered that the geotechnical issues were being carefully
examined and represented one of the largest risks for the
state. He believed that in the end the risk would be shared
between the developer and the state; the details were still
unknown. He said that the state would bear the cost risks of
possible seismic activity. He concluded that seismic risk
should be the burden of state and KABATA, but that the
developer would also carry earthquake insurance.
Co-Chair Stedman asked about cost overrun exposure.
2:59:47 PM
Mr. Stark clarified that cost overrun exposure would be
carried by the developer, as would hazardous material,
except under the aforementioned specific events.
3:01:00 PM
Senator Egan addressed the document titled "Then and Now: A
History of the Knik Arm Crossing." He took issue with the
caption under the photo on page 6, which read:
"This is what you will see as you drive back to
Anchorage from your day of business with the
legislature at the capital in Willow."