Legislature(2013 - 2014)HOUSE FINANCE 519
04/02/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 23 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 2, 2013
1:41 p.m.
1:41:13 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:41 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
Daniel George, Staff, Co-Chair Stoltze; Angela Rodell,
Deputy Commissioner, Treasury Division, DOR; Jeff Stark,
CIV-TRANSPORTATION, Anchorage, DOL; Michael Foster,
Chairman of the Board, KABATA; David Livingstone, Managing
Director, Citygroup Global Markets Inc.
SUMMARY
CSHB 23 (FIN) KNIK ARM BRIDGE AND TOLL AUTHORITY
CSHB 23 (FIN) was REPORTED out of committee with
an "amend" recommendation and with a new fiscal
impact note from the DOT/PF and one new zero
fiscal note from the DOR.
HOUSE BILL NO. 23
"An Act relating to bonds of the Knik Arm Bridge and
Toll Authority; relating to reserve funds of the
authority; relating to taxes and assessments on a
person that is a party to an agreement with the
authority; and establishing the Knik Arm Crossing
fund."
1:41:32 PM
Co-Chair Stoltze discussed the bill on the agenda.
Representative Costello MOVED to ADOPT the proposed
committee substitute for CSHB 23, Work Draft 28-LS0141\O,
Martin, 4/2/13 (FIN). Co-Chair Stoltze OBJECTED for
discussion.
1:42:52 PM
DANIEL GEORGE, STAFF, CO-CHAIR STOLTZE, discussed the
changes in the CS. He noted that the changes were found on
page 4, between lines 9 and 12.
"The duty of the chair of the board to report annually
to the governor and the legislature terminates upon
the cumulative appropriation to the authority after
January 1, 2013 of 1,140,000,000."
He noted that the language addition encompassed the extent
of the changes in the CS.
Co-Chair Stoltze stated that the changes were constructed
with help from the administration.
Vice-Chair Neuman stated that the bill was modified with
help from the administration, the Department of Law (DOL),
the Department of Revenue (DOR) and the Department of
Transportation and Public Facilities (DOT/PF). He noted an
effort to gain the governor's approval, since Knik Arm
Bridge and Toll Authority (KABATA) was a state entity.
1:44:42 PM
Representative Holmes requested an explanation of the legal
ramifications of the cap presented in the CS.
Vice-Chair Neuman introduced Ms. Rodell as a member of the
KABATA board.
ANGELA RODELL, DEPUTY COMMISSIONER, TREASURY DIVISION, DOR,
noted that the cap of $1.14 billion had the intent of
limiting the amount of money requested by KABATA. All of
the requests would accumulate until the cap was reached and
an additional request would require a visit to the
legislature.
Representative Holmes understood that the language would
cap the moral obligation of the state at $1.14 billion.
Ms. Angela Rodell concurred.
1:47:07 PM
Representative Holmes asked about the moral obligation,
which was instated with the creation of reserve fund and
enacted the duty to report to the legislature any
shortfalls. The language clarified that the state was not
liable for more than $1.14 billion. The clarification was
for those who wished to purchase bonds.
Ms. Rodell agreed that the language clarified the duty to
report and request further appropriation. Once the $1.14
billion was reached, the duty to report and the moral
obligation were eliminated.
1:48:13 PM
Representative Holmes thought that the $1.14 billion was
money added by the state to the reserve fund. She
understood that the governor's proposed capital budget also
included funds for the project. She asked if the funds
would be included in the $1.14 billion spent on the
project. She expressed confusion regarding the $1.14
billion.
Ms. Rodell responded that the $1.14 billion did not include
the money appropriated up to this point, but rather the
money appropriated into the reserve fund and then used for
the availability payment structure that added up to a
cumulative of $1.14 billion. While the $10 million in the
governor's budget was contributed toward the $1.14 billion,
all the transportation dollars appropriated to KABATA were
not included. She stated that DOL could offer further
explanation.
Representative Holmes expressed concern about the moral
obligation. She wondered about another liability to the
state beyond the reserve fund.
Ms. Rodell responded that the reserve fund would address
shortfalls in the availability payment. The availability
payment was utilized when the bridge was open and
available. Obligations entered into by KABATA as contract
rather than bond payments falling under the availability
payment would be made up by the reserve fund.
1:51:05 PM
Representative Holmes asked if the availability payments
under the state contracts were the only liability to the
state.
Vice-Chair Neuman explained the purpose of the availability
payments. He recognized that the traffic toll revenues used
to pay toward the availability payment would not be revenue
neutral until approximately seven years after the onset of
the bridge's operation. He explained that the availability
payment was part of the $1.14 billion.
Representative Holmes asked if the state would then own the
bridge and there would be no further lump sum payment.
Co-Chair Stoltze WITHDREW his OBJECTION. Version O was
ADOPTED.
1:53:22 PM
JEFF STARK, CIV-TRANSPORTATION, ANCHORAGE, DOL, stated that
he had worked with KABATA for five years and served as
their chief counsel for the last two years. He explained
that a Private Public Agreement (PPA) existed between
KABATA and a chosen private developer. He mentioned that
potential obligations would exist as part of the agreement.
He stated that the primary obligation of the state would
include responsibility for availability payments. If the
project proceeded according to plan, the availability
payment would be the only payment made to the developer. He
pointed out the possibility of a termination payment,
should the agreement be terminated for convenience. He
stated that the agreement could be terminated if either
side defaulted. The non-defaulting party could terminate
because of a change in circumstances or a court order or
anything that compromised the viability of the project.
Mr. Stark noted that if the project was terminated because
of the default of the developer, the state would pay at a
discounted rate according to a complex formula. The state
would assume the toll-risk and the developer would assume
the design, construction, operation and maintenance risks.
He added that some cost risks were shifted back to the
state in the form of relief events. All of the obligations
arose under the PPA and the moral obligation created by the
statute covered every obligation. Availability payments
were covered by the moral obligation. The cap ended the
moral obligation for the legislature to step in and fund
any shortfall at $1.14 billion, including all
appropriations from this year on.
1:57:10 PM
Representative Holmes asked if the $1.14 billion was the
final liability for the state.
Mr. Stark responded that the figure $1.14 billion was
arrived at by Citygroup Corporation, the financial advisor
for KABATA. Citygroup Corporation created the worst-case
scenario by taking the lowest possible toll assumption and
applying probabilities to estimate the revenue potential of
the project. Citygroup Corporation utilized the toll
scenario that assumed that the state terminated the
agreement for convenience at the worst possible moment and
they arrived at $1.14 billion. The intent was to provide
assurances to the developer and the financial markets that
the money would be available in the worst case scenario.
The risk to the developer and the state was lessened as a
result.
1:59:54 PM
Representative Holmes asked if the state might be liable
for additional funding, with the bill as written.
Mr. Stark replied that the cap applied to the moral
obligation, but not to KABATA's obligation. He stated that
the theoretical possibility existed that the state would
have additional obligations, due to unlikely events such as
earthquakes. He stressed that KABATA would remain
responsible to the developer in that event. The state would
have no moral obligation to backstop KABATA, but the option
would exist, if deemed appropriate.
2:01:01 PM
Representative Gara asked about the term availability
payment. He asked if the term indicated the amount the
state would owe if tolls did not cover the cost of
construction and operation of the bridge.
Mr. Stark replied that availability payment was made by the
state to the developer for making the bridge and highway
lanes available to the traveling public. If the lanes were
not available, the state would not pay. Construction delays
would not encumber availability payments. The term
availability payment indicated that payment was made when
the area was indeed available. The payment would be made
monthly by the state to the developer for the services that
the developer would provide. The developer would design and
build the bridge and provide 100 percent of the financing
for the bridge. The developer would operate and maintain
the bridge for 35 years, which would include resurfacing
when required.
Representative Gara asked if the availability payment was
made if the tolls did not cover those costs.
Mr. Stark replied that the availability payment was the
contractual obligation of KABATA to the developer. The
developer would contribute $800 million and provide
multiple services. The developer expected to receive
availability payments in return. He voiced that KABATA
would expect toll revenues in the early years, which would
not provide enough funding to cover the availability
payment. As time progresses and traffic builds, the
expectation was that the toll revenues would cover the
availability payment and result in a surplus to the state.
A shortfall was expected in the early years, which was the
purpose of the reserve account, to provide money that
KABATA could draw on in the early years to make the full
amount of the availability payments including everything
from the tolls and the shortfalls. If tolls did not
increase as quickly as expected, the money would remain in
the reserve account for that purpose.
2:04:45 PM
Representative Gara asked about financing in the form of a
federal Transportation Infrastructure Finance and
Innovation Act (TIFIA) loan. The original request was for
$500 million. He asked if the $500 million and $1.14
billion were collectively utilized.
Mr. Stark replied that the structure of the deal was that
KABATA would not provide financing, but instead enter into
one contract with one developer. The developer would then
provide 100 percent of the financing for the project.
Therefore, KABATA would not pay any money to the developer,
absent a relief event, until the lanes were open to
traffic. He explained that KABATA utilized TIFIA to lay the
ground work to qualify the project for financing, making it
available for the developer. Because the interest rate
program was low, the assumption was that any developer that
wished to win the competition would use TIFIA. The borrower
would be responsible, solely to repay the TIFIA loan and
any other financing arranged for the project.
2:06:39 PM
Representative Gara understood that the availability
payment would be KABATA's duty up to $1.14 billion to the
extent that the operator did not generate the revenue
necessary to break-even. He asked how the TIFIA loan
related to the $1.14 billion. He wondered if the developer
could approach KABATA for assistance in paying the $500
million TIFIA loan.
Mr. Stark replied that TIFIA did not apply to the $1.14
billion, which was simply a cap on the moral obligation.
Appropriations made to KABATA were the only contribution
against the cap. The expectation was that $150 million
would be appropriated to the reserve account by the time
the project opened up. The project was sized to prevent
further draws on the reserve account until capacity was
expanded. The expectation was for total revenues to come in
and the state would not reach the $1.14 billion. He stated
that reaching the cap would occur if the state chose to
terminate at an extremely inopportune time. The loan
obligation for the developer was a separate issue. The
moral obligation was related because it provided the
developer the confidence needed to borrow $800 billion to
build the bridge. The financing was the province of the
developer.
2:09:24 PM
Representative Gara understood that the $500 million TIFIA
loan was in addition to the $1.14 billion. He queried if
the state's credit or moral obligation was in jeopardy if
the developer was unable to repay the TIFIA loan. He asked
if the state would compensate the issuer for the remaining
balance.
Mr. Stark replied no. He stated that Alaska would not be
responsible in any way for any of the financing obtained by
the developer. The developer would borrow and repay the
funds required to build the bridge. As long as the state
continued to make the availability payments to the
developer and otherwise comply with the terms of the PPA,
the state would remain without liability. The only
contractual liability for the state was to the developer.
2:11:00 PM
Ms. Rodell interjected that the developer would receive an
availability payment from KABATA to make the bridge
available. The availability payment would then be pledged
to secure the debt obligations required to raise the
capital needed to build the bridge. The state would not
enter into financing agreements, but was obligated to honor
availability requests. If the state failed to honor an
availability request, the state's credit rating could be
compromised.
Representative Gara understood that the state would
guarantee payment of up to $1.14 billion in case the
developer was not generating revenues needed to pay the
bonds taken out. He asked to know more about the TIFIA
loan.
Ms. Rodell replied that the TIFIA loan was part of the $800
million required by the developer to construct the bridge.
She stated that KABATA would enter into contracts with
investors and communicate to them the plan to repay the
loans from the availability payment from the contract with
the state of Alaska. She further explained that KABATA
would collect the tolls and use them to make the
availability payment. The bill allowed for a limit of $1.14
billion, which if exceeded would require KABATA to return
to the state with communication that toll revenues were not
sufficient. The state agreed to grant KABATA the authority
to return and request up to $1.14 billion if toll revenue
was deemed insufficient. The $500 million TIFIA loan was
not connected to the $1.14 billion, which was tied in
totality to KABATA's contract obligations.
2:15:06 PM
Representative Gara recalled testimony about a projected
$2.2 billion shortfall. He wondered how a larger shortfall
would be addressed.
Ms. Rodell responded that if the shortfall was greater than
$1.14 billion, the state would have no further obligation
and KABATA would request the cap be lifted if they
continued to seek state support for the availability
payment. The availability included profit to the developer
for their equity contribution. An availability payment
would include a profit margin for the developer.
2:17:06 PM
Co-Chair Austerman understood the financing package that
the developer must construct. He asked if the $10 million
attached to the bill became part of the reserve fund.
Ms. Rodell concurred.
Co-Chair Austerman asked if the $10 million was the initial
investment into the reserve fund.
Ms. Rodell stated that the $10 million would initially
create the reserve fund and capitalize it at $10 million.
Co-Chair Austerman stated that the replenishment of the $10
million as needed was a request for funds above the $10
million. He referred to a previous presentation listing the
financial pictures and the $150 million projected reserve
through HB 23. He asked for further explanation of the $150
million.
2:19:00 PM
Ms. Rodell replied that the intent was to build the reserve
account to $150 million, understanding the potential
shortfalls resulting from the bridge's onset. The
anticipation was that $150 million would provide
appropriate reserve levels to prevent additional requests
from KABATA.
Mr. Stark responded that the legislation stated that the
chairman would request additional appropriations required
to restore the reserve fund to the reserve fund
requirement. The agreement would provide that the reserve
fund requirement was $150 million. The intent was to size
the reserve fund to an amount that would postpone the need
to ask for additional funds. Eventually expansion to
increase capacity was planned as a second phase of the
project. The reserve fund could be drawn down to a certain
level and then request additional funds from the state
providing confidence for the developer that KABATA would
make the payments the developer required to repay the money
borrowed to build the bridge. The financial markets would
also be given the confidence that they would be repaid,
which would be reflected in lower cost to the state.
2:21:43 PM
Co-Chair Austerman understood that the $150 million would
be built up over time and allow the developer to borrow the
funds required to build the bridge. He asked about the
anticipation of drawing off the reserve. He assumed that
the drawing of the reserve would occur sometime after the
project started and the road was open.
Vice-Chair Neuman stated that the project was anticipated
to be revenue-neutral in approximately seven years.
Co-Chair Austerman asked the expectation for drawing off of
the reserve. Vice-Chair Neuman replied that the draw from
the reserve fund would begin the day that the bridge
opened.
Co-Chair Austerman asked about the anticipated time frame
for building the bridge. Mr. Stark replied four to five
years.
Co-Chair Austerman clarified that the reserve fund must
have $150 million in 4 to 5 years in order to meet the
obligation created. He asked about page 4 of the bill,
lines 8 and 11, "upon the cumulative appropriation." He
asked if funds other than state general fund dollars would
be contributed to the reserve fund.
Mr. Stark replied yes, all toll revenues would contribute
to the reserve account.
Vice-Chair Neuman informed the committee about lease
payments for the power utilities and gas lines connecting
to the bridge.
2:24:14 PM
Representative Costello asked for a current budget for the
project. She understood that the state's moral obligation
was enacted instantaneously with the creation of the
reserve account meaning that the two were linked. She asked
if the state had history of setting a moral obligation as
suggested in the CS.
Ms. Rodell relayed history of setting caps based on a
finance plan.
MICHAEL FOSTER, CHAIRMAN OF THE BOARD, KABATA, responded
that the estimation for Phase 1A of the private sector
capital costs was $715 million. The widening from 2-4 lanes
was estimated at $115 million. The estimation was less than
$800 million, which was calculated into the financial plan.
2:27:14 PM
Co-Chair Austerman clarified that $715 million plus $115
million was not less than $800 million. Mr. Foster replied
that the previous testimony suggested that the cost of the
capital project was $800 million. The estimation was $830
million based on PPA.
2:28:22 PM
Representative Wilson asked how much the project would cost
if the state were to build the bridge without a private
partner. Vice-Chair Neuman opined that the project would
cost the state more than private industry would pay.
Representative Wilson understood that the tolls would take
care of the bridge maintenance and snow removal. Vice-Chair
Neuman replied that the private partner would remain
responsible for all maintenance costs.
Representative Wilson asked for an estimate of maintenance
costs, if paid by the state. Vice-Chair Neuman did not
know.
Representative Wilson opined that the project was a great
opportunity for the state. She requested estimates from
DOT/PF for the bridge's maintenance costs.
2:30:10 PM
Mr. Foster stated that an estimate for maintenance of the
bridge was $260 million, over the course of 35 years. The
private developer would incur those costs.
Representative Munoz understood that $800 million was a
rough estimate for construction costs. Approximately $600
million would result from bonding. The revenues over the
$600 million plus the profit for the developer would be
paid from the reserve fund and the revenues from the tolls.
Mr. Foster replied that the private activity bonds, TIFIA
or equity commitment were all part of the developer's
capital outlay. The state was not responsible for paying
any of the financial debt. The state's responsibility lay
in the availability payment. The $800 million was simply a
construction cost estimate for the initial capital for the
project.
Representative Munoz asked why the moral obligation
authority exceeded the cost of the project.
Mr. Foster replied that $1.14 billion estimate was used to
model the worst case scenario. An example of a worst-case
scenario was compared to defaulting on a home loan after
remodeling. For this project, the worst-case scenario would
be KABATA defaulting on their obligation to pay the
availability payment. The $1.14 billion default included
the request for the reserve fund of $150 million along with
the amount that the developer owed to TIFIA or other
organizations that financed the project. He added that
after $150 million was contributed to the reserve, an
additional request would be made for $111 million. The
developer and partner would request information regarding a
default on behalf of the state; the partner could continue
to make their payment. The payment was a combination of the
reserve funds appropriated by the state and the termination
of the contract. The moral obligation included the
termination for default in the worst-case scenario, which
forced the developer to exit his financial obligations to
his financers.
Co-Chair Austerman asked for more information about the
$111 million calculation.
Mr. Foster replied that the base case was $150 million to
cover the initial toll deficit for the first 7 years. He
mentioned a sensitivity analysis of $1.14 billion default
and another $111 million was added to the reserve fund to
cover the shortfalls.
2:34:49 PM
Co-Chair Austerman asked if the $111 million was
anticipated general funds.
Mr. Foster responded that the funds could be general funds,
Title 23 or transportation funds.
Co-Chair Austerman mentioned the ferry system. He was glad
to see the state catching up.
Representative Gara acknowledged that the bridge would cost
$800 million. He asked who in Anchorage would pay for the
tunnel through Government Hill, road infrastructure, and
upgrades. He wondered if the expense of the additional road
construction in Anchorage and Wasilla was included in the
$800 million. He wondered if the state was responsible for
the infrastructure and maintenance. He mentioned Phase 2,
which included construction of another bridge and tunnel.
Mr. Foster answered that the additional infrastructure was
covered under the project as well as the $1.14 billion
moral obligation. He added that 18 miles of road including
the tunnel through Government Hill in Anchorage and
improvements to the AC coupler were components of Phase 2.
The roads heading north were part of the DOT/PF Statewide
Transportation Improvement Program (STIP) process.
2:39:07 PM
Representative Gara asked if the developer paid for the
infrastructure and if it was included in the $800 million.
Mr. Foster replied that the responsibility for the
additional development lay with the developer as part of
the PPA.
Vice-Chair Neuman added that the additional development was
part of the $800 million construction costs.
Representative Holmes referred to page 2, section 2 and a
reference to changing a $500 million bonding authority to
$600 million. She asked if the amount was related to TIFIA
or another financing component.
Mr. Foster replied that KABATA had a capacity of $600
million available, but the statute was written for $500
million. The increase would allow the private developer to
access the additional capacity.
Representative Holmes asked about the requirement for
reviewer-sign-off of the PPA.
Mr. Foster responded that KABATA's five-member voting board
included deputy commissioner Angela Rodell, the
commissioner of revenue, Pat Kemp along with a member from
Anchorage and one from MatSu. The PPA was subject to
substantial review and input from DOR and DOT/PF along with
KABATA and outside consultants. He stated that KABATA would
receive final approval from DOL that the Request for
Proposal (RFP) could be implemented. When KABATA approved
the final contract, the approval would come through the
administration.
2:42:31 PM
Vice-Chair Neuman furthered that the RFP would be written
by the DOL, DOR and DOT/PF and finally approved by the
governor.
Representative Munoz asked why the moral obligation was not
set at $150 million. Vice-Chair Neuman responded that the
$150 million was only part of the reserve fund. The $150
million would be accessed in the first seven years as a
part of the availability payment. The $150 million was
expected to be refunded to the GF and was considered a
loan.
Co-Chair Stoltze referred to the reserve fund as a "bridge
bridge fund." Vice-Chair Neuman agreed with the assessment.
2:43:57 PM
Representative Costello offered Amendment 4. She stated
that she had followed the KABATA project with interest. She
expressed concern regarding the financial modeling and
potential plans. She requested that KABATA revisit the
legislature for approval before KABATA issued bonds or form
a partnership to construct the bridge as required by
Amendment 4.
Page 1, line 2, following "Authority;":
Insert "requiring legislative approval of a financial
plan before the authority may issue bonds or enter
into a public-private agreement for construction of
the Knik Arm bridge or appurtenant facilities;"
Page 1, following line 5:
Insert new bill sections to read:
"* Section 1. AS 19.75.111(a) is amended to read:
(a) Except as otherwise explicitly made applicable to
the authority, the performance of the authority's
duties and the exercise of its powers, including its
powers to issue bonds and otherwise incur debt, shall
be governed exclusively by this chapter. In
furtherance of its purposes, the authority may
(1) own, acquire, construct, develop, create,
reconstruct, equip, operate, maintain, extend, and
improve the Knik Arm bridge and its appurtenant
facilities;
(2) sue and be sued;
(3) adopt a seal;
(4) adopt, amend, and repeal regulations under AS
44.62 and establish bylaws;
(5) make and execute agreements, contracts, and all
other instruments with any public or private person,
governmental unit or agency, corporation, or other
business entity lawfully conducting business in the
United States for the exercise of its powers and
functions under this chapter and for the financing,
design, construction, maintenance, improvement, or
operation of facilities, properties, or projects of
the authority, including making and executing
contracts with any person, firm, corporation,
governmental agency, or other entity for the purpose
of
(A) incurring indebtedness, obtaining investments in
the authority's projects, acquiring or granting lump
sum payments for services in advance or in arrears,
grants, and other financing; and
(B) entering into public-private partnerships or
service contracts in any form; the authority may not
enter into a partnership or contract for construction
of the Knik Arm bridge unless the authority has
obtained the approval of the legislature of a
financial plan as provided in (c) of this section;
(6) in its own name acquire, lease, rent, sell, or
convey real and personal property;
(7) issue and refund bonds in accordance with this
chapter, in order to pay the cost of the Knik Arm
bridge and its appurtenant facilities; the authority
may also secure payment of the bonds as provided in
this chapter;
(8) incur other indebtedness, including lines of
credit and indebtedness to the Federal Highway
Administration, United States Department of
Transportation, under 23 U.S.C. 601 - 610
(Transportation Infrastructure Finance and Innovation
Act of 1998), as amended, and secure that indebtedness
as provided in this chapter;
(9) apply for and accept gifts, grants, or loans from
a federal agency or an agency or instrumentality of
the state, or from a municipality, private
organization, or other source, including obtaining
title to state, local government, or privately owned
land, directly or through a department of the state
having jurisdiction of the land;
(10) fix and collect fees, rents, tolls, rates, or
other charges for the use of the Knik Arm bridge and
appurtenant facilities, or for a service developed,
operated, or provided by the authority;
notwithstanding AS 37.10.050(a), fees, rents, tolls,
rates, and other charges fixed and collected under
this paragraph may exceed the actual operating cost of
the use of the bridge, facility, or service;
(11) bring civil actions, refer criminal actions to
the appropriate authority, and take other actions or
enter into agreements with law enforcement and
collection agencies to enforce the collection of its
fees, rents, tolls, rates, other charges, penalties,
and other obligations;
(12) pledge, encumber, transfer, or otherwise
obligate revenue derived by the authority from the
ownership, use, or operation of toll facilities,
including fees, rents, tolls, rates, charges, or other
revenue of the authority or money that the legislature
may appropriate, except a state tax or license, as
security for bonds or other indebtedness or agreements
of the authority;
(13) deposit or invest its funds, subject to
agreements with bondholders;
(14) procure insurance against any loss in connection
with its operation;
(15) contract for and engage the services of
consultants, experts, and financial and technical
advisors that the authority considers necessary for
the exercise of its powers and functions under this
chapter;
(16) apply for, obtain, hold, and use permits,
licenses, or approvals from appropriate agencies of
the state, the United States, a foreign country, and
any other proper agency in the same manner as any
other person;
(17) perform reconnaissance studies and engineering,
survey, and design studies with respect to the Knik
Arm bridge and its appurtenant facilities;
(18) exercise powers of eminent domain or file a
declaration of taking as necessary for the Knik Arm
bridge and appurtenant facilities under AS 09.55.240 -
09.55.460 to acquire land or an interest in land; the
authority's exercise of powers under this paragraph
may not exceed the permissible exercise of those
powers by the state;
(19) confer with municipal and other governments,
metropolitan planning organizations, and the
department, concerning the Knik Arm bridge;
(20) do all acts and things necessary to carry out
the powers expressly granted or necessarily implied in
this chapter; nothing in this chapter limits the
powers of the authority that are expressly granted or
necessarily implied.
* Sec. 2. AS 19.75.111 is amended by adding a new
subsection to read:
(c) The authority may not enter into a public-private
partnership or service contract for construction of
the Knik Arm bridge or appurtenant facilities unless
the authority submits to the legislature a financial
plan including all projected construction,
maintenance, and operation costs for the first 40
years of the project and the financial plan has been
approved by the legislature by law."
Page 1, line 6:
Delete "Section 1"
Insert "Sec. 3"
Renumber the following bill sections accordingly.
Page 2, line 6:
Delete "a new subsection"
Insert "new subsections"
Page 2, lines 6 - 23:
Delete all material and insert:
"* Sec. 5. AS 19.75.211 is amended by adding new
subsections to read:
(e) Before issuing bonds for the Knik Arm bridge
under this section, the authority shall submit to the
state bond committee a description of the bond issue,
a copy of the resolution of the board of directors of
the authority supporting the bond issue, a report
setting out the sources and amounts of revenue that
will be used for payment of the principal of and
interest on the bonds and the effect the issuance of
the bonds by the authority would have on the ability
of the state or political subdivision of the state to
market bonds, and a preliminary prospectus, offering
circular, or official statement relating to the bond
issue.
(f) Bonds may not be issued unless
(1) the state bond committee finds, based on the
information submitted by the authority under this
section and other information that is reasonably
available to or requested by the committee, that
either the Knik Arm bridge revenue and other revenue
available to the authority or the revenue of the
private person or enterprise under a public-private
partnership agreement entered into by the authority
under AS 19.75.111(a) can be reasonably expected to be
adequate for payment of the principal of and interest
on the bonds to be issued and that issuance of the
bonds by the authority would not be expected adversely
to affect the ability of the state or its political
subdivisions to market bonds; and
(2) the authority submits to the legislature a
financial plan including all projected construction,
maintenance, and operation costs for the first 40
years of the project and the financial plan has been
approved by the legislature by law."
Vice-Chair Neuman responded that a similar amendment was
initially discussed in the transportation committee where
it received a thorough vetting. He countered that the state
did not follow the procedure suggested in Amendment 4 for
other road projects due to the implications of such delays.
He added that the RFP was reviewed by the DOL. He opined
that the project review should be accomplished by experts
on the issue. He preferred to allow the professionals to
accomplish the complicated task of reviewing the final RFP
rather than the legislature, where a committee chair might
kill the bill. He asked deputy commissioner Rodell to
explain the extensive process that would be reviewed by the
administration.
Ms. Rodell stated that the plan, RFP and PPA would be
reviewed by the KABATA staff, the DOR and the DOL. She
believed that the checks and balances required by the
legislature were included in the CS with the inclusion of
the cap on the moral obligation. The DOR wanted the mega
project to continue moving forward without the potential of
legislative delays. She noted that developers expressed
concern about bidding on a project that required further
legislative approval for an award on a contract. She opined
that the amendment would be difficult to enact and fulfill.
Co-Chair Austerman asked about the $600 million bonding
authority granted by the legislature.
Ms. Rodell responded that the state received a federal
allocation through Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA-LU)
and KABATA would make the allocation available to the
private developer if they chose to use the bonding
authority. The allocation that came from the federal
Department of Transportation was for $600 million. The
original statute for KABATA had $500 million, so the
inclusion of $600 million was a technical correction.
Co-Chair Austerman asked if the bond was a KABATA bond.
Ms. Rodell responded that KABATA was an issuing entity as a
conduit issuer, but the obligation for repayment was on the
developer.
2:48:34 PM
Representative Wilson asked if the passage of the amendment
could delay the project.
Mr. Foster opined that the amendment would delay the
project.
Representative Wilson understood that KABATA would revisit
the legislature for more funding regardless of the
amendment.
Mr. Foster replied that he hoped not to revisit the
legislature following the use of reserve fund.
Representative Wilson compared the amendment's purpose to
suggestions presented for the instate gas pipeline. She
wished that the legislature was quicker than private
industry, but was not hopeful. She did not support the
amendment because she desired state development in the form
of projects such as the one presented in HB 23.
2:49:41 PM
AT EASE
2:50:28 PM
RECONVENED
Co-Chair Austerman MOVED a friendly amendment to Amendment
4. He suggested a requirement that Legislative Budget and
Audit (LB&A) provide approval, as opposed to the
legislature. He noted that LB&A held monthly meetings,
enabling a fluid process.
Vice-Chair Neuman objected to the amendment to the
amendment.
Representative Costello noted no objection to the friendly
amendment to the amendment.
Vice-Chair Neuman commented that the private partnership
would view the amendment as a lack of trust on the state's
part. He opined that the private partnership would hesitate
to invest in a project that required further legislative
process and approval. He thought that the amendment was a
"poison pill" for the bill. He believed that the bill was
crafted carefully to ensure an appropriate partnership
between the state and a private entity. He stressed that
the amended amendment was a "poison pill."
2:53:20 PM
Representative Thompson spoke against the amendment. He
stated that companies interested in bidding on the project
might opine that the state was not ready to build the
bridge by implementing the restrictions suggested in the
amendment.
2:54:01 PM
RECESSED
4:13:21 PM
RECONVENED
Co-Chair Stoltze reported to the committee that a testifier
was available to speak to the amendment.
Vice-Chair Neuman noted that David Livingston could
interpret the potential problems with Amendment 4.
4:15:08 PM
DAVID LIVINGSTONE, MANAGING DIRECTOR, CITYGROUP GLOBAL
MARKETS INC., testified that his expertise was facilitating
public/private partnerships throughout the country. He
asserted that the amendment would kill the project. He
noted that KABATA shortlisted three firms to provide
proposals for predetermined levels estimating project costs
over the following 35 years. The firms were required to
spend several million dollars before the bid was awarded to
acquire construction cost estimates. In the proposal the
firms would bid on, Citygroup would provide an
affordability curve. The firms would request assurance that
if they spend several million dollars to arrive at an
affordable bid, the project will move forward. He mentioned
a project in Pittsburg where a contract was rejected and
the bidder lost an opportunity due to a government entity's
decision.
4:17:58 PM
Co-Chair Stoltze asked about Mr. Livingstone's familiarity
with the structure of the Alaska legislative body. He
mentioned a pending amendment to the amendment to
substitute LB&A approval for legislative approval. He
wondered if the alternative might initiate a different
reaction.
Mr. Livingstone requested further clarification about the
amendment to Amendment 4.
Co-Chair Stoltze explained that Amendment 4 required
legislative approval and the friendly amendment substituted
approval by a permanent joint committee, which met at
intervals throughout the year.
Mr. Livingstone replied that approvals prior to an RFP
issuance were acceptable. He explained that once the bid
process began, the difficulty finding firms willing to
spend several million dollars increased when another
approval process was required.
Co-Chair Stoltze asked the difference between issuance of
bonds and the submission of bids. He requested more
information about the sequence of events.
4:19:54 PM
Mr. Livingstone replied that the bid process included the
issuance of bid documents first, which would happen over a
two month period. Then, a several-month process would
occur, where firms compiled their bids. Following a month
long evaluation, a preferred bidder would be selected and
the bidder would have 60-90 days to get to financial close,
where the bonds would be sold. The selling of the bonds was
the final step of the process.
Representative Holmes understood prior to the RFP issuance,
approval by the legislative body or LB&A was acceptable.
Mr. Livingstone agreed that the suggestion would be less
objectionable, because the review would occur prior to
great expense on behalf of the private partners.
4:22:10 PM
Representative Kawasaki asked about the example including
the city of Pittsburg. He asked how far the project had
come prior to its termination by the government entity. Mr.
Livingstone replied that the Pittsburg project was in the
final stages where bonds were nearly issued.
Representative Kawasaki repeated that the project was
nearly sanctioned when it was terminated. Mr. Livingstone
replied in the affirmative.
Representative Munoz discussed Amendment 4. She proposed
the inclusion of "legislative approval of a financial plan
before the authority enters into a public private agreement
and avoided the issuing of bonds."
Mr. Livingstone replied that legislative approval requested
prior to the release of the RFP was acceptable.
Representative Munoz clarified that the language would be
deemed preferable if "may issue bonds" was removed from the
Amendment 4. She suggested that the amendment read
"requiring Legislative Budget and Audit approval of a
financial plan before the authority may enter into a
public/private agreement.
4:25:59 PM
Vice-Chair Neuman suggested a potential legal issue with
the legislature's involvement in the RFP process.
Mr. Livingstone preferred that approval occur prior to a
RFP issuance from prospective bidders for a PPA.
4:26:58 PM
Vice-Chair Neuman requested the opinion from the Attorney
General's office regarding the legislature's role in the
RFP process.
Mr. Stark replied to the question and the separation of
power issue. He thought if it was provided for in the
legislation for review, it was probably acceptable. He
requested more time to research the issue. He commented
that the RFP documents were extremely complex and KABATA
received outside counsel to draft them. He stated that he
spent weeks reading through the documents and he
anticipated that a review might delay the project by up to
one year. Delays would create financing risks.
Co-Chair Stoltze requested Mr. Foster's opinion along with
additional information about his position at KABATA.
4:29:33 PM
Mr. Foster responded that he was the appointed chair at
KABATA for the last four years and had completed the former
chair's term. He stated that he was the president of Boy
Scouts of Alaska along with president of the Eagle River
Community Council. He owned four different companies and
was a private sector engineer. He stated that the position
with KABATA was appointed, he did not request it. He opined
that the toll bridge was a good project for the state.
Co-Chair Stoltze commented that Mr. Foster was "conflicted
out" from a large number of work projects due to his status
on KABATA.
Mr. Foster stated that the conflict of interest did affect
his private sector business. He supported the project
despite that fact because he wished for future generations
to take advantage of the bridge. He added that his position
with KABATA was on a volunteer basis.
Co-Chair Stoltze stated that the KABATA process received
multiple attacks and he wished to defend Mr. Foster.
4:31:51 PM
Mr. Foster responded that the state committed $200 thousand
for the DOL's review of the document. He thought that a
body without the legal knowledge might be challenged by the
complex nature of the document. He stated that the process
was complicated and he relied on experts to review the
document. He believed that a legislative committee might
not have the experience necessary to understand the
document. He added that the DOL was best suited to ensure
that the legal interests of the state were protected.
Mr. Foster suggested that the addition of another review
process might lead developers to seek alternative
investment opportunities. He noted that the review
suggested in Amendment 4 was not a common practice and was
not utilized in other DOT/PF projects. He compared the
project to a person purchasing a home and remaining within
their spending limits. The RFP had an affordability curve.
He opined that the safeguards were already taken care of by
DOL and the DOR. He stated that he met with the governor
and presented the worst-case scenario for the project.
4:37:00 PM
Co-Chair Austerman had spoken with his fellow committee
members during the break. He WITHDREW his amendment to the
amendment.
Representative Gara noted Mr. Livingstone's concern that
billions of dollars must be spent on cost estimates for the
project along with estimates for the project revenues. He
assumed that the estimates had been gathered already.
Mr. Livingstone replied that KABATA had cost estimates, but
three different consortiums would propose on the project.
He clarified that each consortium must perform their own
due diligence, which would cost each of them several
million dollars.
4:39:03 PM
Representative Gara asked why the state's moral obligation
was necessary if a private contractor builds and operates
in anticipation of revenue exceeding costs in seven years.
Mr. Livingstone replied that the moral obligation
accomplished several things. The moral obligation would
address the risk that the project may neglect to earn
sufficient revenue in the anticipated seven years.
Additionally, if the state or KABATA entered default, the
private partner would require assurance of payment. Only
when the project is up and running would KABATA be
obligated to make availability payments. The moral
obligation was to the private partner by the state and
KABATA to uphold their agreement to make payments over the
next 35 years.
4:41:12 PM
Representative Wilson clarified that Amendment 4 stressed
the approval of a financial plan. She asked how large and
detailed a financial plan of this nature was expected to
be.
Mr. Livingstone replied that a detailed financial plan
could span dozens of pages with multiple attachments.
Representative Wilson asked if the information included in
the RFP might be confidential.
Mr. Livingstone responded that Citygroup presented a
proposal to the three bidders informing about the
anticipated project cost. The most competitive bid would be
awarded the contract.
Representative Wilson wondered if the financial plan was
required, would the bank require the detailed financial
plan prior to the bid.
Mr. Livingstone replied no.
4:43:17 PM
Representative Holmes expressed her condolences to Mr.
Stark for evaluating the dense legal documents. She spoke
to the complicated nature of the documents and the benefit
of legal expertise when evaluating them.
4:44:33 PM
Vice-Chair Neuman hoped to provide the necessary and
credible information with the help of the entities
involved. He advocated for the legislature's due diligence
along with a trust in the experts. He wondered if
additional information might be provided to gain the
confidence of committee members. He asked Representative
Holmes if she required additional information to further
vet the project.
Representative Holmes replied that the break in the meeting
allowed her to research the subject more thoroughly, which
enabled a better understanding. She appreciated Vice-Chair
Neuman's efforts to provide ample information to the
committee.
Co-Chair Stoltze respected the House Finance Committee's
process of participating in a manner that was not scripted.
He credited the committee members for their independent
thinking.
4:46:29 PM
Representative Thompson stated his involvement in design
based projects. He provided an example when he served as
mayor. He preferred design based projects because they
lacked the risk of cost overrun or design changes. He
expressed concern with Amendment 4 because developers might
choose not to bid on the project knowing that the
legislative approval was mandated.
Mr. Foster concurred.
Representative Thompson understood the concern addressed in
the amendment, but he had confidence that the experts would
not proceed without a viable project. He appreciated the
testifiers' assurances that the project was viable.
4:48:48 PM
Representative Costello appreciated the sponsor's help. She
believed that the legislature's responsibility to approve
budgets and back moral obligations warranted the mandate
that KABATA return to the legislature for approval of their
financial plan. She felt a great sense of responsibility to
the state in her elected position to constituents
expressing concern about the project. She added that the
financial review presented to the legislature could include
a shortened version for the understanding of those members
without law degrees. She expressed hesitancy regarding the
size of the project and the lack of information.
Co-Chair Stoltze noted that Co-Chair Austerman was required
to leave the hearing to attend a budget meeting.
Representative Munoz clarified that the request for review
for LB&A review was removed by Co-Chair Austerman.
Co-Chair Stoltze concurred.
Representative Munoz asked if the amendment sponsor would
entertain the notion of inserting the mandate that the
review by LB&A replace that of the legislature.
Representative Costello replied that she would consider the
replacement a friendly amendment and she supported the
change. Co-Chair Stoltze OBJECTED.
Vice-Chair Neuman clarified that the language would read:
"the authority may not enter into a partnership or contract
for construction of the Knik Arm bridge unless the
authority has obtained the approval of the Legislative
Budget and Audit of a financial plan as provided in (c) of
this section." He disagreed with the policy that might have
substantial effects on the project. He added that the
legislation was carefully crafted by the DOL and the DOR.
He trusted the department participants, but did not object
to the amendment to the amendment.
Co-Chair Stoltze WITHDREW his OBJECTION. The amendment to
the amendment was adopted.
Co-Chair Stoltze maintained his objection to Amendment 4 as
amended.
A roll call vote was taken on the motion.
IN FAVOR: Costello, Edgmon, Gara, Kawasaki and Munoz
OPPOSED: Thompson, Wilson, Holmes, Neuman and Stoltze
The MOTION FAILED (5-5).
Amendment 4 as amended failed.
Representative Gara MOVED amendment 5. Co-Chair Stoltze
OBJECTED for discussion.
Page 5, following line 27:
Insert a new bill section to read:
"* Sec. 8. AS 19.75 is amended by adding a new
section to read:
Sec. 19.75.925. No state obligation. A monetary
indebtedness or obligation incurred by the authority,
through contract, public-private partnership, issuance
of bonds, or otherwise, is not a moral or other
obligation of the state."
Representative Gara explained that the purpose of Amendment
5 was to prevent the state's moral obligation for the
financing of the project. He was informed that the language
in his amendment was not constructed properly and he
planned to withdraw it. He appreciated the opportunity to
state his opinion regarding the state pledging its moral
obligation. He planned to craft the amendment properly and
introduce it on the House Floor. He expressed concern about
the future finances for Alaska along with additional
concern that the moral obligation will be increased if the
project projections were inaccurate.
Amendment 5 was WITHDRAWN.
Representative Costello discussed the two fiscal notes. The
first new fiscal note showed an estimated capital cost of
$10 million from DOT/PF. The second new fiscal note from
DOR had zero fiscal impact.
4:55:58 PM
Vice-Chair Neuman MOVED to REPORT HB 23 out of committee
with individual recommendations and the accompanying fiscal
notes.
CSHB 23 (FIN) was REPORTED out of committee with an "amend"
recommendation and with a new fiscal impact note from
DOT/PF and one new zero fiscal note from DOR.
Co-Chair Stoltze noted that CSHB 23 (FIN) was considered
landmark legislation.
4:58:22 PM
ADJOURNMENT
The meeting was adjourned at 4:58 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 23 CS WORKDRAFT O.pdf |
HFIN 4/2/2013 1:30:00 PM |
HB 23 |
| HB 23NEW FN CS-DOT-KABATA-4-1-13 (1).pdf |
HFIN 4/2/2013 1:30:00 PM |
HB 23 |
| HB 23NEW FN CS-DOR-KABATA-4-1-13 (2).pdf |
HFIN 4/2/2013 1:30:00 PM |
HB 23 |
| HB 23 Amendment 4 Costello.pdf |
HFIN 4/2/2013 1:30:00 PM |
HB 23 |
| HB 23 Amendment 5 Gara.pdf |
HFIN 4/2/2013 1:30:00 PM |
HB 23 |