Legislature(2015 - 2016)CAPITOL 17

01/21/2016 01:00 PM House TRANSPORTATION

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01:01:42 PM Start
01:02:11 PM Presentation(s): "alaska Marine Highway System" by Commissioner Luiken and Deputy Commissioner Neussl, Department of Transportation & Public Facilities
03:01:46 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
"Alaska Marine Highway System" by Commissioner
Luiken & Deputy Commissioner Neussl, Dept. of
Transportation & Public Facilities
                    ALASKA STATE LEGISLATURE                                                                                  
            HOUSE TRANSPORTATION STANDING COMMITTEE                                                                           
                        January 21, 2016                                                                                        
                           1:01 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Shelley Hughes, Co-Chair                                                                                         
Representative Charisse Millett                                                                                                 
Representative Benjamin Nageak                                                                                                  
Representative Louise Stutes                                                                                                    
Representative Matt Claman                                                                                                      
Representative Dan Ortiz                                                                                                        
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Sam Kito                                                                                                         
Representative Liz Vazquez                                                                                                      
COMMITTEE CALENDAR                                                                                                            
PRESENTATION(S):  "ALASKA MARINE HIGHWAY SYSTEM" BY COMMISSIONER                                                                
LUIKEN   AND   DEPUTY    COMMISSIONER   NEUSSL~   DEPARTMENT   OF                                                               
TRANSPORTATION & PUBLIC FACILITIES                                                                                              
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
MARC LUIKEN, Commissioner                                                                                                       
Department of Transportation & Public Facilities (DOTPF)                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Co-presented a report on the Alaska Marine                                                               
Highway System (AMHS).                                                                                                          
MICHAEL NEUSSL, Deputy Commissioner                                                                                             
Office of the Commissioner                                                                                                      
Department of Transportation & Public Facilities (DOTPF)                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Co-presented a report on  the Alaska Marine                                                             
Highway System (AMHS).                                                                                                          
ACTION NARRATIVE                                                                                                              
1:01:42 PM                                                                                                                  
CO-CHAIR  NEAL FOSTER  called the  House Transportation  Standing                                                             
Committee meeting to order at  1:01 p.m.  Representatives Foster,                                                               
Hughes, Claman,  Ortiz, and  Nageak were present  at the  call to                                                               
order.    Representatives  Stutes  and  Millett  arrived  as  the                                                               
meeting was in progress.                                                                                                        
^PRESENTATION(S):      "Alaska    Marine   Highway   System"   by                                                               
Commissioner  Luiken and  Deputy Commissioner  Neussl, Department                                                               
of Transportation & Public Facilities                                                                                           
 PRESENTATION(S):  "Alaska Marine Highway System" by Commissioner                                                           
      Luiken and Deputy Commissioner Neussl, Department of                                                                  
               Transportation & Public Facilities                                                                           
1:02:11 PM                                                                                                                  
CO-CHAIR FOSTER announced  that the only order  of business would                                                               
the  presentation  regarding  the Alaska  Marine  Highway  System                                                               
(AMHS) by  Marc Luiken, Commissioner, and  Michael Neussl, Deputy                                                               
Commissioner,  Department of  Transportation &  Public Facilities                                                               
1:03:29 PM                                                                                                                    
MARC LUIKEN, Commissioner, Department  of Transportation & Public                                                               
Facilities  (DOTPF),  explained   that  today's  presentation  is                                                               
essentially  the  same briefing  that  the  DOTPF used  when  the                                                               
department visited  six communities in coastal  Alaska to discuss                                                               
AMHS  and  solicit  feedback from  those  communities  about  the                                                               
impacts  of  recent   budget  cuts.    He   emphasized  that  the                                                               
department  was clearly  advised that  AMHS is  a very  important                                                               
part of the state's transportation  system for coastal Alaska, as                                                               
well as  all of  Alaska.   The department  also learned  from the                                                               
communities  that  they are  much  more  interested in  reliable,                                                               
predictable, consistent  service, to  the point where  they would                                                               
be willing to pay a little  bit more for that service, willing to                                                               
accept less frequency of service  provided the schedule published                                                               
by  the department  is actually  sailed every  year.   The Alaska                                                               
Marine Highway System learned that  if the department's budget is                                                               
changed  and sailings  are cancelled,  it hurts  people who  have                                                               
reservations on those sailings,  as well as significantly impacts                                                               
communities  dependent   on  those   ships  for   passengers  and                                                               
commerce.   He  pointed out  that the  passengers traveling  into                                                               
coastal   communities  do   not  just   stop  in   those  coastal                                                               
communities;  they continue  onward  into  Interior Alaska  where                                                               
they  will spend  money  and have  an impact  on  the economy  of                                                               
Interior communities.                                                                                                           
1:06:25 PM                                                                                                                    
MICHAEL NEUSSL, Deputy Commissioner,  Office of the Commissioner,                                                               
Department  of   Transportation  &  Public   Facilities  (DOTPF),                                                               
explained  that as  Deputy Commissioner  he oversees  AMHS.   Mr.                                                               
Neussl began  a Power  point presentation  and drew  attention to                                                               
slide  2, "Agenda,"  which outlined  the topics  included in  the                                                               
presentation.  Turning to slide  3, "Mission Statement," he noted                                                               
that the  mission statement for  DOTPF is to "Keep  Alaska Moving                                                               
through service  and infrastructure," with  the key word  for him                                                               
and his  staff being "service."   The three main  customer groups                                                               
that AMHS attempts to serve  are residents of Alaska, visitors to                                                               
Alaska, and commercial shippers that  use AMHS to get their goods                                                               
and services in and  out of Alaska.  He pointed out  that it is a                                                               
balancing act  to write a  schedule that  meets the needs  of all                                                               
three groups.  He summarized  that the mission statement for AMHS                                                               
is  to provide  service  and transportation  in a  cost-effective                                                               
manner and to be reliable, safe, and efficient.                                                                                 
1:09:12 PM                                                                                                                    
MR. NEUSSL reviewed  slide 4, "AMHS Fleet  Profile," pointing out                                                               
that when it  comes time to make hard decisions  about fleet size                                                               
and which ships  should serve what areas,  there are limitations;                                                               
not  every ship  can go  every place.   He  noted that  the Motor                                                               
Vessel (M/V) Matanuska, the M/V  Malaspina, and the M/V Taku were                                                               
all  built  in 1963  and  began  as  identical  ships.   The  M/V                                                               
Matanuska and M/V Malaspina were  later lengthened by 50 feet and                                                               
car deck, passenger,  and cabin capacity added to  make them more                                                               
capable  ships.   The M/V  Tustumena  and the  M/V Kennicott  are                                                               
unique in that they have vehicle  elevators and are able to serve                                                               
anywhere in the system, including  Homer, Kodiak, Old Harbor, and                                                               
the Aleutian Chain,  regardless of whether a port has  a fixed or                                                               
floating dock.  This plays into  which vessels can be laid up and                                                               
which vessels have  to remain in service in order  to continue to                                                               
provide service.   The M/V Aurora and the M/V  LeConte are unique                                                               
in that both vessels have a ramp  on the stern of the vessel that                                                               
actually drops  onto the  shore.   All other  vessels use  a ramp                                                               
structure on  the shore that  drop onto  the ship to  connect the                                                               
ship to  shore.  Places  like Pelican, Tatitlek, and  Chenega Bay                                                               
have ramp/dock systems that work with  the M/V Aurora and the M/V                                                               
LeConte.    Due to  the  aforementioned,  the  work of  the  AMHS                                                               
scheduler is  like putting  a big  jigsaw puzzle  together, since                                                               
not  all of  these  ships  fit in  the  places  where service  is                                                               
1:11:56 PM                                                                                                                    
CO-CHAIR  HUGHES  surmised  there  are different  costs  for  the                                                               
different  ships,  with  some  being   more  efficient  and  more                                                               
effective.  She inquired whether  the increased cost of accessing                                                               
certain  communities with  vessels more  expensive to  operate is                                                               
figured  into  the fare  in  and  out  of those  communities,  or                                                               
whether those higher costs are spread across all of the fares.                                                                  
MR.  NEUSSL  replied  that,  generally, it  is  not  figured  in,                                                               
because,  currently, the  ferry  system tariff  structure is  not                                                               
robust enough to  handle unique fares for  specific vessel types.                                                               
When the  fast ferries originally  came online, there was  a fast                                                               
ferry  surcharge, but  that went  by the  wayside for  an unknown                                                               
reason.   Thus, the fare  structure is a  big pool rather  than a                                                               
fare  specific to  each vessel.    He agreed  to address  whether                                                               
specific vessel  fares could be  considered by AMHS later  in his                                                               
MR. NEUSSL continued with slide  4, "AMHS Fleet Profile," stating                                                               
that the  two fast  ferries were  built with a  door only  on the                                                               
forward starboard side, not a door  on the forward port side.  In                                                               
communities  such as,  Tenakee Springs,  a vessel  can only  moor                                                               
port side and  these vessels do not work.   This lack of complete                                                               
standardization  makes  the  scheduling difficult  for  AMHS,  he                                                               
1:14:27 PM                                                                                                                    
REPRESENTATIVE  ORTIZ offered  his  understanding  that the  fast                                                               
ferries incur  greater fuel  cost.   He asked  the status  of the                                                               
fast  ferries and  whether today's  lower fuel  prices make  them                                                               
more useable and purposeful for AMHS.                                                                                           
MR.  NEUSSL confirmed  that lower  fuel  costs do  make the  fast                                                               
ferries  more useable.    He  noted that  both  fast ferries  are                                                               
currently in  federal capital improvement  projects in  a Seattle                                                               
shipyard.   The  current  operating  plans are  to  keep the  M/V                                                               
Chenega in layup status once  that project is complete, while the                                                               
M/V Fairweather will  be brought back into  service the beginning                                                               
of May, operating on a winter-time  schedule of four days a week,                                                               
which is less  expensive to run than a  full summer-time schedule                                                               
of seven days a week.                                                                                                           
REPRESENTATIVE  ORTIZ inquired  as  to the  reasons  for the  M/V                                                               
Chenega being laid up for an extended period of time.                                                                           
MR. NEUSSL replied, "Inability to fund its operation."                                                                          
1:15:49 PM                                                                                                                    
MR. NEUSSL addressed  slide 5, "AMHS Ports of  Call," noting that                                                               
AMHS  provides service  to 33  Alaskan  communities, plus  Prince                                                               
Rupert, B.C.  and Bellingham,  WA.  He  pointed out  the distinct                                                               
differences  between  the  Southeast  system  and  the  Southwest                                                               
systems, as  follows:  the  docks and mooring structures  are all                                                               
different  between  the  two  regions;  the  vessels  operate  on                                                               
different schedules;  and, the labor  contracts paying  the crews                                                               
that operate the vessels are different.                                                                                         
MR. NEUSSL moved  to slide 6, "Fiscal Year 2015  Statistics."  He                                                               
said that  in Fiscal Year  (FY) 2015  AMHS earned a  record $53.9                                                               
million in revenue,  up 6 percent from FY 14.   He clarified that                                                               
none of  the $53.9 million  in revenue  is profit; rather,  it is                                                               
rolled back in to the AMHS  budget.  The system's FY 15 operating                                                               
cost was $160.8 million, which is  $5.2 million less than that of                                                               
FY 14.  The difference between revenue  and cost is made up by an                                                               
appropriation from the  legislature.  Mr. Neussl  related that in                                                               
FY 15  AMHS provided 378  ship weeks of service,  carried 309,521                                                               
passengers and 106,215  vehicles, and made 6,478  port calls, and                                                               
all  of those  figures are  historically stable.   He  noted that                                                               
AMHS  also  redesigned  and   implemented  a  more  user-friendly                                                               
website,  a new  reservation  system, and  now  has over  140,000                                                               
followers on social media.                                                                                                      
1:19:04 PM                                                                                                                    
REPRESENTATIVE  CLAMAN  requested  confirmation  that  the  total                                                               
revenue is approximately one-third of the operating cost.                                                                       
MR.  NEUSSL  confirmed  Representative Claman's  observation  and                                                               
mentioned  an upcoming  slide discussing  the 30-year  history of                                                               
the cost recovery process.                                                                                                      
REPRESENTATIVE  CLAMAN   inquired  as  to  how   the,  previously                                                               
mentioned, revenue to operating cost  ratio compares with that of                                                               
the state's highway system.                                                                                                     
MR.  NEUSSL replied  that it  is  difficult to  compare the  two,                                                               
given  that  all revenue  from  AMHS  rolls  back into  the  AMHS                                                               
budget; whereas the highway system  has multiple funding sources.                                                               
The revenue  generated by sources,  such as  the gas tax,  do not                                                               
roll directly into  the highway budget.  Referencing  slide 7, he                                                               
discussed the  FY 09-FY  15 Traffic Report,  noting that  for the                                                               
past  seven years,  both passenger  traffic  and seasonal  trends                                                               
were consistent.  He pointed out  that traffic was highest in the                                                               
summer  months,  peaking  in  July,  followed  by  a  significant                                                               
decrease  in  traffic from  September  to  April.   Historically,                                                               
these differences  in passenger volume were  addressed by running                                                               
all 11 vessels  during the peak summer season,  then reducing the                                                               
operating fleet  to 4-6 ships  during winter months,  and placing                                                               
the  others   into  cost-saving  layup  periods,   or  performing                                                               
necessary maintenance.   He  stated that  because of  the current                                                               
reduced funding  environment, AMHS cannot  afford to run  as many                                                               
ships as in the past.   When considering cost-saving measures, it                                                               
is unrealistic to  reduce service in the  winter, because regions                                                               
such  as  Prince  William  Sound or  Kodiak  would  lose  service                                                               
completely.   Mr. Neussl said  the remaining option is  to reduce                                                               
the number  of ships operating  during summer months.   He stated                                                               
that  in response  to budget  constraints, AMHS  implemented this                                                               
strategy by  reducing the fleet  from 11  ships to 10  ships last                                                               
1:23:14 PM                                                                                                                    
CO-CHAIR  HUGHES asked  how the  378  ship weeks  served in  2015                                                               
compares with historical levels of service.                                                                                     
MR. NEUSSL  indicated that the  question would be addressed  in a                                                               
later  slide.  He  then  transitioned  to  slide  8,  "Historical                                                               
Revenue & Operating Cost," displaying  the 30-year history of the                                                               
ratio  between AMHS  revenue and  operating cost.   He  explained                                                               
that  this ratio  is the  level of  cost-recovery for  each given                                                               
year.  Over this 30-year  time period, revenue generation by AMHS                                                               
has remained  relatively stable, with  a slight increase,  but no                                                               
significant   spike.     Conversely,  the   operating  cost   was                                                               
relatively stable  for the first 20  years of this data  set, but                                                               
significantly  increased from  2005  onward.   Consequently,  the                                                               
cost recovery of  this system, which was consistently  in the 50-                                                               
to  60-percent  range until  2004,  dropped  into the  30-percent                                                               
range, where it  has remained fairly stable in recent  years.  He                                                               
noted that  in 2015, as a  result of efforts to  increase revenue                                                               
and decrease cost, cost recovery has increased.                                                                                 
CO-CHAIR   HUGHES    asked   why   operating    costs   increased                                                               
significantly after 2004.                                                                                                       
MR.  NEUSSL responded  that  there were  several  causes for  the                                                               
increase, such  that the  price of  fuel and  the price  of labor                                                               
increased.   He said  there was a  three-year period  wherein the                                                               
labor contracts for the state  gave significant raises. He opined                                                               
that the  raises for years  one through  three were 5  percent, 5                                                               
percent, and  6 percent, respectively.   Finally,  from 2004-2006                                                               
the fleet size grew from 9 ships  to 11 ships.  He explained that                                                               
not only is AMHS operating more  ships and burning more fuel, but                                                               
also has more employees, with greater  labor costs.  All of these                                                               
compounding   factors,   plus    increased   maintenance   costs,                                                               
contributed to the increase of operating costs.                                                                                 
CO-CHAIR  HUGHES requested  clarification  that  the increase  in                                                               
labor cost  was due  to both  raises and  an increased  number of                                                               
MR. NEUSSL  responded that is correct.   In response to  a follow                                                               
up question, he opined that the  primary cause of the increase in                                                               
the number of  employees was the addition of the  two new vessels                                                               
to  the  fleet.   Security  officer  requirements following  [the                                                               
terrorist attacks of September 11,  2001] may also have increased                                                               
the number of crew needed on each ship, he said.                                                                                
1:27:34 PM                                                                                                                    
CO-CHAIR   HUGHES    commented   that   she    understands   from                                                               
conversations  with  former  AMHS  employees there  has  been  an                                                               
increase  in  shore side  support  staff.    She inquired  as  to                                                               
whether there is  a standardization requirement on  crew size for                                                               
a given  size vessel from  the United States Coast  Guard (USCG),                                                               
or  whether union  negotiations have  increased crew  size beyond                                                               
minimum  standards.     She  stated  her   understanding  of  the                                                               
importance of AMHS, but expressed  concern about the huge jump in                                                               
costs  in  2005, and  asked  for  clarification, especially  with                                                               
regard to increased labor costs.                                                                                                
MR.  NEUSSL  responded that  he  would  specifically address  the                                                               
question  regarding shore  staff and  vessel staff  later in  the                                                               
presentation.     He  then  explained   there  are   two  factors                                                               
influencing  crew  size.    One  is  the  USCG's  Certificate  of                                                               
Inspection requirement.   He explained that AMHS  is licensed and                                                               
regulated  by the  USCG  to  operate passenger-carrying  vessels.                                                               
Each year  a Certificate  of Inspection is  issued to  each ship,                                                               
specifying a  minimum level of  crewing necessary to  operate the                                                               
vessel safely, which is driven  by the number of people necessary                                                               
to perform  all emergency  procedures.   The USCG  Certificate of                                                               
Inspection mandates a crew size  based on those requirements.  He                                                               
stated  the  second factor  influencing  crew  size involves  the                                                               
number of  people needed to  cook, clean state rooms,  or perform                                                               
any other  passenger services provided  due to the  long voyages.                                                               
That  staffing level  is  a function  of  AMHS setting  passenger                                                               
service standards based  on the number of people that  will be on                                                               
board,  while ensuring  adequate  watch rotation  and crew  rest.                                                               
Mr.  Neussl  concluded  that  the  crew  size  indicated  on  the                                                               
Certificate of Inspection number is  not the actual crew size for                                                               
any given vessel.                                                                                                               
CO-CHAIR  HUGHES inquired  whether  there had  been a  comparison                                                               
with  similar vessels  in other  places, and  whether unions  are                                                               
part of the negotiations with the USCG regarding crew size.                                                                     
MR.  NEUSSL  responded   that  AMHS  has  not   done  a  detailed                                                               
comparison  with other  ferry providers,  but stated  that Alaska                                                               
has  a unique  system.   The  ferry system  in British  Columbia,                                                               
Canada has  some similarities;  it has some  long runs  from Port                                                               
Hardy to Prince Rupert.  The  ferry systems in the [Lower 48] are                                                               
generally  short  haul  ferries  wherein  passengers  embark  and                                                               
disembark  within   a  short  time   frame,  thus  there   is  no                                                               
requirement  for food  service, state  rooms, cabins,  or similar                                                               
amenities.   He said AMHS runs  a much longer route  system, with                                                               
passengers  on board  for a  much  longer period  of time,  which                                                               
requires  crew to  provide more  passenger services.   He  stated                                                               
that he  did not  know whether unions  communicate with  the USCG                                                               
regarding  crewing  requirements.    The  Alaska  Marine  Highway                                                               
System does negotiate  with its labor unions  to provide adequate                                                               
staffing and crewing  on the vessels.  There  are requirements in                                                               
the  collective bargaining  agreements  for  mandatory crew  size                                                               
during certain  events, such as  shipyard periods  and reductions                                                               
in force.                                                                                                                       
1:33:40 PM                                                                                                                    
CO-CHAIR  HUGHES  asked  why some  AMHS  employees  have  defined                                                               
benefits, while others have defined contribution.                                                                               
MR.  NEUSSL replied  that the  retirement plan  contributions for                                                               
the three  maritime unions  are all  different and  described the                                                               
need  for  simplified  union   contracts,  emphasizing  that  the                                                               
negotiations are slow processes.                                                                                                
1:35:13 PM                                                                                                                    
REPRESENTATIVE STUTES asked  how many unions are  involved in the                                                               
operation of the ferries.                                                                                                       
MR.  NEUSSL noted  that there  are three  maritime unions,  which                                                               
would be discussed in detail on a later slide.                                                                                  
1:35:39 PM                                                                                                                    
REPRESENTATIVE  CLAMAN   inquired  as   to  whether   wage  rates                                                               
increased during  the 2005-2007  time period,  or whether  it was                                                               
primarily the number of employees that increased.                                                                               
MR. NEUSSL  answered that he  did not have specific  figures, but                                                               
during that  time period  there was a  significant pay  raise for                                                               
members of the maritime unions.                                                                                                 
1:36:38 PM                                                                                                                    
REPRESENTATIVE NAGEAK  asked whether more fuel  efficient engines                                                               
had been considered as a means of reducing operating costs.                                                                     
MR. NEUSSL replied that some  vessels have already been repowered                                                               
with  more fuel  efficient engines.   The  M/V Columbia  recently                                                               
received new  engines using less  fuel; AMHS is  still collecting                                                               
data to  determine exactly how much  less fuel.  There  are plans                                                               
in  progress  to  repower  the   M/V  Matanuska  with  more  fuel                                                               
efficient  engines, as  well.   Mr. Neussl  continued to  discuss                                                               
slide  8,  noting  in  FY   15,  AMHS  had  successfully  reduced                                                               
operating costs  and increased revenue, thus  increasing the cost                                                               
recovery rate to  33.5 percent.  He stated his  goal is to ensure                                                               
that this upward trend continues.                                                                                               
MR. NEUSSL  continued on to  slide 9, "Historical  Ridership," to                                                               
display  a chart  showing 30  years of  data for  annual traffic,                                                               
including  historical ridership.    He said  the  top, blue  line                                                               
indicated a  downward trend in  the number of  passengers carried                                                               
over that  time period.  This  is primarily due to  the fact that                                                               
air  transportation,  which  competes  with  AMHS  for  passenger                                                               
traffic only, has become more  reliable and more available in the                                                               
recent  past than  it  was  30 years  ago.    Passengers can  fly                                                               
between destinations more quickly than  they can motor via ferry,                                                               
which he  believes has  impacted ferry traffic.   He  pointed out                                                               
that vehicle  traffic, indicated by  the bottom orange  line, has                                                               
remained extremely  stable for  the past  30 years,  with between                                                               
100,000 and 110,000 vehicles transported per year.                                                                              
CO-CHAIR  HUGHES inquired  whether the  increased cruise  traffic                                                               
has  negatively  influenced  passenger ridership,  perhaps  as  a                                                               
result of the amenities available on board the cruises.                                                                         
MR. NEUSSL  replied that it  is quite possible that  cruise ships                                                               
have  also increased  competition for  passenger traffic,  as the                                                               
cruise  industry has  expanded greatly  over the  last 30  years.                                                               
Some passengers  that may once  have taken  a cruise on  AMHS now                                                               
take cruises on cruise ships.                                                                                                   
MR. NEUSSL transitioned to slide  10, "Historical Operating Weeks                                                               
& Fleet  Size," which displayed  a comparison of  operating weeks                                                               
and fleet size from 2000 to 2015.   In 2000, AMHS operated a 305-                                                               
week  schedule with  nine ships.    This fleet  included the  M/V                                                               
Bartlett, but  did not include  the two  fast ferries or  the M/V                                                               
Lituya.  In 2005, the fleet  composition began to change; the two                                                               
fast ferries  came online, the  M/V Bartlett  was decommissioned,                                                               
and the  M/V Lituya came online,  resulting in an 11  ship fleet.                                                               
With the increased  number of ships and funding  to operate them,                                                               
AMHS  began to  provide more  service, resulting  in an  increase                                                               
from a  300-week schedule to  a 400-week schedule  throughout the                                                               
mid-2000s, and up to a record 427  weeks of service in 2007.  Mr.                                                               
Neussl  related that  in the  recent  past, 2013  was a  400-week                                                               
schedule, 2014 was  a 377-week schedule, and 2015  was a 378-week                                                               
schedule.  This  year AMHS is scheduled to  provide 357 operating                                                               
weeks, and  the plan for the  FY17 schedule is to  reduce that to                                                               
about 320 weeks.  The AMHS,  due to funding, is essentially going                                                               
back to  a level  of service  from the  early-2000s, but  with 11                                                               
ships  operating   instead  of  9,  despite   running  a  reduced                                                               
1:41:30 PM                                                                                                                    
REPRESENTATIVE ORTIZ  asked whether  the main  factor influencing                                                               
reduced  operating costs  in  recent years  is  the reduction  in                                                               
weeks of service.                                                                                                               
MR. NEUSSL  responded that  reducing operating  weeks was  one of                                                               
several cost  reduction measures implemented, all  of which would                                                               
be discussed in a subsequent slide.                                                                                             
REPRESENTATIVE  ORTIZ   requested  a  quick  overview   of  which                                                               
communities  have been  impacted  by the  reduction in  operating                                                               
MR.  NEUSSL stated  there is  a process  used to  determine where                                                               
service can  be reduced.   If budget cuts are  implemented, there                                                               
are ways to cut service  without cutting people off from service.                                                               
He explained that  this is why the unique  vessels were mentioned                                                               
at  the  beginning.     He  offered  the   following  example  to                                                               
illustrate:  the M/V Tustumena  cannot be placed in a cost-saving                                                               
layup for six weeks  or six months in order to  save money.  That                                                               
action would  cut off the entire  Southwest system, as it  is the                                                               
only ship that  serves that system.  In  contrast, Prince William                                                               
Sound was typically  served by two vessels, the M/V  Aurora and a                                                               
fast ferry.   Both of  these vessels  served the majority  of the                                                               
communities in Prince  William Sound; one of them  cannot serve a                                                               
certain town, but that is a  minor issue.  Mr. Neussl stated that                                                               
it is possible  to reduce the service in Prince  William Sound to                                                               
one vessel as a cost-saving  measure and still provide service to                                                               
all  of the  communities  there.   Ferry  service  would be  less                                                               
frequent, with  less capacity, but  there would still  be service                                                               
without completely eliminating  a community from the  system.  He                                                               
said the  same logic holds  in Southeast:   for District  36, the                                                               
M/V Taku  and the M/V  Matanuska both provided service  to Prince                                                               
Rupert, essentially competing  with each other for  traffic.  The                                                               
M/V Taku was  placed in layup, forcing all of  that traffic on to                                                               
the M/V  Matanuska, which has  been able  to meet the  demand for                                                               
the reduced capacity now provided there.                                                                                        
1:44:04 PM                                                                                                                    
CO-CHAIR HUGHES noted  that the intended 320  operating weeks for                                                               
FY 17  is a similar figure  to the operating weeks  from 2004 and                                                               
2005,  but with  11 vessels  operating  versus 9.   She  inquired                                                               
whether it would  be a viable cost-saving measure to  return to a                                                               
9-ship  fleet,  and whether,  based  on  population decreases  in                                                               
ferry-served  communities  in  recent  years,  this  hypothetical                                                               
reduction would  provide service comparable to  what was provided                                                               
prior to 2005.                                                                                                                  
MR. NEUSSL  replied that AMHS  has more ships than  needed, which                                                               
he would  discuss later in  the presentation.   He said  AMHS has                                                               
more ships than it can  afford to operate; therefore, AMHS should                                                               
scale back the size of its fleet  in order to save money.  A ship                                                               
in layup  costs money:  there  is still a skeleton  crew assigned                                                               
to it;  it still has some  expenses; and - depending  on where it                                                               
is tied  up - those  expenses could  be significant.   Mr. Neussl                                                               
said he  had not examined  historical population levels  for AMHS                                                               
ports, but  stated his  belief that  the population  of Southeast                                                               
Alaska had  remained relatively  stable and  there have  not been                                                               
significant changes  in population  in the communities  served by                                                               
AMHS.   Most population growth  within the state has  occurred in                                                               
the  interior   of  "Alaska  Rail  Belt"   communities,  such  as                                                               
Anchorage and the Matanuska Susitna valleys.                                                                                    
CO-CHAIR HUGHES commented  that, in general, she  does not recall                                                               
"the services that  we received as Alaskans" ten years  ago - not                                                               
just regarding  the ferry  system and  transportation -  as being                                                               
particularly  bad.    She  admitted  that she  did  not  live  in                                                               
Southeast Alaska, but  indicated she had family  members who did,                                                               
and she did  not recall hearing them complain.   She posited that                                                               
there were  no "huge gaps"  and "we had  a pretty good  state ten                                                               
years ago."   She  encouraged residents  of Southeast  to realize                                                               
that they  will still  be able to  get from point  A to  point B,                                                               
because "we did it back in 2004/2005; we can do it again."                                                                      
1:47:14 PM                                                                                                                    
MR. NEUSSL  summarized the slides relating  to historical revenue                                                               
and   operating  cost,   historical  ridership,   and  historical                                                               
operating  weeks and  fleet size  by stating  that since  traffic                                                               
numbers are relatively  stable, AMHS has taken a  fixed amount of                                                               
traffic, which  used to  be fit  and forced  onto a  9-ship fleet                                                               
with a 300-week schedule; and diluted  it by spreading it over an                                                               
11-ship  fleet  with  a  400-week  schedule.    This  change  was                                                               
implemented with no significant  increase in ridership or revenue                                                               
generated, but at a much higher  cost, due to the increased costs                                                               
associated  with  operating  11  ships   versus  9  ships.    The                                                               
situation AMHS  finds itself in  now, with the  fiscal challenges                                                               
that the  state faces  and the funding  available to  operate, is                                                               
that the schedule is shrinking back  to 300 weeks of service.  He                                                               
stated that  the fleet  size needs  to decrease,  as well.   This                                                               
does not  account for the  new vessels  in the process  of coming                                                               
online.   He suggested that  AMHS will  need to divest  itself of                                                               
some  vessels,  sooner, rather  than  later.    He said  AMHS  is                                                               
strongly  considering  this  option,   and  there  are  plans  in                                                               
progress to make it happen.                                                                                                     
1:48:32 PM                                                                                                                    
REPRESENTATIVE CLAMAN  commented that  he enjoys  crossing Prince                                                               
William  Sound each  summer, on  the M/V  Chenega or  on the  M/V                                                               
Aurora.   He suggested, based  on conversations  with crewmembers                                                               
and when  looking back historically,  that since adding  the fast                                                               
ferries,   AMHS   has   experienced  more   problems,   including                                                               
maintenance issues.  He asked  whether the fast ferries should be                                                               
eliminated, and suggested that perhaps  they should be at the top                                                               
of the list to consider for downsizing.                                                                                         
MR. NEUSSL  responded that it was  certainly an option.   He said                                                               
the M/V Taku has  been laid up since last June,  for a variety of                                                               
reasons he would  discuss later and is forecasted  to remain laid                                                               
up for  the indefinite future,  with no "return to  service" date                                                               
for that  vessel.   Based on its  smaller size,  lesser capacity,                                                               
and its age of over 53 years  it is a logical candidate for fleet                                                               
reduction.   Mr.  Neussl stated  that the  fast ferries  might be                                                               
candidates,  and there  are  plans to  keep one  laid  up for  an                                                               
extended period  of time due  to operating  costs.  He  said this                                                               
relates to  Representative Hughes'  point:  the  fleet used  be 9                                                               
ships, but the consumer base  has become accustomed to an 11-ship                                                               
fleet, with more  frequent service and more  frequent port calls.                                                               
Prince  William  Sound  in particular  has  grown  accustomed  to                                                               
having  a fast  ferry serve  the connection  between Cordova  and                                                               
Whittier.   He explained that if  the funds are there,  it's very                                                               
easy to provide  more service, for example, offer  six port calls                                                               
a week  instead of  four port  calls a  week; people  accept that                                                               
without challenge.   He  emphasized the  difficulty in  telling a                                                               
given community that  their service will be cut from  six to four                                                               
or even two  days a week, because  businesses, enterprises, local                                                               
communities, and tourists have all  grown accustomed to a certain                                                               
service and  often based  their business  models or  travel plans                                                               
around  it.    Cutting  back   on  service  not  only  hurts  the                                                               
individual  passenger who  rides a  vessel, he  stated, but  also                                                               
decreases   revenue   for   ancillary  businesses   that   extend                                                               
throughout the state, not just in a given local community.                                                                      
1:51:27 PM                                                                                                                    
REPRESENTATIVE ORTIZ  inquired as to whether,  during this period                                                               
of increased  costs, any new  ports that  had not been  served in                                                               
the past were added in addition to the new ships.                                                                               
MR. NEUSSL responded that ports  have been both added and removed                                                               
from service.  In the recent  past, AMHS has added Ouzinkie, near                                                               
Kodiak,  and  Gustavus  in  Southeast,   while  Seward  has  been                                                               
eliminated from service.   Mr. Neussl said he had  been told many                                                               
times that  AMHS should not  provide service to places  with road                                                               
access, and  he said,  "That is  true."  He  explained that  is a                                                               
large part of why service is  no longer provided to Seward; it is                                                               
out of the way, takes a long time  to get to, and is connected by                                                               
road to  Homer and Whittier.   He  explained that Ouzinkie  is an                                                               
island community, without road service,  along an existing route,                                                               
with a compatible dock and, as a  result, was able to be added to                                                               
service at very  little additional cost.  Gustavus  was added for                                                               
similar reasons, namely  its proximity to an  existing route, and                                                               
the presence  of a  compatible dock.   In  the case  of Gustavus,                                                               
there was some initial opposition  to ferry service coming there,                                                               
but since service  is now provided, it is difficult  to pull back                                                               
out.   He  reiterated that  people have  grown accustomed  to the                                                               
service and  business models  have been  built on  it.   He said,                                                               
"It's not  something you can just  back out ports that  have been                                                               
added based on seniority of when  they were added to the system."                                                               
He  stated that  this  question was  also raised  at  one of  the                                                               
community meetings he had attended.                                                                                             
1:53:21 PM                                                                                                                    
REPRESENTATIVE  STUTES noted  that although  the intention  is to                                                               
reduce the size  of the fleet and cut costs,  there are a limited                                                               
number  of vessels  capable of  service out  the Aleutian  Chain.                                                               
She  noted  that  it  has  been  well  publicized  that  the  M/V                                                               
Tustumena is  approaching the  end of its  service life,  and she                                                               
inquired  as to  a  projection for  its replacement,  emphasizing                                                               
that  its absence  would leave  many Southwest  communities at  a                                                               
loss for service.                                                                                                               
MR. NEUSSL responded  that the M/V Tustumena is  in its "twilight                                                               
years,"  but it  is still  a  safe vessel.   It  has been  sailed                                                               
across the  Gulf of Alaska twice  and will be sailed  across next                                                               
week to transport vehicles to  Juneau.  The vessel is approaching                                                               
the  end of  its  service life;  it  has  had a  hard  life in  a                                                               
difficult  operating  environment  and  has  provided  a  lot  of                                                               
service for  over 53 years.   He said the design  process for the                                                               
yet unnamed  the M/V Tustumena  replacement vessel has  just been                                                               
completed.    The contractor,  Glosten,  has  just completed  the                                                               
design of  the vessel, which  is on its way  to his office  to be                                                               
reviewed by himself and his  staff.  The process for constructing                                                               
that vessel  is the  next step,  which is  part of  the Statewide                                                               
Transportation  Improvement Plan  (STIP).    Construction of  the                                                               
replacement  vessel is  listed in  the  current STIP,  but it  is                                                               
listed as a  "fiscal year 19 and beyond" project.   He stated his                                                               
opinion  that starting  construction on  that vessel  cannot wait                                                               
until  FY 19,  and needs  to  be pulled  forward.   The issue  of                                                               
timing is currently being worked  on via the amendment process of                                                               
the STIP, specifically to pull the  project forward and do a one-                                                               
for-one replacement with the M/V  Tustumena.  The new vessel will                                                               
double the  capacity for  the number  of vehicles  and passengers                                                               
that can be carried,  which is good for the region.   It will fit                                                               
at  every dock  currently  serviced by  the  M/V Tustumena,  thus                                                               
avoiding costs associated with rebuilding new infrastructure.                                                                   
1:55:47 PM                                                                                                                    
CO-CHAIR HUGHES requested  the names of the two  fast ferries and                                                               
the communities they serve.   She inquired if, despite their cost                                                               
to operate,  if there  are efficiencies gained  by using  them in                                                               
certain locations, based on ridership.                                                                                          
MR.  NEUSSL  replied  that  the  two fast  ferries  are  the  M/V                                                               
Fairweather and the  M/V Chenega.  The M/V  Chenega's homeport is                                                               
Cordova,  Alaska;  there is  a  fast  ferry support  facility  in                                                               
Cordova.   The M/V Chenega  typically operates in  Prince William                                                               
Sound.  The M/V Fairweather's  homeport is Juneau, Alaska; it has                                                               
a  support building  and a  stern  berth in  Auke Bay.   The  M/V                                                               
Fairweather  typically operates  in  Lynn Canal  or  to Sitka  or                                                               
Petersburg.   Those vessels are  not immediately available  to go                                                               
to  all  communities at  will  because  of route  certifications,                                                               
training requirements, and special  USCG certifications that must                                                               
be  met  before  they  can   transit  a  particular  route.    He                                                               
explained, for example, that AMHS  cannot just decide to sail the                                                               
M/V  Fairweather to  Ketchikan one  day, because  there is  not a                                                               
route certified crew  to carry passengers on that trip.   The M/V                                                               
Chenega is  typically route certified for  the Cordova, Whittier,                                                               
and  Valdez routes.   The  M/V Fairweather  is down  in Southeast                                                               
Alaska, either  up Lynn Canal to  Haines and Skagway, or  down to                                                               
Sitka, Angoon, or Petersburg.                                                                                                   
MR. NEUSSL stated that in terms  of operational costs, there is a                                                               
trade-off.   He  said he  did not  have the  specific numbers  in                                                               
front of him  for weekly operational costs for  the fast ferries,                                                               
but he  could get them.   He said  there is a  misconception that                                                               
because they  are fast  ferries, they  burn excessive  amounts of                                                               
fuel and are expensive to operate.   While it is true that a fast                                                               
ferry burns  fuel at a faster  rate, it is over  a shorter period                                                               
of time, because  it arrives at its destination in  half the time                                                               
a typical ferry would.   Additionally, the crew is typically much                                                               
smaller than on  a mainliner, because they operate  for a shorter                                                               
period  of  time.    When   all  these  factors  are  taken  into                                                               
consideration, the operating cost  is not actually much different                                                               
when compared  to a mainliner.   He stated that  specific numbers                                                               
were available if desired.                                                                                                      
CO-CHAIR  HUGHES  asked how  the  fast  ferries compare  to  "day                                                               
MR. NEUSSL  responded that  a fast ferry  is a  classification of                                                               
vessel that  operates at  high speed,  following the  "High Speed                                                               
Code." The Alaska Marine Highway  System's fast ferries typically                                                               
travel at 32-34  knots; a typical mainline ferry is  in the 12-15                                                               
knot range.  The  term "day ferry" or a "day  boat" pertains to a                                                               
scheduling requirement.  Fast ferries  are day boats in that they                                                               
have no overnight  accommodations for passengers or  crew.  Their                                                               
typical mission profile is to leave  port, go to a destination or                                                               
destinations,  and come  back to  the original  port, potentially                                                               
multiple times.   The general operating mode is to  return to the                                                               
port of  origin each day,  after a  12-hour shift, which  is what                                                               
the crew  operates on due  to work/rest standards.   A mainliner,                                                               
which has crew and, in  some cases, passenger accommodations, can                                                               
operate around  the clock.   It  does not have  to return  to the                                                               
same  port.     It  could  run,  like  the   M/V  Columbia  does,                                                               
continually  from Bellingham  to Skagway  and back,  on a  weekly                                                               
cycle.   It does  not return to  a homeport or  have a  crew that                                                               
works just a day shift, where the term day boat comes from.                                                                     
MR. NEUSSL,  in response  to a follow  up question  from Co-Chair                                                               
Hughes,  emphasized that  that the  terms "fast  ferry" and  "day                                                               
ferry"  are not  interchangeable  and should  be used  carefully.                                                               
"Fast ferry" specifically  refers to the two  high speed ferries:                                                               
the M/V  Chenega and the  M/V Fairweather.   The term  "day boat"                                                               
includes  the fast  ferries, but  can  also include  conventional                                                               
vessels.   Mr.  Neussl said  the  M/V Lituya  in Metlakatla,  for                                                               
example, is  a day  boat; it  does not operate  for more  than 12                                                               
hours  in a  day.   The  M/V  Aurora and  the  M/V Chenega  could                                                               
operate  as day  boats.   The Alaska  Class ferries  will be  day                                                               
boats, as  they will  not have  crew quarters  on board  and will                                                               
have 12-hour operating day limit  before the crew must return the                                                               
vessel to port to rest.                                                                                                         
2:00:54 PM                                                                                                                    
REPRESENTATIVE  STUTES  asked   whether  there  were  significant                                                               
issues with running fast ferries  during periods of bad weather -                                                               
particularly  during  high  wind  events -  out  of  places  like                                                               
Cordova, where the ferry is their only source of transportation.                                                                
MR.  NEUSSL  confirmed  that there  are  more  stringent  weather                                                               
limitations on  the fast ferries  than there are  on conventional                                                               
hulled  vessels; cancellations  in  response  to certain  weather                                                               
conditions are  more frequent.   The typical operating  model has                                                               
the fast  ferries operating  in the summer,  when the  weather is                                                               
generally nicer  and is  unlikely to  exceed wave  height limits,                                                               
and laying  them up  for cost-saving measures  in the  winter, as                                                               
mentioned in  discussion of the  traffic curve slide.   [In 2015]                                                               
more stringent  limitations were placed  on the two  fast ferries                                                               
because of  some corrosion on  the hulls.   Mr. Neussl  said AMHS                                                               
imposed  operating  limitations  based  on an  analysis  of  that                                                               
corrosion.    The  damaged  hull sections  are  scheduled  to  be                                                               
replaced during the  current federal projects in  progress on the                                                               
fast ferries,  after which  the normal  operating limits  will be                                                               
reinstated.  Due to the  reduced operating limit, there were some                                                               
cancellations last summer that would not normally have occurred.                                                                
2:02:29 PM                                                                                                                    
REPRESENTATIVE STUTES  inquired whether the intention  of AMHS is                                                               
to  run the  fast  ferries just  in the  summer  months when  the                                                               
weather is  conducive to them  and lay them  up in the  winter so                                                               
that  the communities  served by  the  fast ferries  will not  be                                                               
dependent on them for winter transportation.                                                                                    
MR. NEUSSL confirmed  that intention, noting that  there are many                                                               
variables that influence those decisions.                                                                                       
2:02:54 PM                                                                                                                    
REPRESENTATIVE NAGEAK asked how many ports of origin AMHS has.                                                                  
MR. NEUSSL  replied that  there are 35  places where  a passenger                                                               
can embark  on an AMHS  ferry.   He listed the  following vessels                                                               
and  their  homeports:   the  M/V  Tustumena  in Homer;  the  M/V                                                               
Chenega  in   Cordova;  the  M/V   Aurora  in  Valdez;   the  M/V                                                               
Fairweather and  the M/V  LeConte in  Juneau; the  M/V Kennicott,                                                               
the M/V  Columbia, the M/V Matanuska  in Ketchikan.  He  said the                                                               
ports  are referred  to as  "change ports."  They are  where crew                                                               
changes occur  and where the  vessels are essentially based.   He                                                               
reiterated that the  schedule is being reduced to  300 weeks, but                                                               
there  are  still  11  ships  in  the  fleet,  which  presents  a                                                               
challenge that will need to be addressed.                                                                                       
2:04:22 PM                                                                                                                    
MR. NEUSSL continued on to  slide 11, "Fiscal Year 2016 Operating                                                               
Plan,"  to  discuss the  process  of  working within  a  proposed                                                               
budget  to   create  a  schedule   used  by  travelers   to  book                                                               
reservations, and he addressed some  of the risks associated with                                                               
that  process.    He  stated  that  every  July  or  August,  the                                                               
Department meets with  the Office of Management  and Budget (OMB)                                                               
at a  "heads-up" meeting to inform  them of what AMHS  is looking                                                               
at in terms of budget, and  AMHS brings a proposal and options to                                                               
the meeting.   For  example, option  A is  340 weeks  of service,                                                               
option B is  320 weeks of service,  and option C is  300 weeks of                                                               
service; each  option has a  cost associated  with it.   Based on                                                               
the expected  budget and  the funding  levels resulting  from the                                                               
state's  current  budget situation,  and  meetings  with OMB  and                                                               
discussions between OMB and the  governor, AMHS gets direction to                                                               
proceed with a certain option that  has a certain number of weeks                                                               
of service and  is told to expect funding for  that option, which                                                               
is then submitted as part of  the governor's budget proposal.  He                                                               
offered his  understanding that this  year the  governor's budget                                                               
proposal has an operating plan for 320 weeks of service.                                                                        
MR.  NEUSSL,  referencing  slide  11, titled  "Fiscal  Year  2016                                                               
Operating Plan," stated  that the FY 16  operating plan developed                                                               
by  AMHS comprises  all the  vessels,  the months  of the  fiscal                                                               
year,  and  is  filled  in with  specific  scheduled  maintenance                                                               
projects.   For  example,  the  M/V Columbia  is  currently in  a                                                               
Federal Capital  Improvement Project and  is thus blocked  out on                                                               
the chart.   The same holds true for the  M/V Fairweather and the                                                               
M/V Chenega.   He indicated that AMHS fills the  remainder of the                                                               
vessels'  schedules  with  yellow   bars  indicating  periods  of                                                               
service and tries  to meet all routes and provide  service to all                                                               
AMHS ports.  When this is  not possible, AMHS places vessels into                                                               
cost-saving layup  periods, indicated in  dark blue.   He pointed                                                               
out that  the M/V Taku  has a dark blue  bar all the  way across;                                                               
AMHS  does not  plan to  operate  the M/V  Taku this  year.   The                                                               
decision  essentially essentially  reduces the  fleet size  to 11                                                               
ships; however,  there are still  large expenses  associated with                                                               
keeping the  M/V Taku in layup,  such as keeping a  partial crew,                                                               
providing   security,   paying   for   insurance,   and   similar                                                               
MR. NEUSSL explained that all of  this information is laid out in                                                               
the operating  plan; AMHS  provides service to  all of  its ports                                                               
and  attempts  to  eliminate   scheduling  gaps  associated  with                                                               
vessels cycling through the annual  overhaul period - such as the                                                               
ones that  existed in  Prince William Sound  - a  requirement for                                                               
the  Certificate  of  Inspection.     The  scheduler  develops  a                                                               
schedule from the agreed upon  operating plan, based on knowledge                                                               
of which vessels are in service  and which routes need to be met,                                                               
and  assigns appropriate  vessels  to the  planned  routes.   The                                                               
draft schedule  is then  released to  the public for  a 2-  to 4-                                                               
week public comment period, at  the end of which a teleconference                                                               
is held  with the  public to discuss  whether the  schedule meets                                                               
their needs and  to field suggestions on what  could be improved.                                                               
Based on that feedback, AMHS  makes changes to the schedule where                                                               
they can and  where it makes sense to do  so, before publishing a                                                               
final schedule and  releasing it to the  public for reservations.                                                               
Mr.  Neussl said  that  the  process works  fairly  well for  the                                                               
winter schedule, but is very challenging  in the summer.  This is                                                               
due to the  desire to publish the summer schedule  - which covers                                                               
the months  of May, June,  July, August,  and September -  in the                                                               
month  of October,  in  order to  allow  tourists, visitors,  and                                                               
residents  enough  time  to  know  what  the  schedule  is,  make                                                               
reservations far  in advance,  and plan  trips, and  to encourage                                                               
travel to Alaska.                                                                                                               
2:08:28 PM                                                                                                                    
MR. NEUSSL  stated that  AMHS does  not have  a budget  for three                                                               
months  of   the  five-month  summer   season  until   after  the                                                               
legislative  session, in  April, if  the session  ends in  April.                                                               
This means that the schedule,  which was just released in January                                                               
2016,  has three  months  of  assumed budget,  which  is a  risky                                                               
assumption.   He  explained that  when budgets  were status  quo,                                                               
that  action seemed  logical; people  like  getting the  schedule                                                               
early, and  the budget  was rarely  subject to  change.   He said                                                               
that  last   year,  AMHS  learned  painfully   that  when  budget                                                               
reductions  are  applied to  a  schedule  that has  already  been                                                               
published   and  sold,   it  is   very   challenging  to   cancel                                                               
reservations  for  a  previously  promised date  and  time.    He                                                               
related  that  this  situation   was  very  trying  last  summer;                                                               
however,  AMHS  was not  forced  to  cancel reservations  to  the                                                               
extent they  expected, because they  found one-time,  excess fuel                                                               
trigger money, which essentially  bailed out the summer schedule.                                                               
The  Alaska Marine  Highway  System is  potentially  in the  same                                                               
situation for this coming year.                                                                                                 
MR. NEUSSL  related that a  schedule has been published  based on                                                               
the governor's  budget, which included  a $5.3  million operating                                                               
fund reduction  from last year.   He  said AMHS wrote  a schedule                                                               
based  on that  assumed  cut,  published it,  and  is now  taking                                                               
reservations on  that schedule.   Three  months of  that schedule                                                               
are  unfunded,   essentially,  until  this   legislative  session                                                               
convenes  and   an  operating  budget  is   finalized,  which  he                                                               
reemphasized  is a  risk.   The winter  scheduling process  works                                                               
more  smoothly; there  are fewer  ships, fewer  people scheduling                                                               
them, and it does not span a fiscal year.                                                                                       
2:10:30 PM                                                                                                                    
MR. NEUSSL moved on to  slide 12, regarding "Budget Progression,"                                                               
and addressed  the key topic of  funding.  The slide  displayed a                                                               
budget  progression chart  for AMHS  from  FY 10  to FY  16.   He                                                               
explained   that   the   red  box   highlighted   indicates   the                                                               
undesignated general  fund (UGF)  allocation for  AMHS.   This is                                                               
essentially the funding that the  legislature provides to operate                                                               
AMHS in  addition to the  revenue that AMHS generates  to operate                                                               
itself.  He  said some people use the term  subsidy, but it's not                                                               
really a  subsidy, because the  state does not  subsidize itself.                                                               
In FY 13 that funding was $123.7  million; in FY 14 it dropped to                                                               
$116 million; in  FY 15 it dropped to $112  million; this year it                                                               
is $96 million; and in the  governor's requested budget for FY 17                                                               
it  is $92  million.   Mr. Neussl  said has  taken a  $31 million                                                               
budget cut  over 5 years  in UGF and  has adjusted the  system to                                                               
compensate for  that by  providing less  service and  making some                                                               
cuts and reductions.   He added that AMHS lives  within the means                                                               
of the  budget, and there  are significant budget cuts  that have                                                               
occurred.   All of  this falls under  the category  of "operating                                                               
funds," and  on the operating  side, the UGF  is one of  the four                                                               
sources of funding for AMHS.                                                                                                    
MR. NEUSSL  said another source  of funding is the  capital fund,                                                               
also  from  the  general  fund,  which  is  used  for  overhauls,                                                               
maintenance, and deferred  maintenance on the vessels.   In FY 13                                                               
the  capital fund  was a  $15  million revenue  stream for  AMHS,                                                               
which allowed overhaul  of all 11 ships,  renewal of Certificates                                                               
of Inspections, and maintenance of terminals.   In FY 14 that was                                                               
a $14.8  million budget  line item, which  again allowed  AMHS to                                                               
overhaul all  11 ships, renew  their Certificates  of Inspection,                                                               
maintain the  terminals, and operate.   He stated that in  FY 15,                                                               
AMHS  received  essentially  the  same  amount  of  money,  $14.5                                                               
million  it   did  not  overhaul   and  obtain   Certificates  of                                                               
Inspection for  all 11 ships, because  when it came time  for the                                                               
eleventh ship in  line that year, the M/V Taku,  to be overhauled                                                               
and have its  Certificate of Inspection renewed, AMHS  was out of                                                               
capital funding.   That shortfall in funding, even  though it was                                                               
the same  amount, was not  due to mismanagement.   It was  due to                                                               
the  fact  that when  the  other  ten  ships  in the  fleet  were                                                               
overhauled prior  to the M/V  Taku, "discovery work"  resulted in                                                               
unexpected costs.                                                                                                               
MR.  NEUSSL explained  that when  a  ship goes  into an  overhaul                                                               
period, certain  inspections are performed and  things are found,                                                               
such as wasted steel, rust, corrosion,  et cetera.  The USCG then                                                               
requires that  these discrepancies be addressed  before they will                                                               
issue a  Certificate of Inspection,  without which the  vessel is                                                               
not allowed to  sail and such repairs cost more  money, take more                                                               
time, and  delay completion  of the overhaul  process.   Which in                                                               
turn causes  schedule disruptions.  Mr. Neussl  stated that  as a                                                               
result of  the shortfall in  the capital  fund, the M/V  Taku was                                                               
placed in layup because AMHS could  not afford to overhaul it and                                                               
get  its  Certificate of  Inspection  renewed.    In FY  16  that                                                               
overhaul and  maintenance funding was reduced  from $14.5 million                                                               
to  $10.6 million.  Mr. Neussl  emphasized that  there is  no way                                                               
that  AMHS  will  be  able   to  afford  to  overhaul  and  renew                                                               
Certificates  of  Inspection for  11  ships  with $10.6  million.                                                               
This  is why  the M/V  Taku remains  in layup  status and  is not                                                               
planned  to return  to  service.   The  governor's  FY 17  budget                                                               
request for  general fund  capital expenditures  is to  return to                                                               
$12   million  for   overhaul  and   $3   million  for   deferred                                                               
maintenance,  which would  yield  AMHS's typical  funding of  $15                                                               
million  for  capital  maintenance  projects.    In  response  to                                                               
previous  questions regarding  the  size of  shoreside staff  and                                                               
maintenance, Mr. Neussl pointed out  that section of the chart on                                                               
slide 12  applies to  marine vessel  operations, and  the section                                                               
below it applies to shoreside costs.                                                                                            
2:14:47 PM                                                                                                                    
MR. NEUSSL  explained that in FY  16 88 percent of  the operating                                                               
cost of  AMHS is  directly related  to marine  vessel operations:                                                               
labor,  fuel,  travel, commodities,  food,  sheets,  and all  the                                                               
supplies that  keep the vessels going.   The other 12  percent of                                                               
the AMHS  budget is spent  on shoreside costs, which  include all                                                               
the terminals  and terminal staff  that essentially  complete the                                                               
link  between  the ships  and  the  shore.   He  emphasized  that                                                               
shoreside  costs are  not overhead,  because  they are  essential                                                               
components  of the  system that  cover  shore operations,  vessel                                                               
operations   management,  reservations,   marketing,  engineering                                                               
staff in  Ketchikan, overhead, and  similar costs.  He  said that                                                               
it is not "out of line" in terms of budget.                                                                                     
2:16:10 PM                                                                                                                    
CO-CHAIR  HUGHES asked  if there  are employees  who live  out of                                                               
state and are receiving a Cost of Living Adjustment (COLA).                                                                     
MR. NEUSSL replied affirmatively.                                                                                               
CO-CHAIR  HUGHES  inquired  whether   the  "free  pass"  employee                                                               
benefit had  been or was  intended to be  removed.  She  said she                                                               
recognizes  that this  is  probably not  a  major component,  but                                                               
opined that  in the current  situation, even small costs  need to                                                               
be considered.                                                                                                                  
MR. NEUSSL responded  that AMHS is tracking that, but  it has not                                                               
been removed.  In the negotiation  session with each of the three                                                               
maritime unions, AMHS  negotiated a $100 fee for  the annual pass                                                               
that employees  have historically  received for  free.   That has                                                               
not  yet   been  implemented,  because  the   Marine  Engineering                                                               
Beneficial  Association (MEBA)  contract is  still unsigned,  and                                                               
AMHS' intention is to implement  the change simultaneously on all                                                               
three unions.                                                                                                                   
2:18:19 PM                                                                                                                    
REPRESENTATIVE  STUTES  inquired whether  out-of-state  employees                                                               
are responsible for their own travel costs to and from Alaska.                                                                  
MR.  NEUSSL responded  that in  general,  yes, but  not in  every                                                               
instance.   If an  employee has a  bid position on  a ship  - for                                                               
example, if  they bid  to be  the master on  the M/V  LeConte and                                                               
based   on    their   seniority,   experience,    training,   and                                                               
qualifications  they  meet  all   of  the  requirements  and  are                                                               
assigned the position  - then they are responsible  for travel to                                                               
and from work.   Even if the employee who  bid the position lives                                                               
in Seattle,  they are  responsible for travel  costs to  and from                                                               
Juneau  for each  two week  assignment  period.   However, if  an                                                               
employee  has the  necessary qualifications,  training, pilotage,                                                               
route certification, or other needed  skill, and he/she is needed                                                               
to fill in  on an emergency basis  on a ship that  is not his/her                                                               
normal bid  position, AMHS will  pay for his/her travel  from the                                                               
change port  to their  temporary assignment  port.   For example,                                                               
travel costs will  not be covered from Bellingham  to a temporary                                                               
assignment in  Valdez if  the employee's  change port  is Juneau;                                                               
costs would  be covered from  Juneau to Valdez, but  the employee                                                               
would be responsible for the rest  of that expense.  He said AMHS                                                               
has worked  very hard  to make  sure that  all employees  have an                                                               
identified change port, as per their contract.                                                                                  
2:20:09 PM                                                                                                                    
MR.  NEUSSL  transitioned  to  slide  13,  which  discussed  AMHS                                                               
Workforce Statistics.   He said that all the  employees that work                                                               
on the vessels are represented  by three different unions: Inland                                                               
Boatmen's  Union (IBU),  Marine Engineers  Beneficial Association                                                               
(MEBA),  and   the  Masters,  Mates,  and   Pilots  union  (MMP).                                                               
Shoreside, there are four different  unions and exempt employees.                                                               
Most  shoreside employees  are in  the general  government union,                                                               
which includes terminal agents,  reservations clerks, most of the                                                               
employees  in the  Ketchikan central  office.   Supervisors,  the                                                               
lead person at each ferry  terminal, and some Ketchikan employees                                                               
with  supervisory  duties  are  represented  by  the  Supervisory                                                               
Union.   There are also a  few workers represented by  the Labor,                                                               
Trades, and  Crafts Union;  and by the  Confidential Union.   The                                                               
seven-person  shoreside maintenance  team based  in Ketchikan  is                                                               
represented  by the  Labor, Trades,  and Crafts  union; and  does                                                               
maintenance on the terminals,  docks, hydraulic systems, transfer                                                               
bridges, lighting,  and the terminal  buildings themselves.   The                                                               
CU represents the dispatchers, who  deal with employees' personal                                                               
information, including home phone  numbers, home email addresses,                                                               
and other confidential information.   He said that there are five                                                               
exempt employees in  AMHS, including himself.  The  second is his                                                               
direct report,  the general manager  of the system,  John Falvey.                                                               
His   three  direct   reports,   the   Operations  Manager,   the                                                               
Engineering  Manager, and  the Business  Manager  are all  exempt                                                               
2:22:02 PM                                                                                                                    
REPRESENTATIVE  ORTIZ noted  that the  highest UGF  allocation to                                                               
AMHS was  $123 million in  FY 13, and he  requested clarification                                                               
that AMHS was requesting a $92 million allocation in FY 16.                                                                     
MR. NEUSSL confirmed that AMHS's UGF  request was 123.7 in FY 13,                                                               
and that the request for FY 17 was $92.1 million.                                                                               
REPRESENTATIVE  ORTIZ   requested  clarification  that   if  AMHS                                                               
receives the  requested $92.1 million  in UGF funds, it  would be                                                               
funded lower than the $97.5 million allocation from FY 10.                                                                      
MR. NEUSSL responded that Representative Ortiz was correct.                                                                     
REPRESENTATIVE ORTIZ noted that  when comparing the $97.5 million                                                               
in FY 10  with the $92.1 million  in FY 17, those  figures do not                                                               
take  inflation into  account.   He posited  that accounting  for                                                               
inflation,  the  $92.1 million  figure  would  have the  spending                                                               
power of somewhere around $80 or $85 million.                                                                                   
MR.NEUSSL responded affirmatively,  but said he did  not know the                                                               
exact impact  of inflation  on those figures,  but that  level of                                                               
funding  will have  real world  impacts on  the level  of service                                                               
that AMHS will be able to provide.                                                                                              
2:23:58 PM                                                                                                                    
REPRESENTATIVE  NAGEAK  asked  for  clarification  regarding  who                                                               
qualifies as an exempt employee.                                                                                                
MR. NEUSSL replied  that exempt employees are  not represented by                                                               
a union.   He said that as  an exempt employee, he  serves at the                                                               
pleasure  of the  commissioner of  the DOTPF.   He  continued his                                                               
discussion of AMHS  workforce statistics on slide  13 by pointing                                                               
out that  the "Number  of Employees"  figure includes  full time,                                                               
part time, seasonal,  and on-call employees.  He  said that these                                                               
numbers are larger than what  might be expected, and he explained                                                               
that  the actual  number of  masters, mates,  and pilots  working                                                               
right now is less than the 108  figure on the slide.  The numbers                                                               
on the  slide represent the total  number of employees in  FY 14.                                                               
If  an  individual  was  employed for  several  months  and  then                                                               
replaced  by   another  employee,   both  individuals   would  be                                                               
represented in  that count.   It  is not  a full  time equivalent                                                               
(FTE) count, it is a head  count of the total number of employees                                                               
for   that   year.      The   next   column,   labeled   "Average                                                               
Cost/Employee,"  also has  a  footnote.   Each  of these  figures                                                               
include  salary and  benefits for  full-time  employees only  and                                                               
represents the  average cost to  the state per employee,  in each                                                               
of these unions.   It is not their take-home  salary; it includes                                                               
their pay  and benefits,  health insurance,  retirement benefits,                                                               
and all  other employee  costs to  the state.   He said  that the                                                               
part-time, seasonal,  and on-call pay  data was removed  from the                                                               
calculation  of these  figures.   The annual  cost of  each union                                                               
contract to the state is  calculated by multiplying the number of                                                               
employees by the  cost per employee.  He said  $54 million of the                                                               
state's budget  for AMHS funds  the IBU labor force,  $17 million                                                               
funds  MEBA, about  $17  million  funds the  MMP,  and about  $10                                                               
million total funds all shoreside employees combined.                                                                           
2:26:14 PM                                                                                                                    
REPRESENTATIVE ORTIZ,  referencing the $181,000 average  cost per                                                               
MEBA employee,  inquired what the  components of that  total cost                                                               
MR.  NEUSSL responded  that regular  pay, holiday  pay, overtime,                                                               
hold-over  pay, late  arrival pay,  early  call-back pay,  leave,                                                               
travel   pay,  minimum   guarantees,   penalty  pay,   retirement                                                               
contributions,  training  contributions,  health  care  premiums,                                                               
unemployment  contributions, workers  compensation contributions,                                                               
Medicare   contributions,   and   Alaska   supplemental   benefit                                                               
retirement plan contributions  contribute to that cost.   He said                                                               
not all  of those apply  to every union;  those are the  range of                                                               
pays  that are  included in  pays  and benefits,  based on  labor                                                               
contracts.  Further, he relayed that  the list is not specific to                                                               
MEBA, but he  said those are the types of  pays and benefits that                                                               
were included in those computations.                                                                                            
REPRESENTATIVE ORTIZ  stated that  he assumed  some of  the costs                                                               
are not a  result of the bargained agreements, but  in some cases                                                               
are the  result of management's  decision to pay  overtime versus                                                               
paying another employee.  He  suggested that in some instances it                                                               
would  be  more cost  effective  to  pay  overtime than  to  hire                                                               
another employee.                                                                                                               
MR. NEUSSL  responded that  sometimes the only  option is  to pay                                                               
overtime, for  example, if  a ship is  delayed coming  into port.                                                               
There are a  variety of factors that play into  how much overtime                                                               
gets  paid.   He  said that  AMHS does  attempt  to minimize  the                                                               
amount  of overtime  paid;  it  would prefer  a  full work  force                                                               
getting  normal pay  versus a  smaller work  force working  extra                                                               
hours and  getting additional  overtime pay,  but there  are many                                                               
challenges that make that difficult.                                                                                            
REPRESENTATIVE  ORTIZ   asked  for  confirmation  that   in  some                                                               
situations,  hiring   a  new   employee  also   involves  medical                                                               
benefits, retirement benefits, and  similar costs. He pointed out                                                               
that  these costs  are already  covered  for an  employee who  is                                                               
being paid overtime.                                                                                                            
2:29:04 PM                                                                                                                    
MR. NEUSSL  replied affirmatively and continued  his presentation                                                               
of slide 13. He offered that  although he has heard the shoreside                                                               
staff referred  to as  bloated, essentially  $90 million  goes to                                                               
vessel employee labor  and approximately $10 million  - about one                                                               
tenth of  that - goes to  shoreside labor.  This  is proportional                                                               
to the  budget ratio of 88  percent for vessel operations  and 12                                                               
percent  for  "overhead." He  responded  to  a previous  question                                                               
about the  number of non-resident  AMHS employees, and  he stated                                                               
that it is  possible for the vessel employees, due  to their work                                                               
schedules, to  live out of  state, whereas an employee  who works                                                               
shoreside in  Ketchikan, for  example, is unable  to live  out of                                                               
state.  Vessel employees who work  two weeks on/two weeks off; 28                                                               
days on/28  days off; or week  on/week off can live  out of state                                                               
if they  so choose.  Mr.  Neussl said the column  furthest to the                                                               
right  on  slide  13 indicates  the  percentage  of  non-resident                                                               
employees for  each of the three  unions.  For example,  about 25                                                               
percent of  the MEBA  employees, or  approximately 25  people, do                                                               
not live  in the  state of  Alaska.  Those  employees who  do not                                                               
live in Alaska do not  collect cost-of-Living differential, which                                                               
is payable only to employees who  live within the state of Alaska                                                               
and is annually verified and  certified to ensure that only those                                                               
employees who are qualified receive that entitlement.                                                                           
2:30:48 PM                                                                                                                    
CO-CHAIR  HUGHES inquired  whether there  is a  hiring preference                                                               
for Alaska  residents.  She also  asked whether most of  the non-                                                               
resident employees  were hired while  they were  Alaska residents                                                               
and later moved  out of state, as allowed by  the schedule, or if                                                               
they were hired as non-residents.                                                                                               
MR. NEUSSL  replied that AMHS  does have a hiring  preference for                                                               
Alaskans, but  it's difficult to find  enough qualified employees                                                               
to  fill all  necessary positions;  therefore, AMHS  does recruit                                                               
and hire some employees from the Lower 48.                                                                                      
REPRESENTATIVE ORTIZ  asked whether  it is becoming  difficult to                                                               
recruit  qualified individuals  for  AMHS, such  as pilots,  when                                                               
competing for them at the global scale.   He said that it was his                                                               
understanding  that there  is increased  global demand  for those                                                               
types  of  positions  given  the  recent  growth  of  the  global                                                               
shipping industry.                                                                                                              
MR. NEUSSL responded  that, yes, there is  demand and competition                                                               
for those skills.   In conjunction with  the community engagement                                                               
meetings, he  said that  he held meetings  with the  crews aboard                                                               
the ships.   One of the  messages conveyed in those  meetings was                                                               
that not only  do the uncertainties in funding,  number of ships,                                                               
and scheduling  "upset the apple  cart" with regard  to economies                                                               
and communities, they also "upset  the apple cart" with regard to                                                               
employees.   Employees  wonder if  they will  have a  job in  the                                                               
coming  year,  whether  their  ship  will  be  laid  up,  or  the                                                               
workforce will be reduced.   That causes uncertainty and employee                                                               
longevity issues.  Mr. Neussl  related that AMHS has lost several                                                               
employees,  who sought  maritime  work elsewhere.   For  example,                                                               
many  former MMP  employees  now work  for  the Southeast  Pilots                                                               
Association, which requires AMHS to  train people from the bottom                                                               
to fill those positions, which is expensive.                                                                                    
2:33:55 PM                                                                                                                    
REPRESENTATIVE  MILLETT requested  an  overview  of the  training                                                               
process and  associated costs for  a master, mate, or  pilot, and                                                               
she inquired as to the location of the training facilities.                                                                     
MR. NEUSSL responded that there  are a variety of different paths                                                               
in the  trade.  In general  Masters, Mates, and Pilots  come from                                                               
the California  Maritime Academy, the Maine  Maritime Academy, or                                                               
from military service.   They might come in as  a second or third                                                               
mate, work their way up to  chief mate, and eventually to master.                                                               
The training for  that process takes a variety of  forms; some is                                                               
training conducted  at AVTEC -  Alaska's Institute  of Technology                                                               
("AVTEC"), in Seward.   As part of AMHS' labor  contract with the                                                               
MMP  union,  the  state contributes  to  Maritime  Institute  for                                                               
Training and  Graduate Studies  (MITAGS) in  Baltimore, Maryland.                                                               
It is essentially the masters,  mates, and pilots training school                                                               
for ship  drivers.  He said  AMHS sends people there  because via                                                               
the labor  contract, AMHS  employees can  take advantage  of that                                                               
training  to  get  additional qualifications  and  improve  their                                                               
license toward the goal of  acquiring a master license.  Pilotage                                                               
requires  actually operating  and  sailing in  a given  waterway.                                                               
For example,  an AMHS  employee who begins  with no  pilotage, by                                                               
working on  vessels sailing up  and down Lynn Canal  and becoming                                                               
familiar  with  the  waterway,   can  eventually  sit  for  their                                                               
pilotage exam with  the USCG.  This  essentially involves drawing                                                               
the  maritime chart  from  memory,  including navigational  aids,                                                               
hazards,  obstructions,  et  cetera.     Earning  Pilotage  is  a                                                               
different process, not formal schooling.                                                                                        
REPRESENTATIVE MILLETT requested  clarification regarding the per                                                               
person cost of this training to  the state.  She inquired whether                                                               
there is  any requirement or  responsibility in a  union contract                                                               
requiring employees who have benefitted  from training to stay in                                                               
the state and work  for the State of Alaska for  a period of time                                                               
as a form of repayment for the training investment.                                                                             
MR. NEUSSL responded  that the training agreement  is detailed in                                                               
the  MMP collective  bargaining agreement.   He  said he  did not                                                               
know  the figure  off the  top  of his  head,  but it  is a  per-                                                               
employee,  per-day  dollar amount  contributed  by  the state  to                                                               
fund, MITAGS.                                                                                                                   
REPRESENTATIVE  MILLETT asked  for the  location of  the training                                                               
decrement within the AMHS budget.                                                                                               
MR.  NEUSSL stated  he assumed  it was  included under  personnel                                                               
services,  but he  added that  he have  to give  a more  definite                                                               
answer at a later time.                                                                                                         
2:36:38 PM                                                                                                                    
[Co-chair Foster passed the gavel to Co-Chair Hughes]                                                                           
CO-CHAIR HUGHES asked  whether, since AMHS has to  recruit out of                                                               
state for certain skill sets, there  has been any effort from the                                                               
Department   of  Labor   &  Workforce   Development  (DOLWD)   or                                                               
Department  of Education  and Early  Development (EED)  to inform                                                               
high school students and young  Alaskans that opportunities exist                                                               
within AMHS.                                                                                                                    
MR. NEUSSL replied  that there have been some efforts  by AMHS to                                                               
reach out, but not many.   For a period of time, dispatchers were                                                               
sent to job fairs and recruitment  events in an attempt to foster                                                               
and bring  talent into  AMHS.   He stated that  AMHS does  not do                                                               
that as much as they should.                                                                                                    
MR.  NEUSSL transitioned  to slide  14, "Budgetary  Constraints,"                                                               
and  stated that  it is  essentially  a summary  of a  comparison                                                               
between FY 15 and FY 16.   He explained that there is $16 million                                                               
less in the  state operating general fund and $4  million less in                                                               
the state  capital general fund between  the two years.   He said                                                               
that is  a significant reduction,  which resulted in  the removal                                                               
of  the M/V  Taku from  service in  June 2015  to present  due to                                                               
insufficient capital  funding.   Mr. Neussl reiterated  that AMHS                                                               
does not have the budget to  overhaul or operate the vessel.  Mr.                                                               
Neussl said that  the department, and in particular  AMHS, uses a                                                               
lot of fuel, approximately 10  million gallons of diesel fuel per                                                               
year.   He noted that  AMHS is budgeted  at $2.56 per  gallon for                                                               
fuel;  currently the  average  price is  less  than that  figure,                                                               
which is  good because  AMHS will  meet its fuel  budge.   If the                                                               
price climbs  above that,  where it  has been  most of  the time,                                                               
AMHS will  experience a budget  shortfall due  to fuel.   He said                                                               
that most of the committee  is likely familiar with the mechanism                                                               
wherein  if the  price  of North  Slope crude  is  above $70  per                                                               
barrel, a  fuel trigger  kicks in to  help offset  the additional                                                               
cost of fuel.   He said there  is no fuel trigger  this year, nor                                                               
is  there likely  to  be one  anytime in  the  future.   Assuming                                                               
prices  stay below  $2.56 a  gallon,  AMHS will  meet their  fuel                                                               
budget.   In  the absence  of  a fuel  trigger, there  is a  risk                                                               
factor if prices rise above  that, which they certainly could due                                                               
to any number of world events.                                                                                                  
2:39:16 PM                                                                                                                    
REPRESENTATIVE MILLETT asked how often  the fuel trigger has been                                                               
used historically. She recognized that  the price of oil has been                                                               
below $70  per barrel for  one year.   She also  inquired whether                                                               
Mr. Neussl  had a  chart or more  information pertaining  to fuel                                                               
costs.  She noted  that oil  prices are  expected to  remain low,                                                               
which  could be  a large  cost savings  for AMHS.   She  inquired                                                               
about the  AMHS fuel purchase  process, whether it  was purchased                                                               
in bulk, and how AMHS manages its fuel needs.                                                                                   
MR. NEUSSL  responded that AMHS  does not purchase fuel  in bulk,                                                               
there are no fuel storage  facilities, and AMHS pays market price                                                               
in the same manner  as a person would filling their  car at a gas                                                               
station.   He said  that AMHS  calls Petro  Marine Services  in a                                                               
port  where they  are fueling,  orders  a fuel  truck, and  takes                                                               
10,000  gallons of  fuel, paying  the fuel  price for  that given                                                               
port.   He  added that  fuel prices  vary between  ports.   It is                                                               
relatively inexpensive in Bellingham,  Washington, and AMHS tries                                                               
to fuel  there when ships are  there.  Fuel is  more expensive in                                                               
places like  Homer and  Valdez, because it  is more  expensive to                                                               
transport it  there.  He  said that  AMHS does not  forward fund,                                                               
hedge,  or lock  in  long-term fuel  contracts,  because just  as                                                               
easily as prices  can go up and those strategies  can save money,                                                               
prices  can go  down and  that can  increase costs.   Mr.  Neussl                                                               
stated that  AMHS pays  market rate  for fuel,  and has  used the                                                               
fuel trigger  almost every  year, up  until this  past year.   He                                                               
said $7 million of excess fuel  trigger money saved in an account                                                               
were appropriated to  AMHS to fund the 2015 summer  schedule.  He                                                               
stated that AMHS has made extensive  use of the fuel trigger, but                                                               
he  said he  did not  currently  have, but  could provide,  exact                                                               
numbers for the  fuel trigger amounts for each year.   There were                                                               
two  triggers a  year most  years, and  each of  them contributed                                                               
money to fund AMHS.                                                                                                             
REPRESENTATIVE  MILLETT asked  where the  $7 million  figure from                                                               
those fuel triggers is shown in the budget.                                                                                     
MR. NEUSSL replied that the  fuel trigger funds were displayed on                                                               
slide  12, in  the "Additional  Fuel Trigger  Appropriation" line                                                               
under FY 15.                                                                                                                    
2:41:46 PM                                                                                                                    
CO-CHAIR HUGHES inquired  whether the fuel trigger  was listed at                                                               
zero dollars in the governor's  proposed budget or there would be                                                               
money available for the fuel trigger this year.                                                                                 
MR. NEUSSL replied that it  was one-time funding, which was there                                                               
because when  the price of  fuel went down  money was saved.   He                                                               
said it was a good thing  it was saved, because it was definitely                                                               
needed this  past year  to run  last summer's  schedule.   It was                                                               
one-time  money, and  there is  no remaining  portion of  that to                                                               
assist.   There  is  no longer  a fuel  trigger  to generate  the                                                               
MR.   NEUSSL  transitioned   to  slide   15,  "Non-service   cost                                                               
Reductions," stating  that many  people have the  impression that                                                               
when the legislature cuts the  AMHS budget, the first action they                                                               
take is  to place  a vessel in  layup to reduce  costs.   He said                                                               
placing  a vessel  in  layup  is actually  the  last action  AMHS                                                               
takes, because  they do not want  to impact service levels.   The                                                               
first  action is  to  identify other  efficiencies  that have  no                                                               
impact on  essential service.  He  said AMHS has taken  action on                                                               
many  of  these  efficiencies  in  an effort  to  save  money  by                                                               
eliminating   non-essential   services   that  do   not   support                                                               
themselves, such  as bars and gift  shops on the vessels.   There                                                               
were  approximately 25  people  associated  with providing  those                                                               
services,  who  were  reassigned  throughout the  fleet.    Fewer                                                               
people were  hired from  the bottom, so  none of  those employees                                                               
were laid  off as a result,  and costs were reduced  by no longer                                                               
providing those  amenities on  the vessels.   Mr.  Neussl related                                                               
that  AMHS eliminated  the commercial  marketing contract,  which                                                               
saved $500,000 per year.   They eliminated a $200,000 budget line                                                               
item for commercial backfill service  with private companies like                                                               
Allen  Marine, which  had provided  continued  service to  remote                                                               
villages  during   vessel  maintenance  periods.     He  said  30                                                               
shoreside positions have been eliminated,  half of which were on-                                                               
call, part-time  positions at the  terminal and  performed duties                                                               
such as  vessel mooring and staging.   He said this  has resulted                                                               
in a situation  where there are exactly as many  employees as are                                                               
needed  to safely  tie up  a vessel;  however, if  one person  is                                                               
absent  AMHS  falls below  minimum  manning  levels required  for                                                               
vessel  mooring.   They have  cut terminal  staff "to  the bone,"                                                               
eliminating  15 shoreside  positions, some  of which  were highly                                                               
paid,  fulltime,  employees  such  as a  port  engineer,  a  port                                                               
captain, several positions in  the reservations office, marketing                                                               
staff,  and several  administrative  positions  in the  Ketchikan                                                               
central office.                                                                                                                 
2:44:51 PM                                                                                                                    
CO-CHAIR  HUGHES inquired  whether  those  were filled  positions                                                               
that were eliminated.                                                                                                           
MR. NEUSSL replied that approximately  half of the positions were                                                               
filled  positions.    Some  were  intentionally  left  vacant  in                                                               
anticipation of cuts associated  with the current budget climate.                                                               
This occurred several  times in the reservation center.   He said                                                               
AMHS  installed  new engines  in  the  M/V Columbia,  intends  to                                                               
install  new engines  on the  M/V Matanuska,  and installed  auto                                                               
throttle fuel management systems on  vessels statewide.  The auto                                                               
throttle  systems manage  speed  in order  to  stay on  schedule,                                                               
rather than  burning extra  fuel and  arriving early  or arriving                                                               
late and altering  the schedule.  This fuel  management system is                                                               
not as  effective as  hoped, because  generally AMHS  operates in                                                               
straits and  narrows rather than  open ocean.  Mr.  Neussl stated                                                               
that the more important message  from the ship drivers during the                                                               
shipboard  meetings was  that slowing  down  is the  best way  to                                                               
reduce fuel costs.  Rather than  scheduling a run at six hours at                                                               
full speed,  AMHS needs to schedule  it as a 6.5-  or 7-hour run,                                                               
at reduced throttle  for fuel conservation, and  give the masters                                                               
discretion  to adjust  their  speed accordingly.    This will  be                                                               
taken into account when drafting future schedules.                                                                              
Mr. Neussl said  the printed schedule was  also eliminated, which                                                               
saved  $50,000 in  mailing  and  distribution costs,  considering                                                               
that  the printed  schedule was  often outdated  due to  schedule                                                               
changes.  All schedules are available online now, in real time.                                                                 
CO-CHAIR  HUGHES   commented  that  the  ferry   from  Homer  was                                                               
transporting many  of the legislators' vehicles  recently and did                                                               
not arrive on  schedule.  Online it was reported  as on time, but                                                               
it did not show up when scheduled.                                                                                              
MR. NEUSSL acknowledged  the point, and he offered  that it seems                                                               
like  delays and  scheduling interruptions  happen  at the  least                                                               
convenient times.   That specific incident was  a weather related                                                               
delay on  the M/V Tustumena during  a transit across the  Gulf of                                                               
Alaska.    Both of  the  cross-gulf  transits were  significantly                                                               
delayed, by 24-36  hours, due to excessive sea  conditions in the                                                               
Gulf  of Alaska.    Acknowledging that  the  arrival message  was                                                               
incorrect, he  pointed out that  customers can use  the real-time                                                               
vessel  tracker  in the  lower  right  hand  corner of  the  AMHS                                                               
website to  watch a vessel move  across the ocean.   He said AMHS                                                               
is  trying to  provide better  information regarding  scheduling,                                                               
but it is not 100 percent correct yet.                                                                                          
2:48:09 PM                                                                                                                    
REPRESENTATIVE  MILLETT  inquired  as  to  how  many  of  the  25                                                               
eliminated vessel  positions were position control  numbers (PCN)                                                               
and whether they were filled when they were cut.                                                                                
MR. NEUSSL explained that the  PCN counts on vessels are complex.                                                               
Only five  of the  ships had bars,  and therefore  five bartender                                                               
positions  were  eliminated.     However,  those  five  bartender                                                               
positions  are filled  by  twelve PCNs;  "A  crew" bartender,  "B                                                               
crew" bartender,  and a  relief bartender.   This holds  true for                                                               
every position on the vessel.   He said each position on the ship                                                               
essentially requires 2.3  people to fill when  considering the "A                                                               
crew," "B  crew," and  relief crew.   25  is a  composite number.                                                               
Those positions  were all filled;  the bars were  operating until                                                               
AMHS closed them.  Those  individuals transitioned to other jobs:                                                               
cashiers, passenger  service workers,  and others.   Fewer people                                                               
were hired  into the  bottom of  the system,  because individuals                                                               
were distributed from the bartender and cashier positions.                                                                      
REPRESENTATIVE  MILLETT asked,  of  the 30  shore positions,  how                                                               
many  people actually  lost their  jobs.   She also  inquired how                                                               
many open PCNs are unfilled.                                                                                                    
MR. NEUSSL replied  that he does not currently have  the open PCN                                                               
list.  He  stated that, of the 30 shoreside  positions, half were                                                               
filled  with on-call,  summer employees  who were  regularly laid                                                               
off on October 1, each year.   He estimated that of the remaining                                                               
15 eliminated positions, 5 full-time  positions were laid off and                                                               
the rest were intentionally left  vacant in anticipation of cuts.                                                               
He stated that he could get exact numbers at a later time.                                                                      
REPRESENTATIVE  MILLETT  inquired  as   to  the  distribution  of                                                               
layoffs. She asked how many  were placed in early retirement, how                                                               
many lost  their jobs  entirely, and  how many  were transitioned                                                               
into other positions, like the bartenders.                                                                                      
MR.  NEUSSL responded  that most  employees whose  positions were                                                               
eliminated were transitioned into other  positions.  He said AMHS                                                               
tried, as much as possible,  to avoid laying people off entirely,                                                               
because AMHS  tries to  take care  of their  employees.   He said                                                               
that he would follow up with exact numbers.                                                                                     
2:51:44 PM                                                                                                                    
REPRESENTATIVE  ORTIZ inquired  whether the  gift shop  employees                                                               
had additional duties on board the vessels.                                                                                     
MR. NEUSSL replied, yes.                                                                                                        
REPRESENTATIVE  ORTIZ asked  if  those  employees would  normally                                                               
fill their day with other duties, as assigned.                                                                                  
MR. NEUSSL  responded that they  would, to the extent  they could                                                               
within work/rest requirements.                                                                                                  
REPRESENTATIVE  ORTIZ asked  whether there  were some  ferry runs                                                               
where the bars were either cost neutral or created revenue.                                                                     
MR. NEUSSL  replied that  the issue  with the  bars was  not that                                                               
they  did  not  generate  revenue,   but  was  instead  the  cost                                                               
associated with  employing a bartender with  full state benefits.                                                               
It was not cost effective and the bars were losing money.                                                                       
REPRESENTATIVE ORTIZ asked  if all the bars on all  the runs were                                                               
losing money.                                                                                                                   
MR.  NEUSSL responded  affirmatively, but  clarified that  it was                                                               
possible that the bar on  the M/V Columbia coming from Bellingham                                                               
with a  full ship  in the  summer might have  been able  to break                                                               
even.  In general, the bars have lost $750,000 per year.                                                                        
2:53:57 PM                                                                                                                    
CO-CHAIR  HUGHES inquired  whether the  closure of  the bars  has                                                               
impacted ridership.                                                                                                             
MR.  NEUSSL  responded  that  feedback  from  community  meetings                                                               
indicated that  passengers enjoyed  the bars  as an  amenity, but                                                               
community members were generally  understanding when he explained                                                               
to  them that  the  bars  do not  produce  revenue  and that  the                                                               
essential mission of AMHS is to provide transportation.                                                                         
[CO-CHAIR HUGHES returned the gavel to Co-Chair Foster.]                                                                        
2:54:44 PM                                                                                                                    
MR.  NEUSSL continued  presenting slide  15. He  stated that  the                                                               
printed schedule  has been eliminated  and risk  management costs                                                               
have  been reduced.   The  State of  Alaska is  self-insured, but                                                               
AMHS  vessels  are  not.   The  risk  associated  with  operating                                                               
vessels  in a  marine environment  is high;  therefore, AMHS  has                                                               
commercial   liability  policies   through   the  Department   of                                                               
Administration,  and AMHS  has  managed to  reduce  the costs  of                                                               
those slightly.  Additionally, AMHS  has consolidated spare parts                                                               
at   the  Marine   Engineering   Building   in  Ketchikan,   thus                                                               
eliminating the cost of leasing a warehouse in Bellingham.                                                                      
MR.  NEUSSL discussed  slide 16,  "Revenue Enhancement,"  stating                                                               
that AMHS has  altered its cancellation and  change fee policies.                                                               
The  policy  used to  be  very  lenient, allowing  passengers  to                                                               
cancel at the last minute, with  very little or no penalty, which                                                               
resulted in sailing  with empty space because  AMHS usually could                                                               
not  resell the  reservation  prior  to the  ship  sailing.   The                                                               
alteration helps ensure that reservations  that are made are also                                                               
used;  if a  reservation is  cancelled too  close to  the sailing                                                               
date, AMHS  will extract revenue in  the form of a  change fee or                                                               
penalty.   He  said that  AMHS  has eliminated  all travel  agent                                                               
commissions  in  two  stages,   which  saved  approximately  $1.5                                                               
million per  year.   Mr. Neussl said  AMHS also  implemented some                                                               
tariff  equalization,  because  the  tariff  structure  had  many                                                               
anomalies and  inequities. For example,  he told of  one instance                                                               
when it cost a passenger $35 to  travel 130 miles on one run, and                                                               
$50 to travel 22 miles on a separate  run.  He said AMHS plans to                                                               
level and formalize the tariffs  and create a standard process by                                                               
which tariffs are set.  He  further related that AMHS has altered                                                               
some  discount  programs and  eliminated  both  the "Driver  Goes                                                               
Free" and  the "30 percent  mirror round trip  programs," because                                                               
the traffic numbers  are stable without them.   He explained that                                                               
the axed programs essentially served as  a rebate to users of the                                                               
system  and did  not result  in spikes  in ridership  or vehicles                                                               
being  transported; therefore,  they were  eliminated as  a cost-                                                               
savings measure.  He transitioned  to slide 17, "Fiscal Year 2017                                                               
and  Beyond,"  stating  AMHS  intends to  promote  itself  as  an                                                               
important part of Alaska's transportation system.                                                                               
2:57:41 PM                                                                                                                    
REPRESENTATIVE STUTES  inquired whether  there was  any intention                                                               
to  address  commercial rates.  She  noted  that many  commercial                                                               
fisherman in coastal fishing communities  use the ferry system to                                                               
ship their  fish out, rather  than a commercial  carrier, because                                                               
it is significantly less expensive.                                                                                             
MR. NEUSSL responded  that on November 1,  2015, AMHS implemented                                                               
a 20 percent increase on  commercial vehicle tariffs, which was a                                                               
result of the 2015 rate study.                                                                                                  
2:58:23 PM                                                                                                                    
CO-CHAIR FOSTER noted that there  were three minutes remaining in                                                               
the  meeting  and suggested  that  committee  members hold  their                                                               
questions and forward them to the DOTPF after the meeting.                                                                      
2:58:48 PM                                                                                                                    
MR. NEUSSL stated that the goals  of AMHS for 2017 and beyond are                                                               
to reduce  costs, increase  revenue, and  reduce the  fleet size.                                                               
He noted that  the Southeast Alaska Transportation  plan needs to                                                               
be updated, as it  is outdated.  He said the  final draft for the                                                               
2015  AMHS  Economic  Impact  Study was  complete  and  would  be                                                               
forwarded to the legislature as soon  as it is finalized.  Moving                                                               
to  slide  18, "What  We  Heard,"  he  summarized the  take  home                                                               
messages  from the  community meetings  he attended.   He  stated                                                               
that communities  want and need a  reliable, dependable schedule.                                                               
Turmoil with the  schedule in the transportation  industry is bad                                                               
for business.   Even the  threat of cancellations has  a negative                                                               
impact.    Sailing  the schedule,  as  published,  is  critically                                                               
important to not only the  Marine Highway System's ridership, but                                                               
also to  the businesses and  economies that  rely on it.   People                                                               
are  willing to  pay  more  for better  ferry  service, but  they                                                               
expect better ferry  service as a result.   Mr. Neussl reiterated                                                               
that communities and  economies develop with the  promise of AMHS                                                               
service.  For example,  110 people  from  Cordova attended  their                                                               
community  meeting  at a  building  that  was constructed  to  be                                                               
compatible with  a fast ferry, which  was intended to be,  but is                                                               
not,  home ported  there.   Cordova  had built  a convention  and                                                               
visitor's center  based on expected  vessel traffic, but  AMHS is                                                               
no  longer able  to provide  that vessel  on a  year-round basis.                                                               
The  entire  report compiled  from  each  of the  AMHS  community                                                               
meetings is available on the AMHS web site.                                                                                     
3:01:34 PM                                                                                                                    
CO-CHAIR  FOSTER  thanked MR.  NEUSSL  for  his presentation  and                                                               
stated that  if there are  questions, they could be  forwarded to                                                               
the co-chairs, who would respond accordingly.                                                                                   
3:01:46 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Transportation Standing  Committee meeting was adjourned  at 3:00                                                               

Document Name Date/Time Subjects
Final_AMHS presentation Jan 21 2016.pdf HTRA 1/21/2016 1:00:00 PM