Legislature(2013 - 2014)SENATE FINANCE 532

04/02/2013 01:30 PM Senate FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 48 PERS CONTRIBUTIONS BY MUNICIPALITIES TELECONFERENCED
Scheduled But Not Heard
<Pending Referral>
*+ SB 88 ALASKA NATIVE MEDICAL CENTER HOUSING TELECONFERENCED
Heard & Held
+ HB 30 STATE AGENCY PERFORMANCE AUDITS TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 13 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Heard & Held
SENATE BILL NO. 13                                                                                                            
                                                                                                                                
     "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."                                                                                                                     
                                                                                                                                
Vice-Chair Fairclough looked at  slide 16 of the PowerPoint,                                                                    
"Knik Arm Crossing, Financial Briefing"  (copy on file). She                                                                    
remarked that the Resource  Committee had conversations with                                                                    
the Department  of Revenue (DOR) regarding  moral obligation                                                                    
of the  state. She shared that  she was led to  believe that                                                                    
if  the bonding  agencies  looked at  Alaska  and the  moral                                                                    
obligation, it  would be moved to  a debt owed by  the State                                                                    
of   Alaska.  She   requested   a   comment  regarding   her                                                                    
understanding of "moral obligation."                                                                                            
                                                                                                                                
DAVID LIVINGSTONE,  MANAGING DIRECTOR, CITI  CORP, responded                                                                    
that  her  assumptions were  correct.  He  furthered that  a                                                                    
straight  moral  obligation,  with no  offsetting  revenues,                                                                    
would be  analogous as a debt  to the state. He  shared that                                                                    
Knik  Arm  Bridge  and Toll  Authority  (KABATA)  would  use                                                                    
availability payments that were  backed by the state's moral                                                                    
obligation. He furthered that the  payments would be reduced                                                                    
by  toll  revenues,  which  would   reduce  how  the  rating                                                                    
agencies  would  view  the   moral  obligation.  The  rating                                                                    
agencies would  assume that the  toll revenues  would reduce                                                                    
the  state's obligation  to  pay. He  remarked  that he  had                                                                    
looked at the  toll revenues in a  variety of sensitivities,                                                                    
and felt that  the rating agencies would  impact the state's                                                                    
rating.                                                                                                                         
                                                                                                                                
Senator  Olson   looked  at  slide   9,  and   requested  an                                                                    
explanation of  the factor of  1.5 percent.  Mr. Livingstone                                                                    
replied  that CITI  financed projects  based on  traffic and                                                                    
revenue studies.  He remarked that  he examined  the studies                                                                    
to determine  the accuracy of  the projections.  He stressed                                                                    
that  predicting the  future is  never precise,  but pointed                                                                    
out  that  he  had  analyzed approximately  10  studies  for                                                                    
traffic and revenues.  He explained that there  was an equal                                                                    
number  of traffic  above and  traffic below,  and generally                                                                    
they were  all within  10 or 15  percent of  projections. He                                                                    
felt that the projections were fairly accurate.                                                                                 
                                                                                                                                
Senator  Olson  remarked  that the  Transportation  Resource                                                                    
Board  found that  the estimates  were  too optimistic.  Mr.                                                                    
Livingstone  replied  that  he   was  unfamiliar  with  that                                                                    
analysis, and  furthered that he financed  projects based on                                                                    
studies prepared by CDM Smith.                                                                                                  
                                                                                                                                
2:15:01 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  wondered   how  the  proposal  would                                                                    
control cost.  Mr. Livingstone responded  that there  were a                                                                    
number of  reasons why the  proposal provided a  lower cost.                                                                    
He  stated  that  the  normal   procurement  would  hire  an                                                                    
engineering  firm;  bid to  contractors;  and  there may  be                                                                    
change orders.  He stressed that the  engineering firm would                                                                    
hire a contractor to both  design and construct the project.                                                                    
This alleviates  the potential  for design  and construction                                                                    
disagreements. He  stressed that  he the  construction costs                                                                    
for similar  projects that separated contracting  and design                                                                    
firms were  significantly greater  than the  owners' initial                                                                    
estimates. He felt that using  one firm for both contracting                                                                    
and design would decrease cost.                                                                                                 
                                                                                                                                
Vice-Chair Fairclough  wondered what  the bank's  risk would                                                                    
be related to the Endangered  Species Act. She stressed that                                                                    
Alaska  was  holding  the  risk   under  the  payments.  She                                                                    
wondered  how  the  risk  was  weighted,  when  the  federal                                                                    
listing was beyond control. She  pointed out that there were                                                                    
daily  risks  related  to   earthquakes  and  other  natural                                                                    
disasters,  but remarked  that the  federal government  used                                                                    
specific science  to list specific species  as "endangered."                                                                    
Mr. Livingstone  responded that there were  wildlife surveys                                                                    
that were  completed in the  Knik Arm, and along  the right-                                                                    
of-way. He remarked that the  beluga whale was an endangered                                                                    
species.  He stressed  that  there  were many  conversations                                                                    
between KABATA and the federal  government regarding how the                                                                    
bridge should be built to  minimize the impact on the beluga                                                                    
whales.                                                                                                                         
                                                                                                                                
Senator  Hoffman looked  at slide  12, "Revenue  Sensitivity                                                                    
Results from  Monte Carlo Simulations."  He wondered  if the                                                                    
slide  represented the  total revenue  for 45  years with  a                                                                    
downside  of $5  billion  with an  aggressive  upside of  $9                                                                    
billion.  Mr. Livingstone  replied in  the affirmative,  and                                                                    
furthered  that the  results were  formulated by  an outside                                                                    
firm, CDM Smith.                                                                                                                
                                                                                                                                
Senator  Hoffman  queried  the  numbers  derivation  of  the                                                                    
represented scenarios. He wondered  if the toll charges were                                                                    
constant or fixed  under each scenario, and  wondered if the                                                                    
set toll  would be  in place for  45 years.  Mr. Livingstone                                                                    
replied that that  the scenarios took into  account both the                                                                    
traffic and  the toll rate.  He remarked that the  same toll                                                                    
rate was assumed for each scenario.                                                                                             
                                                                                                                                
Senator  Hoffman  queried  the toll  rate.  Mr.  Livingstone                                                                    
replied that the toll rate  started at $5 per passenger car,                                                                    
with a  lower rate  for motorcycles and  a greater  rate for                                                                    
trucks. This rate  would start upon bridge  opening in 2016.                                                                    
He pointed out  that the rate would  increase with inflation                                                                    
by approximately 2 percent.                                                                                                     
                                                                                                                                
2:21:07 PM                                                                                                                    
                                                                                                                                
Senator   Hoffman  wondered   who  would   make  the   final                                                                    
determination  of  rate  increase. Mr.  Livingstone  replied                                                                    
that the  KABATA Board  would make  that final  decision. He                                                                    
stressed  that   the  projections  were  based   on  assumed                                                                    
inflation. He pointed out that  it would be assumed that the                                                                    
rate  would  not  be  increased,  if  that  particular  year                                                                    
experienced no inflation.                                                                                                       
                                                                                                                                
Senator  Hoffman asked  if the  board had  the authority  to                                                                    
raise  the  rate  higher  than inflation,  if  there  was  a                                                                    
downside. Mr.  Livingstone responded  that the  KABATA Board                                                                    
had the discretion to increase the toll rates at any time.                                                                      
                                                                                                                                
Senator Hoffman  looked at slide 14,  "Sensitivity Results."                                                                    
He  asked for  further  detail of  the  severe downside  and                                                                    
aggressive upside  under the  five different  scenarios. Mr.                                                                    
Livingstone replied  that the state had  the initial funding                                                                    
of $150 million  in the reserve. He remarked  that the state                                                                    
would be asked to appropriate  $627 million over time in the                                                                    
aggressive  upside. He  stated that  the $627  million would                                                                    
allow for  no requests until  2025. The first  request would                                                                    
be  $8.9 million  in 2025,  and the  largest request  in any                                                                    
year would be  $37.5 million in 2044. He  furthered that, in                                                                    
the aggregate, the total  appropriation requests, over time,                                                                    
would be  $627 million.  He explained  that the  total state                                                                    
liability  would be  $777 million.  He stated  that late  in                                                                    
their  analysis,  the  project would  generate  revenues  in                                                                    
excess  of the  expenses at  a  total of  $910 million  that                                                                    
would be returned to the  state to fund other transportation                                                                    
needs across the  state. He stressed that  the project would                                                                    
generate $133 million for the state.                                                                                            
                                                                                                                                
Senator Hoffman  looked at  slide 12,  and surmised  that it                                                                    
represented total  revenues over 45 years  of slightly under                                                                    
$5 billion.  Mr. Livingstone agreed, and  furthered that the                                                                    
projections assumed  that KABATA and the  state would expand                                                                    
the bridge as  traffic warrants. He declared  that the money                                                                    
for expansions  was included in  the scenarios.  He remarked                                                                    
that the state had the  option to defer the cost assumptions                                                                    
for expansion,  but stressed that  the downside  would cause                                                                    
much more congested on the bridge.                                                                                              
                                                                                                                                
2:25:55 PM                                                                                                                    
                                                                                                                                
Senator Olson looked  at slide 4, and queried  an example of                                                                    
the state's liability. Mr.  Livingstone responded with slide                                                                    
6,  and pointed  out  the specific  events.  He stated  that                                                                    
there was a contract between  KABATA and the private partner                                                                    
that held 21 events. He  explained that there were two types                                                                    
of "unforeseen  surface conditions", but he  only listed one                                                                    
on  the list.  He  stressed  that KABATA  was  not taking  a                                                                    
"blind risk"  with this project.  He pointed out  that there                                                                    
were   various  extensive   studies   that   were  used   as                                                                    
information with the private partner.                                                                                           
                                                                                                                                
Senator Olson wondered if the  state would be liable for the                                                                    
risk, if the project fails.  Mr. Livingstone deferred to the                                                                    
Department of Law (DOL).                                                                                                        
                                                                                                                                
PAT  KEMP, COMMISSIONER,  DEPARTMENT  OF TRANSPORTATION  AND                                                                    
PUBLIC FACILITIES, introduced himself.                                                                                          
                                                                                                                                
Co-Chair  Meyer  wondered  if   Commissioner  Kemp  had  any                                                                    
testimony  that he  would like  to share.  Commissioner Kemp                                                                    
explained that  the Department of Transportation  and Public                                                                    
Facilities  (DOT/PF) was  not privy  to much  of the  shared                                                                    
information regarding  KABATA. He  explained that he  was on                                                                    
the KABATA  Board; DOT/PF had sub-recipient  rights from the                                                                    
federal government; and worked  with KABATA regarding right-                                                                    
of-way. He stressed that he  was not an expert regarding the                                                                    
details with their reports.                                                                                                     
                                                                                                                                
Co-Chair   Meyer  wondered   if  Alaska   had  ever   had  a                                                                    
Public/Private Partnership  (PPP) Commissioner  Kemp replied                                                                    
that DOT/PF had  never done a PPP, but  furthered that there                                                                    
may be PPP  for the road to Ambler. He  stressed that DOT/PF                                                                    
did  not do  the PPP  financing, bit  mostly focused  on the                                                                    
engineering and environmental issues  related to preparing a                                                                    
project.                                                                                                                        
                                                                                                                                
2:32:34 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer  wondered  if  there  were  any  suggestions                                                                    
regarding the liability concerns.  He wondered if the bridge                                                                    
belonged  to   the  state   or  KABATA.   Commissioner  Kemp                                                                    
responded that  sight conditions were the  responsibility of                                                                    
KABATA, but deferred most of  the liability concerns to DOL.                                                                    
He remarked that the contractor  does the geotechnical work,                                                                    
so some liability may fall to the contractor.                                                                                   
                                                                                                                                
Senator  Bishop   asked  for   a  restatement   of  DOT/PF's                                                                    
participation  in  the  project. Commissioner  Kemp  replied                                                                    
that KABATA was the  sub-recipient of federal highway funds,                                                                    
so DOT/PF  had no  oversight until the  environment document                                                                    
was complete. He furthered that  the federal highway program                                                                    
turned   the  project   over  to   DOT/PF  to   monitor  the                                                                    
expenditures.                                                                                                                   
                                                                                                                                
Senator Bishop  wondered who would provide  the snow removal                                                                    
for the bridge. Commissioner  Kemp replied that KABATA would                                                                    
provide the snow removal.                                                                                                       
                                                                                                                                
Co-Chair Meyer  wondered if DOT/PF  was responsible  for the                                                                    
roads that  were attached to  the bridge.  Commissioner Kemp                                                                    
responded that DOT/PF would be responsible for those roads.                                                                     
                                                                                                                                
Senator Dunleavy  understood that this project  proposal was                                                                    
unique in Alaska, but pointed  out that there were many toll                                                                    
roads and  bridges in other  parts of the United  States. He                                                                    
felt  that there  could be  insurance that  might deal  with                                                                    
liability concerns.                                                                                                             
                                                                                                                                
Senator  Olson  stressed  that the  project  may  not  yield                                                                    
enough revenue, because of the small population in Alaska.                                                                      
                                                                                                                                
2:37:36 PM                                                                                                                    
                                                                                                                                
Senator Olson noted that  Commissioner Kemp's background was                                                                    
in surface  transportation. He wondered if  bedrock drilling                                                                    
was  a concern.  Commissioner Kemp  responded that  he hoped                                                                    
the geotechnical  work would be done  properly. He furthered                                                                    
that the requirements include an  exploratory hole for every                                                                    
pier.                                                                                                                           
                                                                                                                                
Senator  Olson  wondered  if  earthquakes  were  a  concern.                                                                    
Commissioner  Kemp responded  that there  were methods  that                                                                    
were used to design around  the potential for an earthquake,                                                                    
but  stressed that  he  was not  familiar  with the  geology                                                                    
around the bridge.                                                                                                              
                                                                                                                                
Senator  Bishop   shared  that   he  felt  that   there  was                                                                    
technology   to   ensure   that  bridges   could   withstand                                                                    
earthquakes.                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough queried  the  estimated  cost of  the                                                                    
road  from  both  sides of  the  bridge.  Commissioner  Kemp                                                                    
responded  that the  Mat-Su side  was approximately  $150 to                                                                    
$200 million, and the Anchorage  side was approximately $250                                                                    
million.                                                                                                                        
                                                                                                                                
Co-Chair Meyer wondered who would  pay for the cost of those                                                                    
roads.  Mr. Livingstone  replied  that the  excess toll  and                                                                    
federal aid would pay for those roads.                                                                                          
                                                                                                                                
Vice-Chair Fairclough understood that  payments would not be                                                                    
due  until 2025,  and wondered  if the  completion date  for                                                                    
traffic would  be 2025. Commissioner  Kemp did not  know the                                                                    
answer.                                                                                                                         
                                                                                                                                
Vice-Chair  Fairclough stressed  that  it  was important  to                                                                    
understand the payment plan for the project.                                                                                    
                                                                                                                                
Senator Olson  remarked that he heard  Mr. Livingstone state                                                                    
that the bridge would be  open in 2016. The committee nodded                                                                    
in affirmation.                                                                                                                 
                                                                                                                                
2:42:58 PM                                                                                                                    
                                                                                                                                
LARRY  DEVILBISS,  MAYOR,   MATANUSKA-SUSITNA  BOROUGH  (via                                                                    
teleconference), testified  in support  of SB 13.  He shared                                                                    
that  every  mayor  in  the  Mat-Su  borough  supported  the                                                                    
project. He remarked that the  bridge would open a window to                                                                    
40 percent of  the Kenai borough. He shared  that the impact                                                                    
of  KABATA   to  the  Mat-Su  borough   would  be  extremely                                                                    
positive. He stated that the  fasted demographic in the Mat-                                                                    
Su borough  was very near  where the bridge would  be built,                                                                    
and  he  stressed that  the  population  growth was  placing                                                                    
stress on  that area.  He remarked  that the  Mat-Su borough                                                                    
was  anticipating the  project  by laying  out two  separate                                                                    
town sites  near the landing  of the bridge. He  shared that                                                                    
there  were  already  discussions  regarding  a  new  middle                                                                    
school and  high school  near the bridge.  He felt  that the                                                                    
consequences of not building a bridge would be "horrific."                                                                      
                                                                                                                                
Senator Olson  wondered if the  Mat-Su was  contributing any                                                                    
money for  the project.  Mayor Devilbiss replied  that there                                                                    
were  some   corporations  within   the  Mat-Su   that  were                                                                    
contributing. He  furthered that there was  some local money                                                                    
that would  be used  for road  infrastructure on  the Mat-Su                                                                    
side.  He  shared  that  the Mat-Su  borough  passed  a  $60                                                                    
million  road-bond  package in  the  year  prior, which  the                                                                    
state matched.                                                                                                                  
                                                                                                                                
Senator Olson  stressed that the  legislature was  trying to                                                                    
avoid the problems that were  created from the Mat-Su Ferry,                                                                    
which  was a  previously proposed  project. Mayor  Devilbiss                                                                    
felt that  the current project  was much different  than the                                                                    
ferry.                                                                                                                          
                                                                                                                                
2:48:38 PM                                                                                                                    
                                                                                                                                
DAN   SULLIVAN,  MAYOR,   ANCHORAGE  (via   teleconference),                                                                    
testified  in support  of SB  13. He  announced that  he had                                                                    
supported  KABATA  for  many years.  The  bridge  was  first                                                                    
proposed in 1959. He remarked  that there was currently only                                                                    
one  route  between the  two  most  populated areas  of  the                                                                    
state. He felt  that it was imperative to  expand the access                                                                    
between Anchorage and the Mat-Su  borough. He furthered that                                                                    
18,000 to 20,000 daily commuters  used the Glenn Highway. He                                                                    
stressed  that  there  were multiple  times  in  the  winter                                                                    
months  when that  highway is  closed, either  due to  a car                                                                    
accident or  weather. He felt that  limiting those commuters                                                                    
with  only one  access  did not  make  logistical sense.  He                                                                    
shared that the  Port of Anchorage was a  very important hub                                                                    
to  the rest  of  Alaska.  The bridge  would  allow for  the                                                                    
container trucks  to avoid  downtown Anchorage,  which would                                                                    
alleviate  much  of  the  congestion  that  already  plagued                                                                    
Anchorage.  He stressed  that  1000 to  1500  jobs would  be                                                                    
created with this project.                                                                                                      
                                                                                                                                
Co-Chair  Meyer  wondered  if  there  was  a  concern  about                                                                    
property taxes being reduced if  the bridge was built. Mayor                                                                    
Sullivan replied that  the growth in the  Mat-Su was already                                                                    
occurring.                                                                                                                      
                                                                                                                                
Vice-Chair  Fairclough  wondered  if there  were  18,000  to                                                                    
20,000  daily commuters  between the  Mat-Su and  Anchorage.                                                                    
Mayor Sullivan replied in the affirmative.                                                                                      
                                                                                                                                
Vice-Chair  Fairclough  wondered  what percentage  of  those                                                                    
commuters were "hauling loads."  Mayor Sullivan replied that                                                                    
most of the trucks were  driving north and then returning to                                                                    
Anchorage empty. He agreed to provide further information.                                                                      
                                                                                                                                
Vice-Chair  Fairclough felt  that the  trucks would  be more                                                                    
likely to use the bridge,  depending on the toll rate. Mayor                                                                    
Sullivan agreed.                                                                                                                
                                                                                                                                
2:55:10 PM                                                                                                                    
                                                                                                                                
BERKLEY TILTON, PRESIDENT,  KNIK-FAIRVIEW COMMUNITY COUNCIL,                                                                    
WASILLA  (via teleconference),  testified in  support of  SB
13. He shared that he had  built roads in Alaska since 1965.                                                                    
He remarked  that Alaska made  a commitment to  maintain its                                                                    
roads for its citizens. He felt  that the project was a road                                                                    
project that would benefit the  entire state. He likened the                                                                    
project to  the Golden Gate  Bridge, because the  impact was                                                                    
extremely  important. He  understood  that  the project  was                                                                    
expensive,  but  it  would  produce  an  extremely  positive                                                                    
effect.  He  echoed  Mayor Devilbiss  and  Mayor  Sullivan's                                                                    
remarks.   He   reiterated   that  the   project   was   the                                                                    
responsibility of the state.                                                                                                    
                                                                                                                                
2:59:28 PM                                                                                                                    
                                                                                                                                
DARCIE  SALMON,  ASSEMBLYMAN, MAT-SU  (via  teleconference),                                                                    
spoke in  support of SB 13.  He shared that he  had been the                                                                    
mayor of the  Mat-Su from 1997 to 2000, and  was an original                                                                    
commissioner for KABATA from 2003  to 2009. He felt that the                                                                    
project  included  other  economic interests  including  the                                                                    
port at Point Mackenzie, the  rail spur from Point Mackenzie                                                                    
into  the Interior,  and the  bridge from  Anchorage to  the                                                                    
Mat-Su. He felt that those  three projects would result in a                                                                    
360-degree intermodal transportation  corridor. He felt that                                                                    
the bride was essential to  the economic growth of the other                                                                    
two projects.                                                                                                                   
                                                                                                                                
3:06:10 PM                                                                                                                    
                                                                                                                                
VERNE RUPRIGHT, MAYOR, CITY OF  WASILLA, spoke in support of                                                                    
SB 13.  He stressed that  the bridge was not  only strategic                                                                    
to the use and access to  Alaska, but also a good investment                                                                    
for  the federal  government. He  remarked that  the federal                                                                    
government  should express  a greater  participation in  the                                                                    
project.  He  stressed  that   Wasilla  was  experiencing  a                                                                    
population  surge, and  was the  fastest population  growing                                                                    
area  in the  state. He  felt that  the bridge  would simply                                                                    
give people  options, as  the bridge  would not  shorten the                                                                    
distance  that  was  already  in  place  through  the  Glenn                                                                    
Highway.                                                                                                                        
                                                                                                                                
SB  13  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

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