Legislature(2013 - 2014)

04/02/2014 03:21 PM FIN

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                 SENATE FINANCE COMMITTEE                                                                                       
                       April 2, 2014                                                                                            
                         3:21 p.m.                                                                                              
3:21:28 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Meyer  called the Senate Finance  Committee meeting                                                                    
to order at 3:21 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Click Bishop                                                                                                            
ALSO PRESENT                                                                                                                  
Representative  Mark   Neuman;  Suzanne   Armstrong,  Staff,                                                                    
Senator  Kevin Meyer;  Deven  Mitchell, Executive  Director,                                                                    
Alaska   Municipal  Bond   Bank  Authority,   Department  of                                                                    
Revenue,  State Debt  Manager, Department  of Revenue;  Judy                                                                    
Dougherty,  Executive Director,  Knik  Arm  Bridge and  Toll                                                                    
Authority  (KABATA);  Jeff  Ottesen, Director,  Division  of                                                                    
Program  Development,   Department  of   Transportation  and                                                                    
Public Facilities.                                                                                                              
PRESENT VIA TELECONFERENCE                                                                                                    
SB 218    AK MUNICIPAL BOND BANK AUTHORITY                                                                                      
          SB 218 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
2dCSHB  23(RLS)                                                                                                                 
          KNIK ARM CROSSING; AHFC                                                                                               
          SCS 2dCSHB  23(FIN) was REPORTED out  of committee                                                                    
          with  a "do  pass" recommendation  and with  a new                                                                    
          fiscal impact note from  the Department of Revenue                                                                    
          and  a zero  fiscal  note from  the Department  of                                                                    
          Transportation and Public Facilities.                                                                                 
2d CS FOR HOUSE BILL NO. 23(RLS)                                                                                              
     "An   Act  creating   the  Knik   Crossing  Development                                                                    
     Corporation as  a subsidiary corporation of  the Alaska                                                                    
     Housing Finance  Corporation and  relating to  bonds of                                                                    
     the Knik Crossing Development Corporation."                                                                                
3:22:44 PM                                                                                                                    
Co-Chair Meyer confirmed that the committee was working                                                                         
with version R of the legislation.                                                                                              
3:23:02 PM                                                                                                                    
Senator Olson MOVED to ADOPT Amendment 1 (copy on file):                                                                        
     Page 6, following line 22:                                                                                                 
          "(f) The  state may not  issue bonds under  (a) of                                                                    
          this section  for financing the Knik  Arm Crossing                                                                    
          until the Knick Arm  Bridge and Toll Authority has                                                                    
          been approved  for a loan for  construction of the                                                                    
          Knick  Arm  Crossing   from  the  Federal  Highway                                                                    
          Administration,   United   State   Department   of                                                                    
          Transportation,     under    23     U.S.C.    601-                                                                    
          609(Transportation   Infrastructure  Finance   and                                                                    
          Innovation Act of 1998)."                                                                                             
Co-Chair Meyer OBJECTED for the purpose discussion.                                                                             
3:23:07 PM                                                                                                                    
Senator  Olson explained  that Amendment  1  would add  into                                                                    
statute  language to  specify that  unless TIFIA  loans were                                                                    
issued  from the  federal government,  the  state would  not                                                                    
issue any bonds for building the Knik Arm Crossing.                                                                             
REPRESENTATIVE MARK NEUMAN, commented that he had worked                                                                        
with Senator Olson to draft the amendment.                                                                                      
Co-Chair Meyer WITHDREW his OBJECTION.                                                                                          
3:24:29 PM                                                                                                                    
There being NO further OBJECTION, Amendment 1 was ADOPTED.                                                                      
3:24:41 PM                                                                                                                    
Co-Chair Kelly MOVED to ADOPT Amendment 2 (copy on file):                                                                       
     Page, Line 15:                                                                                                             
          Delete "Notwithstanding any other provision of                                                                        
          Insert   "Subject   to    AS   19.75.211(c)   [NOT                                                                  
         WITHSTANDING ANY OTHER PROVISION OF LAW]"                                                                              
     Page 4, Following line 31:                                                                                                 
          Insert a new bill section to read:                                                                                    
     "* Sec. AS 19/75/211(c) is amended to read:                                                                                
               (c) The  authority may not issue  bonds under                                                                  
               this chapter without  prior approval from the                                                                  
               legislature. If the  [THE] authority receives                                                                
               legislative   approval,  the   authority  may                                                                  
               issue  bonds in  an aggregate  amount not  to                                                                    
               exceed   $500,000,000   plus  the   cost   of                                                                    
     Renumber the following bill sections accordingly.                                                                          
3:24:47 PM                                                                                                                    
Co-Chair Meyer OBJECTED for the purpose of discussion.                                                                          
3:24:51 PM                                                                                                                    
SUZANNE  ARMSTRONG, STAFF,  SENATOR  KEVIN  MEYER, spoke  to                                                                    
Amendment 2. She related that  the amendment proposed to put                                                                    
in place  a sideboard  on the authority  of KABATA  to issue                                                                    
bonds.   Under  current   authorizing  statues   KABATA  was                                                                    
authorized  to issue  bonds at  an aggregate  amount not  to                                                                    
exceed 500 million plus the  cost of issuance. She explained                                                                    
that a question had been  raised concerning the retention of                                                                    
KABATA's bonding  authority, if the state  was issuing bonds                                                                    
for  the project.  The amendment  stipulated  KABATA had  to                                                                    
receive legislative  approval prior  to the issuance  of the                                                                    
3:26:27 PM                                                                                                                    
Representative Neuman  approved Amendment  2 as  a "friendly                                                                    
3:27:12 PM                                                                                                                    
Co-Chair Meyer WITDREW his OBJECTION.                                                                                           
There being NO OBJECTION, Amendment 2 was ADOPTED.                                                                              
3:27:32 PM                                                                                                                    
AT EASE                                                                                                                         
3:29:00 PM                                                                                                                    
3:29:36 PM                                                                                                                    
Vice-Chair Fairclough  understood that  if the  state passed                                                                    
the legislation  it would have  approved up to  $300 million                                                                    
worth of  bond as its  commitment to  the process as  it was                                                                    
currently presented.  She surmised  that Amendment  2 stated                                                                    
that KABATA would  have to seek legislative  approval for an                                                                    
3:30:53 PM                                                                                                                    
Representative Neuman  replied that  the amendment  spoke to                                                                    
funding concerns.                                                                                                               
3:32:12 PM                                                                                                                    
Vice-Chair  Fairclough  inquired  whether Amendment  2  only                                                                    
affected the expansion portion of the project.                                                                                  
Representative  Neuman understood  that the  amendment spoke                                                                    
to future expansion of the Knik Arm Bridge.                                                                                     
Vice-Chair Fairclough surmised that if  the bill went to the                                                                    
floor, was passed and concurred  by the other body, the $300                                                                    
million would be approved.                                                                                                      
3:32:51 PM                                                                                                                    
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK AUTHORITY,  DEPARTMENT OF REVENUE, STATE  DEBT MANAGER,                                                                    
DEPARTMENT OF  REVENUE, replied that the  bill would provide                                                                    
all of the  pieced of the financing puzzle  for the project.                                                                    
He  said that  Amendment 2  would eliminate  the ability  of                                                                    
KABATA  to   issue  toll  revenue  bonds,   which  would  be                                                                    
supported  by toll  revenue  growth in  the  future, for  an                                                                    
expansion  project or  other  projects  associated with  the                                                                    
bridge.  He agreed  that $300  million in  state toll  bonds                                                                    
would  be  authorized with  the  passage  of the  bill.  The                                                                    
finance plan  included: operation  and maintenance  would be                                                                    
paid by the project; federal  funds would be appropriated to                                                                    
the project; a  TIFIA loan, for an  additional $350 million,                                                                    
would be supported  by a direct pledge of  toll revenue form                                                                    
the  bridge. He  said that  there would  be no  state pledge                                                                    
associated  with the  TIFIA loan.  He spoke  to the  concern                                                                    
about  the elimination  of the  ability of  KABATA to  issue                                                                    
bonds  to potentially  limit the  type  of arrangement  that                                                                    
could be  made with  TIFIA for  purposes of  maintaining the                                                                    
TIFIA loan.                                                                                                                     
3:35:28 PM                                                                                                                    
Vice-Chair  Fairclough  understood  that Amendment  1  would                                                                    
protect the  state in  not allowing  the project  to advance                                                                    
without  the  TIFIA loans;  Amendment  2  would protect  the                                                                    
state on  any other kind  of bond issuance for  expansion by                                                                    
requiring legislative approval for expansion funding.                                                                           
Mr.   Mitchell  replied   that  she   was  correct   in  her                                                                    
3:36:17 PM                                                                                                                    
Senator  Dunleavy queried  the estimated  total cost  of the                                                                    
project was.                                                                                                                    
Representative Neuman  replied that the estimated  total was                                                                    
approximately $894,424.  He noted  that cost  overruns would                                                                    
fall back on the builder.                                                                                                       
3:37:23 PM                                                                                                                    
Senator Dunleavy  clarified that  the cost was  $894 million                                                                    
and not thousand.                                                                                                               
Representative Neuman said yes.                                                                                                 
3:37:28 PM                                                                                                                    
Senator Hoffman clarified  that the cost was  for a two-lane                                                                    
Representative Neuman replied in the affirmative.                                                                               
3:37:37 PM                                                                                                                    
Senator Dunleavy  asked whether  there were estimates  for a                                                                    
four-lane expansion.                                                                                                            
Representative Neuman  did not believe that  projections for                                                                    
the cost of a four-lane expansion had been run.                                                                                 
3:38:25 PM                                                                                                                    
Senator Dunleavy asked whether  $300 million was the state's                                                                    
bonding amount for the project before the committee.                                                                            
Representative Neuman said yes.                                                                                                 
Senator Dunleavy  asked for further explanation  on the full                                                                    
funding of the project.                                                                                                         
Mr. Mitchell  replied that additional  funding to  the state                                                                    
issued bonds  the TIFIA  loan was  anticipated to  be $341.3                                                                    
million and the additional federal  aid that would be needed                                                                    
was $226  million. He said  that the federal funds  would be                                                                    
in addition to $18.9 million  in funding that were currently                                                                    
available,  but   unobligated.  The  current   fiscal  years                                                                    
proposed appropriation of $55 million.                                                                                          
3:39:56 PM                                                                                                                    
Senator Dunleavy continued to probe  the cost of the project                                                                    
and the obligation to the state.                                                                                                
3:40:29 PM                                                                                                                    
Vice-Chair Fairclough  thought spoke to the  annual payments                                                                    
for the state's  bond liability. She asked in  what year the                                                                    
state would begin letting bonds for the project.                                                                                
Mr.  Mitchell responded  that  the state  would  need to  be                                                                    
obligated before additional federal  dollars could be spent.                                                                    
He  anticipated  that debt  service  on  the operating  side                                                                    
would ramp-up within the next few years.                                                                                        
3:42:03 PM                                                                                                                    
Vice-Chair Fairclough asked for a specific number of years.                                                                     
Mr. Mitchell responded one to three years.                                                                                      
3:42:14 PM                                                                                                                    
Senator  Olson  asked  Mr.  Mitchell to  speak  to  Page  5,                                                                    
section 5, line 17.                                                                                                             
Mr.  Mitchell  clarified  that the  bill  would  create  the                                                                    
authority  for   the  state  to  issue   bonds,  either  the                                                                    
authority or state bonds would be valid and binding.                                                                            
Senator  Olson  asked  whether Mr.  Mitchell  supported  the                                                                    
Mr.  Mitchell said  that he  had no  reservations concerning                                                                    
the language. He added that  if the legislature was going to                                                                    
consider that the state issue  bonds it should be clear that                                                                    
the pledge would be binding and valid.                                                                                          
Senator  Olson inquired  whether the  payments on  the TIFIA                                                                    
loans were backed by the moral obligation of the state.                                                                         
Mr. Mitchell replied no.                                                                                                        
3:44:04 PM                                                                                                                    
Senator Dunleavy understood that the  top end of exposure to                                                                    
the state for bonding would be $450 million.                                                                                    
Mr. Mitchell said yes.                                                                                                          
Senator  Dunleavy   surmised  that  TIFIA  funds   were  not                                                                    
incorporated  into that  figure; the  state did  not have  a                                                                    
moral obligation for TIFIA.                                                                                                     
Mr. Mitchell  relayed that  operation and  maintenance would                                                                    
be paid  first and that TIFIA  would be paid second.  If the                                                                    
revenues were  insufficient, TIFIA  would need  to negotiate                                                                    
with  KABATA to  develop a  plan to  rectify the  matter. He                                                                    
added that  many of  the issues would  be negotiated  in the                                                                    
beginning of  financing and that  none of the  options would                                                                    
include  the  state appropriating  money  to  pay the  TIFIA                                                                    
Senator Dunleavy thought that  if the toll scenario serviced                                                                    
the TIFIA  loan what  was left over  would be  servicing the                                                                    
bonds for the state.                                                                                                            
Mr. Mitchell responded in the affirmative.                                                                                      
3:45:26 PM                                                                                                                    
Senator Olson understood that the  state was last in line to                                                                    
be paid back for the project.                                                                                                   
Mr. Mitchell responded that the  state was third in line; if                                                                    
there was  not excess toll  collection for the  toll revenue                                                                    
bonds  then  the  state  would   be  obligated  to  consider                                                                    
appropriating money  to pay the  debt service. In  the event                                                                    
that  there  was excess  toll  revenue  the state  would  be                                                                    
relieved of the obligations.                                                                                                    
3:46:33 PM                                                                                                                    
Senator Olson expressed  concern that in the  event that the                                                                    
TIFIA money  needed to be  paid back a  direct appropriation                                                                    
from the legislature would be needed.                                                                                           
Mr. Mitchell  responded that the  state was not going  to be                                                                    
responsible for the TIFIA portion  of the loan. He said that                                                                    
the  appropriation that  should be  considered would  be the                                                                    
one associated with the toll revenue bonds of the state.                                                                        
3:47:35 PM                                                                                                                    
Senator Olson understood that the  state was not responsible                                                                    
to the TIFIA loan if the tolls came up short.                                                                                   
Mr. Mitchell said that was correct.                                                                                             
3:47:44 PM                                                                                                                    
Co-Chair Meyer  believed that  the TIFIA  loan would  not be                                                                    
given if the project did not seem viable.                                                                                       
Mr. Mitchell understood that the  TIFIA program was designed                                                                    
to be available for projects  that were relatively large and                                                                    
otherwise difficult to finance on a long-term basis.                                                                            
3:48:36 PM                                                                                                                    
Representative Neuman spoke to  the checks and balances that                                                                    
had been written into the current bill version.                                                                                 
3:49:10 PM                                                                                                                    
Co-Chair Meyer inquired  what would happen if  the state was                                                                    
denied the TIFIA loans.                                                                                                         
Representative Neuman said that if  the TIFIA loans were not                                                                    
approved then KABATA  would need to develop  a new financing                                                                    
Co-Chair  Meyer added  that the  legislature  then would  be                                                                    
asked for money to fund the project.                                                                                            
Representative Neuman agreed.                                                                                                   
Senator Olson asked what KABATA  would consider if this were                                                                    
the case.                                                                                                                       
Representative Neuman said that if  the TIFIA loans were not                                                                    
approved  KABATA would  develop  another  financing plan  to                                                                    
move forward.                                                                                                                   
Senator  Dunleavy wondered  about the  anticipated plan  for                                                                    
the Glenn Highway build-out over the years.                                                                                     
3:50:24 PM                                                                                                                    
Senator Olson asked about the  approximately $900 million to                                                                    
build  the  bridge.  He  wondered   if  the  costs  for  the                                                                    
improvements on  the northwest side  of the bridge  had been                                                                    
Representative Neuman  replied that  in 2014 the  stretch of                                                                    
the Parks Highway  between Wasilla and Big  Lake would begin                                                                    
construction  for a  four-lane  divided highway.  In 2016  a                                                                    
four-year  divided  highway  on Kink/Goose  Bay  Road  would                                                                    
begin. He  said that  the cost  would be  approximately $100                                                                    
million   and   was   included    in   the   current   state                                                                    
infrastructure plan.   He added that the  Mat-Su Borough, in                                                                    
anticipation  of future  projects, had  created an  800 foot                                                                    
utility corridor from mile 73  to the Knick Arm Bridge area.                                                                    
He anticipated  that the best  future expansion would  be to                                                                    
build a road straight north  that would send highway traffic                                                                    
straight  north   and  would  reduce  the   cost  of  future                                                                    
expansion projects.                                                                                                             
3:54:37 PM                                                                                                                    
Senator Olson asked what the  cost would be for improvements                                                                    
on the Government Hill side of the bridge.                                                                                      
Representative Neuman replied that  Phase 2 was estimated at                                                                    
$1.2 billion.                                                                                                                   
Senator Dunleavy  queried the anticipated traffic  volume on                                                                    
the bridge.                                                                                                                     
3:55:37 PM                                                                                                                    
Senator  Dunleavy inquired  about the  payment schedule  for                                                                    
the TIFIA loans.                                                                                                                
Mr. Mitchell  said it  would depend  on final  financing. He                                                                    
added  that there  would  be  semi-annual payments;  $20-$25                                                                    
million, per year, over a 20 year timeframe.                                                                                    
Representative  Neuman added  that currently  there were  19                                                                    
thousand vehicles  per day  at the  front und  of Knik/Goose                                                                    
Bay  Road  and  that  DOT had  testified  that  10  thousand                                                                    
vehicles per day would cover the cost of the bridge.                                                                            
3:57:10 PM                                                                                                                    
Vice-Chair Fairclough  wondered if a freight  mobility study                                                                    
was included in the backup.                                                                                                     
Representative  Neuman  deferred  the  question  to  DOT  or                                                                    
3:58:19 PM                                                                                                                    
Senator  Dunleavy inquired  what the  estimated minimum  and                                                                    
maximum average traffic counts were for the bridge.                                                                             
JUDY  DOUGHERTY, EXECUTIVE  DIRECTOR,  KNIK  ARM BRIDGE  AND                                                                    
TOLL   AUTHORITY  (KABATA),   responded  that   the  maximum                                                                    
estimation was 21  thousand vehicles per day.  She said that                                                                    
the  project only  needed to  carry  two lanes  in order  to                                                                    
carry the TIFIA debt service.  She asserted that the project                                                                    
did not depend on ever expanding to four lanes.                                                                                 
Senator Dunleavy queried the minimum traffic counts.                                                                            
Ms. Dougherty said that KABATA  anticipated that the project                                                                    
would reach  21 thousand vehicles. Immediately  following to                                                                    
completion  traffic  was  expected  at  approximately  6,000                                                                    
vehicles per day.                                                                                                               
4:01:20 PM                                                                                                                    
Senator  Hoffman requested  the maximum  number of  vehicles                                                                    
that the two-lane bridge would carry.                                                                                           
Ms.  Dougherty replied  that the  anticipation was  that the                                                                    
bridge would carry 21 thousand maximum vehicles per day.                                                                        
Senator  Hoffman  wondered  how  long  a  vehicle  could  be                                                                    
delayed at the tollbooth.                                                                                                       
Ms. Dougherty replied that the  tolling would be electronic;                                                                    
cars would  have a transponder  and there would be  no delay                                                                    
in   passing  through   the   tolling  mechanism,   tourists                                                                    
Senator Hoffman asked how tourists would be charged.                                                                            
Ms.  Dougherty responded  that  tourists  did not  generally                                                                    
travel in  their personally owned vehicles.  She stated that                                                                    
KABATA  would have  payment  arrangements  with all  vehicle                                                                    
rental companies.                                                                                                               
Co-Chair  Meyer understood  that  the system  had worked  in                                                                    
other states.                                                                                                                   
4:03:12 PM                                                                                                                    
Senator Hoffman recalled that it  had been previously stated                                                                    
that expanding  the two-lane bridge into  a four-lane bridge                                                                    
would  cost an  additional $300  million, which  he believed                                                                    
was a low estimate. He said  that Page 19 of the audit noted                                                                    
an approximate cost  of $1.6 billion. He  requested that the                                                                    
department weigh in on the possible cost of an expansion.                                                                       
JEFF  OTTESEN, DIRECTOR,  DIVISION  OF PROGRAM  DEVELOPMENT,                                                                    
DEPARTMENT OF TRANSPORTATION  AND PUBLIC FACILITIES, replied                                                                    
that  the estimate  seemed low  because the  bridge supports                                                                    
would  already  be  built, the  embankment  leading  to  the                                                                    
bridge  will  have  already been  built  giving  KABATA  the                                                                    
right-of-way. He stressed  that a lot of the  work will have                                                                    
already been  done in Phase  1, which  was why the  cost for                                                                    
the first phase was high.                                                                                                       
4:05:56 PM                                                                                                                    
Senator  Hoffman asked  if  Mr. Ottesen  stood  by the  $300                                                                    
million  figure  for  Phase  2,   and  if  so  how  did  the                                                                    
department  rectify   the  $1.2  billion  to   $1.6  billion                                                                    
proposed by KABATA as the cost for project.                                                                                     
Senator  Hoffman insisted  that  the  department answer  the                                                                    
question and  not KABATA, because  KABATA had  no experience                                                                    
building bridges or constructing roads.                                                                                         
Mr. Ottesen  replied that the  numbers for the  two projects                                                                    
were  hard   to  reconcile;  they  started   with  different                                                                    
assumptions and were working under  a "3P" model. He relayed                                                                    
that the 3P  approach involved profit on  top of everything.                                                                    
The project  had a 3P  constructor, financier  and designer,                                                                    
operating with higher  rates of interest on  the project and                                                                    
a profit  motive on  top. He reiterated  that the  model was                                                                    
different.  He said  that the  state would  pay interest  of                                                                    
approximately one-third of the cost  to construct and not on                                                                    
three-thirds.  He said  that the  state was  paying a  lower                                                                    
rate of interest  on that same borrowing. He  added that the                                                                    
state would  not pay profit  on 100  percent of the  cost of                                                                    
the project. He  said that the state was  assuming more risk                                                                    
with the assumption that it was getting a better deal.                                                                          
4:07:51 PM                                                                                                                    
Senator Hoffman inquired if the  administration stood by the                                                                    
estimate of $300 million for  Phase 2 to build an additional                                                                    
two lanes.                                                                                                                      
Mr. Ottesen replied in the affirmative.                                                                                         
Ms. Dougherty  clarified that the  estimate for Phase  2 was                                                                    
actually $550  million and not  $300 million. She  said that                                                                    
the cost  included the  widening of  the bridge.  She shared                                                                    
that there were  project extensions that were  part of Phase                                                                    
2 that  included 9.5 miles  of two-lane roadway  along Point                                                                    
MacKenzie Road.  She asserted that  the bridge  itself could                                                                    
cost   $300  million,   but  the   project  extensions   and                                                                    
connections were  part of  Phase 2 and  were options  to add                                                                    
once traffic  was at  a point where  the extension  would be                                                                    
Vice-Chair   Fairclough   queried   Ms.   Dougherty's   work                                                                    
experience was before she went to work for KABATA.                                                                              
Ms. Dougherty responded that she  worked for 22 years at the                                                                    
Department  of  Transportation  and Public  Facilities.  She                                                                    
noted  that a  large part  of her  career was  spent on  the                                                                    
Seward  Highway.   She  felt  that  she   brought  extensive                                                                    
experience to the project.                                                                                                      
4:10:50 PM                                                                                                                    
Senator Dunleavy  understood that the TIFIA  loans and state                                                                    
bonds could potentially  be paid if the  average carload was                                                                    
13,500 per day at $10 per toll.                                                                                                 
4:12:34 PM                                                                                                                    
Senator Dunleavy inquired if there  was a plan to expand the                                                                    
Glenn Highway.                                                                                                                  
Mr.  Ottesen replied  that there  was a  series of  projects                                                                    
that  had  been  laid  out  in  a  long-range  plan  by  the                                                                    
Anchorage  Metropolitan  Transportation Authority.  He  said                                                                    
that most of the projects had  not been funded and no design                                                                    
or environmental  work was  being done.  He said  that there                                                                    
was a plan but that no actual work was being done.                                                                              
4:14:35 PM                                                                                                                    
Senator Hoffman  asked what toll  figure the  department had                                                                    
used for calculating the payback of the loans and bonds.                                                                        
Ms.  Dougherty responded  that KABATA  anticipated that  the                                                                    
toll would start  at $5 per passenger  car and approximately                                                                    
$18 per truck  in the opening year. She  thought tolls would                                                                    
grow with inflation.                                                                                                            
4:15:38 PM                                                                                                                    
Mr.  Ottesen  commented  that there  was  no  other  highway                                                                    
project  in the  state  that  was proposing  to  pay all  of                                                                    
management and operations and much  of its capital costs. He                                                                    
said that if  the state did not build this  project, and had                                                                    
to  build capacity  between Anchorage  and Mat-Su,  it would                                                                    
have  to build  along the  Glenn Highway  Corridor. He  said                                                                    
that project would need federal  aid or state funds and that                                                                    
none of it would be paid for by the user base.                                                                                  
Co-Chair Meyer  understood that building along  the corridor                                                                    
would cost $600 million.                                                                                                        
Mr., Ottesen  replied that yes.  He added that once  you got                                                                    
into  the  Mat-Su  and  began  moving  traffic  through  the                                                                    
Wasilla Corridor  the cost would grow  considerably. He said                                                                    
that the traffic was being created  by the growth of the two                                                                    
Mr. Ottesen clarified that the  $600 million was the current                                                                    
estimate for  widening the Glenn  Highway out to  the Mat-Su                                                                    
Borough area.                                                                                                                   
4:17:23 PM                                                                                                                    
Senator  Dunleavy understood  that other  planned expansions                                                                    
would occur regardless of whether  KABATA moved forward with                                                                    
the project.                                                                                                                    
Mr. Ottesen said yes.                                                                                                           
Senator  Olson noted  that the  state  was facing  financial                                                                    
struggles. He expressed concern  that the project would cost                                                                    
the  state more  than  expected and  that  the state's  bond                                                                    
rating could be negatively affected.                                                                                            
Mr.  Ottesen  responded  that  he could  not  speak  to  the                                                                    
solvency of the  state's finances. He said that  he had been                                                                    
in the  state since  1977 and  had worked  in transportation                                                                    
since 1987.  He shared  that he  was here  for the  crash in                                                                    
1987.  He  asserted that Alaska bounced back  because it was                                                                    
a resource  state. He believed  that growth  would continue.                                                                    
He  said that  the 2008  recession only  dropped traffic  in                                                                    
Alaska by 4 percent.                                                                                                            
4:21:26 PM                                                                                                                    
Senator  Olson  noted that  the  2008  recession had  little                                                                    
effect on Alaska.  He clarified that he  was referencing the                                                                    
recession  that occurred  in the  mid 1908's.  He reiterated                                                                    
his concern that  the project would prove  too expensive and                                                                    
could prohibit the state from entering into other projects.                                                                     
Mr. Otteson  responded that  there were  cases where  it did                                                                    
not make sense for the  state to invest in projects directly                                                                    
when industry  could finance  improvements. He  thought that                                                                    
the  KABATA   project  was  a   good  example   of  building                                                                    
transportation in  the way  that would  cost the  state less                                                                    
overall. He  asserted that  the state was  going to  get the                                                                    
chance  to build  the  bridge with  someone  else footing  a                                                                    
large portion of the expenses.                                                                                                  
4:23:18 PM                                                                                                                    
Senator  Olson thought  that the  original  plan for  KABATA                                                                    
evolved  into  the  state  taking on  the  majority  of  the                                                                    
financial responsibility.                                                                                                       
Mr. Ottesen  replied that the  original plan was to  pay for                                                                    
the project  with earmarks. Then  earmarks became  a tainted                                                                    
issue  and  were  protected  by  the  late  Senator  Stevens                                                                    
through relabeling,  which resulted in  the loss of  half of                                                                    
the earmarked funding. He felt  that the funding plan, as it                                                                    
was currently set up, was sound.                                                                                                
4:24:47 PM                                                                                                                    
Senator  Olson worried  about  future  financial issues.  He                                                                    
believed that that money would  be taken from other projects                                                                    
in order to  fund the bridge. He wondered what  the plan was                                                                    
for projects that were yet to be completed.                                                                                     
Mr. Ottesen responded that the  department would be delaying                                                                    
projects  but   that  projects   would  not   be  cancelled,                                                                    
technically. He  asserted that the  majority of  the project                                                                    
would be built with  a 1 to 2 year delay  and many would not                                                                    
be delayed at all.                                                                                                              
Co-Chair Kelly  commented that bridges  and dams  were built                                                                    
in the country during  the Great Depression. He pontificated                                                                    
on the merits of the project.                                                                                                   
4:28:26 PM                                                                                                                    
Senator  Hoffman  stated  that  he  had  just  come  from  a                                                                    
groundbreaking  for  a  new  bridge  in  Western  Alaska  at                                                                    
Aleknagik, and  understood what  the dream  of a  new bridge                                                                    
could bring  to people  of the  state. He  said that  he had                                                                    
worked with the department on  the Aleknagik Bridge for over                                                                    
20  years to  build the  bridge and  wondered if  the KABATA                                                                    
project would take as long to complete.                                                                                         
4:29:43 PM                                                                                                                    
Representative Neuman  stated that there  had been a  lot of                                                                    
talk   regarding   traffic   revenues  and   the   different                                                                    
advantages of the project. He  noted that one thing that had                                                                    
not  been discussed  in  relation to  the  project was  what                                                                    
would happen  to the state's  communities if these  types of                                                                    
infrastructure projects  were not  pursued. He  worried that                                                                    
the growth  of Medicaid was  a measurement of the  health of                                                                    
Alaskans.  He opined  the possibility  the  state would  not                                                                    
have infrastructure  projects to attract capital  money from                                                                    
other entities that  wanted to invest in the  state. He said                                                                    
that  without  projects like  KABATA  the  state would  fall                                                                    
4:33:51 PM                                                                                                                    
SUZANNE ARMSTRONG, STAFF, SENATOR  KEVIN MEYER, spoke to the                                                                    
fiscal notes attached to the bill.                                                                                              
4:36:05 PM                                                                                                                    
Vice-Chair  Fairclough commented  for  the  record that  she                                                                    
drove on  the Glenn Highway  every day and sometimes  had to                                                                    
wait between  30 minutes and 2  hours to get home.  She said                                                                    
that the highway  was heavily used. She  stated that passing                                                                    
KABATA had  been a dream  for the Anchorage area  since 1960                                                                    
and the  project had only  increased in cost. She  felt that                                                                    
the  project would  lower the  cost of  goods and  services,                                                                    
decrease  carbon emissions,  lower  drive  time and  improve                                                                    
public safety.  She said  that nearly  all of  the available                                                                    
land  was  located  in the  Eagle  River/Chugiak  area.  She                                                                    
relayed  that development  had caused  flooding problems  in                                                                    
her community and had resulted in major clean-up projects.                                                                      
4:41:47 PM                                                                                                                    
Vice-Chair  Fairclough  believed  that  the  project  was  a                                                                    
greater public  service issue for  the people that  lived in                                                                    
the Anchorage  and Mat-Su area. She  supported the financing                                                                    
structure  in  the current  bill  version.  She stated  that                                                                    
safeguards  in the  legislation required  a phased  approach                                                                    
and  that the  TIFIA  loans  would be  repaid  based on  the                                                                    
numbers given to the federal government.                                                                                        
4:43:58 PM                                                                                                                    
Senator  Olson believed  in the  development of  residential                                                                    
areas. He warned that the  state was headed into a recession                                                                    
and that people would be  leaving the state. He thought that                                                                    
if the  state had plenty  of reserves and a  revenue surplus                                                                    
the  project would  be better  timed.  He strongly  believed                                                                    
that  the state  would not  be able  to support  the project                                                                    
4:46:07 PM                                                                                                                    
Vice-Chair  Fairclough MOVED  to REPORT  SCS 2dCSHB  23(FIN)                                                                    
as amended out of  committee with individual recommendations                                                                    
and the accompanying fiscal notes.                                                                                              
Senator  Olson OBJECTED  for the  purpose of  discussion. He                                                                    
reiterated his  concern that the  state could not  afford to                                                                    
go forward  with the  project. He  believed that  the timing                                                                    
was wrong.                                                                                                                      
Senator Olson MAINTAINED his OBJECTION.                                                                                         
4:49:12 PM                                                                                                                    
Senator  Dunleavy said  that he  had been  skeptical on  the                                                                    
original  funding  for the  project.  He  believed that  the                                                                    
funding  plan  in  the  current   version  had  renewed  the                                                                    
viability of the project.                                                                                                       
4:53:51 PM                                                                                                                    
Co-Chair Meyer requested a roll call vote.                                                                                      
4:54:33 PM                                                                                                                    
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Fairclough, Hoffman, Dunleavy, Kelly, Meyer                                                                           
OPPOSED: Olson                                                                                                                  
4:53:57 PM                                                                                                                    
SCS 2dCSHB 23(FIN) was REPORTED  out of committee with a "do                                                                    
pass" recommendation and with a  new fiscal impact note from                                                                    
the Department  of Revenue and  a zero fiscal note  from the                                                                    
Department of Transportation and Public Facilities.                                                                             
4:54:39 PM                                                                                                                    
AT EASE                                                                                                                         
5:02:29 PM                                                                                                                    
SENATE BILL NO. 218                                                                                                             
     "An Act relating to the Alaska Municipal Bond Bank                                                                         
     Authority; and providing for an effective date."                                                                           
5:02:58 PM                                                                                                                    
Ms. Armstrong presented an analysis  of the legislation. The                                                                    
bill  would  allow for  continued  operation  of the  Alaska                                                                    
Municipal  Bond Bank  by increasing  the borrowing  limit of                                                                    
the  Bond  Bank  from  $1   billion  to  $1.5  billion.  The                                                                    
legislation would  provide an opportunity for  the Bond Bank                                                                    
to assist the University of  Alaska with financing a heating                                                                    
or energy capital project and  would expand the list of Bond                                                                    
Bank activity  to include the  university for an  amount not                                                                    
to exceed $150 million.                                                                                                         
5:04:04 PM                                                                                                                    
Co-Chair Meyer  understood that the program  had popular and                                                                    
had  been in  place  for  a while,  which  had prompted  the                                                                    
request that the ceiling be raised.                                                                                             
Mr. Mitchell  said that  the Bond  Bank currently  had bonds                                                                    
outstanding of  approximately $905  million. He  shared that                                                                    
the Bond Bank  was a program that provided  lower cost funds                                                                    
to Alaskan municipalities and  certain other entities within                                                                    
the  state. The  program  would result  in Alaskan's  paying                                                                    
less interest  expense to third party  lenders. He explained                                                                    
that  the Bond  Bank was  an AA  plus rated  bank for  bonds                                                                    
primarily in  the tax  exempt markets.  He relayed  that the                                                                    
Bond  Bank had  approximately $95  million left  of capacity                                                                    
and  $80 million  of applications  for the  program; without                                                                    
additional  authority from  the  legislature  the Bond  Bank                                                                    
would not  be able  to continue work  in cost  reduction for                                                                    
municipalities. He noted  that the state was  not paying the                                                                    
debt service on the bonds directly  and that the core of the                                                                    
repayment  of the  funds came  from  the municipalities.  He                                                                    
highlighted  that in  the  40 year  history  of the  program                                                                    
there  had not  been a  single case  of payment  default. He                                                                    
continued to expound on the merits of the program.                                                                              
5:08:16 PM                                                                                                                    
Co-Chair  Meyer   asked  whether  there  was   concern  that                                                                    
municipalities might not be able to pay back a loan.                                                                            
Mr.  Mitchell responded  that the  Bond Bank  program had  a                                                                    
financial advisor  and a  board of  directors. He  said that                                                                    
the advisor  would independently analyze a  loan application                                                                    
submitted by a  community to study trends  in the community,                                                                    
changes  in   revenue  generation,  change   in  population,                                                                    
economic  activity and  assessed  value.  The advisor  would                                                                    
also consider the essentiality of  the project. The board of                                                                    
directors  would  review  the  advisors  recommendation  and                                                                    
deliver a decision on the  loan application. He said that in                                                                    
an   effort  to   direct  communities   to  success   strong                                                                    
applications that were likely  to be approved were typically                                                                    
brought to the board.                                                                                                           
5:11:07 PM                                                                                                                    
Co-Chair  Meyer  understood  that  the  university  had  the                                                                    
option of using  a different program to  acquire funding for                                                                    
the  power  plant. He  believed  that  the university  would                                                                    
receive  a lower  interest rate  through the  program rather                                                                    
than bonding themselves.                                                                                                        
Mr.  Mitchell  said yes.  He  added  that there  were  other                                                                    
allowances in  statute for the  Bond Bank to  participate in                                                                    
loans. He noted that it  provided a financial option but was                                                                    
not a requirement.                                                                                                              
Vice-Chair Fairclough asked  how much was paid  off in loans                                                                    
each year.                                                                                                                      
Mr.   Mitchell   responded   that   the   state   paid   off                                                                    
approximately  $35  million each  year.  He  added that  the                                                                    
state  had  a mature  portfolio;  each  year the  state  had                                                                    
declining debt  service and not  level debt  service because                                                                    
the bonds were all staggered into the past.                                                                                     
Vice-Chair  Fairclough   queried  the  expectation   of  the                                                                    
additional $350 million in bonding authority.                                                                                   
Mr. Mitchell  said that the  program was going to  be within                                                                    
the next 12 to 18 months,  in a position where the statutory                                                                    
limit  to  borrow  would  be  reached.  He  added  that  the                                                                    
distribution  of the  $350 million  would  depend on  future                                                                    
projects  being  developed  at the  local  level  that  made                                                                    
fiscal sense and could be repaid.                                                                                               
5:14:43 PM                                                                                                                    
Vice-Chair Fairclough  wondered how  the Bond  Bank's credit                                                                    
rating interacted with the state's credit rating.                                                                               
Mr.  Mitchell replied  that both  were closely  aligned. The                                                                    
Bond Bank  had a  moral obligation structure  established in                                                                    
statute; additionally, the bank  had an annual appropriation                                                                    
in the  operating budget that automatically  replenished the                                                                    
reserve fund in the event of borrower default.                                                                                  
5:16:35 PM                                                                                                                    
Vice-Chair  Fairclough  queried  the division  of  loans  in                                                                    
urban and rural communities.                                                                                                    
Mr.   Mitchell   responded   that   there   were   policies,                                                                    
regulations  and statutory  reference  to prioritization  of                                                                    
the type  of projects that  would be funded, but  that there                                                                    
was  no  regional  differentiation.  He  said  that  smaller                                                                    
municipalities were  more difficult to lend  to because they                                                                    
tended to have a limited ability to repay the state.                                                                            
5:18:29 PM                                                                                                                    
Vice-Chair  Fairclough  asked  if the  bank  considered  the                                                                    
state's credit rating when issuing bonds.                                                                                       
Mr. Mitchell said that the  concept of moral obligation debt                                                                    
was  part  of  the  conversation around  debt  capacity  and                                                                    
credit   ratings.  The   program's  history   as  a   credit                                                                    
enhancement did not  play a large role in  the debt capacity                                                                    
analysis. He  discussed the  bond program  and how  it could                                                                    
relate  to   Public  Employees'  Retirement   System  (PERS)                                                                    
5:21:31 PM                                                                                                                    
AT EASE                                                                                                                         
5:22:08 PM                                                                                                                    
Co-Chair Meyer discussed housekeeping.                                                                                          
5:23:03 PM                                                                                                                    
Co-Chair Meyer CLOSED public testimony.                                                                                         
SB 218 was HEARD and HELD in committee for further                                                                              
5:23:45 PM                                                                                                                    
The meeting was adjourned at 5:23 p.m.                                                                                          

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