03/14/2013 01:30 PM Senate TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Old Harbor Airport Runway Extension | |
| SB13 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 13 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
March 14, 2013
1:43 p.m.
MEMBERS PRESENT
Senator Dennis Egan, Chair
Senator Fred Dyson, Vice Chair
Senator Hollis French
MEMBERS ABSENT
Senator Anna Fairclough
Senator Click Bishop
COMMITTEE CALENDAR
PRESENTATION: OLD HARBOR AIRPORT RUNWAY EXTENSION
- HEARD
SENATE BILL NO. 13
"An Act relating to bonds of the Knik Arm Bridge and Toll
Authority; relating to reserve funds of the authority; relating
to taxes and assessments on a person that is a party to an
agreement with the authority; and establishing the Knik Arm
Crossing fund."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 13
SHORT TITLE: KNIK ARM BRIDGE AND TOLL AUTHORITY
SPONSOR(s): SENATOR(s) HUGGINS
01/16/13 (S) PREFILE RELEASED 1/11/13
01/16/13 (S) READ THE FIRST TIME - REFERRALS
01/16/13 (S) TRA, FIN
03/14/13 (S) TRA AT 1:30 PM BUTROVICH 205
WITNESS REGISTER
CARL MARRS, CEO and President
Old Harbor Native Corporation (OHNC)
Old Harbor, AK
POSITION STATEMENT: Commented on the Old Harbor airport runway
extension project that was started last year.
CYNTHIA BERNS-LOPEZ, Vice President
Corporate Affairs
Old Harbor Native Corporation (OHNC)
Old Harbor, AK
POSITION STATEMENT: Commented on the Old Harbor airport runway
extension project.
RICHARD WIEBE, Civil Engineer and Project Manager
Airport Runway Extension Project
Shearwater Systems, LLC
Old Harbor, AK
POSITION STATEMENT: Reviewed construction of the Old Harbor
airport runway extension.
JODY SIMPSON
Staff to Senator Huggins
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 13 for the sponsor.
MICHAEL FOSTER, Chairman
Board of Directors
Knik Arm Bridge and Toll Authority (KABATA)
Anchorage, AK
POSITION STATEMENT: Updated the committee on KABATA's mission
regarding SB 13.
LARRY DEVILBISS, Mayor
MatSu Borough
Palmer, AK
POSITION STATEMENT: Supported SB 13.
JAMIE KENWORTHY, representing himself
Anchorage, AK
POSITION STATEMENT: Opposed SB 13.
SUZANNE DIPIETO, representing herself
Anchorage, Alaska
POSITION STATEMENT: Objected to certain language in SB 13 over-
obligating the state financially.
BOB FRENCH, representing himself
Anchorage, Alaska
POSITION STATEMENT: Elaborated how TIFIA money is appropriated
regarding SB 13.
AVES THOMPSON, Executive Director
Alaska Trucking Association (ATA)
Anchorage, AK
POSITION STATEMENT: Supported SB 13.
THOMAS PEASE, representing himself
Anchorage, AK
POSITION STATEMENT: Opposed SB 13.
LOIS EPSTEIN, representing herself
Anchorage, AK
POSITION STATEMENT: Did not support SB 13.
ACTION NARRATIVE
1:43:42 PM
CHAIR DENNIS EGAN called the Senate Transportation Standing
Committee meeting to order at 1:43 p.m. Present at the call to
order were Senators French and Chair Egan.
^Presentation: Old Harbor Airport Runway Extension
Presentation: Old Harbor Airport Runway Extension
1:44:54 PM
CHAIR EGAN announced the Old Harbor Airport Runway Extension
presentation.
1:45:33 PM
CARL MARRS, CEO & President, Old Harbor Native Corporation
(OHNC), Old Harbor, AK, said the airport runway extension
project was started last year. He explained that the project had
been on the books for a long time, and Governor Parnell
challenged rural Alaska to help figure out ways to improve
economic opportunities in rural Alaska to stop the outmigration
of its communities, to think about public/private partnerships
and to think outside the box.
That is what they did, and they came up with a plan to
revitalize Old Harbor, but in order to do that they had to get
the tribe, the city and the Native Corporation all working for
the same priorities and objectives. Every six months they meet
in Old Harbor to make sure everybody is still on the same page,
and when issues come up they work through them.
This approach has been successful, he said. This project was
structured in a manner that allowed collaboration between the
state, the city, the tribe, the village corporation and the
federal government. They have achieved the goals while saving
the state tens of millions on this project alone.
1:48:30 PM
SENATOR DYSON joined the committee.
1:48:45 PM
CYNTHIA BERNS-LOPEZ, Vice President, Corporate Affairs, Old
Harbor Native Corporation (OHNC), Old Harbor, AK, said she was
raised in Old Harbor and works very closely with the city and
the tribe on economic development to sustain a healthy community
and to reach the goals of the community plan established in
2005.
She said Kodiak Island villages have a very strong renewable
resources seafood and fishing fleet, the fish resource being
their economic driver. They built the new small boat harbor to
support their fishing fleet and the city dock that can support
the state ferries. Both projects were completed on time and
under budget, and they are currently working on the airport
expansion and the hydro-electric project. All of these projects
are essential infrastructure and are multi-pronged economic
development efforts leading to a fish processing plant there.
A bi-annual leadership summit is held where community members
come together to establish priorities, provide infrastructure
updates on programs and projects and do strategic planning.
MS. LOPEZ said the community recognizes the importance of
working together and that they are challenged in getting the
airport expansion project moving forward. The village
corporation is providing the additional land for the extension,
and DOT estimated its in-kind value was $450,000. The Kodiak
National Wildlife Refuge is providing the subsurface rock for
the expansion, and through the Alutiiq Tribe of Old Harbor they
utilized the civil works program for the completion of the
environmental assessment and the permitting. This cost-shared
program has reduced the cost for these tasks in half.
A key component to the airport project is the Department of
Defense (DOD) Innovative Readiness Training program. This
program will provide substantial savings with the federal
government providing in-kind construction support. They have
approved IRT applications for 2013 and 2014 that were submitted
collaboratively by the City of Old Harbor and the Alaska
Department of Transportation (DOTPF). Through the IRT program
the Marine Corps will provide operators, equipment, and their
own fuel and housing support for the project. They are working
closely with DOTPF to ensure they are well-informed on the
project. This is a state-owned airport and will remain that way.
Their community just had to get very creative to complete this
project that will ultimately allow them to reach their goal of
building the economy with a fresh fish processing plant.
1:52:09 PM
RICHARD WIEBE, Civil Engineer and Project Manager for the
Airport Runway Extension Project, Shearwater Systems, LLC, Old
Harbor, AK, explained the airport project showing pictures of
conditions that existed prior to any work being done one year
ago. The runway was constructed in 1992 and has a small apron, a
maintenance building, and land is leased for one private hangar
at the facility. It is unpaved and unlighted.
1:53:03 PM
The existing runway had an object-free zone of 400 feet wide and
this will be increased to 500 feet. He explained that the
original runway cut through a ridge such that on the west side
there was a bluff about 80 feet high and on the east side a
bluff of 60 feet high. That doesn't meet the FAA slope
requirements, so those hills will be cut back to a ratio 7:1 and
the toe will be moved 50 feet further from the center line. They
will have quite a bit of fill on the extension up to 55 feet in
depth at the northern end. The slope is planned to have a ratio
of 3:1 on the south end and 4:1 on the marine end.
The past construction season overburden was removed in
preparation for blasting. They received 404 and 401 permits,
which will allow them to "spoil" additional organic material
within indicated locations. The total volumes moved will be
somewhere between 1.9 and 2.2 million cubic yards, depending on
what they encounter in depth of organic material in the
expansion area and the variation in the expansion material as it
gets loosened up. A majority of the fill will be on the north
end (over 600,000 cubic yards); the south end will get 140,000
cubic yards.
1:54:55 PM
MR. WEIBE said that Shearwater and its forces plan to begin the
construction season in April and go through June in further
preparation for the IRTs arrival on June 1. As part of their
secondary mission, they were challenged to train and hire local
operators, which they are doing. The tribe, the city and the
corporation provided scholarships to send three individuals
through training, and those were employed along with some others
who had experience. There are further plans for four more
scholarships, two for truck drivers and two for operators this
year, so the vast majority of their work force has been locally
hired. Including full time and part time workers, 14 are local
hires.
MR. WIEBE said once the IRT arrives, they will segregate the
work areas so that they don't co-mingle and have conflicts. Some
blasting will be done in April and May prior to their arrival to
generate enough material for the work season. Once they arrive,
Shearwater will move to the southeast side and work on the
extension to the south. Prior to their arrival, they will have
to push a haul road out and put in a temporary crossing over the
creek at the north end.
Grading plans are 90-95 percent complete; the southern end has a
300 foot extension, and a couple of streams need to be rerouted
around the fill area. They have been working closely with the
Divisions of Fish and Game in terms of their design, and they
have conducted fish studies monthly through the last season to
characterize these streams.
He said the north end has a 17,000 foot extension and they will
have to reroute Skulpin Creek and the road out to Midway Bay to
avoid having to install a costly culvert. A temporary pad for
construction activities and staging equipment is being
constructed for when they get to the point of the final sub-base
and finish force that is where the crushing operation will occur
outside the object-free area.
They have two areas of tidal land to fill in; one on the east at
the outlet of Skulpin Creek and one on the west side.
1:58:16 PM
SENATOR DYSON asked how high the runway and pad are above mean
high water.
MR. WIEBE replied its average elevation is around 55 feet with a
slight slope from end to end.
SENATOR DYSON said it looked like any tidal wave activity would
be pretty sheltered in there.
MR. WIEBE agreed.
SENATOR DYSON asked if they had done any analysis of that
possibility.
MR. WIEBE replied that would get done in 2014. Basically, they
need to cut in the new route for the creek and let it heal a
season before beginning to divert water.
1:59:14 PM
He said the second mod for the 404 permit was issued in
February; public comment closes on March 18 and grading plans
are essentially done. A draft safety and blasting plan has been
completed and is being circulated for final review; that will be
provided to Rob Marine at the Kodiak Airport who will also
receive notifications relative to the blasting and activities on
the runway. They have three stream permits that will be
submitted shortly for a temporary culvert.
He reported that the Alutiiq Museum will be doing the field work
for the section 106 archeological surveys. They did the initial
survey last year and located a couple of sites that need further
investigation. Shipment of this year's materials should occur
this Friday for the first barge run. They are adding two fuel
tanks to the city's fuel farm to accommodate fuel demands for
the IRT operation as well as the city's. This will further
enhance the city's opportunity in terms of scheduling barge runs
of fuel and price reductions due to the volume that can be
accommodated.
Blasting will begin in early April on the west side and go up
until the IRTs arrive and then move to the east side. The IRTs
plan three months of operation, June-August.
2:01:35 PM
He said they did soil borings and used a geotechnical report
from the original runway to check for consistency in the
material there and they also took samples in the northern
extension which hadn't received much boring in the earlier
study.
CHAIR EGAN asked if they had time constraints on when the
blasting occurs.
MR. WIEBE replied their main concern is if there are sea mammals
in the area. They will observe and postpone blasting if that's
the case. They are quite a distance from residences.
CHAIR EGAN asked if they were concerned about the skulpins.
MR. WIEBE said that issue came up and was dismissed, because
they were too far away to cause a problem. He said the north end
would be somewhat challenging because of a high water table, but
they were planning on using some geo-tech fabric in some of
those fill areas as well. He showed some pictures of the
project.
2:05:26 PM
SENATOR FRENCH asked if they were able to get $4.5 million from
the legislature last year and were asking for $6.6 million this
year.
MR. MARRS answered yes. He explained that they got started late
last year, so they are rolling some of that funding into this
season. The total project cost, depending on what IRT does, is
between $14.5 million and $18.5 million (versus the original
estimate of $38 million). In the meantime, they are hiring local
people and training them in something they can continue - like
operators and truck drivers. The ultimate goal is to be able to
fly fresh fish out of the Old Harbor airport in DC10s.
2:07:27 PM
CHAIR EGAN thanked the presenters.
SB 13-KNIK ARM BRIDGE AND TOLL AUTHORITY
2:07:42 PM
CHAIR EGAN announced SB 13 to be up for consideration.
2:08:23 PM
At ease from 2:08 to 2:10 p.m.
2:10:11 PM
JODY SIMPSON, staff to Senator Huggins, sponsor of SB 13, said
this is a companion bill to HB 23. This project - Knik Arm
Bridge and Toll Authority (KABATA) - has been discussed and
vetted over 35 years. SB 13 accomplishes three things: increases
KABATA's bond issuance capacity from $500 million to $600
million, which will allow them to offer the full allocation of
private activity bonds to the private developers to factor into
their proposals; it clarifies that the bridge is exempt from
local property taxes if the private partner operates the
facility on behalf of the state, which puts the bridge (which is
always owned by the state) in the same tax exempt category as
all state roads; and establishes a project reserve and details
the operation of this reserve. The reserve is where toll
revenues, appropriations and other funds will be deposited; it
will include a reporting and replenishment mechanism subject to
legislative appropriation.
She said these three elements are designed to achieve the best
value for the State of Alaska in the public-private partnership
that is being used to build the bridge. She recapped that KABATA
was established in 2003 by the legislature under AS 19.75 to
construct a bridge over the Knik Arm between the Municipality of
Anchorage and the Mat-Su Borough. In 2006, the legislature
amended the enabling statute to allow the authority to enter
into a public-private partnership to finance, design, build and
operate the crossing. Since that time, the authority has
followed the direction of the legislature by steadily advancing
the project toward construction.
2:13:20 PM
MS. SIMPSON said the sponsor wanted to emphasize that the MatSu
Borough population grew by 140 percent between 1985 and 2000;
during that same time Anchorage grew by 28.6 percent. Together
those regions grew by 44.5 percent. The communities of Knik and
Goose Bay, the area that will receive traffic from Anchorage
across the Inlet, if incorporated, would be the fourth largest
city in Alaska. The area has more people living in it right now
than live in the combined cities of Palmer and Wasilla.
From 2000-2010, she said, the auto count on Knik/Goose Bay Road
grew from 12,590 cars to 18,308. Currently, calculations
indicate the accident rate is nearly twice as high as the rates
on the Seward Highway.
2:14:46 PM
MICHAEL FOSTER, Chairman, Board of Directors, Knik Arm Bridge
and Toll Authority (KABATA), Anchorage, AK, said this project
gets down to the much needed new infrastructure Alaska needs as
a whole. It is not a connection between Point A and Point B for
the Municipality of Anchorage and the Mat-Su Borough, but rather
the infrastructure that would be important to the western side
of Cook Inlet, Interior Alaska and all the state. The way the
project is structured, the net revenue over time would actually
go back to Title 23 projects statewide from marine highways to
airports to harbors and board walks in rural Alaska.
2:16:54 PM
One of the most important pieces of this project starts with the
population growth in Southcentral of 44.5 percent between 1985
and 2000 and the resulting growth of traffic.
2:17:42 PM
The Department of Labor and Workforce Development (DOLWD)
modeled a projection in 2012 for Southcentral Alaska that showed
a growth in Anchorage of about 26 percent and in the Borough of
80 percent growth with an overall Southcentral growth of 39
percent. The University of Alaska's Institute of Social and
Economic Research (ISER) did a model in 2009 (funded through
DOTPF) before the census showing that growth in Anchorage was 20
percent and in MatSu 90 percent with the overall growth in
Southcentral was about 37 percent.
The growth in the MatSu Borough is one of the key components to
the traffic demand on the Glenn Highway. The 2009 ISER model
under-predicted MatSu growth by 9.8 percent. Using the same
factor of growth, he took the ISER model and plugged in the 2010
census numbers as an established baseline and that actually
showed a growth of 127 percent or a population of 190,000.
2:20:17 PM
MR. FOSTER said KABATA also had a model of Anchorage, the Mat-Su
Borough and Southcentral over the same timeframe that showed a
growth of 128 percent. Both models show about 100,000 additional
Borough residents. The overall area in Southcentral actually
grew by 42 percent. Projecting that out over the next 25 years,
Anchorage will grow by about 24 percent (in the last 25 years it
grew by 28 percent), and the Borough will continue to grow by
128 percent (in the last 25 years it grew by 140 percent).
The Anchorage Metropolitan Area Transportation Solutions (AMATS)
indicates that almost half of the growth in the Anchorage area
occurs along the Glenn Highway, more specifically north of the
Glenn at the Eagle River Bridge. Eagle River to Chugach to
Peters Creek out to Eklutna grew by about 74 percent in the
model; that is 44 percent of the total population growth that is
predicted for Anchorage. If you look at the population by
itself, you see a substantial growth along the Glenn Highway
from Eagle River out to the MatSu Borough over the past 25 years
or from Palmer to Wasilla to Knik, Goose Bay and parts thereof.
From the population, Mr. Foster said, comes the critical
component - traffic - because this is about transportation not
population growth.
He said the Glenn Highway at Eklutna in 1985 had an average
daily traffic count of 15,700; in 2010 that grew to 29,700, an
89 percent growth.
2:22:41 PM
CHAIR EGAN asked if that was for the same number of lanes.
MR. FOSTER answered no; the Glenn Highway had been expanded over
those 25 years. Their model predicted 65,000 vehicles at Eklutna
in the same time frame (2010-2035).
Highland, the next measuring point just south of the Eagle River
Bridge, where the six lanes start, in 1985 had 33,000 vehicles
(it wasn't six lanes all the way out to Highland in 1985) and in
2010 there were 52,000 vehicles. The Glenn traffic increased by
52 percent in those 25 years. The Glenn today is at "design
capacity," which means that is where it should be for the
highway speeds and the traffic counts. This is one reason why
another lane is being added southbound at the Eagle River Bridge
through a GO bond.
They project 110,000 vehicles in Highland in 2035 based on the
population models he discussed. This is a staggering number, but
he remembered in 1985 there were only 33,000 and in 2010 there
52,800.
2:25:17 PM
MR. FOSTER said there is a lot of discussion about who would use
this bridge if people will still use the Glenn. Again, this is
all about transportation, he said; the Knik Goose/Bay Road (the
road that brings the west side of Cook Inlet traffic to Wasilla)
might be called a highway, but between 2000 and 2010 the traffic
count on that road went from 12,600 to 18,400, a 45 percent
increase. Also based on the federal highway accident rates
(based on fatalities and major accidents in a "100 million mile
ratio"), the Knik/Goose Bay had a ratio of 22.something to a
ratio of 14 for the Seward Highway. If you look at all the
transportation corridors, the Knik/Goose Bay Road is clearly the
deadliest road in the state.
2:26:36 PM
The amount of population at the end of Knik/Goose Bay Road, if
that area incorporated today, would be roughly 17,000 people,
and it would be the fourth largest city in Alaska; and the
Palmer/Wasilla area combined is only about 14,000 people.
He said critics will talk about the use of the bridge and the
amount of traffic in years one and two, but in year one their
model predicts about 3,000 vehicles will cross the bridge one
way every day (or 6,000 total trips), which is similar to
traffic at Huffman or DeArmond in Anchorage now. Their models
shows in the initial years more trips start from Anchorage than
the other direction. He said with or without a bridge the Mat-Su
Borough in that area is the fastest growing portion of the
borough. "It is not a bridge to nowhere," he said; it already
has a correction facility, and a rail extension is coming into
Port MacKenzie that is also being developed as a resource
development. Some things are there already; this is just needed
infrastructure.
2:29:06 PM
In 2008, he said the DOTPF did a study of expanding the Glenn
Highway based on traffic predictions (Glenn going to six lanes
northbound and expanding to an eight-lane going out to north
Eagle River where a large portion of traffic comes on) and
estimated it would cost about $3 billion to expand over the
course of 25 years to handle traffic capacity. So you have to
ask yourself do you use STIP money to expand the Glenn or do you
look at another public-private partnership with toll revenue to
build infrastructure that, based on their models, will have a
net return to the state over the life of the concession
(although in the initial years they will have to draw from the
reserve fund to subsidize the payment). But based on their
traffic and population model, money will start coming back to
the reserve fund in seven or eight years and over the course of
45 years about $2.2 billion in net surplus can be used for Title
23 statewide for any eligible transportation project not only
for Anchorage and the Mat-Su Borough but for Southeast and rural
Alaska.
SENATOR FRENCH asked how much state and federal money had been
spent on KABATA to date.
MR. FOSTER replied $75 million.
SENATOR FRENCH asked him why raising the bond limit from $500 to
$600 million was necessary.
2:31:30 PM
MR. FOSTER answered that they currently have a $600 million
capacity through the Safe, Accountable, Flexible, Efficient
Transportation Equity Act (SAFETEA-LU), so they are just asking
to increase the capacity to match the capacity they have through
the private activity bonds.
SENATOR FRENCH asked why a bill was originally written for $500
million if SAFETEA-LU gave us $600 million.
MR. FOSTER answered that he wasn't here in 2003, but offered to
research it.
SENATOR FRENCH asked why the SAFETEA-LU is even a relevant point
when it's the state in essence giving them the authority to
issue the bonds.
MR. FOSTER answered that the public-private partnership is a
private entity that is responsible for financing, and it will
have to acquire the financial support through a TIFIA loan
process, private activity bonds or through private financing
options. All he does in the SAFETEA-LU process is to provide a
mechanism for tapping into the private activity bonds and the
federal government; the state is not responsible for the private
activity bonds.
SENATOR FRENCH asked if the state didn't need to issue bonds if
this part of the bill wasn't necessary.
MR. FOSTER answered that the department is a conduit for the
private activity bonds; it doesn't underwrite them. But they do
need statutory authority to issue them. Currently they have the
authority to issue up to $500 million, and this would increase
that amount to $600 million. They just provide the private
partner the ability to go to SAFETEA-LU as a financial
mechanism.
SENATOR FRENCH asked what happens to the project if the
Transportation Finance and Innovation Act (TIFIA) money doesn't
come through.
2:34:28 PM
MR. FOSTER replied that the reason they think they will get
TIFIA funds is that MAP 21 has about $17 billion in capacity and
Alaska has submitted one of the 29 letters of interest currently
into the Federal Highways Administration as part of the "greens
field" type loan process). He added that, in fact, if the
developer uses the TIFIA loan, payment isn't required for five
years after completion, and then it's a low interest in the
initial years that increases over time. Alaska is one of
eighteen states that have applied for it. They have applied for
49 percent, because there is a 49 percent ceiling but believe
that the TIFIA program will finance at least 33 percent, because
it doesn't appear that federal highways will allow many projects
to get that much.
2:35:55 PM
MR. FOSTER said he met twice with Secretary of Transportation
LaHood, the major projects group, and the undersecretary on the
TIFIA when he was in New York in June and asked them to write a
letter about what the state needs to do in order to advance in
the TIFIA process; it should be in their packets. Basically, it
says they want to see the commitment of the state. Also in their
packets should be a letter from the governor back to TIFIA that
says it's his intent to fund this. Mr. Foster said he felt 90
percent confident we will get TIFIA with this bill, but 100
percent confident we won't get it if this bill doesn't pass.
Alaska won't be in the running if they can't show that the state
is behind this project. Not getting TIFIA equates to about $100
million additional cost to the state; available financing would
cost more and need to be paid back sooner. They would probably
come back to the legislature for an additional appropriation to
the reserve fund - assuming the traffic count doesn't ramp up to
match some of their projections. The other option is to do a
milestone payment upfront to pay down part of that capital,
which could be done through STIP or Title 23 funds.
2:38:37 PM
MS. SIMPSON clarified that she didn't include the original TIFIA
letter, but she did include the governor's response as well as
Senator Huggins' response.
2:39:49 PM
LARRY DEVILBISS, MatSu Mayor, Palmer, AK, said that every mayor
in the borough totally supports this project; the Alaska
Conference of Mayors had also passed a resolution in support of
it as an indication that this is of importance to the broader
state, not just Anchorage and the borough. In anticipation of
the growth that is already moving towards the landing of the
causeway, they have already bonded and are starting construction
this summer on a new high school/middle school and are laying
out two town sites out there, one of which is already surveyed
and monumented. This project is a very necessary piece of their
infrastructure.
MR. DEVILBISS said he recently learned that of the 1 percent of
Alaska that is privately owned, 30 percent is in the MatSu
Borough, so it has a lot of room to grow.
2:42:10 PM
JAMIE KENWORTHY, representing himself, Anchorage, Alaska, said
SB 13 greatly expands the state's liability from the existing
KABATA statute. The new language says the legislature "must"
appropriate funds to make annual payments to the contractor to
pay off the bonds, and Section 5 says the state "shall" fund
KABATA's overhead, administrative costs, and working capital. He
said he believes a moral obligation for the agency's self-
defined operating funds is unprecedented.
He said there are four problems related to the state's liability
for this project, which counts on future tolls to make the
annual liability payments, the first being overestimated toll
revenues. KABATA's traffic and toll consultant, Wilbur Smith,
has an average overestimating error rate of 118 percent for the
first five years of all their national projects that have been
opened, more than a factor of 2. Those numbers come from the
Transportation Research Board of the National Academy of
Sciences. KABATA says there will be $4.2 billion in toll revenue
over 35 years, but Mr. Kenworthy said his estimate is half that
at $2.1 billion. That might be combined with the possibility of
50 percent fewer cars, which actually happened when CH2MHill
modeled ISER data for the Highway to Highway project.
Further, Mr. Kenworthy said that two Wilbur Smith projects have
already gone bankrupt and a few more are having their debts
restructured, which is bond talk for the state having to come up
with more money and the bond holders having to take a haircut
and stretch out the repayments.
SENATOR DYSON asked where it says the state must pay these
liabilities.
MR. KENWORTHY responded it doesn't say "moral obligation," but
under Section 5, KABATA is going to identify their cash needs
for admin working capital and overhead. If you ask any bond
counsel, the language of when you establish a reserve fund and
when you ask for an appropriation is the language that triggers
the moral obligation of the state. At that point the state will
have a choice of funding the reserve fund to make up for
whatever amount is needed according to what KABATA says it needs
(or is reneging on paying, in effect) and the national credit
rating agencies will see that language (which shows as
contingent liability on the state's balance sheet) and will then
basically ding the State of Alaska.
He believed that if this bill passes by next fall, KABATA would
issue a 35-year contract for billions of dollars and this
language would then be in place to fully replenish the reserve
fund to meet that moral obligation. The credit rating of the
state could then be downgraded, because the rating agencies will
notice that Alaska is now doing unlimited contingent
liabilities. Fitch right now has us at AAA; Standard Poor's and
+.
Moody's have us at AA
2:45:32 PM
SENATOR DYSON asked if the assets of the state would have to
back the fund if it goes in the ditch, so to speak.
MR. KENWORTHY replied yes, but it's a little more complicated.
The language that is needed to replenish the fund is customary
language for establishing a moral obligation. First, KABATA
would say there is too little money in the fund. A TIFIA
application clearly says in a footnote that at any time it gets
below $50 million they will ask the legislature for an
appropriation. That is when the legislature has two choices:
either appropriate the funds or have Wall Street notice that you
have a contingent liability you're not funding. AIDEA and AHFC
don't have such language, because they don't have this kind of
reserve fund for operating funds.
He said the second problem is the missing $500 million, because
KABATA was turned down last fall for the TIFIA loan. The third
problem is that the latest financial phase one plan includes
impossibly derived revenue from what has to be four lanes after
2025, but the plan only pays for a two-lane bridge out to 2051.
KABATA has to either take $1.9 billion out of the revenue
forecast, because that's the maximum load for a two-lane bridge,
or it needs to put in $550 million to $800 million for a four-
lane bridge in phase 2 and the connection to Ingrid/Gamble.
MR. KENWORTHY said the numbers in the last six financial pro-
forma plans really move around a lot. The 2010 one had $7
billion in availability payments, and now it's $2.7 billion.
However, they all have one fixed number, which is basically a
minimum bond cover ratio of 1.25:1.40, which means that you've
got to have $1.30 to pay $1.00 of costs.
2:48:04 PM
His opinion was that the numbers had all been reverse engineered
starting with the bond cover ratio and working back to the
traffic and tolls that would get that number. So, in 2011 they
asked for a $300 million loan from TIFIA and showed $600 million
more in toll revenue than this year's application, which
basically asks for a $500 million loan and has $600 million less
in tolls.
2:48:37 PM
MR. KENWORTHY said that the last problem is why this is a
public-private partnership deal instead of direct state bonding.
By KABATA numbers, the contractor is putting in $73 million of
equity and taking out $738 million in net cash flow for
financing the deal at 12 percent for 35 years, but he thought it
should be $150 million less. That would still add up to a half
billion dollars, because the state is guaranteeing the contract
but the contractor takes that contract to Wall Street and issues
the bonds. He questioned why the state should guarantee a
contract that pays 10-12 percent over 35 years when it can
borrow at less than 4 percent.
MR. KENWORTHY asked why the complicated P3 structure. His guess
was that this is the only way to sell the bridge as if it will
be free or to by-pass the capital budget process. He estimated
the bridge will cost a minimum of $2.6 billion or $3,500 per
Alaskan, plus the $2 billion in tolls. Basically, he thought the
whole deal was a house of cards that is only held up by a state
guarantee.
A different answer to Senator French's question was that the
original statute said that they could issue bonds that had to be
more than 125 percent of the bond buyer index (investment grade)
but that was when the private sector was going to share the
risk. But in this new section, the state is fully guaranteeing a
reserve fund to replenish the unlimited liability of this
project, and therefore it's all public sector taking the risk,
so they don't have to worry whether the market would give it an
investment grade; it's just a matter of the state acting as the
guarantor.
2:51:08 PM
SUZANNE DIPIETO, representing herself, Anchorage, Alaska, drew
their attention to specific language that takes the
unprecedented and needless approach of obligating the state to
cover unlimited shortfalls in the Knik Bridge's project
expenses.
The sections of the bill that create this obligation start on
page 2, lines 25-26, where KABATA already has the power to
create a "plain vanilla" project reserve fund in AS
19.75.221(h). At the bottom of page 2 and the top of page 3 is
the first new item which establishes that the legislature will
appropriate money into this reserve fund.
Language on page 3, lines 8-17, also says that KABATA must use
the money the legislature has appropriated into its reserve to
pay its debts and obligations. These two additions create a
special reserve fund into which the legislature will deposit
money and out of which KABATA will pay its operations and
maintenance including its contractual availability payments to
its private partner.
One more element to this structure is on page 4, lines 5-9, that
says each year KABATA must tell the legislature and the governor
how much it needs to cover its debts, and that amount "may" be
appropriated. This language signifies the state's pledge to
appropriate money to the reserve fund if it is insufficient to
the rating agencies. While the state could decide to not
appropriate the money, that failure to honor the moral
obligation is treated by the market as a default, and it would
be expected to react adversely by downgrading the credit rating
of the State of Alaska in general. On that point, she encouraged
them to review Commissioner Butcher's (DOR) letter to Senator
Thomas warning about this exact hazard. Additionally, using a
moral obligation reserve fund to cover operating expenses has
never been allowed in Alaska for any other moral obligation
reserve fund; and it should not be allowed for this project. She
thought that even passing this bill could create the type of
financial exposure that would cause rating agencies to have a
negative reaction when reviewing the state's credit rating for
future bond issues by the state.
If KABATA needs a project reserve fund, existing statute already
allows it to create one without roping the legislature into
continuous appropriations for the life of the project. She
concluded by asking them to delete sections 4, 5, and 7.
SENATOR DYSON said the state presently has north of $10 billion
of unfunded liabilities and $70 or 80 billion in cash reserves
and asked if this potential liability would have that much of an
effect on its present bond rating given those reserves.
MS. DIPIETO urged them to consult Commissioner Butcher's letter,
but added that in consulting with bond counsel in preparing for
this testimony she was told that this would have an effect of
possibly one step down grade - because of the unlimited nature
of the exposure.
2:58:06 PM
BOB FRENCH, representing himself, Anchorage, Alaska, said he
wanted to add information about what he thought were
misstatements by KABATA mostly at the House Transportation
Committee hearing on Tuesday. One was that more money is
available for TIFIA funding this year than in the past, but it
has strong competition. Once administrative overhead and
obligation limitations are figured in, federal highways
anticipates having $690 million available in FY2013 and $920
million in FY2014. Those actual dollars are leveraged around
10:1. So, $690 million is able to provide about $6.9 billion of
TIFIA backed loans for FY2013.
He explained that KABATA's chair, Mr. Foster, testified two days
ago that none of the TIFIA letters of interest had gone forward
to the evaluation stage, but that's not true. A week ago, New
York Governor Cuomo announced $1.5 billion to replace a bridge
would move to the next stage of the loan process. Successful
TIFIA projects will pay flat annual fees to the contractor.
KABATA's numbers show the project cost flow is negative for the
first nine years using 49 percent TIFIA money, not the many more
years that it would be if they got only $30 million or zero
TIFIA money, and they are still showing ballooning annual
payments starting at $25 million in year one going to $104
million in 2035. Other successful TIFIA projects have a real
private sector sharing of the risk, but this one is all public
money with a toll consultant's report that has a disclaimer
saying basically to not use its information to support any
financing plans.
He said that Mr. Foster also told them that KABATA had not
really been turned down five times by TIFIA, but that suggests
that the previous four times they really weren't trying, and if
that is the case, that is not rational economic behavior for
KABATA's financial consultants who are paid millions of dollars
for financial plans that don't include 49 percent of the project
costs coming from TIFIA.
Full revenues come from population and jobs, he said, and it's
informative to look at how those estimates have changed over the
years. Is it reasonable to predict that there will be only 30
new jobs in the Willow area by 2035 compared to the 13,828 jobs
that KABATA estimates will be created in the first half mile on
the west side of the bridge? How about zero new jobs near the
Buffalo Mine road or 169 new jobs in the entire Butte area?
In 2007, when KABATA was predicting a MatSu population of
250,000, the population and job estimates were spread all around
the borough. At the same time they estimated only 6,740 new jobs
at the Point Mackenzie area, less than half of what they were
predicting in those same areas in 2011 when the borough
population was estimated at 190,000 (per Mr. Foster). It appears
that KABATA's 2011 forecast was revised to include additional
jobs at Point MacKenzie in order to justify both north and south
bound traffic on the bridge to go to work - that the bridge will
collect $595,000 of tolls every day in 2051 or that an
equivalent of 2.5 Dimond Centers of retail will spring up in an
area that the borough has planned for tank farms and coal
loading facility. Another example of the flexibility used by
KABATA's consultants was shown in the growth of estimated toll
revenues. In 2007 they estimated $7 billion in toll revenues
over a 40-year contract for their P3 partner; in 2010 they
estimated $12 billion in total revenues over a 55-year contract;
in February of 2011 they estimated $4.8 billion for a 35-year
contract, but in December of 2011 it was $4.5 billion in 34
years. In their last financial plan (from August 2012) it was
$4.2 billion for a 34-year contract. The $600 million of lost
toll revenue changed over a period of only 18 months - four
times higher than what KABATA has said is the maximum amount
they need for their reserve fund.
AVES THOMPSON, Executive Director, Alaska Trucking Association
(ATA), Anchorage, AK, said he supported SB 13. They believe the
bridge will provide a vital new link in the regional
transportation system and an additional route into and out of
the port of Anchorage, provide some congestion relief on the
Glenn and Parks Highways and set up an efficient freight
corridor to Interior and northern Alaska.
3:05:59 PM
THOMAS PEASE, representing himself, Anchorage, Alaska, gave some
history of the proposed project and why he opposed SB 13. He
said the momentum for the Knik Arm Bridge originated from
federal earmarks and around $110 million in seed money of which
KABATA has spent over $70 million. But even a large gift from
Congress is not enough to sustain a project as expensive as the
Knik Arm crossing. It has promised to sustain itself with no
state money, but passage of SB 13 would hand a blank check to
KABATA signed by the State of Alaska for the entire cost of the
bridge, which some estimates place at $2.5 billion.
He said the Knik Arm Bridge is on AMATS' short term projects
list only because KABATA assured the Anchorage Assembly three
years ago that this project would not cost the state any money
to build. The Anchorage Assembly pressed hard on this point as
they were concerned a project as expensive as the Knik crossing
would consume state transportation money badly needed for other
road projects in Anchorage and throughout the state. KABATA
guaranteed the Assembly that the Knik Bridge would require no
state funding, and that is when the project got moved from the
long term to the short term AMATS list, which enabled KABATA to
pursue federal TIFIA loans, but even with the bridge on the
priority list, it was denied those loans on five separate
accounts, because even a federal loan agency recognizes this to
be a high risk project with likely cost overruns and inflated
traffic and toll projections.
MR. PEASE continued that once federal earmarks dried up, KABATA
shifted its financial focus to public private partnerships
(PPP). For several years they told anyone who would listen that
private investors would assume all risk in the bridge project
and that they had some of the largest international investment
firms knocking at the door and it would be just a matter of
months before they would have a contract. He had been assured
three years ago that KABATA was actively negotiating with
private investors, that no state money was on the table, and
that a signed contract was imminent. Now, several years later,
KABATA still has no private partner - and the reason is that
cost projections are understated, revenue forecasts are inflated
and the project is too risky. Today KABATA will tell people that
they still have private partners eager to sign a contract and
build a bridge and they do, but the private partner will sign
only if the State of Alaska guarantees 100 percent of the cost
of the bridge including cost overruns and toll revenue
shortfalls.
LOIS EPSTEIN, Engineer, Anchorage, Alaska, said she serves on
the AMATS Technical Advisory Committee and was speaking for
herself today. She did not support SB 13. Despite what they may
have heard she said the proposed Knik Arm Bridge is not ready
for construction. It is not a financially sound investment nor
is it reasonable to assume that the bridge will improve safety
on Southcentral roads. Further, she said the KABATA expects to
get a federal TIFIA loan for $500 million, but it hasn't
received a single TIFIA during its five attempts - resulting in
an "enormous hole" in their budget.
MS. EPSTEIN urged the committee to continue to press KABATA for
their financial plan. Their proposed toll is among the highest
in the country; so many people are likely to take the Glenn
Highway alternative to and from Anchorage, not to mention the
increasing use of telecommuting which doesn't require a car.
Additionally, Basing KABATA's toll revenue forecast on their
consultant's projection of population growth in the MatSu, which
is far greater than from other sources including the DOLWD and
ISER, puts almost all the future growth into the western part of
the borough, which knowledgeable experts believe is unrealistic.
That growth should happen in the Wasilla/Palmer area.
Unfortunately, the state's plan to do an independent audit of
bridge toll revenue was recently canceled, and the recently
issued Legislative Budget and Audit (LB&A) findings about KABATA
have not yet been addressed. According to the the real cost of
the Knik Arm Bridge, $2.6 billion plus, a document they had been
given, there are substantial costs to the state unaccounted for
by KABATA and its materials in testimony. So she urged the as
legislators to do their job and ascertain how much this project
will really cost the state on an annual basis prior to approving
this bill.
3:12:35 PM
She reminded them that inadequate traffic projections resulted
in a more than $2 million annual subsidy for the Whittier
Tunnel, a much smaller toll project.
3:13:52 PM
MS. SIMPSON, on behalf of the sponsor, asked the chair to allow
KABATA a two-minute wrap up.
3:14:39 PM
MR. FOSTER said KABATA had not tried to mislead the legislature
on the moral obligation language. Once the contract is signed,
there is about $1 billion of moral obligation on the books to
AIDEA, and this would add about another $1 billion to it.
CHAIR EGAN thanked everyone for their help and held SB 13 in
committee.
3:17:55 PM
There being no further business to come before the committee,
Chair Egan adjourned the Senate Transportation Standing
Committee meeting at 3:17 p.m.