Legislature(2013 - 2014)SENATE FINANCE 532

03/19/2014 09:00 AM FINANCE

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Heard & Held
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2d CS FOR HOUSE BILL NO. 23(RLS)                                                                                              
     "An   Act  creating   the   Knik  Crossing   Development                                                                   
     Corporation  as a subsidiary  corporation of  the Alaska                                                                   
     Housing  Finance Corporation  and relating  to bonds  of                                                                   
     the Knik Crossing Development Corporation."                                                                                
9:23:16 AM                                                                                                                    
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR,  ALASKA MUNICIPAL  BOND                                                                   
BANK AUTHORITY,  DEPARTMENT OF  REVENUE, related that  the CS                                                                   
before the  committee was an  acknowledgement to some  of the                                                                   
concern   to    the   public/private   structure    and   the                                                                   
indeterminate amount  of obligation  that the state  would be                                                                   
taking on  within that structure  of the Knik Arm  Bridge and                                                                   
Toll Authority  (KABATA) project; the concern  covered trying                                                                   
to quantify and  limit the state's exposure.  He related that                                                                   
the concern from  his office specifically regarded  using the                                                                   
state's  debt  capacity  and   credit  for  an  availability-                                                                   
payment  support  structure  in  which the  state  would  not                                                                   
receive the  true benefit of  that credit support  structure.                                                                   
He  observed that  the bill  before the  committee had  three                                                                   
basic components  of financing,  the first  of which  was the                                                                   
federal highway  funding that would need to  be appropriated.                                                                   
The  second   financing  component  was   the  Transportation                                                                   
Infrastructure Finance  and Innovation Act (TIFIA)  loan that                                                                   
would  fund  about a  third  of  the  project and  the  third                                                                   
component  was revenue bonds  of State  of Alaska  that would                                                                   
subject to an  appropriation and moral  obligation commitment                                                                   
of  the  state,  as  well as  a  subordinate  claim  on  toll                                                                   
revenues.  He  stated  that  it   was  anticipated  that  the                                                                   
federal government  would be willing  to take risks  on tolls                                                                   
if the  state provided  funding for  the project.  He related                                                                   
the through  federal highway  receipts  as well as  borrowing                                                                   
based  on the  state's  credit rating  Alaska  co pledge  the                                                                   
toll receipts to  the TIFIA loan rather than  having the loan                                                                   
backed by the state.                                                                                                            
Mr.  Mitchell  continued  to  explain  the  bill's  financing                                                                   
components and  stated that there  was about $300  million in                                                                   
bonds and that  the exact numbers depended on  the final cash                                                                   
flows.  He referenced  a document  in  members' packets  that                                                                   
described  the general cost  of the  project (copy  on file).                                                                   
He related  that the estimated  project cost needed  was $894                                                                   
million  and  that  the  remaining  authority  available  for                                                                   
construction  was  $18.932  million. He  continued  that  the                                                                   
budget  proposal for  the project  for FY15  was $55  million                                                                   
and   that  approximately   $226   million   was  needed   in                                                                   
additional  federal  aid, which  was  expected  to be  funded                                                                   
over  a 5-year  period  at about  $45  million  per year.  He                                                                   
related  that  there  would be  $251.495  million  in  state-                                                                   
issued bonds, which  did not include the cost  of issuance or                                                                   
the reserve fund  that would be required for  those bonds and                                                                   
this  would  make  the  issuance cost  in  the  $280  million                                                                   
range; the  bill currently  provided an  upper limit  of $300                                                                   
million.  He stated  that the  bonds would  be subject  to an                                                                   
appropriation  commitment of  the state  to pay debt  service                                                                   
out  of General  Fund receipts,  a  moral obligation  reserve                                                                   
structure, as well  as a subordinated lean  on toll revenues;                                                                   
however, the  expectation was  that there  would not  be toll                                                                   
revenues available  to pay the obligation for 7  to 12 years.                                                                   
He added  that the  administration did not  want to  focus on                                                                   
toll  revenues as  the  commitment of  the  state and  stated                                                                   
that  the  committee  should recognize  that  the  obligation                                                                   
would be  something that  would need  to be considered  every                                                                   
year until  it was  paid off;  the expectation  was that  the                                                                   
debt  on that  would  be about  $20  million  to $25  million                                                                   
based on  the size of  the final obligation,  as well  as the                                                                   
interest rates at that time.                                                                                                    
Mr.  Mitchell related  that the  TIFIA loan  for the  project                                                                   
was  projected at  $341.3 million  and that  the state  would                                                                   
not be backstopping  it; the loan would be  secured solely by                                                                   
the expected  toll revenues  of the  bridge. He thought  that                                                                   
the state  not needing to  secure the  TIFIA loans was  a big                                                                   
benefit of  the shift in structure  and noted that  the money                                                                   
the state  would be  borrowing would be  at the  hi-AA credit                                                                   
levels  and at  the  lowest possible  costs.  He stated  that                                                                   
there  were some  projections  of  interest earnings  on  the                                                                   
construction fund that totaled out to $894.4 million.                                                                           
Mr. Mitchell was  unsure if the committee wanted  more detail                                                                   
on  some aspect  of the  plan  or if  it would  like to  walk                                                                   
through  some specific  details  of  the bill.  He  concluded                                                                   
that he was open to committee questions.                                                                                        
9:29:35 AM                                                                                                                    
Co-Chair Meyer  inquired how difficult  the TIFIA  loans were                                                                   
to obtain  and what the difference  was between them  and the                                                                   
revenue bonds;  he thought that  both would be backed  by the                                                                   
tolls from the  bridge. Mr. Mitchell replied  that Alaska did                                                                   
not currently have  any TIFIA loans and that  the program was                                                                   
a  federal one  that  helped  develop infrastructure  in  the                                                                   
U.S.; there  were a finite amount  of funds available  in the                                                                   
program  and  it  was administered  by  the  Federal  Highway                                                                   
Administration  (FHA). He  stated  that the  Knik Arm  Bridge                                                                   
and Toll  Authority (KABATA) staff  had supplied a  letter of                                                                   
interest to the  TIFIA program several times in  the past and                                                                   
that FHA  had to  invite an application;  the project  needed                                                                   
to be  more shovel  ready and  have the  components in  place                                                                   
before  it would  get  an invitation.  He  reported that  the                                                                   
TIFIA program  had structural  advantages  that could  not be                                                                   
found  on the  open  capital markets;  it  took  a very  long                                                                   
view,  could  be  placed  in the  back  of  the  amortization                                                                   
schedule, had  a very low interest  rate, and was  willing to                                                                   
forgo interest  expense  in the short-term.  He offered  that                                                                   
TIFIA loans  were, in a sense,  similar to a revenue  bond in                                                                   
that  they  would  be getting  the  commitment  of  the  toll                                                                   
receipts of  the bridge on  a senior-lien basis,  which meant                                                                   
that they  had the  right, after  operations and  maintenance                                                                   
were paid,  to receive all  revenue until their  debt service                                                                   
or  loan  repayment  was  met for  that  year;  however,  the                                                                   
revenue  bonds  that the  state  would  be issuing  would  be                                                                   
secured by  a lesser  pledge of the  toll receipts  and there                                                                   
would  not be any  tolls flowing  to pay  those bonds  unless                                                                   
operations  and maintenance  were met,  the TIFIA loans  were                                                                   
met, and there were excess revenues.                                                                                            
Mr. Mitchell related  that there were others  who could speak                                                                   
more  succinctly to  additional details  regarding the  TIFIA                                                                   
and pointed  out that he had  no direct experience  with that                                                                   
Co-Chair Meyer surmised  that Mr. Mitchel was  saying that if                                                                   
revenue  totals  did  not cover  the  repayments,  the  state                                                                   
would  have  to  cover  with   General  Funds.  Mr.  Mitchell                                                                   
replied that that  only applied on the state's  revenue bonds                                                                   
and not TIFIA  bonds. He explained that if  the toll revenues                                                                   
were  deficient, TIFIA  did not  get repaid  until they  were                                                                   
sufficient. He added  that there would be some  risk taken by                                                                   
the federal government with the TIFIA loans.                                                                                    
9:32:56 AM                                                                                                                    
Senator Dunleavy  inquired if the state would  get first dibs                                                                   
on  the tolls  for its  obligation  or if  the TIFIA  program                                                                   
would  have  the  first  crack at  the  tolls.  Mr.  Mitchell                                                                   
responded that  the TIFIA program  would have the  first lien                                                                   
on tolls and  the state would take a subordinate  position on                                                                   
those  tolls.  He reported  that  in  a normal  scenario,  it                                                                   
would  not be financeable  on  its own, which  was why  there                                                                   
was a  requirement that  there be a  commitment of  Alaska to                                                                   
backstop the revenue bonds that the state would issue.                                                                          
Senator Dunleavy  surmised that the full faith  and credit of                                                                   
the state  would have to back  up the state-issued  bonds and                                                                   
that  the federal  government  would be  on the  hook if  the                                                                   
tolls  were  not enough  to  cover  the TIFIA  repayment;  he                                                                   
assumed that if  the tolls were not enough to  meet the TIFIA                                                                   
repayments,  then it would  also not be  enough to  cover the                                                                   
state-issued   bonds.  Mr.   Mitchell   responded  that   the                                                                   
statement  regarding  TIFIA  was  correct,  but  that  Alaska                                                                   
would not be giving  its full faith and credit  pledge of the                                                                   
state,   but  a   lesser   pledge   called  a   "subject   to                                                                   
appropriation   pledge,";   which   was  similar   to   other                                                                   
obligations that had come before the committee.                                                                                 
9:35:32 AM                                                                                                                    
Senator Dunleavy  inquired what  the maximum exposure  of the                                                                   
state  would be  in  the worst  case  scenario. Mr.  Mitchell                                                                   
replied  that the  bill authorized  $300  million in  revenue                                                                   
bonds  and that  once  the debt  was sold,  it  could not  be                                                                   
taken  off the  table; the  debt  was typically  sold with  a                                                                   
ten-year  call.  He stated  that  in a  worst-case  scenario,                                                                   
$300 million in  principle, plus the interest  over a 20-year                                                                   
expected  issuance  on that,  would  need  to be  repaid.  He                                                                   
thought that  the state  could wind up  with $400  million to                                                                   
$450 million in total exposure on the project.                                                                                  
Senator   Dunleavy  inquired   if  Mr.   Mitchell  was   more                                                                   
comfortable with  the current  bill's approach than  that one                                                                   
that  was brought  forward the  previous  year. Mr.  Mitchell                                                                   
replied in the  affirmative and related that  if you compared                                                                   
the cost  of $450 million  to a private-activity  bond, which                                                                   
had  been  previously  considered,  you could  see  that  the                                                                   
state  was taking  the same  risk for  a lot  more money.  He                                                                   
thought  that  the  bill's  current   structure  reduced  the                                                                   
state's  potential  exposure   by  hundreds  of  millions  of                                                                   
dollars and  added that in  the previous year's  concept, the                                                                   
state  would   also  be   back  stopping   the  TIFIA   loan;                                                                   
previously, the  state had also  been backstopping  an equity                                                                   
investment   by  the   consortium,   which   had  also   been                                                                   
eliminated  in the current  structure.  He reported that  the                                                                   
current  structure  of  the bill  represented  a  significant                                                                   
improvement  for  the  state from  a  financial  perspective;                                                                   
however, there could  be other considerations such  as if the                                                                   
project  could  managed  more effectively  potentially  by  a                                                                   
private consortium instead.                                                                                                     
Senator  Dunleavy  inquired  if  $450  million  was  the  top                                                                   
exposure of the  state in the bill. Mr. Mitchel  responded in                                                                   
the affirmative.                                                                                                                
9:38:32 AM                                                                                                                    
Senator  Hoffman saw  that  in  Section 3  of  the bill,  the                                                                   
revenue  bonds may  not exceed  $300 million.  He pointed  to                                                                   
page   2   of   the  bill   and   thought   that   additional                                                                   
appropriations  by the  legislature should  be excluded.  Mr.                                                                   
Mitchell  understood  that Senator  Hoffman  was  referencing                                                                   
the 2 different  sections of statute that were  referenced in                                                                   
the work draft.  He clarified that one section  of statute in                                                                   
the draft  were KABATA's statutes  and that AS  37.15 created                                                                   
its own  authority; it  was contemplated  that the  authority                                                                   
to  issue  revenue  bonds  by   KABATA  would  no  longer  be                                                                   
exercised because  there was  not a need  for them  to borrow                                                                   
money.  He   was  unsure   exactly  what  Senator   Hoffman's                                                                   
question was.                                                                                                                   
Senator  Hoffman  replied  that  his  question  was  why  the                                                                   
language  "appropriations approved  by  the legislature"  was                                                                   
needed in  the bill  as it  was outline  in the bond  reserve                                                                   
fund. Mr. Mitchell  responded that the language  in reference                                                                   
was  what created  the basis  of the  state's commitment  and                                                                   
allowed  the obligations  to be  marketable. Senator  Hoffman                                                                   
inquired  if it  was limited  to  the $300  million plus  the                                                                   
interest. Mr. Mitchell responded in the affirmative.                                                                            
Co-Chair  Meyer observed  that Mr. Mitchell  had stated  that                                                                   
he  was not  an expert  on TIFIA  and inquired  who was.  Mr.                                                                   
Mitchell replied  that the  Department of Transportation  and                                                                   
Public Facilities,  Jeff Stark, or  members of the  FHA would                                                                   
be good people to talk to regarding TIFIA.                                                                                      
9:41:23 AM                                                                                                                    
Co-Chair  Meyer thought  that  since the  federal  government                                                                   
was taking  a risk on the  TIFIA funding, bonds would  not be                                                                   
issued  unless it  was felt  that  KABATA was  a pretty  good                                                                   
project.  Mr.  Mitchell  responded that  Co-Chair  Meyer  was                                                                   
correct  and   that  the  state   would  have  to   have  its                                                                   
obligation  on the table  before the  bonds would  be issued.                                                                   
He thought that  the state had not been invited  to apply for                                                                   
TIFIA funds  previously because it  did not have skin  in the                                                                   
game   and  that   authorizing  the   work  draft's   revenue                                                                   
structure  would show  the  state's obligation,  which  would                                                                   
allow TIFIA  to move forward;  it was expected that  with the                                                                   
new revenue  structure, the state  would be invited  to apply                                                                   
for TIFIA funding.                                                                                                              
Vice-Chair  Fairclough inquired  if the  bonds would  be sold                                                                   
in a  10-year increment.  She thought that  there would  be a                                                                   
lost  opportunity   for  interest   and  the  cost   of  that                                                                   
borrowing  capacity and  noted  that there  was another  bill                                                                   
coming out of  the Senate Finance Committee  addressing that;                                                                   
she  requested  an  explanation   of  that  legislation.  Mr.                                                                   
Mitchell replied that  10 years was simply the  date at which                                                                   
the bonds  could be  paid off  and that typically  tax-exempt                                                                   
municipal bonds  had a 10-year  call provision.  This allowed                                                                   
the investors  to know that  the state  was locked in  for 10                                                                   
years.  He  added  that more  typically,  bonds  were  priced                                                                   
along the yield  curve and there would be a  maturity in each                                                                   
one of the years  between the present and  final maturity; an                                                                   
increasing  yield  curve  would  be  taken  advantage  of  by                                                                   
paying  off a  bond that  matured. He  recalled selling  some                                                                   
geo-debt the  previous week  that had  priced at an  interest                                                                   
rate  of  .01  which  was  10 basis  points  in  a  year.  He                                                                   
surmised  that  25 years  down  the  yield curve,  maybe  the                                                                   
interest  would be  at  3.5 and  that  the  state would  take                                                                   
advantage  of  it;  if there  were  opportunities  to  adjust                                                                   
that, the state would consider those.                                                                                           
9:43:59 AM                                                                                                                    
Vice-Chair  Fairclough  noted  that the  committee  had  been                                                                   
increasingly focused  on debt  and what that  meant regarding                                                                   
the  state's borrowing  ability  and the  interest rate  that                                                                   
would  be  received at  the  market.  She  wanted to  see  an                                                                   
actual  cash-flow scenario.  She expressed  concern that  the                                                                   
state would  go out and borrow  $300 million, have  it sit in                                                                   
the bank, and pay  interest on it. She added  even though the                                                                   
state would be  recouping money by drawing  interest earnings                                                                   
on the  construction bond fund  in the amount of  $1 million,                                                                   
it would still  be a net loss;  it would be nice  to see what                                                                   
the  correlating   interest  cost   to  the  state   was  for                                                                   
borrowing  the  money.  She  wanted   to  see  the  scenarios                                                                   
regarding  when the  cash was  needed so that  the state  was                                                                   
not borrowing too  early if it was going to  proceed with the                                                                   
project.  Mr. Mitchell  responded that  he had  misunderstood                                                                   
the question  originally and  that Vice-Chair Fairclough  had                                                                   
a very valid  point that the  state would not want  to borrow                                                                   
the money  for too  long of  a period.  He recalled  that the                                                                   
state had had borrowed  long in the past and  had been forced                                                                   
to invest  short because it needed  the ability to  spend the                                                                   
money  in  the near-term;  this  could  result in  the  state                                                                   
paying  3.5  percent  and  having to  reinvest  at  30  basis                                                                   
points.  He  concluded that  the  state  would try  to  avoid                                                                   
borrowing long.                                                                                                                 
Vice-Chair  Fairclough inquired  if  there was  a section  in                                                                   
the CS  that stated that Alaska  would not issue  bonds until                                                                   
the  TIFIA portion  of  the funding  had  been approved.  Mr.                                                                   
Mitchell  replied  that before  TIFIA  would  lend the  state                                                                   
$300-plus  million, Alaska  would  need to  have  all of  the                                                                   
project's components in place.                                                                                                  
Vice-Chair Fairclough  observed that the only  uncertainty in                                                                   
the spreadsheet  was the need  for additional federal  aid in                                                                   
the amount of $226 million.                                                                                                     
9:46:57 AM                                                                                                                    
Senator Bishop inquired  if Mr. Mitchell had  stated that the                                                                   
debt service  on the  $300 million  would  be $20 million  to                                                                   
$25  million   per  year.   Mr.  Mitchell   replied   in  the                                                                   
Senator  Hoffman  noted  that  his question  was  similar  to                                                                   
Vice-Chair  Fairclough's   and  referenced  the   target  for                                                                   
bonding  capacity at  8  percent. He  discussed  SB 138,  the                                                                   
Susitna-Watana   project,   and   the  KABATA   project   and                                                                   
requested a  sheet that  showed where the  state would  be if                                                                   
it had indebted itself on all 3 of those projects.                                                                              
Senator  Hoffman  pointed  to  Section  3  of  the  bill  and                                                                   
pointed out  that it discussed  the requirement of  the State                                                                   
Bond Committee  to evaluate  whether the  toll revenues  were                                                                   
able  make the  principal  payments on  the  interest in  the                                                                   
bonds; he wondered  if it would be an off-ramp  for the state                                                                   
if  the  toll  revenues  were   not  adequate.  Mr.  Mitchell                                                                   
responded  that the provisions  in Title  19 were  related to                                                                   
the authorization  for KABATA to  issue bonds. He  added that                                                                   
there was  a check-off  for revenue  bonds that KABATA  might                                                                   
consider  issuing; however,  since the  State Bond  Committee                                                                   
would be  the issuer  of the  $300 million  and there  was no                                                                   
short-term  expectation  that tolls  would  be sufficient  to                                                                   
pay for  the debt  service, the check-off  did not  exist for                                                                   
the $300 million.                                                                                                               
9:49:32 AM                                                                                                                    
Senator Dunleavy  inquired who would be responsible  for cost                                                                   
overruns  under the  proposal.  Mr. Mitchell  responded  that                                                                   
the  Department  of  Transportation   and  Public  Facilities                                                                   
(DOT) would be better suited to answer the question.                                                                            
Co-Chair Meyer noted that DOT would be presenting next.                                                                         
Senator  Olson  offered  that Mr.  Mitchell  had  credibility                                                                   
because  he was  at arms-length  with the  process and  noted                                                                   
that his  job was  not necessarily  dependent on whether  the                                                                   
project went  forward as  opposed to those  who almost  had a                                                                   
conflict  of  interest on  the  issue.  He offered  that  the                                                                   
project  was there,  but  that  the Division  of  Legislative                                                                   
Audit  had  indicated  that  the   financial  estimates  were                                                                   
questionable.  He understood  that  this was  a new  proposal                                                                   
with new estimates,  but noted that the state's  revenues and                                                                   
savings were  projected to go  down; additionally  he assumed                                                                   
that this,  along with  taking on new  debt for  the project,                                                                   
would result in  the state's credit rating  dropping as well.                                                                   
He  thought maybe  Mr.  Mitchell had  a  more objective  view                                                                   
because he was  a finance expert and could  to help eliminate                                                                   
the  fears  of  people,  like  himself,  who  saw  KABATA  as                                                                   
another white elephant.  He inquired if his  viewpoint on the                                                                   
project was wrong  and if so, how it was wrong.  Mr. Mitchell                                                                   
replied  that the  new  plan defined  the  commitment of  the                                                                   
state in  a much more concise  fashion and that with  it, the                                                                   
state knew  it would pay maybe  $450 million in  debt service                                                                   
for  the  project  in the  future;  however,  from  a  policy                                                                   
perspective,  it was  someone  else's job,  specifically  the                                                                   
legislature's,  whether  the   state  wanted  to  spend  that                                                                   
amount on  the project.  He added that  people in  his office                                                                   
supported it.                                                                                                                   
Senator Olson  clarified that  when he  saw the downslope  of                                                                   
oil  production,   he  saw  the  downslope  of   the  state's                                                                   
savings. He  inquired if  it was true  that the  state's bond                                                                   
rating would  also be  going to down  from AAA.  Mr. Mitchell                                                                   
responded that  it would  be a challenge  to keep  the rating                                                                   
from dropping in  the future. Senator Olson  interpreted that                                                                   
it was true.                                                                                                                    
Senator Olson  noted that  Mr. Mitchell  had stated  that the                                                                   
debt service  on the  $300 million  would  be $20 million  to                                                                   
$25 million and  inquired if that was per  year. Mr. Mitchell                                                                   
responded  that it was  per year.  Senator Olson inquired  if                                                                   
the state  would be paying  that amount  every year for  7 to                                                                   
12  years. Mr.  Mitchell responded  that the  state would  be                                                                   
paying $20  million to $25  million every  year for 20  or 25                                                                   
Senator Olson surmised  that the state would be  paying a far                                                                   
larger  amount  than  the  $300  million  bond  package.  Mr.                                                                   
Mitchell estimated  that the  state would  be paying  back up                                                                   
to $450 million.                                                                                                                
Senator   Olson  commented   that  as   you  looked   at  the                                                                   
insolvency of  the state  and the issues  it was  facing, the                                                                   
financial numbers of the project caught his attention.                                                                          
Co-Chair  Meyer thought  that  Senator Olson  made some  good                                                                   
points and  that the committee  needed to find a  balance. He                                                                   
noted the school  debt, potential heavy-debt on  the gasline,                                                                   
and  the  $250  million  power   plant.  He  added  that  the                                                                   
committee  would have  to balance  schools, pipelines,  power                                                                   
plants,  and dams  with bridges  and offered  that they  were                                                                   
all important aspects of government.                                                                                            
9:55:01 AM                                                                                                                    
Vice-Chair Fairclough  commented on  the state's  bond rating                                                                   
being  tied to  the  decline in  oil  and  offered that  what                                                                   
would happen  to the  rating was dependent  on how  the state                                                                   
chose  to respond  to the  decline, as  well as  what it  had                                                                   
done to  meet its obligation.  She thought that  Commissioner                                                                   
Rodell  had  indicated  that  if the  state  was  making  its                                                                   
payments and met  its obligations within a  five-year window,                                                                   
it would  maintain its AAA  rating; however, the  raters were                                                                   
watching  the $12  billion  pension obligation.  She  thought                                                                   
that raters  would be looking  at what the state  put towards                                                                   
paying  off  the  pension  liability,  how  it  affected  the                                                                   
operating  budget, and  how that  ratio of  debt played  into                                                                   
things. She thought  that Alaska had a  wonderful opportunity                                                                   
that revenue  continued to benefit  and that it also  had $50                                                                   
billion in  the bank  from the  Permanent Fund, which  helped                                                                   
with the credit  rating. She thought that school  debt needed                                                                   
to be  considered  and that sometimes  the  best thing  to do                                                                   
was  to pay  off debts  and future  obligations  in order  to                                                                   
position  Alaska well  until more  oil was  brought on  line.                                                                   
She offered  that the  Senate had  positioned the  state well                                                                   
to make  sure that the debt  could be carried by  Alaska; the                                                                   
debt on  gas pipeline would not  be huge until the  state had                                                                   
contracted with  a buyer and it  would not borrow  money that                                                                   
it could not pay  back. She wanted it on the  record that the                                                                   
Senate Finance Committee  had been looking very  seriously at                                                                   
debt  and  that  Senator  Olson's   concerns  regarding  debt                                                                   
management were shared by the committee.                                                                                        
9:57:17 AM                                                                                                                    
Senator   Dunleavy  noted   that  $450   million,  from   Mr.                                                                   
Mitchell's  perspective,  was  the maximum  exposure  of  the                                                                   
state  for the  project.  He assumed,  however,  that if  the                                                                   
tolls were able  to pay TIFIA loans, they would  also be able                                                                   
to help  pay down the state  debt. Mr. Mitchell  replied that                                                                   
that   Senator  Dunleavy   was   correct.  Senator   Dunleavy                                                                   
inquired  if   $450  million  was  the   maximum,  worst-case                                                                   
exposure for  the state on  the project, from  Mr. Mitchell's                                                                   
perspective. Mr. Mitchell responded in the affirmative.                                                                         
Senator  Olson  wondered  where  money would  come  from  for                                                                   
potential cost overruns  and if the tolls were  unable to pay                                                                   
debt down;  furthermore,  he was a  little pessimistic  about                                                                   
the ability  of the  project to secure  TIFIA loans  based on                                                                   
applications to  that program in  the past. He  wondered what                                                                   
the backup  plans were  if the state  started running  out of                                                                   
money  when it was  looking at  other projects,  such  as the                                                                   
liquid natural  gas pipeline,  that benefitted all  Alaskans.                                                                   
Mr.  Mitchell  responded  that  bonds  would  not  be  issued                                                                   
unless  the total  anticipated  funding need  of the  project                                                                   
was already in  hand, which he thought might  address Senator                                                                   
Olson's first  concern. He stated  that DOT could  answer the                                                                   
question of cost  overruns better, but that  the same options                                                                   
would be available  to fund cost overruns,  whether they were                                                                   
federal  highway receipts,  additional  state leveraging,  or                                                                   
additional TIFIA loans.                                                                                                         
Senator  Olson commented  that a  good example  of a  project                                                                   
that had  gone over  budget was  the Goose  Creek Prison  and                                                                   
stated  that it  had gone  millions and  millions of  dollars                                                                   
over cost  and that as  a result, he  was hesitant  to commit                                                                   
to another  project that  had started  off with  questionable                                                                   
cost numbers.  He offered that  the project was  questionable                                                                   
in the amount  of toll revenues that would  be generated, the                                                                   
cost  to  conduct  phase  I  and  II,  and  how  the  project                                                                   
participants  had  conducted  themselves  over the  last  six                                                                   
months with people in Government Hill.                                                                                          
Co-Chair  Meyer noted  that being  the first  to testify  was                                                                   
touch,  but added  that Mr.  Mitchell had  done an  excellent                                                                   
job  of keeping  the  state's  credit rating  as  high as  it                                                                   
could be.                                                                                                                       
10:02:07 AM                                                                                                                   
JEFF  OTTESEN,  DIRECTOR, DIVISION  OF  PROGRAM  DEVELOPMENT,                                                                   
DEPARTMENT   OF   TRANSPORTATION   AND   PUBLIC   FACILITIES,                                                                   
referenced  a  1  page  document  in  members'  packets  with                                                                   
orange bars  (copy on file)  and the column  labeled "federal                                                                   
formula  funds,"  which  represented   the  amount  of  funds                                                                   
needed   in   the   one-third/one-third/one-third   financing                                                                   
arrangement for the  project. He reported that  the total was                                                                   
$295  million in  federal  receipts,  which did  not  include                                                                   
match funds  and that  the $18.9  million at  the top  of the                                                                   
column  was the  remaining ear-mark  funds  available to  the                                                                   
project;  the  $18.9 million  was  already  in the  bank  and                                                                   
would  not  be  subtractive  of  other  projects  across  the                                                                   
state. He  added that  the number  of federal receipts  going                                                                   
forward  between the  present  and 2020  was  closer to  $276                                                                   
million.  He spoke  to  the impact  of  the KABATA  financing                                                                   
plan  on the  other project's  around the  state and  related                                                                   
that  the projects  financing  scheme was  based on  national                                                                   
highway  system funding,  which was now  called the  National                                                                   
Highway  Performance Program  (NHPP). He  noted that  funding                                                                   
from  the  Surface Transportation  Program  (STP)  and  other                                                                   
smaller categories  of federal funding were not  an issue. He                                                                   
relayed   that  funding   from  STP   covered  went   towards                                                                   
essentially everything  that was not in the  national highway                                                                   
system;  community roads  and other state  highways  were not                                                                   
impacted at all  by the financing scheme. He  stated that the                                                                   
project  was  in  the  budget  for  $50  million  in  federal                                                                   
funding  in  FY15,  which  was  about  10.3  percent  of  the                                                                   
overall  funding  per  year  or 17  percent  of  the  state's                                                                   
national highway  funding. He  stated that from  2016 through                                                                   
2020,  the amount  of federal  funding dropped  to about  $45                                                                   
million per  year, which would  drop the total  percentage of                                                                   
federal  funds  for  the  project  to  9.3  percent  and  the                                                                   
national highway funding to about 15 percent.                                                                                   
Mr.  Ottesen   continued  to  discuss  federal   funding  and                                                                   
related  that when  he  looked at  the  current portfolio  of                                                                   
national  highway  system  projects   that  were  progressing                                                                   
through   the  necessary   steps  to   become  eligible   for                                                                   
construction  funding,  there was  about  a 12-year  list  of                                                                   
projects that  were actively  being worked  on; if  you added                                                                   
the KATBATA  project, it became  a 13-year list.  He reported                                                                   
that the  bridge was a  relatively small  add on the  list to                                                                   
the total  amount of  underway projects.  He stated  that the                                                                   
average project that  was being worked on would  be given the                                                                   
go in about its  the 6th or 7th year and  that KABATA project                                                                   
essentially added a  half of a year to the  average weight of                                                                   
funding.  He  stated  that  some   projects  progressed  more                                                                   
quickly  than  others and  the  question  was which  type  of                                                                   
projects the  state would give  the priority to and  not slow                                                                   
down,  as well  as  which types  would  be  waiting a  longer                                                                   
period of time  to accommodate the KABATA project.  He stated                                                                   
that factors to  consider when making priorities  were things                                                                   
like public  safety, traffic  volume, and project  readiness.                                                                   
He  stated that  prioritized projects  would  be things  like                                                                   
the  widening of  the  Parks  Highway through  Wasilla;  that                                                                   
project involved  a highway-safety  corridor where  there was                                                                   
a  very bad  congestion  problem. He  reported  that DOT  was                                                                   
also widening  the Seward Highway  near midtown  in Anchorage                                                                   
and that  it would  also not be  slowed down  as a  result of                                                                   
the KABATA project.  He gave additional examples  of projects                                                                   
that would not be slowed as a result of the KABATA project.                                                                     
Mr.  Ottesen discussed  the  projects  that would  be  slowed                                                                   
down to  make room for the  KABATA project and  reported that                                                                   
there were a  series of projects within the  national highway                                                                   
system program  that were  started when  Alaska thought  that                                                                   
the  big  pipeline   would  be  going  through   Canada;  the                                                                   
logistics routes to  bring that pipe into the  state, as well                                                                   
as  the   roads  and  bridges   along  the  route   down  the                                                                   
Richardson  Highway to  Delta and  further east  were not  as                                                                   
high priority  as  they were in  the past.  He reported  that                                                                   
there  were  also  projects being  conducted  on  the  Haines                                                                   
Highway that were  considered lower priority.  He stated that                                                                   
DOT would  not be cancelling  these lower-priority  projects,                                                                   
but would  be moving them  out in time  typically for  one or                                                                   
two years.  He offered  that in  reality,  the impact  of the                                                                   
KABATA  project   would  be  even  less  than   he  had  just                                                                   
indicated and  related that every  year, a certain  number of                                                                   
DOT's  projects did  not make  the finish  line; the  success                                                                   
rate of  DOT's projects  was about  70 percent, meaning  that                                                                   
30  percent had  to be  delayed.  The causes  for delay  were                                                                   
typically  due  to  a lack  of  approval,  the  inability  to                                                                   
obtain  a right-of-way  parcel  in time,  and too  high of  a                                                                   
workload.  He stated that  other states  usually had  about a                                                                   
60  percent success  rate  and that  delays  were normal  and                                                                   
were part of the complexity of the federal process.                                                                             
Mr.  Ottesen   continued  to  discuss  federal   funding  and                                                                   
related that  the dollars that  were scheduled for  a certain                                                                   
year  for  projects  that  did  not happen  had  to  be  used                                                                   
somewhere  else or the  funding would  be lost. He  explained                                                                   
that DOT  needed manage  the program well;  if a  project did                                                                   
not  happen because  the department  took on  too many  other                                                                   
ones or  it exceeded the  expected costs, and  the department                                                                   
did  not have  shovel ready  viable  substitute, the  federal                                                                   
funding  would be  lost. He  relayed  that DOT  did not  lose                                                                   
funding in  that the manner and  that it was built  in to the                                                                   
department to not  allow federal dollars to  leave the state.                                                                   
He  explained  that  the KABATA  project  becomes  a  natural                                                                   
place to  send the  dollars that got  delayed by  the natural                                                                   
slippage of  other projects; as  a result of that,  there was                                                                   
a  possibility  to  fund  to the  project  with  very  little                                                                   
impact to  ongoing projects. He  furthered that if  there was                                                                   
delay in  a project  for natural  reason, the KABATA  project                                                                   
would  not  have  caused  it,  but it  and  the  state  would                                                                   
benefit from it by having a place to send funding.                                                                              
10:10:09 AM                                                                                                                   
Mr. Otteson continued  to discuss federal funding  and stated                                                                   
that in addition  to projects being delayed,  every year, the                                                                   
state   received   additional   funding.  He   recalled   his                                                                   
discussion with  the Senate  Finance Committee several  weeks                                                                   
prior and  reiterated that in  the last quarter of  the year,                                                                   
over  $100  million  had  become  available  to  DOT  due  to                                                                   
project closeouts.  He explained  that it had  been federally                                                                   
mandated that the  department had to close  out projects fast                                                                   
before the  next fiscal year and  that as a result,  the $100                                                                   
million suddenly  became available  for use elsewhere;  these                                                                   
kinds of  events made KABATA  a natural recipient  of funding                                                                   
without impacting the rest of the state.                                                                                        
Senator  Bishop  pointed  to   Mr.  Ottesen's  remarks  about                                                                   
ongoing  projects  along  the   route  of  the  proposed  big                                                                   
pipeline through  Canada. He pointed  out that  the committee                                                                   
had just  passed SB  138 and  that there  was a new  pipeline                                                                   
and route.  He stated  that the  route for  the new  pipeline                                                                   
went through  Willow  but that  it had not  determined  a way                                                                   
across  the Knik  Arm.  He requested  DOT  to cordinate  with                                                                   
KABATA  regarding the  new producers'  alignment and  related                                                                   
that he did not  want to see SB 138's pipeline  or the KABATA                                                                   
project add  costs to one  another. Mr. Ottesen  reported DOT                                                                   
had  a full-time  staffer working  on  the multiple  pipeline                                                                   
issues and  that although  he had not  spoken to  the staffer                                                                   
recently,  he  was  sure  that  they  were  coordinating.  He                                                                   
stated  that  a  bridge  on the  Dalton  Highway  had  become                                                                   
structurally deficient  the previous summer and  that funding                                                                   
had been  assigned to that  project to start  redesigning the                                                                   
bridge for reconstruction  within less than a  month; DOT was                                                                   
paying  attention to  that route  and knew  how important  it                                                                   
was. He stated  that the good  news was that DOT had  had its                                                                   
attention on the  commerce corridor of the  Parks Highway and                                                                   
Dalton Highway  long before SB  138's pipeline  proposal; the                                                                   
bridges  and segments  of  the  pipeline route  were  getting                                                                   
better.  Her added  that last  summer  alone, the  department                                                                   
had funded  13 pairs of passing  lanes on the  Parks Highway.                                                                   
He concluded that  a lot of attention was being  paid on what                                                                   
was  essentially  the  proposed   pipeline  construction  and                                                                   
logistics route.                                                                                                                
10:12:52 AM                                                                                                                   
Vice-Chair Fairclough  inquired if DOT would be  managing the                                                                   
KABATA  project.  Mr. Ottesen  replied  in the  negative  and                                                                   
that the  underlined statute that  enabled KABATA  had really                                                                   
put it  in charge; however, DOT  had a responsibility  in the                                                                   
project  because from the  viewpoint of  FHA, the  department                                                                   
was the recipient  of the federal funding that  went into the                                                                   
project.  He concluded  that DOT  had an  obligation to  make                                                                   
sure that  federal rules were  being followed and did  have a                                                                   
role to play in the project.                                                                                                    
Vice-Chair  Fairclough  assumed  that  DOT was  taking  a  12                                                                   
percent or  lower percentage  cut of  the federal  funding to                                                                   
pay  for administrative  fees that  it was  incurring on  the                                                                   
KABATA  project. Mr.  Otteson  responded  that DOT's  current                                                                   
administrative  overhead  number  was  about  5  percent  and                                                                   
thought   that  the   department  had   negotiated  a   lower                                                                   
percentage  because of  the large  size of  the project;  the                                                                   
administrative  fee was  what was paying  for the  accounting                                                                   
system,  the  people that  worked  in  it and  other  similar                                                                   
Vice-Chair Fairclough  inquired if the Knik Arm  Bridge would                                                                   
be  financed with  an  approximate  structure  of 33  percent                                                                   
tolls,  33 percent  state  dollars,  and 33  percent  federal                                                                   
funding.   Mt.  Ottesen   replied   that   was  the   correct                                                                   
approximate percentage  ratio, but  that TIFIA represented  a                                                                   
little more than  33 percent. He reported that  TIFIA's share                                                                   
of the  funding was about $351  million and thought  that the                                                                   
state  share was  $300 million.  He  concluded that  counting                                                                   
the the money  that was already  on the shelf in the  form of                                                                   
ear-marked  funds,  the federal  share  was just  under  $300                                                                   
Vice-Chair Fairclough  had wanted  to alleviate  her concerns                                                                   
her  concern  that the  spread  sheet  (copy on  file)  dated                                                                   
March  1,  2014 stated  that  there  was an  additional  $226                                                                   
million. She had  been trying to understand  the comment that                                                                   
the  federal aided  represented about  a third  of the  total                                                                   
project cost, but  noted that there were expected  tolls that                                                                   
would  go  towards  paying  the  TIFIA  debt  back.  She  had                                                                   
understood  that the  state  was proposing  to  borrow up  to                                                                   
$300 million,  which it  would make  incremental payments  on                                                                   
over  time, depending  how much  was needed  at a  particular                                                                   
time. She  had heard that the  payments would be  between $20                                                                   
million  and  $25  million,  but  noted,  however,  that  the                                                                   
amount  of  the  payment  was based  on  borrowing  all  $300                                                                   
million  at  once; the  state's  obligations  would  increase                                                                   
over  time  as  the those  obligations  increased.  She  also                                                                   
understood  that  as  the  federal  government  continued  to                                                                   
support  the national highway  system,  the state would  have                                                                   
additional   federal   funding   available   that   was   not                                                                   
calculated  in  the  financing  scheme of  the  project.  She                                                                   
thought  that the  proposal would  not  result in  displacing                                                                   
other projects;  additionally, the  state would be  trying to                                                                   
pick up  anything that  was left  on the  table and  would be                                                                   
prioritizing  projects in  the out-years.  She observed  that                                                                   
the non-prioritized  projects would be delayed for  a year or                                                                   
two and  that projects that  were in  the queue would  not be                                                                   
displaced.  She concluded  that  the financing  plan for  the                                                                   
project  called  for  a  third of  funding  coming  from  the                                                                   
public, a third  from the federal government,  and third from                                                                   
the  state.  She   inquired  if  her  understanding   of  the                                                                   
proposal   was  correct.   Mr.  Ottesen   responded  in   the                                                                   
10:16:50 AM                                                                                                                   
Co-Chair  Meyer noted  that about  a third  of the  financing                                                                   
for  the  project were  expected  federal-toll  receipts  and                                                                   
inquired  if  the  cost estimates  included  the  roads  that                                                                   
would  need  to   be  built  in  Government   Hill  or  Point                                                                   
JUDY DOUGHERTY,  ACTING EXECUTIVE  DIRECTOR, KNIK  ARM BRIDGE                                                                   
AND  TOLL  AUTHORITY  (KABATA), replied  that  the  project's                                                                   
limits extended  from the  Government Hill  area out  to Port                                                                   
Mackenzie;  the   project  proposal   that  was   before  the                                                                   
committee  was within those  limits and  the funding  request                                                                   
did not  include funding for  roadway projects  outside those                                                                   
limits. Co-Chair  Meyer noted that it was  something that the                                                                   
committee  would want to  address as  it proceeding  with the                                                                   
legislation   because  there   were  concerns  in   Anchorage                                                                   
whether  the  existing roads  would  be  able to  handle  the                                                                   
increased traffic from the Valley.                                                                                              
Co-Chair Kelly queried  what the best-guess estimate  was for                                                                   
the  cost of  building the  additional  roads. Ms.  Dougherty                                                                   
inquired   if  Co-Chair  Kelly   was  referencing   potential                                                                   
additional  roads  outside  of the  project.  Co-Chair  Kelly                                                                   
responded  in the  affirmative.  Ms. Dougherty  replied  that                                                                   
she      did       not      have      that       information.                                                                   
Co-Chair Meyer  reiterated that the estimates  were something                                                                   
that the  committee would want  see. Ms. Dougherty  responded                                                                   
that the  project limits  were confined by  the FHA  and were                                                                   
the ones  that had complied  with the National  Environmental                                                                   
Policy Act (NEPA)  and included the entire  scope of KABATA's                                                                   
permitting  activities.  She concluded  that  KATABA was  not                                                                   
able to  conduct projects outside  of those limits.  Co-Chair                                                                   
Meyer  interjected that  the committee  understood that,  but                                                                   
observed  that Ms.  Dougherty  was  at the  table  presenting                                                                   
with DOT's  director of  program development  who could  help                                                                   
with those roads.                                                                                                               
Mr. Ottesen  added that the success  of the project  would be                                                                   
that it  would carry a  lot of traffic,  which in  turn would                                                                   
stress  the  existing  road  networks   in  Anchorage  as  it                                                                   
entered  the   city;  however,   the  higher  traffic   would                                                                   
generate more  revenue. He continued  that when  that revenue                                                                   
was in  excess of  the need  to pay  firstly the TIFIA  bonds                                                                   
and  secondly the  state's  portion, there  would  be a  time                                                                   
where there  was excess  revenue available  for projects.  He                                                                   
stated  that the  construct  of the  project  was that  these                                                                   
dollars  had  to  be spent  on  highway  projects  that  were                                                                   
eligible under  Title 23 rules,  subject to appropriation  of                                                                   
the legislature.                                                                                                                
10:19:37 AM                                                                                                                   
Co-Chair  Meyer  thought  that   Mayor  Sullivan  would  want                                                                   
funding  for additional  roads due to  the increased  traffic                                                                   
from the  bridge. Ms. Dougherty  replied that she  had spoken                                                                   
to Mayor Sullivan  and that he was a strong  supporter of the                                                                   
project.  She  related  that  one  of  the  things  that  the                                                                   
Municipality  of  Anchorage  had   expressed  was  that  once                                                                   
traffic  started ramping  up, there  should be  an effort  to                                                                   
bring forward  the Ingra-Gambell  connection, which  was part                                                                   
of  the KABATA  project,  at the  earliest  possible date  in                                                                   
order to help alleviate increased traffic issues.                                                                               
Co-Chair  Meyer stated  that the  committee  would have  more                                                                   
discussion once  Senator Dunleavy returned and  noted that he                                                                   
was not  sure what  it was  like on  the Valley  side of  the                                                                   
Senator  Hoffman pointed  to the audit  report and  discussed                                                                   
the previous  year's proposal and  page 19. He was  trying to                                                                   
reconcile why,  even though the  funding scheme  had changed,                                                                   
there  was  a drastic  difference  between  the  construction                                                                   
costs of  the two proposals.  He stated  that on page  19, it                                                                   
showed the  total project  cost of  the previous proposal  at                                                                   
$1.6  billion and  had the  current year's  proposal at  $900                                                                   
million; he  noted that there  was a $700 million  difference                                                                   
between the two  estimates. He acknowledge that  a big reason                                                                   
for the  difference was  probably the  financing scheme,  but                                                                   
that  the   construction  and   right-of-way  costs   on  the                                                                   
previous  proposal  were  about $1.25  billion;  the  current                                                                   
proposal did not come close that amount.                                                                                        
Senator  Hoffman addressed  some of  Co-Chair Meyer's  issues                                                                   
from the  other side  of the  bridge and  remarked that  were                                                                   
proposed Port  Mackenzie road upgrades  in the amount  of $15                                                                   
Senator  Hoffman  inquired  what  had changed  with  the  new                                                                   
proposal to reduce  the costs so drastically.   Ms. Dougherty                                                                   
responded that the  numbers in the audit were  taken from the                                                                   
TIFIA letter  of interest  and that  under that program,  the                                                                   
recipient was  allowed to borrow  based on the  total project                                                                   
costs from the  very beginning of the project  which included                                                                   
pre-construction  development,  all  of  the costs  that  had                                                                   
been expended  to date,  as well as  the commerce  grant that                                                                   
was  given to  the Mat-Su  Borough to  do work  on the  other                                                                   
side of  the inlet; all this  was included in the  33 percent                                                                   
participation  from TIFIA.  She concluded  that $1.6  billion                                                                   
included all of  the above costs, as well as  costs that were                                                                   
estimated  for capacity  improvements  and roadway  expansion                                                                   
within  the project  limits;  it included  the  Ingra-Gambell                                                                   
connection and  the widening to  four lanes. She  stated that                                                                   
the  approximately  $900  million that  Senator  Hoffman  was                                                                   
referencing  was just for  phase 1 of  the project  and would                                                                   
pay for  the initial construction  on a four-lane  foundation                                                                   
, two-lane  roadway; it was also  the amount from  this point                                                                   
forward and  did not include  anything that had  already been                                                                   
spent.  She pointed  out that  the actual  cost estimate  for                                                                   
the project was  $782 million and that $894  million included                                                                   
the  capacity for  things like  cost  overruns. She  recalled                                                                   
that  cost  overruns  had  been   discussed  earlier  in  the                                                                   
meeting  and  pointed out  that  FHA  required a  project  to                                                                   
assess the  potential risk  for cost overruns;  additionally,                                                                   
there needed  to be  a financial  plan that demonstrated  how                                                                   
potential overruns would be paid for.                                                                                           
10:23:56 AM                                                                                                                   
Senator  Olson queried  if Ms. Dougherty  was inferring  that                                                                   
some of  the project numbers  were inflated regarding  TIFIA.                                                                   
Ms.  Dougherty responded  that  FHA required  that a  project                                                                   
show that it  had the necessary resources to  see the project                                                                   
all  the way  through  and  address unknowns.  Senator  Olson                                                                   
surmised  that Mr.  Dougherty  agreed that  the numbers  were                                                                   
somewhat  inflated and  that there  need to  be some  funding                                                                   
for   cost  overruns.   Ms.   Dougherty   responded  in   the                                                                   
Co-Chair   Meyer    confirmed   that   Ms.    Dougherty   was                                                                   
representing KABATA.  Ms. Daugherty replied that  she was the                                                                   
Acting Executive Director of KABATA.                                                                                            
Co-Chair  Meyer inquired  what the chances  were of  securing                                                                   
TIFIA  loans for the  project  and observed  that he did  not                                                                   
know  how easily  obtained they  were.  Ms. Dougherty  stated                                                                   
that KABATA had  a letter of interest in for  TIFIA loans for                                                                   
a number of years  and thought that people were  aware of the                                                                   
criticism that  it had been  turned down for  loans; however,                                                                   
she would  like to  discuss what  TIFIA's purpose  was, which                                                                   
was to  provide financing  for large infrastructure  projects                                                                   
in which  it was expected that  the traffic and  toll revenue                                                                   
would  not be  enough to  secure full  funding. TIFIA's  goal                                                                   
was  to encourage  non-federal participation  in these  types                                                                   
of infrastructure  projects, which is what would  happen with                                                                   
the  state bond  contribution; KABATA  felt very  comfortable                                                                   
that it  would be able to  secure TIFIA funding. She  did not                                                                   
think that  the Department of  Revenue would bring  forward a                                                                   
financing  plan  that  included  TIFIA  unless  there  was  a                                                                   
relative   assuredly  that   the  federal   funds  would   be                                                                   
10:26:11 AM                                                                                                                   
Mr.  Ottesen added  that  MAP-21,  which funded  the  Federal                                                                   
Highway  Program, was  nearing  its end.    He reported  that                                                                   
there  were   currently  proposals  from  Congress   and  the                                                                   
White   House  for   the   next   version  of   the   Highway                                                                   
authorization.   He  stated   that  virtually   all  of   the                                                                   
proposals he had  seen either enlarged TIFIA or  create a new                                                                   
federal infrastructure  bank that would work much  like TIFIA                                                                   
to  finance projects  and help  jump start  them. He  offered                                                                   
that the  concept behind  TIFIA was catching  on and  that it                                                                   
appeared  as  though  this  type  of  federal  funding  would                                                                   
increase in the future.                                                                                                         
Senator Olson  inquired what TIFIA  stood for.  Ms. Dougherty                                                                   
reported    that   it    stood    for   the    Transportation                                                                   
Infrastructure Finance and Innovation Act.                                                                                      
Senator   Olson  noted   that  there   was  also  a   federal                                                                   
infrastructure   program  called  Transportation   Investment                                                                   
Generating  Economic  Recovery   (TIGER).  He  observed  that                                                                   
KABATA had applied  to TIGER and TIFIA a number  of times. He                                                                   
offered that  part of  the governor's  public policy  was not                                                                   
to put  his full faith  and trust  in federal funding  coming                                                                   
to  Alaska  to   do  projects.  He  related   that  expanding                                                                   
Medicaid was  a good  example of a  program where  Alaska was                                                                   
counting on  federal money that  it hoped would be  there and                                                                   
that he  agreed with  the governor  to a  certain extent.  He                                                                   
thought  that the  state was  getting itself  in a  financial                                                                   
straight jacket  that would  not allowed  it to have  certain                                                                   
projects.  He  pointed  out  that  in  2010,  there  were  39                                                                   
applications  to TIFIA  and TIGER  and that  only 4 had  been                                                                   
approved; additionally,  in the current  year, none of  the 4                                                                   
letters of  interest had been  approved. He recalled  that in                                                                   
2013, only  6 out  of the  34 letters  of interest  that were                                                                   
submitted  had been  approved,  which only  represented a  17                                                                   
percent  success rate.  He  asserted there  was  less than  1                                                                   
chance  in  5 that  the  KABATA  project would  secure  TIFIA                                                                   
funding  and disagreed  with  Ms. Dougherty  regarding  being                                                                   
very comfortable in securing TIFIA funding.                                                                                     
Senator Olson inquired  how his thinking was  wrong regarding                                                                   
the  project's poor  chances of  receiving  TIFIA funds.  Ms.                                                                   
Dougherty   replied  that  KABATA   shared  Senator   Olson's                                                                   
frustration  to a  degree and  reported that  when TIFIA  was                                                                   
first  getting started,  there  were  delays in  getting  the                                                                   
structure  in  place to  submit  a  letter of  interest.  She                                                                   
stated  that the  TIFIA office  looked  at project  readiness                                                                   
and  that many  of the  applying projects  had not  completed                                                                   
its  NEPA document  and  were  not as  mature  as the  KABATA                                                                   
project. She  felt confident that  KABATA would  secure TIFIA                                                                   
funding and  that on the off that  chance that it  did not, a                                                                   
finance plan  that satisfied the  FHA would still  be needed.                                                                   
She  related that  nothing would  be  obligated until  KATABA                                                                   
had a  financial plan that  the federal government  approved.                                                                   
She explained  that  there was  no risk in  trying to  secure                                                                   
the  low-interest funds  and  pointed out  that  you did  not                                                                   
have to pay TIFIA  back for up to five years  after a project                                                                   
opened  and  tolls  were collected.  She  stated  that  TIFIA                                                                   
payments had a  recognition that it would take  time to build                                                                   
up revenues on a startup facility.                                                                                              
10:30:56 AM                                                                                                                   
Senator  Olson inquired  why  the Municipality  of  Anchorage                                                                   
was not  offering bonds  to help  further the KABATA  project                                                                   
if  Mayor Sullivan  was  so in  favor  of  it. Ms.  Dougherty                                                                   
could not speak for the Municipality of Anchorage.                                                                              
Senator Olson stated  that it appeared that there  was a lack                                                                   
of confidence  that the project  would be able to  operate in                                                                   
the black.                                                                                                                      
Co-Chair  Meyer noted the  he and  Vice-Chair Fairclough  had                                                                   
both been on  the Anchorage Assembly and that  the city would                                                                   
not  typically  offer  a  bond  for  the  project  until  the                                                                   
funding was in place and it ready to move forward.                                                                              
Vice-Chair  Fairclough  added that  there  were major  state-                                                                   
highway   corridors   that   ran   through   Anchorage   that                                                                   
Municipality of  Anchorage was  not responsible for.  She was                                                                   
unsure if Ingra-Gambell was a state right-of-way or not.                                                                        
10:32:12 AM                                                                                                                   
Mr.  Ottesen  replied  that  Ingra-Gamble   were  both  state                                                                   
highways.  He  stated  that  communities  putting  their  own                                                                   
financing  into transportation  projects was relatively  rare                                                                   
and that  Mat-Su probably did  this the most. He  related the                                                                   
difference between  the old financial  scheme for  KABATA and                                                                   
the current  proposal and stated  that the old  scheme relied                                                                   
100 percent  on the  payment for  bonds coming from  traffic;                                                                   
it was  viewed as  somewhat suspect  because of its  reliance                                                                   
on  traffic. He  stated that  the current  scheme focused  on                                                                   
just the  TIFIA portion being  reliant on traffic,  which was                                                                   
only  a third  of the  financing; the  new plan  had cut  its                                                                   
expectation  of   traffic  by  two-thirds  compared   to  the                                                                   
previous  proposal. He  reported that  Juneau Douglas  Bridge                                                                   
had about  9,500 cars per  day crossing  it and that  it took                                                                   
about 10,000 cars  per day to pay back the  TIFIA bond funds.                                                                   
He related that  it was reasonable to assume  that traffic on                                                                   
the Knik Arm Bridge  would reach levels at least  as large in                                                                   
volume as  that on the Juneau  Douglas Bridge  rather quickly                                                                   
because the  population centers  on either  side of  the Knik                                                                   
Arm Bridge were much larger.                                                                                                    
Co-Chair  Meyer  noted that  if  the  bridge was  not  built,                                                                   
something would  have to  be done to  the Glenn  Highway. Mr.                                                                   
Ottesen replied in  the affirmative and added  that DOT would                                                                   
have  to improve  capacity one  way or  another. He  observed                                                                   
that  the state  had  never before  had  a  project that  was                                                                   
funded by  the users and added  that the tolls would  also be                                                                   
funding  the  maintenance  and   operation  of  the  project;                                                                   
additionally,  as  the  tolls   were  paid  off  and  surplus                                                                   
revenue  was  being  generated,  they  would  help  fund  the                                                                   
general highway program of the entire state.                                                                                    
10:34:31 AM                                                                                                                   
Co-Chair Meyer  did not know what  the costs would  be expand                                                                   
the  Glenn  Highway to  accommodate  additional  traffic  and                                                                   
thought  that  a  comparison  of  costs  between  the  KATABA                                                                   
project   and   expanding   the  Glenn   Highway   would   be                                                                   
interesting. Mr.  Ottesen responded that the  latest estimate                                                                   
he had  heard for work  on the Glenn  Highway was  about $600                                                                   
million just  to add  the pair  of lanes all  the way  out to                                                                   
the Parks-Glenn Y.                                                                                                              
Senator Olson recalled  that Mr. Ottesen had  stated that the                                                                   
Mat-Su Borough had  been very active in bonding  for projects                                                                   
and inquired  why it was not  bonding for the  KABATA project                                                                   
even though it  directly affected them.  Mr.  Ottesen replied                                                                   
that Mat-Su was  essentially bonding local roads  and that he                                                                   
did   know  of   any  instance   of   an  Alaskan   community                                                                   
participating in a national highway system route.                                                                               
Senator Olson  inquired how the  KABATA project  was involved                                                                   
with STP funding.  Mr. Ottesen replied that he  was unsure of                                                                   
the question.                                                                                                                   
Senator Olson  inquired if most  roads have had some  type of                                                                   
STIP consideration.  Mr. Ottesen replied in  the affirmative.                                                                   
Senator Olson queried  if the STP was involved  in the KABATA                                                                   
project.  Mr.  Ottesen  responded  that  the  KABATA  project                                                                   
would  have to  be on  the STIP  because of  the federal  ear                                                                   
marks it  had received to date;  it was considered  a federal                                                                   
project and would  have to be on the STP. He  stated that the                                                                   
type of  funding that was  shown on  the STP could  be bonds,                                                                   
TIFIA funding, or federal aid.                                                                                                  
Senator Olson  surmised that other  projects would be  put on                                                                   
hold as  a result  of the  KABATA project  and wondered  what                                                                   
types  of projects  would be delayed  and  for how long.  Mr.                                                                   
Ottesen stated  that the typical  project would have  to wait                                                                   
1  or  2  years as  compared  to  the  current  backlog.  DOT                                                                   
already had a  12-year list of projects and  the average wait                                                                   
would  be  6 years  on  that  list without  the  project.  He                                                                   
stated  that  the  KABATA project  would  add  about  another                                                                   
year's  worth of  funding demand  on its  funding stream  and                                                                   
added  that  projects in  which  the  need  for them  was  no                                                                   
longer as evident  would be the types that  would be delayed;                                                                   
the  gas  pipeline   was  a  perfect  example   of  that.  He                                                                   
explained that  Alaska was no  longer building a  route along                                                                   
that older proposition  and projects that like  this could be                                                                   
delayed with little impact to the traveling public.                                                                             
10:38:00 AM                                                                                                                   
Senator Olson asserted  that the sentiment within  the Senate                                                                   
in general  was that projects  that were underway  should not                                                                   
be  slowed because  doing so  would cost  a lot  more in  the                                                                   
long  run.  He  offered  that   projects  that  were  already                                                                   
started would  be delayed as a  result of the  KABATA project                                                                   
and  that  the  end  costs of  those  projects  would  go  up                                                                   
millions  if not  tens  of millions  of  dollars. He  assumed                                                                   
that  Mr.  Ottesen  agreed  with  this  and  inquired  why  a                                                                   
public-policy entity  like the legislature would  be in favor                                                                   
slowing projects  and increasing  overall costs.  Mr. Ottesen                                                                   
responded  that  the  state  was   essentially  in  the  same                                                                   
dilemma with the  KABATA project and that Alaska  had started                                                                   
that project  too and had spent  over $100 million  on it. He                                                                   
furthered  that something  would  have to  be  delayed and  a                                                                   
choice  would have  to be  made to  prioritize projects  that                                                                   
were  the  most  important  to the  overall  benefit  of  the                                                                   
Senator  Olson noted  that  as you  looked  at the  financial                                                                   
numbers,  the  same   people  were  providing   them  as  the                                                                   
previous year.  He wondered  how these  same people  could be                                                                   
trusted this year  when their numbers had been  found suspect                                                                   
by  a  legislative  audit  the  previous  year.  Mr.  Ottesen                                                                   
stated that  there were  differences in  cost estimated  that                                                                   
could  depend how  costs were  considered, but  that the  key                                                                   
number to  focus was that  the project only  needed one-third                                                                   
of  the traffic  to  be successful  and  pay of  its bond  to                                                                   
TIFIA  than it needed  under the  old scheme.  He added  that                                                                   
under the  old scheme, the  entire project would  be financed                                                                   
by bonds at a higher interest rate.                                                                                             
Co-Chair  Meyer  noted that  in  his  mind, the  state  would                                                                   
either  have  to  spend  $600  million  expanding  the  Glenn                                                                   
Highway  or  $300 million  if  you  did  not count  the  bond                                                                   
payments; the  bridge would also  provide another way  in and                                                                   
out of  Anchorage. He stated that  a concern about  the Glenn                                                                   
Highway was  that an accident  blocked off the only  route in                                                                   
and  out  of  Anchorage  and   that  the  bridge  offered  an                                                                   
alternative route.                                                                                                              
Senator  Olson understood  that  the expansion  of the  Glenn                                                                   
Highway  was already  being planned  regardless  of the  Knik                                                                   
Arm  Bridge. Co-Chair  Meyer was  not sure  if both  projects                                                                   
would be conducted and requested an explanation.                                                                                
10:41:32 AM                                                                                                                   
Mr. Ottesen  responded that the  Glenn Highway would  need to                                                                   
be expanded  in the future, but  that drawing traffic  off it                                                                   
from  KABATA would  buy  time for  the  future expansion.  He                                                                   
added that it would  be good to have an alternative  route in                                                                   
and out  of anchorage for  times of emergency  or breakdowns.                                                                   
He recalled four  to six hour waits after  traffic fatalities                                                                   
on the Glenn Highway.                                                                                                           
Co-Chair  Meyer  noted  that   the  alternate  route  out  of                                                                   
Anchorage and being  able to avoid long delays  were concerns                                                                   
of  his,  Vice-Chair  Fairclough's,  and  Senator  Dunleavy's                                                                   
constituents and residents of South-Central Alaska.                                                                             
Senator  Dunleavy   inquired  what  the   potential  economic                                                                   
benefits   of  the  project   would  be   related  to   other                                                                   
transportation projects  that were dealing  federal receipts.                                                                   
Mr.  Ottesen replied  that the  project would  first pay  for                                                                   
part of its  own cost via user  fees, would then pay  for the                                                                   
state  bonds, would  pay  for its  own  operating costs,  and                                                                   
eventually  it   would  contributing  dollars   to  the  over                                                                   
transportation  needs  statewide   subject  to  legislature's                                                                   
appropriation. He  did not know  of another project  that had                                                                   
ever had the set of benefits that the KABATA project had.                                                                       
Senator  Dunleavy wondered  if  KABATA  would still  continue                                                                   
with a  plan for federal  aid even if  TIFIA funding  was not                                                                   
approved.  Ms. Dougherty  replied that  it if  TIFIA was  not                                                                   
approved  there  would still  have  federal aid  through  the                                                                   
highway  program  and KABATA  would  have  to work  with  the                                                                   
Department of  Revenue and same  financial team on a  plan b,                                                                   
which would  have to then  be approved  by the FHA  before it                                                                   
could continue  to a  project. Senator  Dunleavy inquired  if                                                                   
KABATA would  have to  come back to  the legislature  at that                                                                   
for  approval  to  move  forward   with  the  new  plan.  Ms.                                                                   
Dougherty  imagined that  it  would depend  on  what the  new                                                                   
plan consisted of.                                                                                                              
Senator Dunleavy  stated that his understanding  was that Ms.                                                                   
Dougherty and Mr.  Ottesen were feeling pretty  good that the                                                                   
new  project  proposal  was  a  viable  plan.  Ms.  Dougherty                                                                   
replied  in the affirmative.  Mr. Ottesen  also responded  in                                                                   
the affirmative and  felt that it was a very  sound plan with                                                                   
tremendous benefits to the state.                                                                                               
Senator  Dunleavy noted  that  there was  a question  whether                                                                   
the Glenn  Highway was already  slated for expansion  even if                                                                   
the   Knik  Arm   Bridge   was  constructed   and   requested                                                                   
clarification.  Mr. Ottesen replied  that widening  the Glenn                                                                   
Highway was not  an active project with the  exception of the                                                                   
Geo-Bonded  project  that was  funded  in 2012  at  Artillery                                                                   
Road and  the Eagle  River off  ramp, which  was only  funded                                                                   
currently  in the outbound  direction.  He concluded  that it                                                                   
was not currently in the queue of preconstruction.                                                                              
10:46:45 AM                                                                                                                   
Senator  Dunleavy  inquired what  the  estimate  was for  how                                                                   
much  traffic would  be routed  through the  Knik Arm  Bridge                                                                   
and  off  the  Glenn  Highway.  Ms.  Dougherty  replied  that                                                                   
KABATA did not  have direct siphon off numbers  and explained                                                                   
that  it would  not  be a  direct  percentage  that would  be                                                                   
pulled off.  She stated  that it  was anticipated  that there                                                                   
would   be  increased   activity   at   Port  Mackenzie   and                                                                   
additional  activity  that  moved  over to  the  Mat-Su;  she                                                                   
added  that  the  over-flow  from   Anchorage  was  what  the                                                                   
initial traffic on the bridge would consist of.                                                                                 
2d CSHB 23(RLS)  was HEARD and HELD in committee  for further                                                                   
10:48:58 AM                                                                                                                   
5:12:33 PM                                                                                                                    

Document Name Date/Time Subjects
CS for SS SB80 work draft version H.pdf SFIN 3/19/2014 9:00:00 AM
SB 80
SB 80_Premera Letter.pdf SFIN 3/19/2014 9:00:00 AM
SB 80
HB23 Maps Comparing KABATA, AMATS and HDR Numbers.pdf SFIN 3/19/2014 9:00:00 AM
HB 23
HB23-2035-Traffic-Estimates-from-Wasilla_Bypass-project.pdf SFIN 3/19/2014 9:00:00 AM
HB 23
HB23 Letters of Support Package.pdf SFIN 3/19/2014 9:00:00 AM
HB 23