Legislature(2013 - 2014)HOUSE FINANCE 519

04/02/2013 01:30 PM FINANCE


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01:41:13 PM Start
01:41:32 PM HB23
04:58:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued @ 4:15 p.m. Today --
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Scheduled But Not Heard
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 23 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Moved CSHB 23(FIN) Out of Committee
                  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