Legislature(2015 - 2016)SENATE FINANCE 532

03/17/2015 09:00 AM FINANCE

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Audio Topic
09:04:32 AM Start
09:04:41 AM SB26
09:06:05 AM Overview: Fy 16 Budget University
09:59:33 AM Overview: Fy 16 Budget Transportation and Public Facilities
10:45:56 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 26 Presentation: Overview FY17 Operating Budget TELECONFERENCED
Heard & Held
+ Departments: University and Transportation and TELECONFERENCED
Public Facilities
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 26                                                                                                            
     "An  Act   making  appropriations,   including  capital                                                                    
     appropriations   and   other   appropriations;   making                                                                    
     appropriations to  capitalize funds; and  providing for                                                                    
     an effective date."                                                                                                        
9:04:41 AM                                                                                                                    
^OVERVIEW: FY 16 BUDGET UNIVERSITY                                                                                            
PATRICK  GAMBLE, PRESIDENT,  UNIVERSITY OF  ALASKA, revealed                                                                    
that  Michelle  Rizk,  Associate Vice  President,  Statewide                                                                    
Planning and Budget, University  of Alaska, would be heading                                                                    
the newly created Strategy Planning and Budget Office.                                                                          
9:06:05 AM                                                                                                                    
President  Gamble presented  Slide  2 of  the University  of                                                                    
Alaska's  FY16  Capital  Operating  Budget  Overview,  which                                                                    
listed two capital requests:                                                                                                    
        · Deferred Maintenance Funding                                                                                          
        · UAF Engineering Building                                                                                              
President   Gamble  relayed   that   the  requests   totaled                                                                    
approximately $8  million each. He recalled  that the system                                                                    
had  received $37.5  million out  of $100  million over  the                                                                    
last  five-years,   which  had   made  it  easier   for  the                                                                    
University  to  put  the  funds  to  work  on  the  deferred                                                                    
maintenance backlog.  He hoped that the  work could continue                                                                    
toward further reducing the deferred maintenance list.                                                                          
9:06:48 AM                                                                                                                    
President   Gamble  explained   that  each   of  the   three                                                                    
Universities  had a  list of  deferred maintenance  projects                                                                    
that the money  would be applied to, and that  data could be                                                                    
provided to  assure the  committee that  the funds  had been                                                                    
used  in an  efficient and  timely manner.  He spoke  to the                                                                    
second request for funds to  finish the University of Alaska                                                                    
Fairbanks  (UAF) Engineering  Building. He  shared that  the                                                                    
funding  currently available  would  run out  on August  15,                                                                    
2015.  He  said   that  the  $8  million   would  allow  the                                                                    
University to  fund the  current contractor  through January                                                                    
2016, resulting in the opening  of two classrooms and a test                                                                    
laboratory.  He said  that the  project that  the University                                                                    
had been involved  in with the Alaska Center  for Energy and                                                                    
Power (ACEP) no longer required  a site, but would move into                                                                    
the  fourth floor  of the  Engineering Building,  saving the                                                                    
state approximately $25 million.                                                                                                
9:09:59 AM                                                                                                                    
Co-Chair  Kelly   understood  that  ACEP   was  specifically                                                                    
oriented toward private industry solutions.                                                                                     
President Gamble  replied that  that was  the hope.  He said                                                                    
that  the  spin-off from  ACEP  would  be applied  research,                                                                    
which could  result in the generation  of significant future                                                                    
Co-Chair Kelly  thought that moving  ACEP into  the building                                                                    
had been a good move.                                                                                                           
President  Gamble agreed.  He added  that  ACEP was  popular                                                                    
enough to generate its own funding.                                                                                             
9:11:19 AM                                                                                                                    
Co-Chair MacKinnon requested an  explanation for the concept                                                                    
concerning the  completion of  the UAF  Engineering Building                                                                    
and how it was incorporated into the Operating Budget.                                                                          
President Gamble explained that  the concept was still under                                                                    
development. He  offered that it was  an incremental concept                                                                    
that was working  toward the completion of  the building. He                                                                    
warned   that  lack   of  funding   could   result  in   the                                                                    
demobilization of  the contractor.  He said  that mobilizing                                                                    
and  demobilizing contractors  from  year to  year would  be                                                                    
counterproductive.  He  relayed  that the  state  would  see                                                                    
operating costs of $100 million  once the building was fully                                                                    
occupied and operational.                                                                                                       
9:12:51 AM                                                                                                                    
Co-Chair  MacKinnon asked  how many  full-time students,  or                                                                    
full-time equivalent (FTE), were enrolled at UAF.                                                                               
President  Gamble  stated  there were  approximately  30,000                                                                    
students to  equate 20,000 FTE.  He added that there  were a                                                                    
lot of non-traditional students  registered that were taking                                                                    
lower credit hours.                                                                                                             
Co-Chair MacKinnon asked if the  ratio of students to square                                                                    
footage was on average for other universities.                                                                                  
President Gamble replied  no. He thought that  the ratio was                                                                    
a burden  that was carried  as a  result of the  decision to                                                                    
build out the access for the system across the state.                                                                           
Co-Chair   MacKinnon  queried   a   bond   package  or   the                                                                    
possibility  of  funding  the building  through  UA  revenue                                                                    
rather than general funds.                                                                                                      
President Gamble  replied that  UAF had  taken on  a bonding                                                                    
and debt  service in 2015,  and were  at the limit  of their                                                                    
capacity to  guarantee the payment  of the debt  service. He                                                                    
believed that it  would be too risky to  encumber the system                                                                    
with additional  debt service without knowing  their ability                                                                    
to pay into the future.                                                                                                         
9:14:56 AM                                                                                                                    
Senator Hoffman asked about the  increase in the Engineering                                                                    
Program by 100 percent  enrollment. He queried the timeframe                                                                    
of the increase  and the status of  the engineering facility                                                                    
at the University of Alaska Anchorage (UAA).                                                                                    
President  Gamble related  that the  statistics referred  to                                                                    
the period of time between 2010  and now. He stated that the                                                                    
Anchorage  engineering building  was not  yet complete,  but                                                                    
was fully funded and would open without incident.                                                                               
Senator  Hoffman   asked  whether  there   were  operational                                                                    
dollars  budgeted   for  the  UAA   building  when   it  was                                                                    
MICHELLE RIZK, ASSOCIATE  VICE PRESIDENT, STATEWIDE PLANNING                                                                    
AND  BUDGET, UNIVERSITY  OF ALASKA,  stated  that there  had                                                                    
been a request  for operating funds in the  Board of Regents                                                                    
Budget that had not been  included in the Governor's Budget.                                                                    
She said  that the  $1.6 million that  UAA would  need would                                                                    
need to be funded somehow through reallocation.                                                                                 
9:16:21 AM                                                                                                                    
Senator  Bishop asked  whether the  construction of  the UAA                                                                    
building had involved any industry support.                                                                                     
President Gamble  stated he was  not aware of  any donations                                                                    
having been made.                                                                                                               
9:16:40 AM                                                                                                                    
Co-Chair MacKinnon  requested a  status update on  the power                                                                    
plant, and a timeline for when savings would be realized.                                                                       
President  Gamble responded  that the  design for  the plant                                                                    
had been  completed, but that  the estimate for  the project                                                                    
had increased. The project had  been put on hold until value                                                                    
engineering was completed. He said  that a delay in bringing                                                                    
the  power plant  online would  necessitate reassessing  the                                                                    
recent efforts to bring gas  to Fairbanks. He hoped a cross-                                                                    
over point where the gas  option became more viable than the                                                                    
current plan could be identified.  He reminded the committee                                                                    
that  the  gas option  would  lower  construction cost,  but                                                                    
raise the cost of operating over  the long run of the plant.                                                                    
He noted  that the  market was  changing and  suggested that                                                                    
the value engineering  effort to reduce cost  would save the                                                                    
University further funding requests to the legislature.                                                                         
9:18:39 AM                                                                                                                    
Co-Chair MacKinnon  understood that the project  was on hold                                                                    
for evaluation.                                                                                                                 
President Gamble said that there  was an evaluation that was                                                                    
ongoing, the  results of which  would be brought  before the                                                                    
Board of Regents.                                                                                                               
9:18:54 AM                                                                                                                    
Vice-Chair  Micciche  asked  whether  President  Gamble  had                                                                    
engaged  with  Alaska   Industrial  Development  and  Export                                                                    
Authority  (AIDEA) on  the  issue of  lowering  the cost  of                                                                    
bringing natural gas to Fairbanks.                                                                                              
President  Gamble  replied  that  the  University  had  been                                                                    
observing  the situation,  and was  interested, but  had not                                                                    
taken an active role.                                                                                                           
Vice-Chair  Micciche  thought  that the  "earmark"  for  the                                                                    
power plant was worth the University engaging in the issue.                                                                     
President  Gamble stated  that  the University  was not  yet                                                                    
engaged in any partnerships on the matter.                                                                                      
9:20:13 AM                                                                                                                    
Senator Dunleavy  asked whether the  power plant was  a time                                                                    
sensitive issue. He  asked how the reevaluation  of the cost                                                                    
factored into the timeline.                                                                                                     
President Gamble stated that the  risk was elevated. He said                                                                    
that  a  major failure  had  occurred  over the  winter  and                                                                    
buildings had to be evacuated.  He added that there had been                                                                    
two  incidents where  there had  been cracks  in the  piping                                                                    
around boilers,  which were  repairable but  were indicative                                                                    
of an  old boiler system.  He said  that the repairs  to the                                                                    
old boilers were complicated, risky, and inconvenient.                                                                          
9:22:35 AM                                                                                                                    
Senator Dunleavy noted  that a cost for the  power plant had                                                                    
been  set  and wondered  what  had  occurred to  derail  the                                                                    
President Gamble replied that  the initial estimates for the                                                                    
program  had  been done  very  early  on;  the cost  of  the                                                                    
engineering and design work had  contributed to the increase                                                                    
cost. He  offered to provide a  breakdown of the costs  at a                                                                    
later date.                                                                                                                     
9:23:31 AM                                                                                                                    
Co-Chair  MacKinnon  asked  for  a  timeline  detailing  the                                                                    
financial activity of the project.  She queried how much the                                                                    
state had contributed, and how much remained unallocated.                                                                       
President  Gamble outlined  the past  and future  funding of                                                                    
the project as follows:                                                                                                         
     FY11 Capital Appropriation - $4 million                                                                                    
     FY13 Capital Appropriation - $46.3 million                                                                                 
     FY14 Capital Appropriation - $15 million                                                                                   
     FY15 Capital Appropriation - $5 million                                                                                    
     Future FY16 Capital Appropriation - TBT ($28.3                                                                             
     UA Revenue Bonds - $10 million                                                                                             
     UA Non-General ACEP Funding (4th floor only) - $1                                                                          
     ($5 million still needed)                                                                                                  
President  Gamble   related  that   the  total   in  capital                                                                    
appropriations through FY15 was approximately $70 million.                                                                      
9:25:10 AM                                                                                                                    
Co-Chair  MacKinnon clarified  that she  wanted to  know how                                                                    
much was  left, in  cash, which  the state  had appropriated                                                                    
for the project.                                                                                                                
President Gamble  responded $31.3  million had not  yet been                                                                    
appropriated. The $8 million that  was being requested would                                                                    
be $8 million toward the $31.3 million.                                                                                         
Ms.  Rizk clarified  that President  Gamble was  speaking to                                                                    
the engineering building.  She said that she  could get back                                                                    
to the committee  with the numbers for the  power plant. She                                                                    
shared that  the municipal  bonds had  not been  issued, nor                                                                    
the  UA bonds.  She  agreed to  provide  the committee  with                                                                    
further information regarding financing of both projects.                                                                       
Co-Chair MacKinnon understood that  the University had spent                                                                    
state dollars rather than bonding,  which she categorized as                                                                    
a good use of the money from the University's perspective.                                                                      
Ms.  Rizk interjected  that the  University was  counting on                                                                    
fuel  savings in  order to  pay back  the debt  service; the                                                                    
funding  package  was  complex  and the  fuel  savings  were                                                                    
necessary before the debt service could be paid.                                                                                
Co-Chair   MacKinnon  retorted   that   the  committee   was                                                                    
interested  in  what  was left  of  the  state  appropriated                                                                    
dollars in the bank for both projects.                                                                                          
9:26:49 AM                                                                                                                    
Senator Olson referred  to removal of funding  for the WWAMI                                                                    
program  [WWAMI  is  a collaborative  medical  school  among                                                                    
universities  in Washington,  Wyoming, Alaska,  Montana, and                                                                    
Idaho.] He offered a personal  story about his acceptance to                                                                    
medical school.  He expressed  concern that  intent language                                                                    
written by  the other body  would terminate the  program. He                                                                    
noted that he  had been instrumental in  funding the program                                                                    
during its infancy. He lamented  that the cuts from the FY16                                                                    
budget would take effect July  1, 2015, after medical school                                                                    
applicants had  received acceptance letters. He  feared that                                                                    
those  students  would  not  have time  to  apply  to  other                                                                    
schools or reconcile all of  the disruptions that the change                                                                    
would cause.                                                                                                                    
President Gamble  shared that the  action on the  house side                                                                    
had  been surprising  because  the program  was  one of  the                                                                    
oldest and most successful  programs that the University had                                                                    
to offer. He said that  a large percentage of the graduating                                                                    
doctors returned  to the  state to  reside and  practice. He                                                                    
asserted that  the program's return on  investment should be                                                                    
considered a  classic example. He  added that normally  in a                                                                    
budget  cutting  process,  projects  that did  not  yield  a                                                                    
return should be considered for  cuts, and the WWAMI program                                                                    
did not fall into that category.  He stated that the area of                                                                    
study was one of high need.  He related that 20 students had                                                                    
received acceptance  letters who  would not be  entered into                                                                    
the  program because  of  the  cuts on  the  house side.  He                                                                    
warned that the  unintended consequence of the  cut to WWAMI                                                                    
would be  that there would  not be doctors available  in the                                                                    
state  to answer  the needs  of Alaskans  in the  future. He                                                                    
reiterated that the program made  significant returns to the                                                                    
9:30:58 AM                                                                                                                    
Vice-Chair  Micciche  requested  an overview  of  the  WWAMI                                                                    
program in the state.                                                                                                           
President   Gamble  explained   that  the   program  was   a                                                                    
cooperative  partnership with  the University  of Washington                                                                    
(UW), whereupon  medical students  spend one year  in Alaska                                                                    
and  three  at UW.  He  explained  that, lacking  a  medical                                                                    
school, Alaska  established a relationship with  UW in 1971;                                                                    
students study in Washington State  for three years and then                                                                    
finish  the  fourth year  in  Alaska.  He relayed  that  the                                                                    
length  of time  distributed would  be changing  to two  and                                                                    
two, in an attempt to have  more of the education take place                                                                    
in Alaska.  He related that  the program had expanded  to 20                                                                    
students and  had a  97 percent graduation  rate, with  a 70                                                                    
percent rate of returning students back to Alaska.                                                                              
9:32:43 AM                                                                                                                    
Senator  Dunleavy commented  that there  would be  a lot  of                                                                    
good programs  that would be  cut due to the  state's fiscal                                                                    
9:33:23 AM                                                                                                                    
Senator  Olson clarified  that he  was never  a part  of the                                                                    
WWAMI  program, but  felt very  strongly that  the need  was                                                                    
worth the expense.                                                                                                              
9:34:08 AM                                                                                                                    
Co-Chair  MacKinnon  revealed  that   her  office  had  been                                                                    
receiving a  large amount of emails  concerning the possible                                                                    
termination  of the  WWAMI program.  She  believed that  the                                                                    
committee would  be forced to scrutinize  all state programs                                                                    
in order to  balance the budget. She felt  that medical care                                                                    
in  the   state  was  already   expensive  due   to  limited                                                                    
competition in the field and  that cutting the program could                                                                    
drive prices higher.                                                                                                            
9:35:24 AM                                                                                                                    
Co-Chair  MacKinnon   spoke  to  the   deferred  maintenance                                                                    
request. She thought that strategic  moves needed to be made                                                                    
to  protect the  state's investments.  She wondered  about a                                                                    
previous plan to bond in order  to create revenue to keep up                                                                    
with long-term deferred maintenance.                                                                                            
President Gamble  stated that  the University  had requested                                                                    
approval  for  bonding,  which   was  a  best  practice  for                                                                    
universities  with   regard  to  deferred   maintenance.  He                                                                    
lamented that  the nature of  deferred maintenance  was that                                                                    
it was  a large number  that represented old  buildings that                                                                    
were getting older.  He stated that all  of the University's                                                                    
buildings  had been  evaluated for  their mission  value, as                                                                    
well  as  their functional  value,  as  a building  and  had                                                                    
created  a   priority  list.  He  reiterated   that  bonding                                                                    
approval  for   $100  million  had   been  granted   by  the                                                                    
legislature in the past and then  was reduced by half by the                                                                    
governor  at the  time. He  stated that  the University  had                                                                    
bonded  for the  $50 million,  which added  on to  the $37.5                                                                    
million  and  took  a  large   chunk  out  of  the  deferred                                                                    
maintenance.  He  opined that  five  years  had passed,  the                                                                    
money  had  stopped,  and  the $8  million  request  was  an                                                                    
attempt to keep funds  flowing into the deferred maintenance                                                                    
effort.  He felt  that looking  ahead, the  University would                                                                    
not  have the  capability  to provide  the  debt service  in                                                                    
regular payments. He revealed  that the University needed to                                                                    
put a moratorium on bonding because the risk was too high.                                                                      
9:40:48 AM                                                                                                                    
President Gamble shared Slide 3, "Land Grant Equivalency":                                                                      
     • UA's Land-Grant Equivalency                                                                                              
     • Based on Future Resource Development                                                                                     
     • Future State Earnings in Oil/Gas/Mining                                                                                  
          o Legislative-controlled account                                                                                      
          o Appropriated annually                                                                                               
               • University Building Fund (UBF)                                                                                 
               • System-wide capital: capital maintenance                                                                       
               and equipment                                                                                                    
     • Reasonable Annual Limits                                                                                                 
          o Higher education deferred maintenance/renewal                                                                       
          and repurposing receives first                                                                                        
          o Legislature determines appropriation                                                                                
     • Long Term Goal                                                                                                           
          o Employ alternative source of revenue                                                                                
          o Reduce the annual UA budget request                                                                                 
          o Modernize university technology, equipment                                                                          
          o Materially reduce facilities falling into DM                                                                        
He  testified that  in 2000  the University  lost a  Supreme                                                                    
Court case  that determined  that it  was anticonstitutional                                                                    
to give the University land  that was dedicated for revenues                                                                    
for the University.  He opined that the system  did not have                                                                    
the dowry that most  other land-grant universities received.                                                                    
He  shared that  the first  legislature after  statehood had                                                                    
tried to give 500,000 acres  to the University, but the bill                                                                    
was vetoed because it had  been found anticonstitutional. He                                                                    
shared that  the legislature tried  to override the  veto in                                                                    
2000, but lost  the case. He assured the  committee that the                                                                    
University was still looking into  ways to generate revenue.                                                                    
He hoped that in the future  it could be written into future                                                                    
resource   development   contracts   that  would   allow   a                                                                    
fractional share of future state  royalties to be identified                                                                    
into  an account  that would  be  used to  fund the  capital                                                                    
needs of  the University.  He said that  the state  of Texas                                                                    
had a  program similar to  this proposal. He  clarified that                                                                    
the money would  not be dedicated to the  University, but to                                                                    
an  account  that  the legislature  could  use  for  capital                                                                    
needs.  He asserted  that it  would  not take  long for  the                                                                    
account  to make  a significant  difference in  the deferred                                                                    
maintenance funding  request that the University  brought to                                                                    
the body  on a  yearly basis.  He said that  a lot  of legal                                                                    
research   had  been   done  on   the  matter,   should  the                                                                    
legislature wish to draft a bill that spoke to the issue.                                                                       
9:45:18 AM                                                                                                                    
Co-Chair MacKinnon expressed interest  in meeting during the                                                                    
interim to discuss the idea.  She wondered whether the issue                                                                    
could be put to the people of Alaska for a vote.                                                                                
President Gamble opined  that it was not likely  to see land                                                                    
legally deeded  to the  University. He  said that  the state                                                                    
had been  divided in  so many different  ways that  the land                                                                    
that  was  available  was  inaccessible  and  could  not  be                                                                    
developed by the University for legal and monetary reasons.                                                                     
9:48:12 AM                                                                                                                    
Co-Chair MacKinnon  clarified that it was  her suggestion to                                                                    
allow the  people of  Alaska to  modify the  constitution in                                                                    
order  to  assist  the  University   in  acquiring  land  to                                                                    
9:49:17 AM                                                                                                                    
AT EASE                                                                                                                         
9:57:29 AM                                                                                                                    
9:57:41 AM                                                                                                                    
^OVERVIEW:   FY   16   BUDGET  TRANSPORTATION   and   PUBLIC                                                                  
MARC LUIKEN, COMMISSIONER,  DEPARTMENT OF TRANSPORTATION AND                                                                    
PUBLIC FACILITIES,  referred to the presentation  outline on                                                                    
Page   2  of   his  presentation,   "Alaska  Department   of                                                                    
Transportation  &  Public  Facilities -FY16  Capital  Budget                                                                    
     •Budget Comparison FY13-16                                                                                                 
     •Federal Aviation Administration Program                                                                                   
     •Federal Highway Administration Program                                                                                    
     •FY16 Budget Highlights                                                                                                    
Co-Chair  MacKinnon  noted  that Michael  Coffee,  Assistant                                                                    
Commissioner,  Department   of  Transportation   and  Public                                                                    
Facilities was available online for questions.                                                                                  
9:59:33 AM                                                                                                                    
Commissioner Luiken presented Page  3, "Budget Comparison FY                                                                    
13-16." He  relayed that the  slide illustrated  the genesis                                                                    
of the  departments funding sources, nothing  that there had                                                                    
been an  increase in the  federal authority request  to meet                                                                    
program requirements.  He pointed out to  the committee that                                                                    
the departments  general and  other fund  requests continued                                                                    
to decrease.                                                                                                                    
10:00:30 AM                                                                                                                   
Commissioner  Luiken discussed  Page  4, "FAA  Modernization                                                                    
and Reform Act of 2012":                                                                                                        
     •Current FAA Authorization Bill --Effective FFY12                                                                          
     through FFY'15.                                                                                                            
     •Decreased Annual Authorized Airport Improvement                                                                           
     Program (AIP) Funding from $3.5 B to $3.35 B                                                                               
     •Alaska DOT&PF Airports FFY'12 -FFY'14AIP Annual                                                                           
    Average = $175M. FFY'15 is expected to be similar.                                                                          
     •Increased Alaska's Non-Federal Match Ratio from 5%                                                                        
     Back to 6.25% for Most Projects.                                                                                           
Commissioner  Luiken   stated  that   the  changes   to  the                                                                    
legislation  had impacted  what projects  were eligible  for                                                                    
Airport Improvement Funding (AIP) and  expired at the end of                                                                    
FY15;  the department  did  not  have an  idea  of what  the                                                                    
funding  would  be after  federal  FY15.  He said  that  the                                                                    
department had  been focusing work  on runway  safety areas,                                                                    
particularly  for airport  with commercial  jet traffic.  He                                                                    
added  that   new  cost  effectiveness  criteria   had  been                                                                    
introduced that  made it difficult  for projects  to qualify                                                                    
for  federal funds.  He stated  that  acquiring funding  for                                                                    
smaller  community  rural  airports  had  been  particularly                                                                    
ROGER MAGGARD,  AVIATION IMPROVEMENT PROGRAM,  DEPARTMENT OF                                                                    
TRANSPORTATION AND  PUBLIC FACILITIES,  added that  over the                                                                    
last  three  years,  DOT  had  received  approximately  $175                                                                    
million,  per year,  for the  AIP. He  anticipated the  same                                                                    
amount in FY15.                                                                                                                 
10:03:17 AM                                                                                                                   
Senator  Olson asked  whether there  was an  existing waiver                                                                    
available  to  certain  airports   to  bypass  some  of  the                                                                    
requirements of the reform act of 2012.                                                                                         
Mr. Maggard stated that it  was possible to receive a waiver                                                                    
from the FAA for a technical specification.                                                                                     
Senator  Olson noted  that Ketchikan  airport  had been  the                                                                    
site of a major Alaska  Airlines accident. He asked how many                                                                    
airports in the state had waivers  or were in the process of                                                                    
acquiring waivers for Part 139.                                                                                                 
Mr. Maggard replied  that he did not know  how many airports                                                                    
had waivers.  He asserted that  the state had  complied with                                                                    
the runway safety area requirements  for all of the Part 139                                                                    
airports with  the exception of  Adak, which  the department                                                                    
had planned to fund with non-AIP funding.                                                                                       
10:05:22 AM                                                                                                                   
JEFF  OTTESEN, DIRECTOR,  DIVISION  OF PROGRAM  DEVELOPMENT,                                                                    
DEPARTMENT   OF   TRANSPORTATION  AND   PUBLIC   FACILITIES,                                                                    
presented  Page 6,  "FHWA Program,"  and explained  that the                                                                    
flow  of federal  funding over  the past  10 years  had been                                                                    
steady. He noted that the  red bars on the graph represented                                                                    
funds that  had been earmarked by  congressional members. He                                                                    
stated  that earmarking  ended  in 2012  and  now the  state                                                                    
could  decide where  to spend  the formula  funds. He  noted                                                                    
that the  spike in 2009  was from the American  Recovery and                                                                    
Reinvestment Act (ARRA),  the state was now  running on $500                                                                    
million in federal funding and  anticipated the same funding                                                                    
in 2015. He  relayed that the state  had received two-thirds                                                                    
of the  annual allotment of  funding as Congress had  yet to                                                                    
act on the final one-third.                                                                                                     
10:07:25 AM                                                                                                                   
Mr. Ottesen discussed  Page 7, "MAP-21," which  was the name                                                                    
of  the federal  act  that was  currently providing  surface                                                                    
transportation funding:                                                                                                         
     •Down from $520 M in 2011 to $484 M in 2013 and 2014                                                                       
     (~7% decrease)                                                                                                             
     •Increased emphasis on NHS = less available for                                                                            
     Community Transportation Program (CTP); no new                                                                             
     projects being considered                                                                                                  
     •Less flexibility in use of funds.                                                                                         
     •Significant streamlining of funding categories                                                                            
     •Highway Safety Improvement Program (HSIP) doubles for                                                                     
     •No earmarks (which reduce formula funds)                                                                                  
     •Now operating under continuing resolution until May                                                                       
Mr.  Ottesen explained  that as  a  result of  the act,  the                                                                    
National  Highway System  (NHS) had  been emphasized  as the                                                                    
primary purpose of the program. He  noted that the NHS was a                                                                    
collection of  highways initially approved by  congress; the                                                                    
Federal  Highway Administration  now  approved additions  to                                                                    
the list.  He stated  that these were  the biggest  roads in                                                                    
the state that  carried the most traffic and  moved the most                                                                    
freight.  He   added  that   approximately  58   percent  of                                                                    
department  funding was  directed to  NHS roads,  which only                                                                    
comprised  25 percent  of the  road miles  in the  state. He                                                                    
opined that  as a result  the state was responsible  for the                                                                    
funding needed for other road  needs in the state. He stated                                                                    
that  MAP-21 had  effectively tripled  the  amount of  money                                                                    
used for  safety, which  had resulted  in very  large safety                                                                    
projects on Alaska highways.                                                                                                    
10:10:00 AM                                                                                                                   
Mr. Ottesen turned Page 8,  which was continuation of MAP-21                                                                    
     Performance Mandate                                                                                                      
     •FHWA to set National Highway System (NHS) Performance                                                                     
     Measures for:                                                                                                              
     •If National Highway System (NHS) system conditions                                                                        
     fall behind:                                                                                                               
Mr. Ottesen said that there  would be report cards issued to                                                                    
every state  in regard to  the performance measures;  if the                                                                    
state received a  bad report it would be  expected to direct                                                                    
a  greater amount  of money  to performance  improvement. He                                                                    
furthered that  if performance did  not improve,  the states                                                                    
match  contribution  would be  enlarged  to  35 percent.  He                                                                    
shared that  Alaska currently  had a  lower than  20 percent                                                                    
match rate because of the high land base of federal lands.                                                                      
10:12:13 AM                                                                                                                   
Mr. Ottesen referred to slide 9, "Sum Up FHWA Program":                                                                         
     •NHS Program:                                                                                                              
          performance, not capacity or new routes                                                                               
     •Non-NHS Program (STP):                                                                                                    
          slower pace of completion.                                                                                            
10:12:59 AM                                                                                                                   
Vice-Chair  Micciche   requested  examples   of  performance                                                                    
concerns in Alaska.                                                                                                             
Mr. Ottesen  referred to  structural deficiency  in bridges;                                                                    
when a bridge rating fell below 50,  on a scale of 1 to 100,                                                                    
it would be considered  structurally deficient. He said this                                                                    
did not mean that the bridge  could not carry traffic or was                                                                    
in  imminent   danger  of  collapse,   but  could   be  load                                                                    
restricted to heavier truck loads  and signaled the time for                                                                    
rehabilitation  or   complete  replacement.  He   said  that                                                                    
pavement was tested with a  tool that measured bounce, which                                                                    
was difficult  for Alaska because underlying  permafrost and                                                                    
tracked gravel contributed to roughness  and caused the tool                                                                    
to  bounce.  He  added  that  the  rule  making  that  would                                                                    
ultimately determine  how measurements were taken  was still                                                                    
in progress which could provide some leeway.                                                                                    
10:15:38 AM                                                                                                                   
Vice-Chair   Micciche   understood   that   the   structural                                                                    
deficiencies were  caused primarily  by corrosion  on carbon                                                                    
steel support members.                                                                                                          
Mr.  Ottesen  relayed  that the  structural  deficiency  had                                                                    
historically been  based upon three sub-grades:  a grade for                                                                    
the deck  and railing,  the horizontal support  members, and                                                                    
the foundation  elements. He said that  the grading criteria                                                                    
had been dramatically increased,  which added greatly to the                                                                    
complexity   and  timetable   of   bridge  inspections.   He                                                                    
concluded  that all  of the  various pieces  of the  bridges                                                                    
were being rigorously inspected.                                                                                                
10:16:53 AM                                                                                                                   
Co-Chair    MacKinnon   welcomed    former   Alaska    State                                                                    
Representative  Ralph  Samuels,  who   was  present  in  the                                                                    
10:17:06 AM                                                                                                                   
Senator  Bishop asked  whether high  float  gravel had  been                                                                    
considered by NHS.                                                                                                              
Mr. Ottesen explained that the  fact that the Dalton Highway                                                                    
was part  of the  NHS and did  not have  traditional asphalt                                                                    
pavement   created  an   issue   for  pavement   performance                                                                    
standards. He said that the  issue had been noted. He stated                                                                    
that a  majority of  the highway was  a gravel  surface that                                                                    
was  being  held  down  with  calcium  chloride,  which  was                                                                    
effective for  the environment, but  added roughness  to the                                                                    
10:18:10 AM                                                                                                                   
Mr.  Ottesen shared  that the  non-NHS program  (STP), which                                                                    
was  primarily the  surface transportation  program funding,                                                                    
had  decreased because  the NHS  programs had  increased. He                                                                    
opined that  fewer non-NHS programs were  being accomplished                                                                    
than in prior  years. He stated that projects  that had been                                                                    
scored and nominated  for funding four years  ago were being                                                                    
accomplished  at a  half-pace. He  opined that  new projects                                                                    
had  been forced  to be  placed on  hold, creating  hardship                                                                    
across the state. He relayed  that 77 percent of the state's                                                                    
road  miles  and 58  percent  of  the state's  bridges  were                                                                    
dependent on the smaller level of STP funding.                                                                                  
10:19:21 AM                                                                                                                   
Mr. Ottesen turned to Page 10, "FY 16 Budget Highlights":                                                                       
     •Contract Award Summary                                                                                                    
     •FY16 Capital Budget                                                                                                       
     •GF Projects                                                                                                               
     •Other Funds                                                                                                               
     •Federal Projects                                                                                                          
10:19:47 AM                                                                                                                   
Mr.  Ottesen pointed  to the  pie  chart on  Page 11,  which                                                                    
illustrated  the  magnitude  of  the  federal  funding  when                                                                    
compared to the General Funds and Other Funds.                                                                                  
10:20:00 AM                                                                                                                   
Vice-Chair Micciche  requested further  detail of  the Other                                                                    
10:20:09 AM                                                                                                                   
Mr. Ottesen  drew attention  to page  12, which  denoted the                                                                    
composition of "Other Funds":                                                                                                   
     •State Equipment Fleet Replacement $24.6M                                                                                  
     •International Airports $11.1M                                                                                             
     •Cooperative Reimbursable Agreements $12M                                                                                  
10:21:46 AM                                                                                                                   
Mr. Ottesen referred to page 13, "GF Projects":                                                                                 
     •Federal Programs Match: $63.9M                                                                                            
     •Muni Harbor Grant Program: $10.4M                                                                                         
     •Deferred Maintenance: $8M                                                                                                 
    •AMHS Overhaul: $12M (via Repeal/Reapprop section)                                                                          
Mr. Ottesen  related that the  state match for  highways had                                                                    
been underfunded for  the past four years. He  said that, on                                                                    
average, $53  million per year  in state matching  funds had                                                                    
been used  for federal highway funding  while receiving only                                                                    
$40 million,  this had effectively  used up surplus  and the                                                                    
department  was  now  funding 2014's  federal  program  from                                                                    
2015's state  match funding. He  believed that if  the trend                                                                    
continued  the department  would run  out of  matching funds                                                                    
early and programs  would stall until the start  of the next                                                                    
fiscal  year effectively  slowing projects  and the  state's                                                                    
ability to  use federal  funds. He  explained that  the Muni                                                                    
Harbor Grant  Program was a  cross-agency program  where the                                                                    
state provided  money to municipalities for  harbor work and                                                                    
in exchange  the municipalities were required  to provide an                                                                    
equal  amount. He  shared that  the $8  million request  for                                                                    
deferred  maintenance was  approximate one-third  the amount                                                                    
the department had  received in the past.  He concluded with                                                                    
the final  bullet point explaining  that inspections  had to                                                                    
be done  on every  vessel, and  a certificate  of inspection                                                                    
had  to be  issued,  in  order for  the  vessel  to go  into                                                                    
passenger service for the year.  The funding for the project                                                                    
had been reappropriated from the  Kodiak Launch Facility and                                                                    
was not an addition to the FY16 budget.                                                                                         
10:25:00 AM                                                                                                                   
Vice-Chair  Micciche  wondered  if  it  made  sense  skip  a                                                                    
construction season  to avoid utilizing  the funds  from the                                                                    
following year.                                                                                                                 
Mr. Ottesen noted that skipping  a construction season would                                                                    
entail   returning   federal   funds,  which   would   stall                                                                    
construction  projects  statewide;  additionally,  doing  so                                                                    
could jeopardize  the ratio $6  federal dollars to  every $1                                                                    
state dollar, with the state receiving less match finding.                                                                      
10:26:27 AM                                                                                                                   
Vice-Chair Micciche  clarified that  he was speaking  to the                                                                    
first  bullet on  Slide 13.  He  asked how  the state  could                                                                    
avoid getting to  the point where a  construction season had                                                                    
to be skipped.                                                                                                                  
Mr.  Ottesen claimed  that  the match  request  in the  FY16                                                                    
budget would stop the cycle  of borrowing from the next year                                                                    
to fund the current year.                                                                                                       
10:27:09 AM                                                                                                                   
Senator Bishop  understood that the  state could  not afford                                                                    
for  the  department  to  miss   a  year  work  because  the                                                                    
multiplier  effect could  have a  $3 billion  to $5  billion                                                                    
ripple throughout the statewide economy.                                                                                        
Mr. Ottesen replied in the affirmative.                                                                                         
10:27:38 AM                                                                                                                   
Co-Chair MacKinnon  asked whether the state  had ever turned                                                                    
back  the ability  to access  federal dollars.  She wondered                                                                    
whether the  intent had been  to position the state  to have                                                                    
enough matching money available it other funds lapsed.                                                                          
Mr.  Ottesen  explained that  every  year  in the  month  of                                                                    
August, the  federal government  polled states  to determine                                                                    
which  ones were  going  to  be able  to  use  all of  their                                                                    
federal funding,  and if yes,  which states could  use extra                                                                    
funding. He  related that the  state had always been  in the                                                                    
position  to  reply  affirmatively  to  both  questions.  He                                                                    
shared that  the money  left over from  states that  did not                                                                    
use  all  their funding  was  redistributed  to states  that                                                                    
could use extra. He revealed  that in September FY15, Alaska                                                                    
received $8 million additional federal dollars.                                                                                 
Co-Chair  MacKinnon  commended  the  department  making  the                                                                    
issue a priority.                                                                                                               
10:29:51 AM                                                                                                                   
Vice-Chair Micciche asked whether  the $63.9 million put the                                                                    
state in  the position  for additional federal  match funds,                                                                    
or  simply  meet the  requirement  for  100 percent  of  the                                                                    
expected federal match.                                                                                                         
Mr. Ottesen  replied that the $63.9  million was essentially                                                                    
100 percent,  with a "little  cushion." He noted  that Slide                                                                    
14  would cover  the  issue.  He said  that  there were  two                                                                    
possible   upside  events,   in  addition   to  the   August                                                                    
redistribution, that  could provide  extra funds,  the state                                                                    
had $154  million of  earmarked funding that  had yet  to be                                                                    
put under contract with the  federal government and Congress                                                                    
had  a pattern  of repurposing  older earmarks.  If Congress                                                                    
repurposed the current unused earmarks  the state would have                                                                    
30 days to identify the  projects that the extra money would                                                                    
be  spent on,  and an  additional  90 days  to obligate  the                                                                    
funds. He  said that this would  give the state 120  days to                                                                    
find  the  match and  the  legislative  authority, and  have                                                                    
projects that had been designed,  had the right-of-way done,                                                                    
and  had bid  packages prepared.  He said  that those  three                                                                    
steps  took two  years for  a simple  project, and  5 to  10                                                                    
years  for a  big  project;  it was  impossible  to start  a                                                                    
project, and be ready to begin  the project, in 120 days. He                                                                    
asserted that the  only way the state could be  ready to use                                                                    
the funds would be to be  working on extra projects now, and                                                                    
have them already in the  design pipeline. He added that the                                                                    
other upside  event was  reauthorization by  Congress, which                                                                    
had historically  increased the program by  approximately 20                                                                    
percent; a  20 percent increase  for the state  would equate                                                                    
to an  extra $100  million. He lamented  that the  state did                                                                    
not have the match for either of the upside events.                                                                             
10:32:49 AM                                                                                                                   
Mr. Ottesen turned to Slide 14:                                                                                                 
     •Several years of under-funding have dried all surplus                                                                     
     ($40M provided; $53M used)                                                                                                 
     •If this continues could see projects delayed; federal                                                                     
     aid lapsed                                                                                                                 
     •No match capacity to cover extraordinary needs such                                                                       
     as "repurposed earmarks"                                                                                                   
     •Request herein covers expected funding, but no                                                                            
     surplus for extra funding.                                                                                                 
10:33:13 AM                                                                                                                   
Mr. Ottesen spoke to slide 15, which listed notable rural                                                                       
aviation construction projects expected in federal FY15 and                                                                     
     Runway Safety Areas                                                                                                      
     •Adak (No AIP Funding will be Used)                                                                                        
     Pavement Rehab                                                                                                           
     Rural Access                                                                                                             
     •Cold Bay                                                                                                                  
     •Hooper Bay                                                                                                                
     •Pilot Station                                                                                                             
     •Cold Bay                                                                                                                  
     •King Salmon                                                                                                               
10:33:52 AM                                                                                                                   
Mr.  Ottesen  spoke  to  slide   16,  which  listed  notable                                                                    
Statewide   Transportation    Improvement   Program   (STIP)                                                                    
     •Highway Safety $60M (Passing lanes, RR grade                                                                              
     •NHS & Non-NHS Pavement and Bridge $155M                                                                                   
     •Parks Highway Corridor $115M                                                                                              
     •Seward Highway Corridor $90M                                                                                              
     •Glenn Highway Corridor $45M                                                                                               
     •Ketchikan: Tongass Highway Rehabilitation $33M                                                                            
     •Bridges: Seward Hwy, Gustavus, Ketchikan, TokR.,                                                                          
     ChickaloonR., Parks Hwy, Richardson Hwy., SlanaR.                                                                          
10:36:20 AM                                                                                                                   
Senator Dunleavy referred to erosion on the Glenn Highway.                                                                      
He  asked whether  preventative  maintenance could  preserve                                                                    
the road and keep costs low.                                                                                                    
Mr. Ottesen relayed that the  department had been cataloging                                                                    
geotechnical risks starting three  years previous. He stated                                                                    
that sometimes events unfolded faster  than could be planned                                                                    
for. He agreed that the  Glen Highway needed to be relocated                                                                    
away from  the river. He  offered to  follow up with  a more                                                                    
detailed response at a later date.                                                                                              
10:39:00 AM                                                                                                                   
Mr. Ottesen spoke to Slide  17, which listed additional STIP                                                                    
     •M/V Matanuska Repower $34M                                                                                                
     •AMHS Terminals Improvements: Gustavus, Ketchikan,                                                                         
     Tenakee and Auke Bay.                                                                                                      
     •Wastewater Treatment System Upgrades: Auke Bay,                                                                           
     Sitka, Haines, and Skagway.                                                                                                
Co-Chair  MacKinnon  solicited  further questions  from  the                                                                    
10:40:11 AM                                                                                                                   
Senator Bishop requested an update  on the University Avenue                                                                    
Mr. Ottesen said  he would provide further  information at a                                                                    
later date.                                                                                                                     
10:40:25 AM                                                                                                                   
Co-Chair MacKinnon  asked for a  high-level overview  on the                                                                    
Kivalina Road Project.                                                                                                          
Mr. Ottesen agreed to provide information at a later date.                                                                      
Co-Chair  MacKinnon  asked   about  the  Alaska-class  ferry                                                                    
currently  under  construction  and  whether  it  was  being                                                                    
Commissioner Luiken  stated that the ferries  were not being                                                                    
10:41:58 AM                                                                                                                   
Co-Chair  MacKinnon   understood  that   general  accounting                                                                    
practices  were   going  to   start  requiring   states  and                                                                    
municipalities  to  place  deferred  maintenance  issues  on                                                                    
their financial documents.                                                                                                      
Mr.  Ottesen responded  that  the  accounting standards  put                                                                    
requirements on how  the state and local  governments had to                                                                    
value  assets.  He  said that  the  federal  government  was                                                                    
leaning on locals  to provide financial support  and was not                                                                    
helping with the assets.                                                                                                        
10:43:38 AM                                                                                                                   
Senator Hoffman mentioned intent  language that he had added                                                                    
to the FY15  budget requiring the department  to examine the                                                                    
road between Metlakatla and Ketchikan.                                                                                          
Mr. Ottesen offered that a road  had been built to the north                                                                    
end  of the  island where  a  ferry terminal  had also  been                                                                    
Senator Hoffman  clarified that the  intent language  was to                                                                    
examine how the  road could be used to  improve the services                                                                    
to the  community of Metlakatla.  He shared that  the people                                                                    
on  the  island  were  interested  in  a  shorter  route  to                                                                    
Ketchikan for medical and other services.                                                                                       
10:44:59 AM                                                                                                                   
Co-Chair MacKinnon discussed housekeeping.                                                                                      
SB  26  was   HEARD  and  HELD  in   committee  for  further                                                                    

Document Name Date/Time Subjects
031715 University of Alaska Capital Budget Overview.pdf SFIN 3/17/2015 9:00:00 AM
SB 26
031715 DOT Capital Budget Overview .pdf SFIN 3/17/2015 9:00:00 AM
SB 26