Legislature(2017 - 2018)BARNES 124
02/15/2018 01:15 PM House TRANSPORTATION
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| Presentation: the Alaska Marine Highway System Reform Initiative Presentation: the Alaska Marine Highway System Reform Initiative | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
February 15, 2018
1:44 p.m.
MEMBERS PRESENT
Representative Louise Stutes, Co-Chair
Representative Adam Wool, Co-Chair
Representative Matt Claman
Representative Harriet Drummond
Representative Chuck Kopp
Representative Colleen Sullivan-Leonard
MEMBERS ABSENT
Representative Mark Neuman
Representative David Eastman (alternate)
Representative Gabrielle LeDoux (alternate)
OTHER LEGISLATORS PRESENT
Representative Justin Parish
Representative Jonathan Kreiss-Tomkins
COMMITTEE CALENDAR
PRESENTATION: THE ALASKA MARINE HIGHWAY SYSTEM REFORM INITIATIVE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ROBERT VENABLES, Executive Director
Southeast Conference
Juneau, Alaska
POSITION STATEMENT: Presented a PowerPoint presentation of the
Alaska Marine Highway System (AMHS) Reform Initiative.
DENNIS WATSON, General Manager
Inter-Island Ferry Authority;
Vice-President, Southeast Conference
Craig, Alaska
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
SHANNON ADAMSON, Union Representative
Steering Committee;
Regional Representative
International Organization of Masters, Mates, and Pilots (MM&P)
Juneau, Alaska
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
DAVID KENSINGER, General Manager
Inter-Island Ferry Authority
Petersburg, Alaska
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
GREG WAKEFIELD, Owner
AAA Moving & Storage (AAA Moving);
Member, AMHS Reform Project Phase 1 Steering Committee
Anchorage, Alaska
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
JOHN WATERHOUSE, Chief Concept Engineer
Elliott Bay Design Group ("Elliott Bay")
Seattle, Washington
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
SUSAN BELL, Principal
McDowell Group
Juneau, Alaska
POSITION STATEMENT: Testified during the AMHS Reform Initiative
presentation.
ACTION NARRATIVE
1:44:02 PM
CO-CHAIR LOUISE STUTES called the House Transportation Standing
Committee meeting to order at 1:44 p.m. Representatives Stutes,
Wool, Drummond, and Kopp were present at the call to order.
Representatives Sullivan-Leonard and Claman arrived as the
meeting was in progress.
^Presentation: The Alaska Marine Highway System Reform
Initiative Presentation: The Alaska Marine Highway System Reform
Initiative
1:44:39 PM
CO-CHAIR STUTES announced that the only order of business would
be a "Presentation: The Alaska Marine Highway System Reform
Initiative."
1:46:15 PM
ROBERT VENABLES, Executive Director, Southeast Conference,
stated he would share the findings and results of the Alaska
Marine Highway System (AMHS) Reform Initiative.
1:46:53 PM
DENNIS WATSON, General Manager, Inter-Island Ferry Authority;
Vice-President, Southeast Conference, stated that he previously
served as the mayor, City of Craig. He said the project team
for the AMHS Reform initiative strongly supports this effort.
From his perspective as a ferry operator, he shared that the
Alaska Marine Highway System (AMHS) provides Southeast Alaska
access north to Haines and south to Bellingham, Washington and
Prince Rupert, British Columbia. He emphasized the importance
of the AMHS to the communities in Southeast Alaska, for access
to transportation, goods and school or cultural events. The
Inter-Island authority would not exist without a functional
AMHS. The AMHS system also provides access to Western Alaska
communities.
1:48:52 PM
SHANNON ADAMSON, Union Representative, Steering Committee;
Regional Representative, International Organization of Masters,
Mates, and Pilots (MM&P), provided her background, including
that she has a United States Coast Guard issued license and she
has sailed as a licensed deck officer with the AMHS for seven
years. She has worked in her current position for three years.
She applauded the Department of Transportation & Public
Facilities (DOT&PF) on the AMHS reform project, especially for
actively involving the MM&P in this project. When the AMHS is in
decline it not only hurts communities but also the crews. The
Masters, Mates, and Pilots (MM&P) support this [AMHS Reform
report], because it recognizes that the AMHS is failing, but the
ferry system has an opportunity to succeed through this project.
Although the union does not agree with every recommendation, the
MM&P understands the give and take in the negotiation process
and the union can tolerate the outcomes. In closing, she said
that changes in the AMHS are desperately needed, that this
initiative represents positive change, and the union supports
it.
1:50:27 PM
MR. VENABLES recognized members in the audience, including Jan
Hill, Mayor, Haines Borough and the chair of the Southeast
Conference. He emphasized the importance of having Alaskans
articulate what the AMHS should be during this project. He
discussed the project process, and noted the steering committee
had statewide participation. Further, union and labor
representatives participated throughout the process, he said.
The goal has been to create a management structure empowered to
make the decisions to control costs and create revenue streams
to achieve a reliable and sustainable system. He invited Mr.
Kensinger to describe his experience with the AMHS.
1:53:10 PM
DAVID KENSINGER, General Manager, Inter-Island Ferry Authority,
shared his experiences and observations as a frequent traveler
on the AMHS and from operating a produce business in Alaska for
40 years. He estimated his family has traveled on the AMHS
ferries more than 100 times per year and doing so has shown him
the importance of the AMHS to communities. Further, he has
encountered hundreds of travelers whose destinations extend
beyond Southeast Alaska to all parts of Alaska. He realized the
depth of the problems the AMHS faces when in February, none of
the ferries operated in Southeast Alaska one day. In fact, this
was the first time since 1963 that the AMHS did not operate any
ferries. He reported that he often cannot use the ferry system
due to [intermittent or inconvenient] ferry schedules and
cancellations.
MR. KENSINGER said he believes in the [AMHS Reform Project]
because it uses fundamental business principles and processes
like long-term planning that is absent in the current AMHS. The
AMHS budget cycle is based on year-to-year legislative
appropriations that limit the AMHS's ability to operate
efficiently. These reforms can bring increased ridership,
provide long-range planning opportunities, and potentially
reduce the annual need for general funds. He acknowledged that
public funding is always necessary for public transportation.
He would also like to see more service with less cost to the
state. He said, "We can't get to that point until we have
something like this operational, this business plan, and this
change that we're proposing in front of you right now."
1:56:29 PM
GREG WAKEFIELD, Owner, AAA Moving & Storage (AAA Moving);
Member, AMHS Reform Project Phase 1 Steering Committee, stated
that his business operates in seven locations throughout the
state, including Kodiak, Fairbanks, Ketchikan, and Sitka. Since
1983 his business has grown from a small, local one-truck
company to the biggest one in Alaska. AAA Moving would be a
bigger customer of AMHS if it could rely on the ferry services.
He has participated in the AMHS Reform Project, as a steering
committee member to provide a business perspective. He
emphasized that the AMHS is a business - a public business -
which must be run on business principles, including customer
service, reliability, and meeting the needs of the marketplace.
MR. WAKEFIELD said that as a steering committee member he was
initially surprised at some of the AMHS's decisions. Once he
observed how often leadership changes and the effects the
political process has on the AMHS, he better understood the
decisions being made. He advocated for a public corporation,
one that would bring expertise, continuity of management and
improved decision-making to the AMHS. He highlighted that the
AMHS has some vessels over 60 years old, ones of that vintage
that typically are sold for scrap or to countries in Southeast
Asia for short-term hauls. He reported that consultants advise
replacing ferry vessels every six years.
1:59:30 PM
MR. WAKEFIELD urged members to adopt a public model to allow
this system to continue. As an AMHS user since the 1960s, he
felt that the system has grown, but not in the best way. He
explained that the AMHS is an integral part of public
transportation; however, he acknowledged that it is different
from highways and airports. In closing, he emphasized the need
for a focused, professional board that directs the AMHS's
management which will result in better decision-making that
allows for long-term sustainability and growth and reduce the
need for general fund appropriations. He said he would like his
grandchildren to have the opportunity to ride on the AMHS, but
changes must be made for that to happen. He urged members to
consider this proposal and move it forward.
2:01:45 PM
MR. VENABLES added that the AMHS Reform Project team listened to
Alaskans first.
2:02:16 PM
JOHN WATERHOUSE, Chief Concept Engineer; Elliott Bay Design
Group ("Elliott Bay"), stated that "Elliott Bay" is a naval
architecture and marine engineering firm who has worked with the
Alaska Marine Highway System (AMHS) for over 30 years, and
worked with Southeast Conference on this study. He offered to
present a PowerPoint to review the work and conclusions for the
project.
2:02:43 PM
MR. WATERHOUSE paraphrased slide 2, titled "Project Purpose"
which read [original punctuation provided]:
Create a strategic plan for AMHS
? To provide financially sustainable ferry service
that meets the needs of Alaskans
Two-phase project
?Phase 1: Mission, Goals, and Governance
Recommendations
?Phase 2: Strategic Operational and Business Plan
MR. WATERHOUSE said that "Phase 1" of the project was to
reaffirm the mission and goals; and review governance structures
used by ferry systems throughout the world to identify any that
might be preferred as optimal for the AMHS. He described the
"Phase 2" scope of work, which was to examine operational,
revenue, and planning aspects of the AMHS and develop
recommendations on how to improve the AMHS system.
MR. WATERHOUSE reviewed slide 3, titled "Project Team" which
read [original punctuation provided]:
Southeast Conference
? Contractors
? Elliott Bay Design Group
? McDowell Group
? KPFF Engineering Consultants
? Statewide Steering Committee
?Offices of the Governor and Lieutenant Governor
2:03:34 PM
MR. WATERHOUSE reviewed slide 4, titled "Phase 1 Scope of Work"
which read as follows [original punctuation provided]:
? Statewide Summit
? Stakeholder interviews
? Case studies of other ferry systems
? Mission statement refinement
? Analysis of alternative governance models
? Recommend governance model for AMHS
MR. WATERHOUSE said the project began with a listening session,
including a statewide summit and interviews with key
stakeholders. The group held discussions with the Department of
Transportation & Public Facilities (DOT&PF), the AMHS, and the
Department of Administration (DOA). He reiterated that the
group examined other ferry systems worldwide for best practices
that could be adopted, and it refined its mission statement as
well as making recommendations for a governance model.
2:04:28 PM
MR. WATERHOUSE turned to slide 5, titled "Phase 2 Scope of
Work," which read as follows [original punctuation provided]:
Define long-term operating strategy
? Task 1 - Revenue Analysis
? Task 2 - Operations Analysis
Task 3 - Operations Financial Model
? Task 4 - Structure and Benefit of Public Corporation
? Task 5 - Public and Stakeholder Engagement
Three tasks not funded
? Household and Business Survey
? Capital Needs Assessment
? Transition Plan
MR. WATERHOUSE explained that "Phase 2" furthered the work of
"Phase 1," examining how the recommended governance model to
create a public corporation would change the way the AMHS
operates. He pointed out the five tasks listed, noting that
three tasks were not undertaken due to lack of funding; however,
the unfunded tasks will need to be accomplished, including
engaging with the public, considering capital needs, and
developing a transition plan.
2:04:53 PM
MR. WATERHOUSE paraphrased slide 6, titled "Task 1 - Revenue
Analysis" which read as follows: [original punctuation
provided]:
? Identify mix of public funding and other revenues
for sustainability
? Consider possible changes to tariff rates and
structure
? Consider potential partnerships with private,
Tribal, municipal, and other entities
MR. WATERHOUSE remarked that the AMHS project group tried to
take a fresh look at revenue.
2:05:20 PM
MR. WATERHOUSE paraphrased slide 7, titled "Revenue Findings,"
which read as follows [original punctuation provided]:
? AMHS generates $50 million in annual operating
revenue
? Bellingham service is an essential source of revenue
(44% of total)
? Bellingham in the top 6 revenue port pairs
? Non-resident travel accounts for 42% of operating
revenue
? Best opportunity for revenue growth is through
forward funding
MR. WATERHOUSE highlighted the findings, noting $50 million in
operating revenue sources are generated from ticket sales, on
board food sales, and terminal operations. One of the strong
findings was that finding that Bellingham provides 44 percent of
the total system revenue.
2:05:58 PM
CO-CHAIR STUTES asked for the number of trips the AMHS takes per
year from Bellingham to Alaska.
MR. WATERHOUSE answered that he did not specifically recall,
although the AMHS operates 350 service weeks per year across all
the vessels. He said the figure for the number of Bellingham
trips was included in the report. In addition, the revenue
analysis identified the importance to all Alaskans for
nonresident AMHS passengers visiting Alaska since their
ridership helps underwrite the system.
2:06:49 PM
CO-CHAIR WOOL referred to the 44 percent of revenue attributed
to the Bellingham service. He asked if Bellingham was mentioned
because the services to be Bellingham could be cut.
2:07:20 PM
SUSAN BELL, Owner, McDowell Group, stated that her firm
contributed to the revenue analysis, governance model, and
public outreach. The firm reviewed all revenue by route and the
numbers of Alaskans using the ferry system. One inherent
question people have asked is whether the AMHS could sustain
itself if it only operated in Alaska. As Mr. Waterhouse
mentioned earlier, the Bellingham service was highlighted
because it is important to note that Alaskans receive benefits
from the Bellingham route; that the system would not be
sustainable without [the Bellingham route].
CO-CHAIR WOOL remarked that he appreciated the revenue
percentages and figures; however, the costs to operate the
Bellingham routes were not listed, including any maintenance
costs for ferries. He clarified that he was not necessarily
asking for those figures.
MS. BELL added that with the marine expertise that "Elliott Bay"
has, it provided more of the operational analysis. She stated
that the McDowell Group and "Elliott Bay" provided some pieces
that fit into the report. She that they are taking notes for
follow-up to provide more details for the committee.
2:09:11 PM
MR. WATERHOUSE stated that the AMHS relies on the general fund
to underwrite the ferry system operations; in fiscal year (FY)
17, the appropriation was $89 million. Still, the AMHS provides
public transportation for the "public good," he said. In fact,
the AMHS will always be dependent on funds from the state. It
is not feasible, given the geography of Alaska and ridership
levels for the AMHS to cover all the operating costs from fares.
2:10:04 PM
REPRESENTATIVE SULLIVAN-LEONARD directed attention to slide 7
and asked him to expand on the bullet point "Best opportunity
for revenue growth is through forward funding."
MR. WATERHOUSE responded that one key aspect of transportation
is reliability and given the decrease in funding for the AMHS,
the system has struggled to provide reliable service to
communities. The less reliable the AMHS is, the less people
will want to use it, he said. Thus, stable funding is essential
to allow nonresidents sufficient planning time. Many people
plan their vacations in advance and rely on published schedules
in the 6 to 12 months prior to their vacations. However, if the
AMHS lacks adequate funding to publish its schedule in advance,
it becomes more difficult to attract these vacationers. Thus,
"Elliott Bay" emphasizes creating stability in the system as
inherent aspects to "grow" fare revenue.
2:11:31 PM
REPRESENTATIVE SULLIVAN-LEONARD asked how that ties into the
consideration of creating a corporation.
MR. WATERHOUSE pointed out that Mr. Wakefield stated the [AMHS
Reform Project's] observation that a public corporation can
operate more nimbly, much closer to how businesses operate.
Businesses examine how to enhance their revenues, for example,
by considering and improving their customers experiences,
perhaps by making the vessels more reliable, or offering routes
with better schedules to suit ridership needs. Those represent
things that "Elliott Bay" believes a public corporation with a
good management team could achieve. He said that [a public
corporation] could improve the system for Alaskans and all
system users.
2:12:41 PM
MR. WATERHOUSE reported that "Elliott Bay" examined other ferry
systems, globally and nationally, including Scotland's ferry
system [Caledonian MacBrayne Clyde and Hebridean Ferries
(CalMac) that operates in a very similar geography. Scotland's
ferry system serves small, remote island communities with some
routes connecting to large towns or municipalities. The
consultants, ["Elliott Bay"] also examined the British Columbia
Ferry [Services, Inc.] which has a mix of urban routes
connecting Nanaimo and Vancouver, British Columbia, with some
routes serving smaller and more isolated communities in British
Columbia.
2:13:14 PM
MR. WATERHOUSE said "Elliott Bay" examined what constitutes the
best practices and common themes. Both ferry systems it
examined have found the public corporation model to be quite
effective in retaining the necessary links to public funding,
plus it is important to give the systems the ability to engage
in long-term planning. This public corporation model provides
the foundation that can be built on to reinvent the AMHS for the
next 50 years, he said.
2:14:03 PM
REPRESENTATIVE SULLIVAN-LEONARD asked for the anticipated amount
of the fiscal note to implement the AMHS as a public
corporation.
MR. WATERHOUSE responded that "Elliott Bay" has not calculated
any estimates for a transition plan. He suggested that the
costs to change the AMHS to an operational public corporation
would need to be done in consultation with the DOT&PF
commissioner.
2:15:04 PM
MR. WATERHOUSE turned to slide 8, titled "Revenue Findings,"
which read as follows [original punctuation provided]:
$89 million in GF support in FY17
?Down 28% from FY13 ($35 million cut)
?AMHS will always rely on public funds to provide safe
and reliable transportation
?Transition to a public corporation will not endanger
revenue flows from federal government
?Price Elasticity - Reduced fares are not likely to
produce sufficient new demand to compensate for loss
of revenue
MR. WATERHOUSE said that one aspect "Elliott Bay" reviewed as
part of the revenue study was price elasticity; for example, if
the AMHS lowered ticket prices would enough additional people
ride the ferry to compensate for the lower fares. During the
listening session feedback, "Elliott Bay" found that many people
believed that lower prices would increase ridership; however,
the study found that would not occur. Incidentally, the AMHS
has been working to rebalance some of the fares across the
routes, which needs to an ongoing focus of any new management
team. In addition, management could also review the dynamic
pricing model used by the cruise industry and to consider any
modern business practices that cruise lines and airlines use.
2:16:37 PM
MR. WATERHOUSE reviewed slide 9, titled "Operations Analysis,"
which read as follows [original punctuation provided]:
?Identify basic marine transportation needs for
Alaskans
?Examine current system operations to identify
strengths, weaknesses, and constraints
MR. WATERHOUSE reviewed slide 10, titled "Operations Findings,"
which read as follows [original punctuation provided]:
?Complex System
?9 Operational Vessels
?36 Ports of Call (37 Terminals)
?Variable service schedules
?Aging Fleet
Terminal/Vessel compatibility
?Service areas
?Terminal weight restrictions ? Traffic requirements
Residents, communities, and businesses require
reliable, consistent service
MR. WATERHOUSE advised members that the AMHS is complex and
complex issues cannot be resolved with simple answers. The
aging fleet causes uncertainty when vessels spend additional
time in the shipyard for repairs, which disrupts the system and
puts the management team into a crisis management mode rather
than focusing on planning and forward thinking.
MR. WATERHOUSE reviewed slide 11 "Operations Findings," which
read as follows [original punctuation provided]:
?Strengths
?Dedicated personnel at all levels
?Vital service to communities
?Weaknesses
?Lack of funding certainty for planning, scheduling,
and market development
?Aging fleet with increasing and unexpected service
losses
?Management - labor alignment
MR. WATERHOUSE reviewed the strengths of the AMHS, noting that
all the AMHS's personnel want the system to operate better than
it currently works. The AMHS provides vital service for
communities, many of which have no other options for travel. In
terms of weaknesses, he highlighted that "Elliott Bay" found
that the AMHS needs to improve the alignment between management
and labor. He offered his belief that a public corporation
could provide an opportunity for them to focus on a common
vision and work together.
2:18:41 PM
CO-CHAIR WOOL asked whether other systems such as in Scotland
use standardized vessels in its fleets for interchangeability of
parts and ease of maintenance. He further asked whether the
AMHS system issues is an anomaly or if other systems have
similar problems.
MR. WATERHOUSE responded that most other systems operate with a
legacy fleet, with the typical age of vessels from 25 to 30
years. Some of Scotland's ferries are 40 to 45 years old
whereas the United States, Alaska and Washington, is an anomaly
because it uses its vessels for 60 to 65 years. One additional
challenge the AMHS faces is the port size; for example, a vessel
such as the motor vessel (M/V) Columbia cannot serve the smaller
port community of Angoon due to the dock size. In addition, the
smaller vessels such as the M/V Aurora or M/V LeConte cannot
operate on some ocean routes [due to the vessel sizes and
navigability]. One challenge will be to minimize the number of
vessel types and to standardize components within the vessels to
obtain efficiencies of scale, he said. He emphasized the public
corporation's flexible plan and strategic vision structure could
help move the AMHS in that direction.
2:20:54 PM
CO-CHAIR WOOL directed attention to management/labor alignment.
He imagined "Elliott Bay" spent considerable time examining
alignment, especially in terms of wages and benefits. He asked
whether it was a "Pandora's Box."
MR. WATERHOUSE agreed that "Elliott Bay" has held extensive
discussions, including meeting with representatives of the three
marine labor unions and the Department of Administration (DOA).
One challenge has been that the collective bargaining agreement
is currently handled by the DOA and not by the AMHS. Thus, the
AMHS does not control the labor negotiations; however, the AMHS
participates in negotiations in an advisory capacity. Since
labor represents the largest cost in running any ferry system
all businesses want to control costs. The labor sector agree
that its representatives need to be part of the negotiations.
The good news is that there is a team sentiment, as it will take
efforts by all parties to make this system better and work
together, he said. Anecdotally, he stated that Alaska Airlines
learned long ago that its front-line people, the people
maintaining the airplanes must be aligned with management to
deliver a quality product, which he referred to as the "Alaska
Airlines model."
2:22:56 PM
MR. WATERHOUSE reviewed slide 12, titled "Task 3 - Operations
Financial Model," which read [original punctuation provided]:
?Develop representative model to simulate the system
and demonstrate relative impact of proposed/possible
changes
?Identify primary cost drivers
MR. WATERHOUSE said the reason to create a financial model was
to give "Elliott Bay" the ability to test different ideas. For
example, the financial model allows "Elliott Bay" to test
whether a route to Bellingham covers its costs or whether it
makes more sense to have three or four shuttle ferries deliver
ferry service at levels expected by the communities.
MR. WATERHOUSE reviewed slide 13, titled "Operations Financial
Findings" which read as follows [original punctuation provided]:
? Shifting to a modern fleet and governance system
provides more cost effective service
? There are no scenarios whereby all operating costs
can be recovered through the farebox
? Bellingham service is required for system viability
? Primary vessel fleet cost drivers
?Personnel & Travel 54% of system total expenses
69% of operating expenses
?Capital improvements & maintenance 13% of system
total expenses 16% of operating expenses
?Fuel 10% of system total expenses 14% of
operating expenses
MR. WATERHOUSE said personnel and travel represent the highest
cost factors. Capital improvements and maintenance are ongoing
and increasingly challenging as the fleet ages. One bright spot
is that fuel prices have been down, but prices do not tend to
stay down forever, he said. He emphasized that "Elliott Bay"
believes that shifting to a modern fleet and changing the
governance system will provide cost improvements in the system.
Washington State ferries can cover 75 percent of its operating
costs through their fares; however, these ferries serve dense
urban areas that transport significant numbers each day. By
contrast, North Carolina's state ferry system covers 13 percent
of its operating costs through fares. Other states have taken
different approaches to public transportation policy, he said.
The "Elliott Bay" consultants believe the AMHS can improve its
"farebox" recovery, but it must grow the revenue aspects and
make the fleet more efficient, he stated.
2:25:04 PM
MR. WATERHOUSE reviewed slide 14, titled "Task 4 - Corporate
Structure and Benefits," which read as follows [original
punctuation provided]:
?Objective: Describe a governance structure that best
empowers management team to operate AMHS economically
and meet users needs
MR. WATERHOUSE stated that "Elliott Bay" considered the Alaska
Railroad as a model and reviewed how the AMHS is connected to
other state government, in order to validate its opinion from
Phase 1 that the public corporation would be the best model. He
acknowledged that the "devil is in the details."
MR. WATERHOUSE reviewed slide 15, titled "Governance -
Findings," which read as follows:
? Convert AMHS to a public corporation
? Maintains existing benefits
? Intradepartmental coordination
? Public purpose
? Access to federal funding
? Access to shared services
? DOT&PF
? Dept. of Administration
? Dept. of Law
? Addresses existing limitations
?Frequent turnover in senior leadership
? Indirect labor negotiations
? Short-term planning horizon
? Political influence over operational decisions
? Additional benefits
? Align labor and management interests
? Reduce labor costs strategically
? Incorporate expertise of board members
? Operate in more business-like manner
2:25:37 PM
MR. WATERHOUSE advised that converting the AMHS to a public
corporation would still maintain access to federal funds and
allow intradepartmental coordination between the Department of
Law and the Department of Administration. In terms of
limitations, he suggested that with strategic thinking labor
costs can be controlled or reduced through automation and system
efficiencies.
2:26:30 PM
MR. WATERHOUSE reviewed slide 16, titled "Task 5 - Public and
Stakeholder Engagement" which read as follows [original
punctuation provided]:
?Objective: Guide a process to share information and
gather essential input
? Public Engagement Plan
? Steering Committee and Sub-Committee input
? Key stakeholder engagement
?Residents, employees, community/business leaders,
riders
? Develop and maintain new project website
? Public meetings ? Media outreach
2:26:34 PM
MR. WATERHOUSE said the AMHS relies on the goodwill of Alaskans.
The public engagement plan included extensive meeting to better
understand the friction points. For example, the McDowell Group
created a website to solicit comments and feedback from the
public. The results informed the "Elliott Bay" report and guide
its recommendations.
2:27:05 PM
MR. WATERHOUSE reviewed slide 17, titled "Stakeholder Findings"
which read as follows [original punctuation provided]:
? Public confirmed that AMHS is vital to community
economic well-being
? Many suggestions for generating operating revenues
and controlling costs
? Continued outreach is essential
? Inform Alaskans about the statewide benefits of
AMHS
? Educate and engage key stakeholders
MR. WATERHOUSE again referred to the "Alaska Airlines model," to
illustrate that the company continues to create "touch points"
with its customers, which keeps its presence in customers'
minds. These are lessons that could be learned and applied to
the AMHS, he said.
2:27:38 PM
MR. WATERHOUSE reviewed slide 18, titled "Project Steering
Committee," which read as follows [original punctuation
provided]:
Chair: Dennis Watson - Craig
? Dave Kensinger - Petersburg
? Greg Wakefield - Anchorage
? Elizabeth Bolling - Ketchikan
? Shannon Adamson - Juneau
? Josh Howes - Anchorage
? Will Ware - Juneau
? Sharon Hildebrand - Fairbanks
? John Whiddon - Kodiak
? Dan Kelly - Ketchikan
? Michael Anderson - Cordova
? Dennis Bousson Skagway
? Ex-officio Commissioner Luiken
? Staff: Robert Venables
MR. WATERHOUSE thanked the steering committee.
2:28:02 PM
MR. WATERHOUSE reviewed the funding supporters, listed on slide
1, titled "Project Sponsors" which read as follows"
LEGACY CONTRIBUTORS
? City & Borough of Juneau
? City of Ketchikan
? City of Valdez
? First Bank
? Haines Borough
? State of Alaska
BENEFACTORS
? Alaska Committee
? City and Borough of Sitka
? Lynden Inc.
BRONZE SPONSORS
? Best Western Landing Plus
Central Council Tlingit Haida Indian Tribes of Alaska
? City and Borough of Wrangell
? City of Cordova
? City of Craig
? City of Pelican
? City of Thorne Bay
? City of Unalaska
? Cordova Chamber
? Greater Sitka Chamber
? Huna Totem
? Hyder Community Association
? Inter-Island Ferry Authority
? Madison Lumber & Hardware
? Marine Engineers ? Masters Mates and Pilots Union
? Petersburg Chamber of Commerce
? Petersburg Economic Development Council
? Sitka Economic Development Association
? Sitka Tribes of Alaska
? SouthWest Alaska Municipal Conference (SWAMC)
? Travel Juneau
? Wrangell Convention and Visitors Bureau
SILVER SPONSORS
? City of Kodiak
? Ketchikan Marine Industry Council
? Municipality of Skagway
? Prince William Sound Economic Development District
? Vigor, Ketchikan Alaska
MR. WATERHOUSE commented that many communities contributed to
the AMHS Reform Project, as well as many government entities.
2:28:36 PM
SUSAN BELL, Principal, McDowell Group, continued the PowerPoint
presentation. She reviewed slide 20, titled "Overview of Phase
3," which read as follows [original punctuation provided]:
?Tactical Strategy
?Interim Measures
?Action Plan
Challenging Times Require All Hands on Deck
2:28:46 PM
MS. BELL said that "Phase 2" concluded with the draft report
presented in Haines in September (2017) and at the Southeast
Conference that met last week in Juneau. Throughout "Phase 2,"
the initiative did not have transition plan funding; however, it
currently has a lean transition plan budget. She reported that
the tactical strategy has been completed. It largely described
for the steering committee, the Southeast Conference board, and
others, the legislative process, timing, and budget process,
including how the public can engage in that process. Currently,
the ["McDowell Group"] has been identifying measures that can be
done now and whether the system can begin to move towards some
of these objectives or implement some of the things that were
learned in the "Phase 2" report.
2:29:35 PM
MS. BELL reviewed slide 21, titled "Developing Concepts for
Interim Measures" which read as follows [original punctuation
provided]:
?Identify actions that can be taken now
? Enhance sustainability of the system
? Align with larger objectives
MS. BELL said if enabling legislation passes that the action
plan would outline how to get from the current organization to
the future. The group presented some of the initial concepts at
Southeast Conference last week in Juneau, she stated. Another
concept is to examine whether an administrative order or
executive order is needed for the system, and if not, to
identify any other barriers.
2:30:18 PM
MS. BELL reviewed slide 22, titled "Stabilize Funding" which
read [original punctuation provided]:
? System has no resiliency
? Current actions will have long-term implications on
the fleet, employees, and market
MS. BELL emphasized that funding to create a corporation is an
urgent issue, although she did not wish to belabor the point.
She acknowledged that "Elliott Bay" has more depth in this area;
however, the "McDowell Group" did want mention that decisions
made for training, maintenance, and port operations have long-
range implications and can help ensure consistent operations.
MS. BELL reviewed slide 23, titled "Fleet and Terminal
Standardization" which read as follows [original punctuation
provided]:
? Standardization results in budget savings
Training, labor contracts, maintenance, port operations
? Modern automations can reduce crew requirements by
10 percent
2:30:46 PM
MS. BELL acknowledged that "Elliott Bay" has more depth in this
area; however, the "McDowell Group" did want mention that
decisions made for training, maintenance, and port operations
have long-range implications and can help provide consistent
operations. The group will be working more closely with the
DOT&PF, the Governor's office, and the DOA to identify more
details.
MS. BELL reviewed slide 24, titled "Labor Relations" which read
as follows [original punctuation provided]:
? Shift negotiations from DOA to AMHS
? Enhance labor/management relations
? Establish Director of Labor Relations
? Free senior management from time spent in disputes,
discipline, and negotiations
? Build internal knowledge base and relationships
needed to lead contract negotiations
MS. BELL recalled Co-Chair Wool previously asked about labor
relations. She concurred that the DOA leads the negotiations
and the AMHS has been a participant in an advisory capacity.
She suggested that if the AMHS was leading the negotiations that
it could develop expertise in leading negotiations; however, the
"McDowell Group" also recommends that a Director of Labor
Relations position be contemplated. This would allow Captain
Falvey and other senior management time to focus on other
issues, including to resolve disputes, engage in discipline, and
be involved in negotiations, which are all important activities.
The "McDowell Group's" role has been to review other public
corporations, including the Alaska Railroad Corporation, the
Mental Health Trust Authority, and Permanent Fund Corporation to
see what lessons are applicable, she said. For example, the
Alaska Railroad has a single Director of Labor Relations since
the [labor relations] process involves building knowledge and
relationships. She pointed out that impacts from turnover is
not just within the DOT&PF, but also in the Governor's office
and the DOA. She acknowledged that the learning curve is steep.
She reiterated that the system would benefit from continuity in
the labor relation's position.
2:33:12 PM
CO-CHAIR STUTES related her understanding that there needed to
be a more continuity in upper management due to the political
effects. She offered her belief that a public private
partnership could offer more stability the whole process.
MS. BELL concurred, stating that it ties in throughout the
system, that a change in vessel affects training or port
configurations resulting in budget implications.
2:34:26 PM
MS. BELL reviewed slide 25, titled "Continue Market and Revenue
Analysis" which read as follows [original punctuation provided]:
Need to understand markets to deploy resources
effectively
? Bellingham = 44% of operating revenues
? Non-residents = 42% of revenues
? Passengers have statewide impacts
? Non-residents travel throughout road system
? 51% visit Anchorage
? 36% visit Denali
? 25% visit Fairbanks
MS. BELL recapped that market and revenue analysis was performed
as previously highlighted. The "McDowell Group" also examined
non-revenue sources. She said that the AMHS needs to delve more
deeply beyond the context of the study to understand the
markets, and to deploy market resources and assets more
effectively. She emphasized the passengers have statewide
impacts, noting that nonresidents travel throughout the road
system and most often visit Anchorage, Denali, and Fairbanks.
In fact, this has been a consistent finding, she said. In
response to a question, she referred to a map with more detail
on destinations throughout Alaska. She acknowledged that her
point was to demonstrate the top three destinations were outside
the coastal communities.
2:37:33 PM
CO-CHAIR WOOL asked for further clarification on the ferry port
used to access Anchorage.
MS. BELL answered popular disembarkations are Haines and
Skagway. She offered to show him the tables, which are sorted
by revenue and numbers of passengers.
2:38:39 PM
CO-CHAIR WOOL said he was familiar with the Haines ferry,
although this disembarkation requires crossing the border [into
Canada and then to Alaska], which makes it more cumbersome. He
noted the Alaska Railroad route links the communities of
Anchorage, Denali, Fairbanks, and Seward. He suggested that
tying the AMHS to the Alaska Railroad routes could create
synergy.
MR. VENABLES responded, stated that the AMHS direct service to
Seward was discontinued. The AMHS currently serves Whittier.
He characterized the inner-connectivity that the AMHS wants to
promote. For example, a person can currently travel from
Fairbanks to Miami, by rail, connecting to the ferry system,
disembarking in Bellingham, switching to Amtrak rail and
ultimately arriving in Miami. He characterized the AMHS as a
vital connection the road system, the rail, and to airports.
2:40:21 PM
MS. BELL continued by stating that this analysis can be used to
make decisions. She referred to slide 26, titled "AMHS carried
Alaskans from 175 communities, " and offered to provide the map
and details in a larger format that could be more easily read.
MS. BELL reviewed slide 27, titled "Alaska Resident Details,"
which read as follows [original punctuation provided]:
? Fairbanks North Star Borough
? 3,316 passengers
? 1,409 vehicles \
From Fairbanks, Fort Wainwright, North Pole,
Eielson, Salcha, and more
? Bethel Census Area
? 218 passengers, 52 vehicles
? From Aniak, Kipnuk, Kwethluk, Sleetmute, and
more
2:42:23 PM
MS. BELL reviewed slide 28, titled "Additional Considerations"
which read as follows [original punctuation provided]:
?Operational Changes
? Efficiencies available from vessel deployment,
planning, maintenance
? Board and Staff Development
? Gain needed business knowledge and leadership
skills to run the organization
MS. BELL characterized these as interim measures. She suggested
that the AMHS system could move incrementally towards the type
of system that is important. What warrants additional
discussion, is what type of staff and board development is
needed so if the legislature passed the bill to create a
corporation that people would have leadership skills and
knowledge to move forward. She suggested the committee may wish
to have a follow-up meeting. She said the "McDowell Group"
would like to take this information and have the system move
forward without waiting for some future date.
2:43:34 PM
MS. BELL reviewed slide 29, titled "In Closing" which read as
follows [original punctuation provided]:
?AMHS is a critical aspect of the statewide
transportation system
? Statewide users and benefits
?Working to achieve a more sustainable, businesslike
operation
MS. BELL recalled earlier testifiers who highlighted the missed
opportunities with the current AMHS.
2:44:22 PM
MR. VENABLES thanked committee members for listening to the
presentation. He reported that Southeast Conference was formed
in 1958 and its first objective was to create the AMHS. Sixty
years later, the Southeast Conference has the same passion as an
organization to recreate it. The Southeast Conference has a
[huge] stack of studies articulating problems of the AMHS. This
has been the first effort to identify a solution set, which may
not be perfect yet, he said. He emphasized that the
organization would like to engage with the legislature to find a
more perfect management model going forward. He characterized
the consultants' work as amazing, noting at one point, over 3
million data points had been considered to pull this information
together.
2:45:22 PM
CO-CHAIR STUTES thanked the presenters. She said she was
excited to see that this is a statewide project to address a
statewide problem.
2:46:16 PM
REPRESENTATIVE KOPP said he was very excited about the direction
the Southeast Conference was recommending. He considered the
concept of operating the AMHS using a business approach was very
significant. He noted that allowing a more direct, rather than
a mediated relationship with the labor sector, and being more
nimble, responsive, and effective. He offered his belief that
the ability to allow for partnerships is greater, that the
governor has granted a waiver for Prince Rupert on the Buy
America Act for sourcing steel for a dock. He said that
goodwill with Canada is currently very high. He acknowledged
some things could be done with British Columbia ferries, and
other things that are just not possible right now [using the
recommendations]. He said he was excited. He applauded the
Southeast Conference and the consultants who brought this
forward.
2:47:56 PM
REPRESENTATIVE DRUMMOND said she was excited to hear that this
was moving in the right direction. She said she has been a
passenger on the Inner-Island Ferry from Ketchikan to Prince of
Wales Island. She was glad to see the stakeholders involved
from all areas of the state. She said she was born and raised
in New York City, that her grandmother was raised on a 10-acre
farm on Staten Island, and she has spent considerable time
riding on the Staten Island ferries. She said she and her
mother did not learn to drive until later in life because they
used public transportation. Mr. Venables previously mentioned a
person could walk on in Fairbanks and walk off in Florida. She
said it is important to consider every user. In fact, every
DOT&PF project needs to consider every user, not just cars on
highways, but also the walkers, the strollers, and the bikes.
She liked that the project considered how other states recover
their costs. She said she challenged the commissioner of DOT&PF
to demonstrate what part of the paved highway system recovers
revenues to the degree that the ferry system does now. She
said, "It's not, that's just not happening." She commented that
Washington state recovers 75 percent of its costs and another
state recovers 13 percent of its costs.
2:49:57 PM
MR. WATERHOUSE commented that it was North Carolina that
recovers 13 percent of its overall costs from fares.
Incidentally, his firm, Elliott Bay Design Group, designed the
new Staten Island ferries that are currently under construction,
he said. Every system is unique; that Alaska is more unique
than most. He encouraged the committee to understand that
working with complexities is part of what needs to happen to
move forward. He was pleased that the DOT&PF, the executive
branch, and labor has acknowledged the crisis, but that the
crisis could drive change in a positive direction for the AMHS.
2:50:53 PM
CO-CHAIR WOOL said he would need more time to take a trip to
Miami, that his brother is currently on a train trip. Having
taken a trip to Kodiak via the AMHS with Representative Stutes
and reviewing this today makes him excited about the AMHS. It
also makes him want to take another trip via the ferry system.
He wishes the AMHS was more accessible to the road system. He
offered his belief that changing the model to a corporate
structure is important. Although many things need to be sorted
through, it seems like they were on the right track. He thanked
the presenters.
2:52:14 PM
CO-CHAIR STUTES thanked the Southeast Conference, the Elliott
Bay Design Group, the McDowell Group and the steering committee
for the AMHS for this presentation.
2:53:15 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 2:53
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AMHS Reform Presentation 2.15.18.pdf |
HTRA 2/15/2018 1:15:00 PM |
|
| Additional Documents - The Case for AMHS Reform 2.15.18.pdf |
HTRA 2/15/2018 1:15:00 PM |
Alaska Marine Highway Reform Initiative |