Legislature(2011 - 2012)CAPITOL 17

03/10/2011 01:00 PM TRANSPORTATION


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:30 pm Today --
+= HB 57 BICYCLE PROGRAM TELECONFERENCED
Heard & Held
*+ HB 158 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
            HOUSE TRANSPORTATION STANDING COMMITTEE                                                                           
                         March 10, 2011                                                                                         
                           1:33 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Peggy Wilson, Chair                                                                                              
Representative Lance Pruitt, Vice Chair                                                                                         
Representative Eric Feige                                                                                                       
Representative Craig Johnson                                                                                                    
Representative Cathy Engstrom Munoz                                                                                             
Representative Max Gruenberg                                                                                                    
Representative Pete Petersen                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 57                                                                                                               
"An  Act authorizing  municipalities and  nonprofit organizations                                                               
to sponsor a  program to encourage the safe use  of bicycles as a                                                               
mode  of   transportation,  and   amending  the  duties   of  the                                                               
Department  of Transportation  and Public  Facilities to  include                                                               
administration of state funds appropriated for that purpose."                                                                   
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 158                                                                                                              
"An Act  relating to  the authority and  obligations of  the Knik                                                               
Arm Bridge and Toll Authority, to  bonds of the authority, and to                                                               
reserve funds of the authority;  authorizing the state to provide                                                               
support  for certain  obligations 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."                                                                                                                 
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 57                                                                                                                   
SHORT TITLE: BICYCLE PROGRAM                                                                                                    
SPONSOR(s): REPRESENTATIVE(s) SEATON                                                                                            
                                                                                                                                
01/18/11       (H)       PREFILE RELEASED 1/7/11                                                                                
01/18/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/18/11       (H)       TRA, FIN                                                                                               
02/10/11       (H)       TRA AT 1:00 PM CAPITOL 17                                                                              
02/10/11       (H)       Heard & Held                                                                                           
02/10/11       (H)       MINUTE(TRA)                                                                                            
03/10/11       (H)       TRA AT 1:00 PM CAPITOL 17                                                                              
                                                                                                                                
BILL: HB 158                                                                                                                  
SHORT TITLE: KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                                 
SPONSOR(s): REPRESENTATIVE(s) NEUMAN                                                                                            
                                                                                                                                
02/16/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/11       (H)       TRA, FIN                                                                                               
03/10/11       (H)       TRA AT 1:00 PM CAPITOL 17                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE PAUL SEATON                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented the changes in the committee                                                                   
substitute and answered questions during the discussion of HB                                                                   
57.                                                                                                                             
                                                                                                                                
JEFF OTTESEN, Director                                                                                                          
Division of Program Development                                                                                                 
Department of Transportation & Public Facilities (DOT&PF)                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and answered questions during the                                                              
discussion of HB 57.                                                                                                            
                                                                                                                                
DERRICK REYNOLDS, Owner                                                                                                         
Cycle Logical                                                                                                                   
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 57.                                                                           
                                                                                                                                
CHASE WARREN                                                                                                                    
Homer Cycling Club                                                                                                              
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 57.                                                                           
                                                                                                                                
CATRIONA LOWE, Member                                                                                                           
Homer Cycling Club                                                                                                              
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified during the discussion of HB 57.                                                                
                                                                                                                                
MICHAEL NEECE                                                                                                                   
City of Homer Economic Development Advisory Commission                                                                          
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 57.                                                                           
                                                                                                                                
PETER ROBERTS, Owner                                                                                                            
Downtown Bicycle Rental                                                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 57.                                                                        
                                                                                                                                
REPRESENTATIVE MARK NEUMAN                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 158 as the prime sponsor.                                                                   
                                                                                                                                
ANDREW NIEMIEC, Executive Director                                                                                              
Knik Arm Bridge and Toll Authority (KABATA)                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 158.                                                                          
                                                                                                                                
KEVIN HEMENWAY, Chief Financial Officer                                                                                         
Knik Arm Bridge and Toll Authority (KABATA)                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 158.                                                               
                                                                                                                                
JAMIE KENWORTHY, Financial Analyst                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 158.                                                               
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:33:36 PM                                                                                                                    
                                                                                                                                
CHAIR  PEGGY  WILSON  called the  House  Transportation  Standing                                                             
Committee  meeting  to  order at  1:33  p.m.  Representatives  P.                                                               
Wilson,  Johnson, Feige,  Petersen were  present at  the call  to                                                               
order.  Representatives  Pruitt and Munoz arrived  as the meeting                                                               
was in progress.                                                                                                                
                                                                                                                                
                     HB 57-BICYCLE PROGRAM                                                                                  
                                                                                                                              
1:34:34 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON announced that  the first order of business would                                                               
be  HOUSE BILL  NO. 57,  "An Act  authorizing municipalities  and                                                               
nonprofit  organizations to  sponsor a  program to  encourage the                                                               
safe use  of bicycles as  a mode of transportation,  and amending                                                               
the  duties  of  the  Department  of  Transportation  and  Public                                                               
Facilities to include administration  of state funds appropriated                                                               
for that purpose."                                                                                                              
                                                                                                                                
1:35:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRUITT  moved  to adopt  the  proposed  committee                                                               
substitute (CS) for HB 57,  labeled 27-LS0315\B, Kane, 2/18/11 as                                                               
the working  document.  There  being no objection, Version  B was                                                               
before the committee.                                                                                                           
                                                                                                                                
1:36:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL  SEATON, Alaska State  Legislature, explained                                                               
changes contained  in the  proposed committee  substitute Version                                                               
B.   He referred to page  2, to lines  1-2 of HB 57,  which read,                                                               
"(2) educate the  public on the safe use of  bicycles and traffic                                                               
laws relating to bicycles and  motor vehicles." This language was                                                               
in  response  to  the  committee's desire  to  have  education  a                                                               
prominent feature, and  to allow people to apply for  grants.  He                                                               
referred to  page 2, and  line 7,  which read, "(2)  to establish                                                               
safety  and  education  programs  described  in  (a)(2)  of  this                                                               
section."  This language  allows for  the grants  just mentioned.                                                               
He referred  to page 2,  lines 19-20, which read,  "(2) educating                                                               
the public on the safe use  of bicycles and traffic laws relating                                                               
to bicycles and motor vehicles."   Additionally, the dates of the                                                               
program survey in  the bill are changed.  He  referred to page 3,                                                               
line 14, of HB  57, that the date changes from  2011 to 2012, and                                                               
on page  3, line 18 of  HB 57, the  date changes from to  2012 to                                                               
2014.                                                                                                                           
                                                                                                                                
1:37:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN   recalled  viewing   advertisements  on                                                               
bicycle  laws.    He  asked   whether  the  department  will  air                                                               
additional  media  announcements  or  would use  the  same  media                                                               
campaign.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON responded  that not  all communities  have                                                               
television  as the  most available  form of  media.   The bicycle                                                               
education programs  may be accomplished  by using flyers.   Thus,                                                               
villages  may  have  different programs  than  those  offered  in                                                               
cities such as Anchorage.                                                                                                       
                                                                                                                                
1:39:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ asked  whether any  small business  bicycle                                                               
shop  owners have  contacted the  sponsor.   She related  she has                                                               
received  feedback  and  expressed  concern  over  the  potential                                                               
competition between businesses and local government.                                                                            
                                                                                                                                
REPRESENTATIVE SEATON  related he  heard from Mr.  Peter Roberts,                                                               
Downtown Bike  Rental in Anchorage.   Some shops in  his district                                                               
in Homer are  supportive of the bill since it  will encourage and                                                               
promote bicycle  use and users  will upgrade to  better bicycles.                                                               
He said it  is a mixed bag and he  acknowledged that some tourism                                                               
related  businesses expressed  concern that  a community  program                                                               
could  negatively  impact their  business.    However, there  are                                                               
numerous ways,  including building  bicycle racks and  storage to                                                               
enhance bicycle ownership, repair, and  upgrades.  He pointed out                                                               
that one thing he is also  trying to promote are bicycle trailers                                                               
so  people  can  transport  groceries.    He  related  that  some                                                               
equipment can make bicycles safer so  they can be used as a "mode                                                               
of transportation." He stated that  municipalities are not trying                                                               
to  compete  with  the  tourism   industry.    However,  numerous                                                               
communities do  not have  bicycle shops or  bicycles of  the type                                                               
that  can be  used as  a mode  of transportation.   He  suggested                                                               
people tend to use bicycles and then want better models.                                                                        
                                                                                                                                
1:42:58 PM                                                                                                                    
                                                                                                                                
JEFF   OTTESEN,  Director,   Division  of   Program  Development,                                                               
Department  of  Transportation   &  Public  Facilities  (DOT&PF),                                                               
offered a  brief comment.  He  recalled that at the  last hearing                                                               
he stressed  the importance  of bicycling to  Alaska.   Alaska is                                                               
one  of  the  leading  states  in terms  of  its  citizens  using                                                               
bicycles  for  commuting.   He  offered  that the  DOT&PF's  only                                                               
suggestion was to clarify that education was permissible.                                                                       
                                                                                                                                
1:43:35 PM                                                                                                                    
                                                                                                                                
DERRICK REYNOLDS, Owner,  Cycle Logical, stated that  he lives in                                                               
Homer  and  owns and  operates  Cycle  Logical, a  small  bicycle                                                               
repair and  retail shop.   He said he fully  supports HB 57.   He                                                               
offered his belief  that he understands the  cycling community in                                                               
Homer.  In the past five  years he has witnessed a growing number                                                               
of  cyclists  ranging from  children  to  dedicated cyclists  and                                                               
commuters.   He explained that  most people express  concern over                                                               
the lack of safe  roads.  He agreed with their  concern.  He said                                                               
the simple  solution is to  outlaw cars!   He offered  his belief                                                               
that the quickest way to reduce  the number of cars and trucks on                                                               
roadways would be to encourage more  people to ride bicycles.  He                                                               
agreed HB  57 would not  create a  bicycle path along  every road                                                               
but it  could help  fund a  community bike  garage for  people to                                                               
use, perhaps  allowing them to check  out a bicycle.   People may                                                               
be able  to check out a  grant funded trailer, lock,  signage, or                                                               
bike  rack.   People could  shop and  return the  trailer to  the                                                               
garage.    Similar  bike share  programs  exist  nationwide  with                                                               
considerable  success.   He  acknowledged the  concern  but as  a                                                               
business  owner believes  that  the program  will  help grow  his                                                               
business.  He  reiterated that he understands  the rental aspect,                                                               
but most people  who want to rent a bicycle  to obtain the "state                                                               
of the art"  features and a bike share program  may not offer the                                                               
high  end  bicycle  features.    He explained  he  lives  in  the                                                               
community  and represents  the  cycling group.    He stated  that                                                               
several  groups are  actively working  to improve  conditions for                                                               
cyclists  in  Homer, all  of  whom  have  shown a  commitment  to                                                               
cycling.   Cycling  is a  growing trend.   He  thinks this  is an                                                               
important bill to  pass.  He thanked members  for considering it.                                                               
In response  to Chair P.  Wilson, Mr. Reynolds responded  that he                                                               
has not specifically  contacted the city council  for funding for                                                               
cycling programs.                                                                                                               
                                                                                                                                
1:48:13 PM                                                                                                                    
                                                                                                                                
CHASE WARREN, Homer  Cycling Club, stated that he  has worked for                                                               
Cycle  Logical for  nearly two  years.   He related  that he  has                                                               
commuted primarily by bicycle for  five years.  He fully supports                                                               
HB  57, he  said.   This  bill could  significantly increase  the                                                               
safety on our roads, not just for cyclists.                                                                                     
                                                                                                                                
1:49:06 PM                                                                                                                    
                                                                                                                                
CATRIONA  LOWE,  Member, Homer  Cycling  Club,  stated she  is  a                                                               
resident of Homer and a long time  cyclist.  She is also a member                                                               
of the  Homer Cycling Club.   This nonprofit group was  formed in                                                               
2010 to improve conditions for  bicyclists at the local level and                                                               
to establish bicycle routes and  mountain bike trails, host group                                                               
rides,  to  organize  events  such   as  races,  and  to  promote                                                               
bicycling  as an  environmentally  friendly  and healthy  choice.                                                               
She  offered her  belief that  HB  57 holds  great potential  for                                                               
Alaskans.   Using non motorized  transportation such  as bicycles                                                               
impacts lives  in so  many beneficial  ways that  even relatively                                                               
small amounts of  money invested will have positive  impact.  One                                                               
thing she  especially likes about  HB 57  is that it  allows each                                                               
community to  develop their own  programs to best meet  the local                                                               
needs.  One  of the biggest needs in Homer  is education for both                                                               
cyclists and motorists  on rules of the road.   The bill could be                                                               
used  to provide  classes and  workshops.   She uses  her bicycle                                                               
year round.   She  has commuted  over 60 percent  of the  days in                                                               
2011 and  driven her car 670  miles thus far.   Her bicycling has                                                               
personally reduced  her fuel costs,  wear and tear on  the roads,                                                               
and on her vehicle.  She  encourages her children in grades 4 and                                                               
8  to ride  their  bicycles as  much as  possible.   It  provides                                                               
independent transportation,  trips to the library  and beach, and                                                               
a fun  means to get exercise.   Her children are  in the minority                                                               
since many parents  are worried about safety.   She advocates the                                                               
state to  provide funding as  government provides a  central role                                                               
in  creating  a  seamless,  safe  transportation  infrastructure,                                                               
including bicycle transportation infrastructure.                                                                                
                                                                                                                                
1:51:17 PM                                                                                                                    
                                                                                                                                
MS. LOWE provided statistics, such  as that bicycling and walking                                                               
provide 12  percent of  the trips Americans  make, but  only cost                                                               
1.5  percent  of  transportation   funding.    Bicycles  keep  us                                                               
healthy, get us  from point A to  point B, save us  from high gas                                                               
prices,  make our  air  cleaner, and  our  roads less  congested.                                                               
Bicycles are great for health,  good for communities, and provide                                                               
a  solution for  many key  societal challenges.   Cost  effective                                                               
investments   in  bicycling   will   boost   the  economy,   help                                                               
individuals and the state save  money, can help reduce challenges                                                               
such  as obesity  and road  congestion, and  benefit individuals,                                                               
communities, our state,  and ultimately the nation.   She offered                                                               
her belief that  the state should invest in  solutions that solve                                                               
multiple problems and "I think bicycling fits the bill."                                                                        
                                                                                                                                
1:52:10 PM                                                                                                                    
                                                                                                                                
MICHAEL  NEECE,  City  of  Homer  Economic  Development  Advisory                                                               
Commission,  echoed Ms.  Lowe's position  and  points.   He is  a                                                               
member  of  other groups  that  support  bicycle use  and  public                                                               
transportation.   He rides all the  time and does not  own a car.                                                               
He suggested a little more effort  on the road shoulders would be                                                               
great during  the winter.   He  hoped that  this bill  would help                                                               
elevate  and educate  people  about bicycling.    He offered  his                                                               
support for HB 57.                                                                                                              
                                                                                                                                
1:53:36 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON asked whether Homer has any bike paths.                                                                         
                                                                                                                                
MR. NEECE related that Homer has  one.  He related that he served                                                               
on  the Global  Warming Task  Force  in 2006-2007  and that  task                                                               
force worked to address bike paths.   He pointed out the one bike                                                               
path  is on  Easton  Road about  two  miles long.    He lives  on                                                               
Kachemak  Drive,  which does  not  have  a  bike  path and  is  a                                                               
treacherous route.  The community would like to develop more.                                                                   
                                                                                                                                
1:54:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN  asked whether  he uses studded  tires on                                                               
his bicycle.                                                                                                                    
                                                                                                                                
MR.  NEECE  answered no  as  studded  tires sometimes  provide  a                                                               
person a  sense of  false security.   He  related that  he either                                                               
walks or rides and pays attention to drivers.                                                                                   
                                                                                                                                
1:55:15 PM                                                                                                                    
                                                                                                                                
PETER  ROBERTS, Owner,  Downtown Bicycle  Rental, stated  that he                                                               
has listened  to the  testimony and  has heard  many assumptions.                                                               
He  stated  that  the  sponsor acknowledged  that  a  chance  for                                                               
competition exists.   He asked how much  competition and business                                                               
owners  should lose  before businesses  have lost  too much.   He                                                               
recalled a Homer  resident implying it would be better  to have a                                                               
government run  the bike  share program  because the  bike rental                                                               
service would be better.  He  seemed to imply that bikes provided                                                               
by government would almost be  unsafe bicycles.  He asked whether                                                               
the program  would anticipate insurance  and liability  issues if                                                               
someone is injured  on one of the  government sponsored bicycles.                                                               
He said many questions have arisen  and the issues do not seem to                                                               
have  been thought  through.    He recalled  a  similar bill  was                                                               
introduced two years ago and  the bill sponsor and cosponsor knew                                                               
he was opposed to  the bill yet he was not  informed of this bill                                                               
several days ago.  It seemed  to him that members should vote no,                                                               
the bill  should go back  to the  drawing board, and  the sponsor                                                               
should consult  with affected  constituents prior  to introducing                                                               
legislation like this.                                                                                                          
                                                                                                                                
MR. ROBERTS emphasized that there is  a lot wrong with this bill.                                                               
He said, "I will wave the  flag for bicycling higher than anybody                                                               
that has testified  so far.  I  rode my bike to  this hearing and                                                               
there's no  dispute about  how great  bikes are."   The  issue is                                                               
whether  the  government  should  intervene  to  change  peoples'                                                               
behavior.   The education aspect of  the bill is good  but giving                                                               
free maintenance,  bikes, and trailers  needs to be removed.   He                                                               
suggested  some  testifiers think  that  it  would be  better  if                                                               
government  provided the  trailers.   He suggested  the testifier                                                               
fill that  niche himself.   "That's the  American way.   I'll bet                                                               
you  anything that  he would  do a  better job.   There  would be                                                               
better  availability of  the trailers,  and maybe  if he's  lucky                                                               
he'd earn a profit  and pay some taxes.  And  that would help the                                                               
economy," he said.   He suggested that  private enterprise should                                                               
provide the bicycles  and trailers and increase  competition.  He                                                               
urged the committee  to vote no and  fund infrastructure instead.                                                               
He stressed  that government should  fund bike racks  and trails,                                                               
and  make  it  more  interesting  for  people  to  commute.    He                                                               
highlighted  that increasing  trail  safety  and creating  better                                                               
routes would provide incentives for bicycle commuters.                                                                          
                                                                                                                                
1:59:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE  asked Mr. Roberts what  the impediments are                                                               
to more people using bicycles.                                                                                                  
                                                                                                                                
MR.  ROBERTS  responded that  he  attended  a conference  several                                                               
years ago in  Anchorage and the experts  indicated the impediment                                                               
to bicycling is due to a  lack of infrastructure.  Commuters need                                                               
the right routes.   If people cannot  afford bicycles, government                                                               
could use  "Bucks for  Bikes" vouchers  to patronize  an existing                                                               
business.   He  stressed that  infrastructure is  the number  one                                                               
issue, and the second would be to support voucher programs.                                                                     
                                                                                                                                
2:00:54 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON announced she would leave public testimony open.                                                                
                                                                                                                                
[HB 57 was held over.]                                                                                                          
                                                                                                                                
           HB 158-KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                        
                                                                                                                              
2:01:22 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON announced that  the final order of business would                                                               
be HOUSE  BILL NO.  158, "An  Act relating  to the  authority and                                                               
obligations of the  Knik Arm Bridge and Toll  Authority, to bonds                                                               
of  the  authority,  and  to  reserve  funds  of  the  authority;                                                               
authorizing the state to provide  support for certain obligations                                                               
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."                                                                                       
                                                                                                                                
2:01:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MARK  NEUMAN,  Alaska State  Legislature,  stated                                                               
that HB  158 would provide  for a successful procurement  for the                                                               
Knik Arm Crossing  project and would generate the  best value for                                                               
the state.   This  bill would  reduce the  cost of  financing the                                                               
project and  facilities and would  expedite opening the  Knik Arm                                                               
Bridge for traffic  in 2015.  He pointed out  that information in                                                               
members'  packets  identifies  the Matanuska-Susitna  Borough  as                                                               
fastest growing area  of the state.  He  indicated the population                                                               
is  88,000  and is  increasing.    The  Knik Arm  Crossing  would                                                               
provide an  additional route to  Anchorage.   Anchorage's current                                                               
population is  300,000.  The  Knik Arm Bridge and  Toll Authority                                                               
(KABATA) project  would create economic  growth through  jobs and                                                               
would help diversify the economy.    He thanked the committee for                                                               
touring  the highway  system last  summer.  He expressed  concern                                                               
about safety, due  to the bumper-to-bumper traffic  on the Glenn-                                                               
Parks Highway.  He reported the  completion of $50 to $70 million                                                               
for the  Glenn Highway rut  rehabilitation program.  The  road is                                                               
250  percent over  carrying capacity.   One  solution is  to find                                                               
different routes  and the Knik  Arm Crossing project  would offer                                                               
an alternative  route.  He  said that three constituents  died in                                                               
traffic fatalities  on Knik/Goose Bay  Road.  This  project would                                                               
connect the  Parks Highway, Knik/Goose  Bay Road, and  the Seward                                                               
Highway, including  three highway safety corridors.   He stressed                                                               
the need to expand the highway system.                                                                                          
                                                                                                                                
2:04:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NEUMAN   referred   to   members'   packets   to                                                               
statistics, including that since  1977, 38 fatalities occurred on                                                               
Knik/Goose  Bay  Road.    He  related  that  93  major  accidents                                                               
involved  injuries.   Sixteen  fatalities  and  51 major  crashes                                                               
occurred on  the nine mile  stretch between Wasilla and  Big Lake                                                               
alone.   He  stated  it is  critical to  support  expansion.   He                                                               
highlighted  the  state's  resource expansion,  including  mines.                                                               
The Matanuska-Susitna Valley is  connected to Anchorage, with the                                                               
largest port  in Alaska.   Currently, freight is  transported via                                                               
the Eagle  River Bridge.   He expressed  concern that if  a major                                                               
earthquake  impacted  the  bridge transportation  could  cut  off                                                               
freight  transportation  north  of Anchorage,  including  to  the                                                               
Matanuska-Susitna Valley  area.   He suggested that  an alternate                                                               
route with a modern bridge,  rated to withstand an 8.0 earthquake                                                               
is  critical  to move  freight  throughout  Alaska, including  to                                                               
military bases.   He related  that about 30,000  commuters travel                                                               
to Anchorage  each day.  The  Parks and Glenn Highways  cannot be                                                               
expanded.  This  Knik Arm Bridge and Toll  Authority (KABATA) was                                                               
created  in  2003  and  has   undergone  extensive  planning  and                                                               
numerous  state  studies.   On  December  15, 2010,  the  Federal                                                               
Highway Administration  (FHWA) signed the record  of decision for                                                               
the  KABATA project  which  provides  environmental clearance  to                                                               
move this project forward.                                                                                                      
                                                                                                                                
REPRESENTATIVE  NEUMAN said  the KABATA  would not  have received                                                               
the decision  without the  project being sound.   He  pointed out                                                               
that  in 2009,  the KABATA  cost was  estimated at  $687 million.                                                               
The  Department of  Transportation &  Public Facilities  (DOT&PF)                                                               
asked for  an independent analysis,  with cost estimated  at $682                                                               
million.   This speaks to  the level of professionalism  shown by                                                               
the KABATA.   He referred to  letters of support from  the Alaska                                                               
Trucking Association,  the Alaska Support Industry  Alliance, the                                                               
Matanuska-Susitna Borough, the City  of Wasilla, the Municipality                                                               
of Anchorage, and various trade groups.                                                                                         
                                                                                                                                
2:09:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN  reported  that  60  percent  of  Alaskans                                                               
support the  project.  He  related that  the rate is  much higher                                                               
for Matanuska-Susitna commuters.  He  said it is critical to move                                                               
forward with  the public-private partnership since  project costs                                                               
for  roads  continue to  rise.    He stated  that  public-private                                                               
projects are  also on the rise.   The state will  own and operate                                                               
the Knik  Arm Bridge  but will partner  with the  private sector.                                                               
The KABATA staff  will provide details.  He  summarized that this                                                               
project is  an investment  in Alaska's future.   The  project can                                                               
benefit the economic  welfare of the state.  He  pointed out that                                                               
he has served on the KABATA board as a non-voting member.                                                                       
                                                                                                                                
2:11:47 PM                                                                                                                    
                                                                                                                                
ANDREW  NIEMIEC, Executive  Director,  Knik Arm  Bridge and  Toll                                                               
Authority  (KABATA), stated  that KABATA  is committed  to moving                                                               
forward with  the Knik  Arm Crossing  project which  will provide                                                               
sustainable jobs  and economic  opportunities for  generations of                                                               
Alaskans.   The purpose of  KABATA is to develop,  stimulate, and                                                               
advance  the  economic welfare  of  the  state, and  further  the                                                               
development  of transportation  systems  in the  vicinity of  the                                                               
upper   Cook  Inlet   by  constructing   a  bridge   between  the                                                               
Municipality  of   Anchorage  (MOA)  and   the  Matanuska-Susitna                                                               
Borough (MSB).  The environmental  impact statement confirms that                                                               
the proposed crossing is an  essential project that would improve                                                               
regional   transportation    infrastructure,   national   highway                                                               
connectivity  for   the  movement   of  people  and   goods  from                                                               
Southcentral  Alaska to  the  Interior, and  the  North Slope  of                                                               
Alaska.   It  would provide  a safe  alternate route  to Alaska's                                                               
most populated areas for disaster  relief and emergency response.                                                               
The  Knik  Arm Bridge  crossing  is  being  developed as  a  FHWA                                                               
project.  The FHWA is the  lead federal agency and has provided a                                                               
build  recommendation, a  build record  of decision.   KABATA  is                                                               
currently continuing with  environmental permitting and right-of-                                                               
way acquisition.  The first phase  of the project is estimated to                                                               
cost $716  million for construction  of a minimum 8200  foot toll                                                               
bridge,  18 miles  of approach  roads, and  an 800  foot cut  and                                                               
cover  tunnel through  Government  Hill.   The  project would  be                                                               
delivered under a public-private partnership or PPP agreement.                                                                  
                                                                                                                                
2:14:57 PM                                                                                                                    
                                                                                                                                
MR. NIEMIEC related  that the main statutory  changes outlined in                                                               
HB  158   encompass  four  areas:     increase  KABATA's  bonding                                                               
authority,  clarify property  tax  language, address  contractual                                                               
monetary obligations, and add language  to establish and manage a                                                               
reserve fund.   The  increase in bonding  authority from  $500 to                                                               
$600  million  matches the  $600  million  allocation of  private                                                               
activity  bonds  as  the  capacity provided  by  DOT&PF  for  the                                                               
purpose of  the project and to  KABATA.  It is  important to note                                                               
that any private  activity bonds issued are the  liability of the                                                               
borrower, the private partner and  not the State of Alaska (SOA).                                                               
The  property   tax  language  specifies  that   the  bridge  and                                                               
associated  connections  are  not  subject  to  property  tax  if                                                               
operated by a private developer on  behalf of the state.  That is                                                               
similar to any other state facility  that is operated by the SOA.                                                               
Alaska statutes (AS) 19.75 would  be modified to clarify that any                                                               
monetary  obligation  under  public-private partnership  for  the                                                               
purposes of constructing the facility  are obligations of the SOA                                                               
and   satisfaction   of   these  obligations   are   subject   to                                                               
appropriation.    He  reiterated  that  this  change  applies  to                                                               
monetary   liabilities   associated   with   the   public-private                                                               
partnership.   There  could be  other liabilities  of KABATA  and                                                               
those  obligations remain  separate  from the  state.   Prior  to                                                               
approval   of  a   public-private   agreement,  a   comprehensive                                                               
evaluation  process  involving  the  DOT&PF,  the  Department  of                                                               
Revenue  (DOR),  and   the  Department  of  Law   (DOL)  must  be                                                               
accomplished.  The  changes necessary to attract  lower cost debt                                                               
and equity  to finance the  project will reduce  the availability                                                               
payments that  the KABATA and  the SOA  must make to  the private                                                               
developer and will help keep tolls affordable.                                                                                  
                                                                                                                                
2:17:16 PM                                                                                                                    
                                                                                                                                
MR.  NIEMIEC related  that the  project  reserve fund  provisions                                                               
were added to  allow KABATA to properly manage  toll revenues and                                                               
are contractual obligations  of the agreement.   The reserve fund                                                               
will  apply   sources  of  revenue,   including  tolls   and  any                                                               
appropriated funds,  for specific  purposes such  as compensation                                                               
to  the  private  partner.    Surplus  funds  are  available  for                                                               
capacity    improvements    and    other    federally    eligible                                                               
transportation projects.   The  statutory language  provides that                                                               
any appropriations made will be  held separately by the DOR until                                                               
the  public-private partnership  is  in place  and  then will  be                                                               
deposited into the  reserve fund.  The KABATA  has advisors under                                                               
contract by the  DOL who have reviewed HB 158.   This project has                                                               
continued  to have  strong support.   A  January survey  shows 60                                                               
percent of Alaskans  support the Knik Arm Bridge  project and say                                                               
now is the  time to build the  bridge.  He added  that 75 percent                                                               
of  Alaskans  believe the  bridge  will  lead  to more  jobs  and                                                               
economic growth.                                                                                                                
                                                                                                                                
2:18:38 PM                                                                                                                    
                                                                                                                                
KEVIN  HEMENWAY, Chief  Financial  Officer, Knik  Arm Bridge  and                                                               
Toll Authority (KABATA),  gave a brief history of  his career and                                                               
related his background  includes a 25-year career  in the private                                                               
sector  in public  accountancy as  well as  having served  as the                                                               
chief  financial officer  of  two  publicly traded  corporations,                                                               
including  Alaska Communications  Systems.   He  related that  in                                                               
1999 he  came to Alaska  and has since completed  several billion                                                               
dollars in  transactions.  He  related that he  became interested                                                               
in this  project because it is  a toll bridge that  will generate                                                               
revenue, which  is different than  most state projects.   It will                                                               
be the  first new major highway  since the Parks Highway  and the                                                               
Dalton Highway were  built.  It has been at  least 30 years since                                                               
any  signature  transportation  project  has  been  completed  in                                                               
Alaska.    This  project  will be  a  public-private  partnership                                                               
project which transfers substantial  project risks to the private                                                               
sector and  manages the full  life cycle  of the project.   Thus,                                                               
all  of  the  costs  for maintenance  and  operations  (M&O)  are                                                               
recognized,  acknowledged,  and  built into  the  partnership  up                                                               
front.                                                                                                                          
                                                                                                                                
MR.  HEMENWAY related  that Mr.  Niemiec mentioned  a significant                                                               
milestone was reached in December  2010, when the Federal Highway                                                               
Administration (FHWA)  issued a  Record of Decision  that permits                                                               
KABATA to  move forward  with procurement  of a  private partner.                                                               
The  KABATA plans  to  have the  bridge open  by  2015-2016.   He                                                               
explained the public-private partnership  structure.  The private                                                               
sector  will design,  build, operate,  and maintain  the facility                                                               
for 35  to 40  years under strict  contractual terms  in exchange                                                               
for periodic payments, most likely  annual payments.  The private                                                               
partner will  raise debt  and equity and  borrow debt  to finance                                                               
the project, not  the SOA or KABATA.  The  periodic payments will                                                               
be used  by the private  partner to  pay for M&O,  the connecting                                                               
roads, and  to repay the  project financing.   At the end  of the                                                               
term, the facilities will be handed  back to the SOA's control in                                                               
a near new  state as required by the contract.   The SOA, through                                                               
KABATA will own the bridge facilities  at all times over the life                                                               
of the  structure, not  the private  partner.   The SOA  will set                                                               
tolls and own the toll revenue stream.                                                                                          
                                                                                                                                
2:21:20 PM                                                                                                                    
                                                                                                                                
MR.  HEMENWAY explained  that the  toll revenue  will be  used to                                                               
make the  periodic payments to  the partner and any  surplus will                                                               
be  used to  fund project  improvements and  other transportation                                                               
infrastructure around  the state.   Competition for  the project,                                                               
from the  private sector perspective,  will be providing  the SOA                                                               
the lowest annual payment offer.   The proposals from prospective                                                               
partners will be evaluated by  a committee by a rigorous criteria                                                               
evaluation, which will  be performed by the DOT&PF,  the DOR, the                                                               
DOL, KABATA, and  industry experts.  Final approval  will be made                                                               
by  the  KABATA's Board  of  Directors  (BOD), comprised  of  two                                                               
members   from  the   legislature,  one   from  each   body;  the                                                               
commissioners of the DOR, the DOT&PF, and three public members.                                                                 
                                                                                                                                
2:22:17 PM                                                                                                                    
                                                                                                                                
MR. HEMENWAY  related that financing  cost is the  most important                                                               
component  the   private  sector  will  need   to  consider  when                                                               
proposing  the  SOA's  annual  payment.   Lowering  the  cost  of                                                               
financing for the  private partner will result in  the best value                                                               
for the SOA since "they will  sharpen their pencils" and give the                                                               
SOA  lower  proposals.    This  bill, HB  158,  is  important  to                                                               
achieving that best value since  it will reduce financing for the                                                               
private  partner and  will provide  the  mechanisms required  and                                                               
expected by  the private marketplace  to establish  a contractual                                                               
structure that  is workable from  their perspective.   The KABATA                                                               
is  working  to  lower  the  cost of  capital  and  has  recently                                                               
submitted a  request to participate  in a program  established by                                                               
the U.S. Department  of Transportation as a result  of passage of                                                               
the  Transportation  Infrastructure  Finance and  Innovation  Act                                                               
(TIFIA) of  1998.  This  is a  low-cost loan program  for federal                                                               
projects.   This is  a federal  project since  the FHWA  has been                                                               
involved since the  beginning.  This program  will allow KABATA's                                                               
prospective  partners  to  borrow  that low  cost  capital.    He                                                               
reiterated that  the KABATA  has been  allocated $600  million of                                                               
private  activity  bond  capacity   by  the  U.S.  Department  of                                                               
Transportation which  allows the state's partner  to borrow money                                                               
on a tax exempt basis, which  equates to lower interest rates and                                                               
more  refined proposals.    One of  the  items in  HB  158 is  to                                                               
increase  issuance  capacity  of   the  authority  since  private                                                               
activity bonds require a public issuer  but the public is not the                                                               
borrower of that debt.  He  stressed that the private partner and                                                               
not KABATA  will be the  borrower of any project  financing under                                                               
the public-private partnership structure proposed by KABATA.                                                                    
                                                                                                                                
2:23:57 PM                                                                                                                    
                                                                                                                                
MR.  HEMENWAY stated  that the  KABATA recognized  early on  that                                                               
this project is a financing  project in terms of delivery, beyond                                                               
the infrastructure needs of the  public.  The KABATA hired Wilbur                                                               
Smith, Associates, as its consulting  engineer.  This firm is the                                                               
preeminent  traffic  and  toll  forecasters  in  the  nation  and                                                               
studies  are  investment  grade,  which means  Wall  Street  will                                                               
accept them for  bond issuance.  Their dependability  is high, he                                                               
said.  Their track record  for forecasting is exceptional.  Their                                                               
studies  have  supported  about   $88  billion  of  toll  revenue                                                               
financings,  with $22  billion  in  the last  five  years.   They                                                               
conducted  22 studies  for  startup  toll roads.    Of those,  96                                                               
percent  reached  the  base  forecast,  and  nearly  all  of  the                                                               
projects  have been  within  plus or  minus of  25  percent.   He                                                               
referred to the  proposed Knik Arm Bridge  project, and estimated                                                               
that  67 percent  or better  will meet  the obligations  over the                                                               
term  of  the  contract.    In  February  2011,  Wilbur  Smith  &                                                               
Associates updated the 2007 study  to reflect the downturn in the                                                               
economy  and  a more  conservative  population  forecast.   Those                                                               
figures  are reflected  in the  KABATA's financial  models.   The                                                               
authority is very  confident in the independent  traffic and toll                                                               
revenue  forecast   and  the  project's   ability  to   meet  its                                                               
obligations.   Over the life  cycle of  the Knik Arm  Bridge, the                                                               
KABATA will recover  the investment, as well  as generate returns                                                               
that could  result in lower  tolls or in additional  investment n                                                               
the state.                                                                                                                      
                                                                                                                                
MR.  HEMENWAY   concluded  that   HB  158  would   establish  the                                                               
mechanisms  needed  to  develop  the  public-private  partnership                                                               
contract under the  terms the marketplace expects.   Thus, HB 158                                                               
should attract the most competitive  proposals at the lowest cost                                                               
and best value  to the SOA.   This bill, HB 158,  does not commit                                                               
the  SOA to  anything  unless the  private  sector proposals  are                                                               
accepted and  finalized and acceptance  is subject to  a rigorous                                                               
procurement  process,  with  the  final decision  of  whether  to                                                               
accept  any  proposals  being  made  by the  board.    This  bill                                                               
demonstrates  that  the  state is  serious  about  the  essential                                                               
nature   of  the   project,  its   role  in   the  public-private                                                               
partnership as project owner, and  it signals "Alaska is open for                                                               
business and  confident in  our future."   Over time  the project                                                               
will generate a  surplus toll revenue stream that can  be used to                                                               
fund  other  needed  transportation  improvements  or  to  reduce                                                               
tolls.  This  project is needed to  support economic development,                                                               
provide access to  land for population and  industrial growth, to                                                               
facilitate the  movement of people  and freight, and  for safety.                                                               
This project will benefit generations  of Alaskans.  He urged the                                                               
committee to move HB 158 on to the next committee of referral.                                                                  
                                                                                                                                
2:27:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN related his  understanding that the ferry                                                               
being built to  serve Port MacKenzie and is behind  schedule.  He                                                               
stated  that  significant  funds  have been  expended  thus  far.                                                               
Historically,  ferry operations  are  used  until the  population                                                               
density reached,  such as  was done for  the Golden  Gate Bridge.                                                               
He asked for clarification.                                                                                                     
                                                                                                                                
REPRESENTATIVE  NEUMAN answered  that the  ferry in  Ketchikan is                                                               
funded by  the U.S. Navy.   This  $60 million world  class vessel                                                               
will not only provide service between Anchorage and Matanuska-                                                                  
Susitna Borough, but  it will serve whole Cook Inlet  Area.  This                                                               
project will work  well as a complement to the  proposed Knik Arm                                                               
Bridge project.                                                                                                                 
                                                                                                                                
2:29:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether  the  ferry  will  begin                                                               
operations  soon.   He  recalled a  problem  with either  hauling                                                               
people or cars, not both.                                                                                                       
                                                                                                                                
REPRESENTATIVE  NEUMAN stated  that this  ferry can  haul trucks,                                                               
people,  and  vehicles.   He  offered  that the  Municipality  of                                                               
Anchorage  supports  the project.    Currently,  docks are  being                                                               
built  at Port  MacKenzie.    He explained  that  Anchorage is  a                                                               
container port  and Port  MacKenzie is an  industrial port.   The                                                               
project will complement  the two ports.  In response  to Chair P.                                                               
Wilson, Representative  Neuman stated that the  state and federal                                                               
funding  for the  docks is  ongoing  and the  ferry will  provide                                                               
service in both directions.                                                                                                     
                                                                                                                                
2:31:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE referred  to page 2, line 17 of  HB 158.  He                                                               
expressed concern  about the risk.   He  asked how much  risk and                                                               
obligation the SOA would incur.                                                                                                 
                                                                                                                                
MR. NIEMIEC asked whether he was interested in specific figures.                                                                
                                                                                                                                
REPRESENTATIVE  FEIGE  referred  to  the  language,  which  read,                                                               
"...the monetary obligations incurred  by the authority under the                                                               
partnerships or  contracts are obligations  of the state..."   He                                                               
asked whether  the cost of building  the bridge was part  of that                                                               
obligation.                                                                                                                     
                                                                                                                                
MR. NIEMIEC  answered that  the cost  of bridge  is part  of that                                                               
amount.   He  said the  language would  basically clarify  that a                                                               
contract  for authority  to construct  the crossing  is basically                                                               
stating the  private industry would  be conducting  business with                                                               
the  state.    Under  this  agreement, the  SOA  and  KABATA  are                                                               
responsible  for  the payment  to  the  private developer.    The                                                               
private developer  would be procuring the  construction contract.                                                               
Normally  the  state would  contract  directly  with the  private                                                               
sector for constructing  a facility, and paying  a contractor for                                                               
that   construction.     Typically,  the   owner  takes   on  the                                                               
construction risk.   In this case, the private  developer has the                                                               
design  build contract  which is  not  the SOA's  contract.   The                                                               
SOA's responsibility  is to  make the payment.   When  the KABATA                                                               
receives proposals from the developers  and the SOA accepts them,                                                               
it represents the SOA's exposure.                                                                                               
                                                                                                                                
2:34:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE  asked  for clarification  on  whether  the                                                               
private entity  would have the  bonding authority to  raise funds                                                               
for the actual construction of the bridge.                                                                                      
                                                                                                                                
MR.  HEMENWAY explained  the financing  structure:   the  private                                                               
sector  is responsible  to design,  build, finance,  operate, and                                                               
maintain the  facility.  The  contracts for design build  will be                                                               
between the private  entity and their contractors.   The contract                                                               
with  lenders,   whether  through   TIFIA  or   private  activity                                                               
bondholders, or a bank credit  facility, will be between them and                                                               
their lenders on a nonrecourse basis  to the state.  He said that                                                               
whether the private partner directly  performs the operations and                                                               
maintenance or  subcontracts it out,  the responsibility  will be                                                               
theirs.  The  private entity's responsibility to the  state is to                                                               
build the  infrastructure on the  state's behalf and  maintain it                                                               
to a  quality standard  over the agreement.   The  private entity                                                               
will return the facility at the  end of the agreement in exchange                                                               
for the  annual payment.  He  said, "So the state's  risk will be                                                               
knowing when those proposals are  received, he said.  The state's                                                               
primary source for  meeting those obligations in the  form of the                                                               
annual  payment is  the  toll  revenue.   Just  to  be clear,  he                                                               
reinforced that  all of  the focus  from a  financial perspective                                                               
for this project  should surround the proposals  that KABATA will                                                               
receive and whether the toll revenue be sufficient.                                                                             
                                                                                                                                
2:36:41 PM                                                                                                                    
                                                                                                                                
MR. HEMENWAY explained that this has  been modeled on a pro forma                                                               
basis, which  means "as if we  were standing in the  shoes of the                                                               
developer  with   very  good   information  on   cost  estimates,                                                               
operations  and maintenance  cost,  toll collections,  etc."   He                                                               
stated  that  those  items  will actually  be  contracts  of  the                                                               
private partner.  The state would  enter into a contract once the                                                               
evaluation  process is  completed.   The  state  would commit  to                                                               
making the  annual availability payments.   He added that  if the                                                               
private partner under  performs there would be  reductions to the                                                               
payment  up to  the point  of potentially  losing the  agreement.                                                               
The KABATA  and the state  would not have any  obligation related                                                               
to the  debt or to  the private partner's  design-build contract,                                                               
which are  the primary  cost elements in  the entire  project, he                                                               
said.                                                                                                                           
                                                                                                                                
2:37:29 PM                                                                                                                    
                                                                                                                                
CHAIR  P. WILSON  related her  understanding  that the  authority                                                               
may,  under Section  1, AS  19.75.111 (a)(5):   make  and execute                                                               
agreements, contracts, and all other  instruments with any public                                                               
or  private person...  for the  purpose  of... subparagraph  (B),                                                               
which read:                                                                                                                     
                                                                                                                                
     "entering into  public-private partnerships  or service                                                                    
     contracts  in   any  form;  the   monetary  obligations                                                                
     incurred  by the  authority under  the partnerships  or                                                                
     contracts   are   obligations   of   the   state,   and                                                                
     satisfaction  of  those  obligations from  funds  other                                                                
     than authority funds is subject to appropriation;                                                                      
                                                                                                                                
CHAIR P.  WILSON asked for  clarification as  it did not  seem to                                                               
match up with the explanation just given.                                                                                       
                                                                                                                                
MR. HEMENWAY answered that the  primary contractual obligation of                                                               
the state will be to make  the annual payment.  He explained that                                                               
as  with other  contracts, some  components will  add clauses  to                                                               
address such items as early  termination.  In those instances the                                                               
contract would  add a  provision to  ensure compensation  to make                                                               
the parties whole  if the early termination  occurred.  Presuming                                                               
KABATA  moves  forward with  the  contract,  the state's  primary                                                               
obligation will  be to  make the  annual availability  payment or                                                               
the  annual lease  payment, whichever  term  is preferred,  under                                                               
that agreement.   He offered his belief  that sometimes contracts                                                               
attempt to  think of everything  that may  happen.  "The  fact is                                                               
that is the  real state obligation under the  contract", he said.                                                               
The state  will not know  what the  offer is until  proposals are                                                               
received.  The models that have  been run are pro forma so KABATA                                                               
will have a very good idea  of what the proposals will look like,                                                               
he said.                                                                                                                        
                                                                                                                                
2:39:33 PM                                                                                                                    
                                                                                                                                
CHAIR  P.   WILSON  reiterated  that  the   monetary  obligations                                                               
incurred by the authority under  the partnership or contracts are                                                               
the  obligations of  the state.   She  related her  understanding                                                               
that says  that the  obligations of the  partnership will  now be                                                               
obligations of the state.  She asked if that is true.                                                                           
                                                                                                                                
MR. HEMENWAY  answered yes, since the  state is the owner  of the                                                               
bridge and the private sector will  expect to know the state will                                                               
meet its obligations.                                                                                                           
                                                                                                                                
CHAIR P.  WILSON restated her  understanding that under  the bill                                                               
KABATA as the  authority will make agreements  with partners, but                                                               
once KABATA  makes an  agreement with the  state, the  state will                                                               
ultimately be responsible.                                                                                                      
                                                                                                                                
MR.   NIEMIEC   responded  that   KABATA   is   a  state   public                                                               
organization.    People  understand  that  when  they  are  doing                                                               
business with  KABATA they are  doing business with the  State of                                                               
Alaska (SOA).   He related that KABATA was advised  that it would                                                               
be  better to  have it  more clearly  defined in  the bill.   The                                                               
state and KABATA  are one and the same.   This language clarifies                                                               
that  the SOA  is  entering into  the  agreement.   It  is a  SOA                                                               
facility and a SOA contract, he said.                                                                                           
                                                                                                                                
CHAIR  P.   WILSON  recapped  that  essentially   since  the  SOA                                                               
designated  KABATA as  the authority  to "figure  all this  out."                                                               
She  related   her  understanding  that  when   KABATA  has  been                                                               
discussing a  public-private partnership,  the public is  the SOA                                                               
and private is anyone else.                                                                                                     
                                                                                                                                
REPRESENTATIVE  NEUMAN said  that is  correct.   He related  that                                                               
KABATA  is   a  state  entity,   just  as  the   Alaska  Railroad                                                               
Corporation is  a state  entity.   He stated  that KABATA  is the                                                               
state.   However, in terms  of cost overruns in  a public-private                                                               
partnership, the  private entity will  contract out any cost   He                                                               
said, "But when  we look at cost overruns, because  this is going                                                               
to be a  public-private partnership, the private  partner will do                                                               
the contracting  out."   If there's  cost overruns  "that's their                                                               
problem.  It's not the state's  problem."  He explained that when                                                               
the proposal  comes to  the state  for approval,  KABATA, DOT&PF,                                                               
the  attorney general's  office  must approve  the  plan and  any                                                               
financing.    Once  that  is   completed,  that  is  the  state's                                                               
position.   As to  cost overruns, that  is the  private partner's                                                               
problem since  they will execute  the contract  for construction,                                                               
he further stated.  He affirmed that the state is KABATA.                                                                       
                                                                                                                                
2:43:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked who  wanted the clarification in the                                                               
bill and whether it was  the financiers, KABATA's board, the SOA,                                                               
or the Attorney General.                                                                                                        
                                                                                                                                
MR.  NIEMIEC  answered  that KABATA's  advisors  are  asking  for                                                               
clarification.    He stated  that  KABATA  has  not put  forth  a                                                               
request for  proposal (RFP)  so it is  not coming  from industry.                                                               
He  said he  also does  not have  an official  attorney general's                                                               
opinion on  this issue.   He elaborated that KABATA  has advisors                                                               
under contract with  the Department of Law.  The  KABATA wants to                                                               
ensure that the contractual agreement  does not have any weakness                                                               
that  may affect  the state.    Our advisors  suggested areas  of                                                               
clarification, including to the property tax provisions.                                                                        
                                                                                                                                
REPRESENTATIVE    JOHNSON    understood   the    necessity    for                                                               
clarification of the property tax provisions.                                                                                   
                                                                                                                                
2:45:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked for the annual payment.                                                                            
                                                                                                                                
MR. HEMENWAY  answered that  the annual  payments that  are being                                                               
modeled, which are pro forma,  would be approximately $32 million                                                               
at opening.   The availability payments  are typically structured                                                               
so  the payment  increases  over time  as  traffic increases  and                                                               
additional  maintenance is  needed.   The KABATA  has modeled  an                                                               
increase  of  four percent  for  the  first  15-20 years  and  as                                                               
traffic levels out  the increase is about the  rate of inflation.                                                               
At  the   end  of   agreement,  the   final  payments   would  be                                                               
approximately $140  million, which could be  significantly lower.                                                               
He pointed out  that the revenue forecast for the  same period is                                                               
$285 million.  This represents a ratio of two.                                                                                  
                                                                                                                                
2:46:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked for the toll assumption.                                                                           
                                                                                                                                
MR. HEMENWAY  answered that the toll  for the Knik Arm  Bridge at                                                               
opening  would range  from $5  for a  passenger vehicle,  with an                                                               
average of $18  for commercial vehicles, depending  on the number                                                               
of axles.   He  stated that  this is  based on  constant dollars,                                                               
which means in nominal dollars it  will grow at about the rate of                                                               
inflation  with an  annual  increase of  2 to  2.5  percent.   He                                                               
advised this is slightly lower  than the Anchorage consumer price                                                               
index over the past few years.                                                                                                  
                                                                                                                                
2:47:28 PM                                                                                                                    
                                                                                                                                
CHAIR  P. WILSON  commented that  most people's  income does  not                                                               
increase.   She  asked whether  the toll  charges are  reasonable                                                               
since  the  tolls  would  range  from $10  to  $13  per  day  for                                                               
passenger vehicles, especially given the gas price increases.                                                                   
                                                                                                                                
MR.  HEMENWAY   responded  that   KABATA  used  Wilbur   Smith  &                                                               
Associates to model  the traffic and revenue  forecast for tolls.                                                               
The  rationale they  use is  based on  their traffic  and revenue                                                               
models.  He  pointed out that the average new  single family home                                                               
in  the Matanuska-Susitna  costs $189,000  less than  the average                                                               
new single  family home  in Anchorage since  Anchorage is  out of                                                               
land.  The  average single family home, including  resale, in the                                                               
Matanuska-Susitna  is  $140,000  less  than  the  average  single                                                               
family home in Anchorage.   Today the population growth is moving                                                               
to  the Palmer  and Wasilla  area.   He concluded  that with  the                                                               
bridge people  could live 10  miles from downtown Anchorage.   He                                                               
stated that even  if gas raises to  $5 to $7 per  gallon will the                                                               
fewer  miles  roundtrip the  better  off  the consumer  will  be.                                                               
Traffic will  be fairly  low in the  opening years,  predicted at                                                               
3,000  roundtrips   per  day  or   6,000  crossings.     However,                                                               
population predictions increase over time  and with the bridge in                                                               
place, considering the wages in  Anchorage are 36 percent higher,                                                               
the most  economic scenario  in Southcentral  Alaska today  is to                                                               
live in Matanuska-Susitna  valley and work in  Anchorage.  Today,                                                               
that translates into a 60 mile  roundtrip, but with the bridge in                                                               
place  the trip  is reduced  to 10  miles.   Using a  2.5 percent                                                               
inflation rate  the $5  toll today increase  to $5.10  next year,                                                               
and $5.22  the following year.   He  offered his belief  that the                                                               
Knik  Arm Bridge  and  toll would  equate to  a  great value  for                                                               
consumers.                                                                                                                      
                                                                                                                                
2:51:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN asked whether anyone  has done a study to                                                               
determine  how the  Knik  Arm Bridge  project  would affect  home                                                               
prices in  Anchorage.  He  expressed concern that if  home prices                                                               
were  adversely  affected  it  could  affect  property  taxes  in                                                               
Anchorage.                                                                                                                      
                                                                                                                                
MR. HEMENWAY  offered his belief that  the socio-economic studies                                                               
done for the  Knik Arm Bridge indicate that the  tax increment is                                                               
at a  break-even point in  Anchorage with or without  the bridge.                                                               
He  recalled the  projection  was based  on 20  years.   The  tax                                                               
increase  in  the  Matanuska-Susitna   increases  by  about  $1.2                                                               
billion to pay  for infrastructure needs to  support that growing                                                               
population.   He said he  is not a realtor  and the scope  of the                                                               
authority is  more limited.   He related  his sources do  not see                                                               
any impact on  Anchorage home values but homes  in the Matanuska-                                                               
Susitna area closer to Anchorage  would have higher values due to                                                               
their close proximity to Anchorage.                                                                                             
                                                                                                                                
2:52:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  stated  that  very few  people  in  the                                                               
Matanuska-Susitna  valley would  live  10  minutes from  downtown                                                               
Anchorage if  the Knik  Arm Bridge  was currently  in place.   He                                                               
asked how  long it  would take  to build  up a  bedroom community                                                               
that would be  within the 10 minute drive to  Anchorage.  He also                                                               
thought it would take time  develop schools, hospitals, and other                                                               
infrastructure.   He  offered his  belief that  it would  be very                                                               
taxing for the Matanuska-Susitna Borough residents.                                                                             
                                                                                                                                
REPRESENTATIVE NEUMAN  offered his  belief that the  property tax                                                               
valuation would  be neutral, but  the value  of Matanuska-Susitna                                                               
valley homes  would increase since  they are close  to Anchorage.                                                               
He stated that  his home in Big  Lake would be about  25 miles to                                                               
Anchorage if  the proposed Knik  Arm Bridge was in  place whereas                                                               
it  currently is  60 miles  to Anchorage.   He  stated that  is a                                                               
considerable amount.  He asked  what options are available to the                                                               
30,000  people  who  commuters  who drive  the  Glenn  and  Parks                                                               
Highways, which are 250 percent above capacity.                                                                                 
                                                                                                                                
CHAIR P.  WILSON equated the  Knik Arm Bridge project  as similar                                                               
to ferry system.   It costs a lot to build  a ferry, ridership is                                                               
hoped for,  but the  project is  never going  to pay  for itself.                                                               
She  said the  toll makes  the project  feasible.   She initially                                                               
thought of  a public-private partnership  as between  the private                                                               
sector  and the  public,  not  the state,  but  she realizes  the                                                               
"public" is the state.                                                                                                          
                                                                                                                                
2:56:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  who  owns  the  land  across  the                                                               
proposed Knik Arm Bridge and  the percentage of private and state                                                               
ownership.                                                                                                                      
                                                                                                                                
MR. HEMENWAY stated  that the traffic and  revenue areas impacted                                                               
by  the  Knik  Arm  Bridge include  approximately  3,000  private                                                               
landowners.   The  SOA, native  corporations are  also landowners                                                               
and the Matanuska-Susitna Borough owns significant land.                                                                        
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  for clarification  that no  single                                                               
landowner would benefit.                                                                                                        
                                                                                                                                
MR.  HEMENWAY  answered  that  the  largest  landowners  are  the                                                               
Matanuska-Susitna  Borough, the  University of  Alaska, the  SOA,                                                               
and Cook Inlet Region, Inc.  (CIRI).  Some private landowners own                                                               
between several hundred acres to partial acreage.                                                                               
                                                                                                                                
REPRESENTATIVE NEUMAN  explained the largest owners  are farmers,                                                               
but  farmers  cannot  subdivide   the  agricultural  land.    The                                                               
proposed  Knik  Arm Bridge  will  deposit  revenues back  to  the                                                               
general fund.                                                                                                                   
                                                                                                                                
2:58:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ related her  understanding that $500 to $600                                                               
million  in  state  bonding authority  would  roughly  match  the                                                               
private bonding authority.                                                                                                      
                                                                                                                                
MR. HEMENWAY  responded that the  bonding authority  requested in                                                               
HB 158  is to  permit the  private partner  to fully  utilize the                                                               
$600 million  from the FHWA  to this  project.  He  explained the                                                               
last  federal highway  authorization had  a $15  billion national                                                               
cap and  Alaska received $600  million of that for  this project.                                                               
Private activity  bonds under the Internal  Revenue Service (IRS)                                                               
tax code require the bonds be  issued by a public entity, but the                                                               
public  entity is  not the  borrower, the  private entity  is the                                                               
borrower.  The  KABATA wants to increase the  bonding capacity so                                                               
the private  partner can  fully utilize the  $600 million  in tax                                                               
exempt  financing if  the private  partner determines  it is  the                                                               
optimal  financial  plan  in proposing  the  annual  availability                                                               
payment.  Financing is the single  biggest part and is probably a                                                               
more  expensive piece  over  the  life of  the  project than  the                                                               
construction costs.  He said:                                                                                                   
                                                                                                                                
     What we're  trying to  do is get  us or  another public                                                                    
     issuer  in the  state to  be able  to do  on a  conduit                                                                    
     issuance  basis, to  issue that  debt  for the  private                                                                    
     partner  as   the  borrower.     The  35   years  after                                                                    
     substantial  completion  that  we've  talked  about  is                                                                    
     because that  matches the  type of  long-term financing                                                                    
     that the  private partner needs  to build this  kind of                                                                    
     infrastructure and  operate and maintain it  to make it                                                                    
     an attractive contract for them.   But from the state's                                                                    
     perspective, we are not the borrower of that debt.                                                                         
                                                                                                                                
REPRESENTATIVE MUNOZ asked him to identify the private partner.                                                                 
                                                                                                                                
MR. HEMENWAY answered  that the private partner  will be selected                                                               
through a  procurement process.   Current, the KABATA  has "short                                                               
listed"  two  entities.   Typically,  the  private partner  would                                                               
establish  a  limited  liability  corporation  (LLC)  or  limited                                                               
liability partnership (LLP).  The  private partner would bring in                                                               
the equity  money and  borrow the funds  from the  lenders, which                                                               
could  be bonds,  TIFIA, or  bank  credit.   The private  partner                                                               
would hire the  design builder, who would be  involved during the                                                               
construction  period  and  any  warranty  period.    The  private                                                               
partner  would  either  operate  and  maintain  the  facility  or                                                               
contract it over  term of the agreement.   The state's obligation                                                               
under the  contract would  be to  make an  annual payment  to the                                                               
private partner  since it  will build and  maintain the  Knik Arm                                                               
Bridge.  He said:                                                                                                               
                                                                                                                                
     We're not  the borrowers  of the debt.   We're  not the                                                                    
     parties in the design-build  contract or anything else.                                                                    
     What  we really  are doing  is simply  establishing the                                                                    
     contract standards  they need  to operate  and maintain                                                                    
     at  through  the   public-private  agreement  and  what                                                                    
     happens behind  that is  left to them  as long  as they                                                                    
     meet our performance standards.                                                                                            
                                                                                                                                
3:02:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  asked him to  address the profits  once the                                                               
tolls bring in significantly more than the bond payments.                                                                       
                                                                                                                                
MR. HEMENWAY answered that the  excess toll would first replenish                                                               
any reserve  fund established by HB  158.  Secondly, it  would be                                                               
used on  improvements needed for  traffic growth, and  finally it                                                               
would go  to other  eligible projects  in the state.   This  is a                                                               
FHWA highway project,  which is subject to a  Section 129 tolling                                                               
agreement.   This  would require  that any  excess toll  revenues                                                               
after  paying   project  financing  be  reinvested   in  eligible                                                               
transportation  projects as  defined under  the federal  statute,                                                               
including roads, bridges, bike paths, or ferries.                                                                               
                                                                                                                                
3:03:30 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON  asked whether the state would  ever be obligated                                                               
to repay the bonds.                                                                                                             
                                                                                                                                
MR. HEMENWAY  agreed they would  not.   He explained that  if the                                                               
private  partner   underwent  a  Chapter  11   bankruptcy,  their                                                               
creditor would work out the  Chapter 11 terms without recourse to                                                               
the state.                                                                                                                      
                                                                                                                                
3:04:09 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON suggested that the  monetary obligation incurred                                                               
by the  state under the  public-private partnership  or contract,                                                               
are obligations  of the state.   She surmised the state  would be                                                               
obligated to pay if the private partner did not.                                                                                
                                                                                                                                
MR. HEMENWAY answered  no.  The state would only  be obligated to                                                               
pay the  annual payment  to the  private partner  so long  as the                                                               
private partner operates to the  performance standards agreed to,                                                               
and what  happens between lenders  and the private  partner would                                                               
not be state  business.  In further response to  Chair P. Wilson,                                                               
he reiterated that  the state would only pay  the private partner                                                               
if they meet  the performance requirements between  the state and                                                               
the private partner.   If the availability payment  is not enough                                                               
to repay  the bonds, that  is a different  issue, but as  long as                                                               
the private partner  meets the requirements for  the facility and                                                               
maintenance, the  private partner  will earn the  annual payment.                                                               
There is a clear contractual distinction.                                                                                       
                                                                                                                                
3:05:52 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 3:05 p.m. to 3:10 p.m.                                                                       
                                                                                                                                
3:10:13 PM                                                                                                                    
                                                                                                                                
JAMIE KENWORTHY,  Financial Analyst,  related that  he previously                                                               
operated a state agency and is  a financial analyst.  In response                                                               
to  what is  the state's  liability, he  stated that  in the  pro                                                               
forma  statement   before  the  committee,  based   on  a  recent                                                               
estimate, the obligation is $3.2  billion.  The KABATA would sign                                                               
a  contract with  the  winning private  partner  for the  current                                                               
estimate.   These  bills  would guarantee  that  contract.   That                                                               
language is  contained in  HB 158  and HB 159.   The  bill states                                                               
that the obligations of KABATA  are the obligations of the state.                                                               
In response  to Representative Johnson, who  previously asked who                                                               
wanted the clarification on the  monetary obligations incurred by                                                               
the authority, he answered:                                                                                                     
                                                                                                                                
     Who  wants  this  clarification?  I  have  a  different                                                                    
     answer.   The people  who are  bidding on  this project                                                                    
     want   this   qualification  because   under   KABATA's                                                                    
     original statute,  they could not issue  debt that were                                                                    
     obligations of the state.   They were like AIDEA.  They                                                                    
     could  issue bonds  and would  have moral  authority to                                                                    
     the   state,  but   they   were   basically  only   the                                                                    
     responsibility  of  the agency.    They  were not  like                                                                    
     general obligation  bonds:   direct obligations  of the                                                                    
     state.  That's why I  came to Juneau to testify because                                                                    
     the estimates  of the total  revenue shortfall  on this                                                                    
     are huge.   They have used population  numbers that are                                                                    
     50  percent higher  than the  Institute  of Social  and                                                                    
     Economic  Research (ISER)  and 64  percent higher  than                                                                    
     the state's demographer. So once  they sign a contract,                                                                    
     those become your obligations  because you have changed                                                                    
     the rules of the game.   The game was, and this was the                                                                    
     Dittman  poll  of  three years  ago,  'If  the  private                                                                    
     sector  pays  for  70-90  percent  of  this  deal,  the                                                                    
     private  sector  takes  the   risk.    That's  why  the                                                                    
     Anchorage  Assembly   approved  this,  based   upon  no                                                                    
     further  state  funds.   [Anchorage  Metropolitan  Area                                                                    
     Transportation](AMATS)  had the  same  decision.   This                                                                    
     changes everything.   And you  don't know the  costs of                                                                    
     that  change.   You have  KABATA's current  estimate on                                                                    
     this.                                                                                                                      
                                                                                                                                
3:12:50 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY related a scenario  in which a bankruptcy occurred.                                                               
It happened last  year in San Diego.   One of the  two bidders on                                                               
the project created a subsidiary in  San Diego.  The toll revenue                                                               
was too low to pay the bonds so  they defaulted on the loan.  The                                                               
subsidiary,  which  was an  LLC,  had  no  recourse to  the  huge                                                               
financial  institution in  Australia,  the Macquarie  Group.   He                                                               
related  a scenario  in  which  he bought  bonds  of the  private                                                               
partner,  Macquarie Knik  Bridge and  they stop  making payments,                                                               
perhaps  because they  get into  a dispute  with KABATA,  perhaps                                                               
because  the  state  refused  to  give  $100  million,  which  he                                                               
referred to  as a number  he pulled out  of a  hat.  He  sues the                                                               
private  partner.   The first  thing my  attorney will  do is  go                                                               
after the  "deep pockets" the SOA.   My attorney will  try to get                                                               
the state involved  in its bankruptcy case and  they'll have good                                                               
cause.   The  first "Exhibit  A" of  that would  be these  bills,                                                               
because the obligations of KABATA,  the availability structure of                                                               
$3.2 billion over  35 years in the  pro forma.  He  said, "I came                                                               
here to walk you through those pro formas."                                                                                     
3:14:31 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY pointed  out that last year,  when KABATA submitted                                                               
a  similar  application  on  March 1,  2010  they  estimated  the                                                               
availability payment,  not to be  $3.2 billion but  $6.3 billion.                                                               
Since  then KABATA  has picked  up a  $150 million  appropriation                                                               
from the  general fund, which  lowers the figure.   Secondly, the                                                               
KABATA  has  lowered the  return  from  14  to  12 percent.    He                                                               
expressed  concern  that  last  year  KABATA's  estimate  of  the                                                               
contract  it  would sign  with  the  private  partner is  now  $3                                                               
billion more  than this year's  estimate.  This is  nearly double                                                               
the cost  projection of the  availability payment.   It is  not a                                                               
trivial  matter  that  someone the  state  contracts  with  could                                                               
default on a  loan, even if the state came  out of the bankruptcy                                                               
process still  owning the  bridge asset.   The bridge  is another                                                               
asset the  court could  consider.   He expressed  further concern                                                               
that if a  state agency defaults on an obligation,  whether it is                                                               
called a bond or a contract  for $3.2 billion, the credit markets                                                               
will take notice.  The first  thing Moody's and Standard & Poor's                                                               
(S&P)  will  do  is  place  the SOA  under  review  for  possible                                                               
downgrade.     When  the  Alaska  Housing   Finance  (AHFC),  the                                                               
Municipal Bond  Bank, or Alaska  Industrial Development  & Export                                                               
Authority  (AIDEA)   wants  to  upgrade   a  dock  or   a  mining                                                               
opportunity materializes,  similar to  the Red Dog  Mine project,                                                               
and the state wants to finance  the project at a reasonable cost,                                                               
all of a  sudden the state could face higher  interest rates.  If                                                               
one state agency  defaults on its obligations,  another could, he                                                               
said.                                                                                                                           
                                                                                                                                
3:16:52 PM                                                                                                                    
                                                                                                                                
MR.  KENWORTHY suggested  that the  bonds  are technically  moral                                                               
obligations of the state and  not direct obligations.  When AIDEA                                                               
or AHFC  issues bonds  that is  what the bonds  say on  the cover                                                               
sheet.     However,  investors  understand   there  is   a  moral                                                               
obligation  if not  a  legal obligation  attached.   If  agencies                                                               
default on contracts or bond issues  of this size it will have an                                                               
impact  on  the  credit  ratings  for all  state  agencies.    He                                                               
recalled  the state  has a  triple  AAA credit  rating, which  he                                                               
would like the state  to keep.  He said, "You  have to care about                                                               
the number in the pro forma sheet."                                                                                             
                                                                                                                                
3:17:40 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY said  he has some red flags for  the committee.  He                                                               
referred to  page 1  of the document  in members  packets titled,                                                               
"Knik Arm  Bridge and Toll Authority,  Federalization of Sections                                                               
2-5,  with  TIFIA  Optimization,  Private  Model  -  Availability                                                               
Payment Structure  - Current  Market."  He  referred to  the $150                                                               
million under Sources  listed as State Grant.  He  stated that is                                                               
not  a  reserve  fund  in  any  standard  meaning  for  financial                                                               
analysts.  Instead,  the KABATA is directly  committing that $150                                                               
million to the project "from day one."                                                                                          
                                                                                                                                
3:18:48 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY  brought up a second  concern.  He referred  to the                                                               
pro  forma  financial  plan, to  the  heading  Capital  Accretion                                                               
Bonds,  under  the  same  section,  for  $40,792,688.    He  then                                                               
referred  members to  page 5  of the  pro forma  document to  the                                                               
Annual  Debt  Service.    He  offered  his  belief  that  Capital                                                               
Accretion Bonds are  a fancy way of saying, :We  can't afford the                                                               
interest  in the  early  years;  we're going  to  add  it to  the                                                               
principal."   Thus,  the state  would pay  interest on  interest.                                                               
The question  should be, "How good  is this deal?   When can they                                                               
pay off those Capital Accretion Bonds?"   He pointed out that the                                                               
answer to this question is found  on the second column of page 5,                                                               
of  the pro  forma  document under  the  heading, Tax-Exempt  CAB                                                               
Annual DS.  He  said that the state will pay  $248 million to pay                                                               
off $41  million of  principal.   Thus, the  state will  pay over                                                               
$200 million  in interest.   In response  to Chair P.  Wilson, he                                                               
agreed that  it would fall  in the latter  stages.  He  related a                                                               
scenario in  which in  which a  person takes  out a  mortgage for                                                               
$300,000,  the   bank  provides  as  statement   that  shows  the                                                               
homeowner will  repay $450 thousand.   The bank does not  say you                                                               
will  repay $1.2  million, which  is  a factor  of 4.   He  said,                                                               
"That's what  this deal shows."  He recapped the state  would pay                                                               
basically six times the amount.   This is his second red flag, he                                                               
said.                                                                                                                           
                                                                                                                                
3:21:18 PM                                                                                                                    
                                                                                                                                
MR.  KENWORTHY stated  that  in financial  markets  it is  called                                                               
negative amortization or negative equity.   He asserted that this                                                               
has an  eerie similarity  as to what  caused the  housing crisis.                                                               
He stated there are low  down payments, negative amortization, or                                                               
in other  words "you owe  significantly more  in year two.   Most                                                               
mortgages you  owe less."  With  KABATA, the toll revenue  is not                                                               
yet available to  make the availability payments.   Ten days ago,                                                               
the KABATA  projected it would  earn $16 million in  toll revenue                                                               
in 2016, but must make a $38 million availability payment.                                                                      
                                                                                                                                
3:22:17 PM                                                                                                                    
                                                                                                                                
MR.  KENWORTHY referred  to page  6, of  the pro  forma financial                                                               
plan to  the amount of  the availability payments, which  is $3.2                                                               
billion.   He directed his  comment to Representative  Feige, who                                                               
earlier asked  for the  amount of  availability payments,  and he                                                               
answered that  based on KABATA's  current estimates.   The KABATA                                                               
would  sign a  contract committing  itself to  the $3.2  billion.                                                               
The private partner would take  the contract to the rating agency                                                               
that, "Hey,  I've made  a deal  with the State  of Alaska."   The                                                               
availability payment  is subject  to annual appropriation  by the                                                               
legislature, and  that would give  the private partner  an asset,                                                               
which is the state's commitment.                                                                                                
                                                                                                                                
3:23:41 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY  predicted that there  would be too  little revenue                                                               
in the  early years to make  the toll payments, which  is why the                                                               
numbers are so bad.  He  said, "Another warning sign, you see, is                                                               
what's  called  balloon payments."  With  a  mortgage, the  fixed                                                               
amount is  paid, and each  year less  and less interest  is paid.                                                               
Most   of  the   successful  private   partnerships  with   state                                                               
governments are ones that are based  on fixed amounts.  These are                                                               
balloon  amounts.   He added  that the  KABATA did  not obtain  a                                                               
TIFIA loan  last year.  He  predicted they would not  get it this                                                               
year because other deals are  better, such as existing congestion                                                               
and demonstrated  population increases.   He referred to  page 3,                                                               
to the cost of the Knik Arm  Bridge project.  He said, "My simple                                                               
message to you is:   believe those cost numbers, the availability                                                               
payment,  the   maintenance  and  operation  cost,   the  tolling                                                               
operations,  the  sinking fund  for  capital  expenditures."   He                                                               
stressed  that members  should not  believe the  revenue numbers.                                                               
The  reason  for  this  is  that  in  2007,  ISER  predicted  the                                                               
Matanuska-Susitna Valley  population would  be 204,000,  in 2030.                                                               
Instead of using that figure the  KABATA went to Texas and bought                                                               
research.                                                                                                                       
                                                                                                                                
3:25:09 PM                                                                                                                    
                                                                                                                                
MR.  KENWORTHY said,  "I'm  here  to tell  you  they shopped  the                                                               
numbers so the  financials would look better."  The  test of that                                                               
is  that  ISER's  current  population figure  for  2030  for  the                                                               
Matanuska-Susitna valley is 169,000.   He stated in December, the                                                               
state demographer came  out with a new  population projection for                                                               
the Matanuska-Susitna valley of 156,000  in 2034.  He pointed out                                                               
that  KABATA's number  is 64  percent  higher.    Currently,  the                                                               
Department of  Transportation & Public Facilities  (DOT&PF) has a                                                               
traffic model for  trips are estimated for the  Glenn Highway and                                                               
the  proposed Knik  Arm  Bridge  project for  2030.   The  DOT&PF                                                               
refuses to  release the figures.   He's been told  the department                                                               
does not have them, they are  too variable, or too low, and we've                                                               
been referred to KABATA.   This week a public information request                                                               
was filed to obtain the figures.                                                                                                
                                                                                                                                
3:26:37 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY  related that the  figures would be helpful  to the                                                               
legislature.    The  legislature  will  guarantee  the  contract.                                                               
Currently, the  census figures list the  Matanuska-Susitna valley                                                               
population  at  91,000.   He  suggested  that if  the  population                                                               
increases  to  150,000 in  20  years,  the toll  revenue  numbers                                                               
"really slide off."   The KABATA is counting on  tolls to pay off                                                               
the availability  payment but if  the population  predictions are                                                               
skewed, the toll  revenue is also skewed by 50  percent.  He said                                                               
when  the  figure in  question  is  $3.2  billion the  amount  is                                                               
significant and constitutes "real money."                                                                                       
                                                                                                                                
3:27:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE  shared  some  of  his  concerns  over  the                                                               
population projections.  He asked  for a brief description of Mr.                                                               
Kenworthy's background.                                                                                                         
                                                                                                                                
3:27:44 PM                                                                                                                    
                                                                                                                                
MR. KENWORTHY  stated that he  was the executive director  of the                                                               
Science and  Technology Foundation  for seven  and a  half years.                                                               
He  mainly worked  on early  stage risk  capital businesses  that                                                               
were  technology-based  businesses.   He  did  a similar  job  in                                                               
Michigan, he said.   He stated that he does  not have a financial                                                               
credential but has  been rating business plans for 20  years.  He                                                               
said he saw  the housing bust coming.  The  symptoms were balloon                                                               
payments,  overestimated and  undocumented  income, and  negative                                                               
amortization.  He also said:                                                                                                    
                                                                                                                                
     I'm a  citizen who's looked  at this deal,  who's taken                                                                    
     it around  to three  bond geek  friends who  also don't                                                                    
     think  this  makes  sense,  but   they  still  do  some                                                                    
     business with  the SOA.   You need  someone who  has no                                                                    
     financial  interest  in  this  at   all.    I  have  no                                                                    
     financial...I'm  a   volunteer.     I  live   in  South                                                                    
     Anchorage.   It's  going to  compromise the  Government                                                                    
     Hill neighborhood that I work  with but I live in South                                                                    
     Anchorage.  It won't affect  my neighborhood.  I am not                                                                    
     getting any  money from  this deal.   I think  I'm just                                                                    
     trying  to  prevent the  state  from  making a  billion                                                                    
     dollar mistake.                                                                                                            
                                                                                                                                
3:29:30 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON asked about the population predictions.                                                                         
                                                                                                                                
MR. KENWORTHY  stated that  the Department  of Labor  & Workforce                                                               
Development's  newsletter,  prepared  by  the  state  demographer                                                               
shows  the  current  population  projection  for  the  Matanuska-                                                               
Susitna valley in 2034 is  156,436, which adds an additional four                                                               
years out  from 2030.   He stated  that the slight  adjustment to                                                               
the Wilbur Smith  Associates study.  He referred  members to look                                                               
at  their  website,   which  has  a  very   strong  non  warranty                                                               
provision.   Typically,  the boilerplate  states something  like,                                                               
"Don't hold us responsible for  this."  Theirs basically says not                                                               
to  count   on  the  population   estimates  due  to   the  quick                                                               
preparation.    He  stated  that people  have  been  raising  the                                                               
population   issue    at   the   Anchorage    Metropolitan   Area                                                               
Transportation  Study  (AMATS)  and  other  hearings,  and  in  a                                                               
"grudging  way" Wilbur  Smith Associates  knew it  must redo  the                                                               
numbers.   He said, "You  can't have financial  information based                                                               
upon overly optimistic assumptions.  Been there, done that."                                                                    
                                                                                                                                
3:30:45 PM                                                                                                                    
                                                                                                                                
MR.  KENWORTHY stated  the  last warning  flag  is the  unlimited                                                               
government  guarantee.   He  stressed  that  HB 158  captures  it                                                               
precisely.   It  says  that  obligations of  the  KABATA will  be                                                               
obligations of  the state.   That is  not language that  AIDEA or                                                               
AHFC have  in their statutes.   They issue paper under  their own                                                               
credibility.  He  said, "I think there will be  heartburn the day                                                               
that deals  go south if you're  trying to run those  agencies and                                                               
you're  counting  on  the  good  credit  of  the  state  and  its                                                               
agencies."    He  suggested the  committee  should  consult  with                                                               
bankruptcy lawyers,  and he is  not a lawyer, but  when creditors                                                               
go after the SOA, "when things go  south" as it did for San Diego                                                               
in  its  second  year  of  operation, the  entire  floor  of  the                                                               
Attorney General's  office will be concerned  about this, because                                                               
of the  bad precedent.   He predicted  the downside risks  are so                                                               
high, that having the "veil pierced"  the state will settle.   He                                                               
also  predicted everyone  would  take a  hit,  and the  creditors                                                               
would  not  get  paid  right  away  but  the  payments  would  be                                                               
stretched out. He further predicted  the State of Alaska would be                                                               
advised it  must keep  making payments.   This happens  every day                                                               
and when you pick up the Wall Street Journal and read                                                                           
"restructuring." He feared this would be the projected scenario                                                                 
for Alaska.                                                                                                                     
                                                                                                                                
[HB 158 was held over.]                                                                                                         
                                                                                                                                
3:33:14 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Transportation Standing Committee meeting was adjourned at 3:33                                                                 
p.m.                                                                                                                            

Document Name Date/Time Subjects
HB57 State Farm letter of support.pdf HTRA 3/10/2011 1:00:00 PM
HB 57
HB057-DOA-DOF-03-04-11.pdf HTRA 3/10/2011 1:00:00 PM
HB 57
HB 57 opposition ltr Roberts.htm HTRA 3/10/2011 1:00:00 PM
HB 57
CSHB57 2-18-11.pdf HTRA 3/10/2011 1:00:00 PM
HB 57
HB0158A.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB 158 Sponsor Statement.docx HTRA 3/10/2011 1:00:00 PM
HB 158
HB 158 KABATA pro-forma.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
hb57 NFIB ltr of opoosition.pdf HTRA 3/10/2011 1:00:00 PM
HB 57
HB158 Jan 2011 KABATA survey (2).pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB 158 Knik Arm Crossing Summary.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB158 Houston Resolution 09-05 KABATA.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB 158 Knik Arm Crossing White Paper.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB158 Knik Arm Crossing TIFIA-LOI.pdf HTRA 3/10/2011 1:00:00 PM
HB 158
HB158 Knik Arm Crossing TIFIA Cover (2).pdf HTRA 3/10/2011 1:00:00 PM
HB 158