Legislature(2009 - 2010)BUTROVICH 205

03/17/2009 01:00 PM TRANSPORTATION


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01:00:52 PM Start
01:01:45 PM SB142
01:06:07 PM Alaska Transportation Finance Study
02:01:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 142 TRANSFER RAILROAD LAND TO DOTPF:FAIRBANKS TELECONFERENCED
Moved SB 142 Out of Committee
Transportation Finance Study Overview:
Alaska Municipal League
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
                         March 17, 2009                                                                                         
                           1:00 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Linda Menard, Vice Chair                                                                                                
Senator Bettye Davis                                                                                                            
Senator Kevin Meyer                                                                                                             
Senator Joe Paskvan                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Albert Kookesh, Chair                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 142                                                                                                             
"An Act authorizing the conveyance of certain land of the Alaska                                                                
Railroad Corporation to the Department of Transportation and                                                                    
Public Facilities; and providing for an effective date."                                                                        
     MOVED SB 142 OUT OF COMMITTEE                                                                                              
                                                                                                                                
Overview: Alaska Municipal League Alaska Transportation Finance                                                                 
Study                                                                                                                           
     HEARD                                                                                                                      
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 142                                                                                                                  
SHORT TITLE: TRANSFER RAILROAD LAND TO DOTPF:FAIRBANKS                                                                          
SPONSOR(s): SENATOR(s) PASKVAN                                                                                                  
                                                                                                                                
03/09/09       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/09/09       (S)       TRA, L&C                                                                                               
03/17/09       (S)       TRA AT 1:00 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JEFF STEPP, Staff                                                                                                               
  to Senator Paskvan                                                                                                            
Alaska Capitol Building                                                                                                         
Juneau AK                                                                                                                       
POSITION STATEMENT:  Introduced SB 142 on behalf of the Sponsor.                                                              
                                                                                                                                
DENISE MICHELS, President                                                                                                       
Alaska Municipal League                                                                                                         
Board of Directors                                                                                                              
Nome AK                                                                                                                         
POSITION  STATEMENT:    Commented on  the  Alaska  Transportation                                                             
Finance Study.                                                                                                                  
                                                                                                                                
CHRISTOPHER WORNUM                                                                                                              
Cambridge Systematics, Inc.                                                                                                     
Cambridge MA                                                                                                                    
POSITION STATEMENT:  Delivered  the Alaska Transportation Finance                                                             
Study.                                                                                                                          
                                                                                                                                
JEFF OTTESEN, Director                                                                                                          
Division of Program Development                                                                                                 
Department of Transportation &                                                                                                  
  Public Facilities                                                                                                             
Juneau AK                                                                                                                       
POSITION  STATEMENT:   Responded to  questions related  to Alaska                                                             
highways.                                                                                                                       
                                                                                                                                
KATHY WASSERMAN, Executive Director                                                                                             
Alaska Municipal League (AML)                                                                                                   
Juneau AK                                                                                                                       
POSITION STATEMENT:   Explained  why the Alaska  Municipal League                                                             
commissioned the Alaska Transportation Finance Study.                                                                           
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:00:52 PM                                                                                                                    
VICE  CHAIR  MENARD  called the  Senate  Transportation  Standing                                                             
Committee meeting to  order at 1:00 p.m.  Senators Paskvan, Meyer                                                               
and  Menard were  present at  the  call to  order. Senator  Davis                                                               
arrived soon thereafter.                                                                                                        
                                                                                                                                
       SB 142-TRANSFER RAILROAD LAND TO DOTPF: FAIRBANKS                                                                    
                                                                                                                                
1:01:45 PM                                                                                                                    
CHAIR MENARD announced the consideration of SB 142.                                                                             
                                                                                                                                
JEFF  STEPP,  Staff to  Senator  Paskvan,  introduced SB  142  on                                                               
behalf  of  the sponsor.  He  explained  that the  Department  of                                                               
Transportation  and Public  Facilities  (DOTPF)  is preparing  to                                                               
reconstruct  Illinois Street,  which provides  primary access  to                                                               
downtown  Fairbanks  when  traveling  from the  north.  This  new                                                               
construction will be over the Chena  River into the center of the                                                               
golden heart of the city. To  complete the project DOTPF needs to                                                               
acquire full interest in approximately  five acres of what is now                                                               
railroad property.  The Alaska Railroad Corporation  Act requires                                                               
legislative  approval  for  the  action to  go  forward.  SB  142                                                               
provides that authority  and specifies that DOTPF  will provide a                                                               
combination  of cash,  land of  equal value  or a  combination of                                                               
both to the Alaska Railroad.                                                                                                    
                                                                                                                                
At ease at 1:03 pm.                                                                                                             
                                                                                                                                
CHAIR  MENARD,  finding no  one  who  wanted to  testify,  closed                                                               
public testimony and asked the will of the committee.                                                                           
                                                                                                                                
1:04:31 PM                                                                                                                    
Senator Davis joined the committee.                                                                                             
                                                                                                                                
SENATOR  MEYER  moved  to  report  SB  142  from  committee  with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection,  SB 142 moved from  the Senate Transportation                                                               
Standing Committee.                                                                                                             
                                                                                                                                
                                                                                                                                
              ^Alaska Transportation Finance Study                                                                          
              Alaska Transportation Finance Study                                                                           
                                                                                                                                
1:06:07 PM                                                                                                                    
CHAIR  MENARD  announced  the committee  would  hear  the  Alaska                                                               
Transportation  Finance  Study,  which was  commissioned  by  the                                                               
Alaska Municipal League.                                                                                                        
                                                                                                                                
CHRISTOPHER  WORNUM,  Cambridge   Systematics,  Inc.,  introduced                                                               
himself and said his company authored the study.                                                                                
                                                                                                                                
DENISE MICHELS,  President, Alaska  Municipal League  (AML), said                                                               
she also  serves as  the mayor  of Nome and  is employed  as vice                                                               
president  of Community  Services  Division by  Kawerak, Inc.  In                                                               
that  capacity she  manages the  Indian  Reservation Roads  (IRR)                                                               
program for the  Bering Strait region. She told  members she also                                                               
participated   as   a   stakeholder  in   the   2030   long-range                                                               
transportation plan.                                                                                                            
                                                                                                                                
MS. MICHELS  explained that AML  serves as the unified  voice for                                                               
Alaska municipalities  to influence  favorable federal  and state                                                               
legislation.  It  also  builds consensus  and  partnerships  with                                                               
organizations and the public to  address challenges. In that vein                                                               
members   last    year   began   discussing    issues   regarding                                                               
transportation and  energy, and an  ad hoc committee  developed a                                                               
transportation policy for  the AML board to  consider. During the                                                               
annual  meeting in  November  the  membership adopted  resolution                                                               
2009-12,  which  urged  Governor  Palin and  the  Legislature  to                                                               
capitalize long-term transportation funding for Alaska.                                                                         
                                                                                                                                
1:09:02 PM                                                                                                                    
MS.  MICHELS  related  that  in  October  2008  AML  commissioned                                                               
Cambridge  Systematics Inc.  to  examine and  assess the  current                                                               
transportation  funding trends,  transportation funding  in other                                                               
states,  and   changes  anticipated  in   federal  transportation                                                               
funding.  Due to  the short  timeline the  study focused  only on                                                               
surface   transportation.   None-the-less  AML   recognizes   the                                                               
critical importance of the marine  and aviation components of the                                                               
system and understands that they  must be viewed holistically for                                                               
a  full  approach.  AML  believes  that  transportation  and  its                                                               
support systems  are justification for economic  development. The                                                               
transportation system  must be  safe, reliable,  efficient, cost-                                                               
effective, and  environmentally sound. Clearly,  adequate funding                                                               
is required to meet these specifications.                                                                                       
                                                                                                                                
1:11:23 PM                                                                                                                    
CHRISTOPHER  WORNUM explained  that  Cambridge Systematics,  Inc.                                                               
was asked to address six points.                                                                                                
                                                                                                                                
   1) The current trends in transportation capital and operating                                                                
      needs                                                                                                                     
   2) The changes in federal funding sources that are currently                                                                 
      in play under reauthorization that may impact levels of                                                                   
      funding in Alaska                                                                                                         
   3) Evaluate user fees, public-private partnerships and other                                                                 
      sources for financing transportation investments                                                                          
   4) Identify factors that are likely to impact Alaska                                                                         
      transportation funding in the future                                                                                      
   5) Identify possible strategies to react to these trends                                                                     
   6) Evaluate potential funding sources that haven't been used                                                                 
     in this state but are being considered in other states                                                                     
                                                                                                                                
MR. WORNUM  said he  will focus on  three topics:  chronic under-                                                               
investment  in  the   state  transportation  infrastructure,  the                                                               
current  federal funding  that's  at risk,  and  the options  for                                                               
closing the funding gap.                                                                                                        
                                                                                                                                
Chronic under-investment in  the transportation infrastructure is                                                               
not  unique to  Alaska, but  it may  be more  acute because  this                                                               
state depends so heavily on  transportation. Most of the industry                                                               
in  the  state  is  either  related  to  resource  extraction  or                                                               
"traded"   industries.    These   are   industries    that   need                                                               
transportation to  export or import  material out of or  into the                                                               
state. This  includes tourism and  tends to have a  higher value-                                                               
added that  is related to  transportation activity so it  is more                                                               
sensitive to level of investment. There  is also a need to expand                                                               
some of those industries to  help the state diversify the economy                                                               
away from petroleum.  Those industries are affected  by the level                                                               
of investment.                                                                                                                  
                                                                                                                                
Conditions in  Alaska are  unlike those  in the  Lower-48. Alaska                                                               
has  far-flung communities  that need  a transportation  link. It                                                               
has a  harsher environment, which  drives up  costs, and it  is a                                                               
younger state that  has a less mature  network of transportation.                                                               
These factors  increase dependence on transportation  and explain                                                               
why the under investment may be a serious problem.                                                                              
                                                                                                                                
1:15:14 PM                                                                                                                    
The  DOTPF 2030  Transportation Plan  estimated the  annual state                                                               
highway and bridge funding needs  to be about $1.1 billion. About                                                               
$518 million  of that is funded  and the balance is  unfunded. If                                                               
the  marine   highway  system,  transit,  and   rural  roads  are                                                               
included, the  annual unfunded  need rises  to $220  million. The                                                               
current  backlog of  unfunded  maintenance  and life-cycle  costs                                                               
through  2007  amounts  to  about $250  million.  That  does  not                                                               
include  the backlog  in aviation,  transit,  the marine  highway                                                               
system, locally  funded urban  and rural  roads, or  any capacity                                                               
needed  to  meet increased  future  demand.  In fact,  DOTPF  has                                                               
diverted about  $60 million  a year from  its highway  and bridge                                                               
capital to maintenance; so it  is under funding capital needs and                                                               
not meeting  the ongoing maintenance  and life-cycle  cost needs.                                                               
Over the  past five years DOTPF  has been able to  dedicate about                                                               
$36 million a year for  routine maintenance of bridge and highway                                                               
leaving about $140 million in unmet needs.                                                                                      
                                                                                                                                
1:17:31 PM                                                                                                                    
MR.  WORNUM  explained  that  historically  Alaska  has  received                                                               
roughly  80 percent  of its  transportation funding  from federal                                                               
sources.  Alaska is  in the  top ten  of all  states in  terms of                                                               
total transportation spending as a  percentage of the gross state                                                               
product (GSP),  but it  is somewhere  in the  middle in  terms of                                                               
state  spending on  transportation and  among the  lowest of  all                                                               
states in terms  of capital investment, which is  the money spent                                                               
to  enlarge  the  system  to accommodate  growing  demand  or  to                                                               
replace  worn  infrastructure.  Because   of  the  state's  heavy                                                               
reliance on transportation, these  factors make Alaska vulnerable                                                               
when federal transportation funding is reauthorized next year.                                                                  
                                                                                                                                
1:18:55 PM                                                                                                                    
CHAIR MENARD observed that the  first bar graph shows that Alaska                                                               
is seventh highest  in terms of total spending as  a share of GSP                                                               
and the next graph shows that it is in the middle.                                                                              
                                                                                                                                
MR.  WORNUM agreed;  he added  that the  second graph  shows that                                                               
Alaska is  in the middle and  slightly below average in  terms of                                                               
total  state spending  (net of  federal) as  a share  of GSP.  He                                                               
noted Montana is  somewhat analogous to Alaska in  the sense that                                                               
it too has a small population and diverse communities.                                                                          
                                                                                                                                
MR. WORNUM  highlighted that the  federal highway trust  fund has                                                               
maintained authorized  highway programs at basically  the current                                                               
levels. That includes the  current SAFETEA-LU [Safe, Accountable,                                                               
Flexible,  Efficient  Transportation  Equity Act:  A  Legacy  for                                                               
Users]  authorization as  well as  the next  reauthorization. The                                                               
problem is that  while spending is programmed  at that particular                                                               
level, revenue coming in is declining.                                                                                          
                                                                                                                                
CHAIR MENARD  asked how much  the state  lost when the  state gas                                                               
tax was suspended.                                                                                                              
                                                                                                                                
MR. WORNUM said  he'll show a chart with those  statistics at the                                                               
end of  the presentation. He  clarified that the federal  gas tax                                                               
was   maintained.  Current   proposals  for   reauthorization  of                                                               
SAFETEA-LU/Map-21 suggest  a 10 cent  per gallon increase  in the                                                               
federal gas tax. He cautioned that that is speculative.                                                                         
                                                                                                                                
MR.  WORNUM said  another concern  for Alaska  is that  the donor                                                               
states  are  gradually  looking for  greater  return.  These  are                                                               
states  that  contribute  more  of the  federal  gas  taxes  they                                                               
collect than  they get back  through the highway trust  fund. The                                                               
three  cycles  of  reauthorization  - the  previous  TEA-21;  the                                                               
current SATETEA-LU; and the future  MAP-21 - demonstrate that the                                                               
donor states are  asking that their share of  the return increase                                                               
to a target  of 95 percent. With every increase  to donor states,                                                               
there is a corresponding decrease  to donee states, and Alaska is                                                               
one  of  the highest  donee  states.  He  reiterated that  it  is                                                               
unclear  whether  or not  the  95  percent contribution  will  be                                                               
reached in the  next reauthorization, but that is  the target the                                                               
donor states have set.                                                                                                          
                                                                                                                                
1:23:06 PM                                                                                                                    
MR. WORNUM  relayed that reauthorization funding  policies likely                                                               
will  place greater  emphasis on  tolling, other  user fees,  and                                                               
metropolitan   transportation   networks  rather   than   highway                                                               
funding. The notion  is to treat transportation more  as a public                                                               
utility  than  as  a  public  good,  which  places  Alaska  at  a                                                               
disadvantage because it has very little  in the way of user fees.                                                               
Some proposals put  more responsibility on states  and cities for                                                               
funding  transportation  improvements,  which  puts  metropolitan                                                               
areas  at  an advantage  because  they  can raise  funds  through                                                               
increases in sales tax, state gas tax, or user fee programs.                                                                    
                                                                                                                                
Other states are challenging the  status quo and are pressing for                                                               
a change  in the reauthorization.  Alaska is a target  because of                                                               
the  perception  that it  has  a  substantially better  financial                                                               
capacity than  other states.  Alaska has  the permanent  fund; it                                                               
has neither a state income tax nor  a state sales tax; and it had                                                               
the lowest  state gas tax  in the  nation until it  was rescinded                                                               
altogether. These are the reasons  the competing states will cite                                                               
for acquiring a larger share of federal transportation dollars.                                                                 
                                                                                                                                
1:25:22 PM                                                                                                                    
MR.  WORNUM  highlighted  three  options  for  closing  the  $585                                                               
million  transportation  funding  gap.  The  first  option  would                                                               
generate about $151 million and has the following components:                                                                   
    · Increase the state fuel tax from 8 to 18 cents per gallon                                                                 
      and index the rate to inflation to generate about $38                                                                     
      million annually                                                                                                          
    · Increase vehicle registration fees by 50 percent to                                                                       
      generate about $23 million annually                                                                                       
    · Impose a vehicle sales tax of 0.5 percent to yield about                                                                  
      $10 million annually                                                                                                      
    · Encourage local jurisdictions to impose a 0.5 percent                                                                     
      sales tax to earn about $30 million annually                                                                              
    · Capitalize the Alaska Transportation Fund with $1 billion                                                                 
      and a projected 8 percent return to earn about $50 million                                                                
      annually                                                                                                                  
                                                                                                                                
The second option  would generate about $291 million  and has the                                                               
following components:                                                                                                           
   · Increase the fuel tax from 8 to 28 cents per gallon and                                                                    
     index the rate to inflation to generate about $76 million                                                                  
     annually.                                                                                                                  
   · Double the vehicle registration fees from $100 to $200                                                                     
     biannually to generate about $45 million annually.                                                                         
   · Impose a vehicle sales tax of 1.5 percent to yield over $31                                                                
     million annually.                                                                                                          
   · Encourage local jurisdictions to impose a 1.5 percent sales                                                                
     tax to generate about $89 million annually. This money                                                                     
     could be used to match some state projects.                                                                                
   · Capitalize the Alaska Transportation Fund with $1 billion                                                                  
     and with a projected 8 percent return it would earn about                                                                  
     $50 million annually.                                                                                                      
                                                                                                                                
1:30:59 PM                                                                                                                    
The  third option  is  similar  to the  second  option and  would                                                               
generate  $291 million  annually, but  the sales  taxes would  be                                                               
reduced somewhat  and the Local  Service Roads and  Trail (LSR&T)                                                               
program would be reinstated. It has the following components:                                                                   
   · Increase the fuel tax from 8 to 28 cents per gallon and                                                                    
     index the rate to inflation to generate about $76 million                                                                  
     annually.                                                                                                                  
   · Double the vehicle registration fees from $100 to $200                                                                     
     biannually to generate about $45 million annually.                                                                         
   · Impose a state vehicle sales tax of 1.25 percent and a 1.25                                                                
     percent local sales tax to yield respectively about $26                                                                    
     million and $74 million annually.                                                                                          
   · Capitalize the Alaska Transportation Fund with $1 billion                                                                  
     and a projected 8 percent return to earn about $50 million                                                                 
     annually.                                                                                                                  
   · Reinstitute the LSR&T program at about $20 million                                                                         
     annually.                                                                                                                  
                                                                                                                                
1:32:10 PM                                                                                                                    
MR.  WORNUM  said these  options  are  illustrative, but  various                                                               
mixes of  these kinds of sources  are being used in  other states                                                               
to  close  their  funding gaps.  Cambridge  Systematics  did  not                                                               
investigate  tolling because  that  opportunity is  limited as  a                                                               
statewide strategy here in Alaska.                                                                                              
                                                                                                                                
MR. WORNUM explained that Cambridge  Systematics did a nationwide                                                               
analysis to see  how gas taxes really affect the  retail price of                                                               
gas because that is often an  argument for keeping the taxes low.                                                               
He displayed  a chart of the  indexed cost of gasoline  and crude                                                               
oil from  August 2007 to  November 2008 showing that  the average                                                               
price  of  gasoline  tracks  the  average  price  of  crude  oil.                                                               
However,  when  the average  Alaska  gas  price is  compared  the                                                               
trends are interesting.                                                                                                         
                                                                                                                                
The  8 cent  per  gallon state  gas tax  was  rescinded in  early                                                               
September  2008. In  that  same general  timeframe  the price  of                                                               
crude  oil dropped  about 21  percent, and  the national  average                                                               
cost  of  gas  dropped  roughly the  same  amount.  However,  the                                                               
average  cost of  gasoline  in Alaska  dropped  only 12  percent.                                                               
Although  Cambridge Systematics  hasn't yet  done an  econometric                                                               
analysis,  it appears  that  a  lot of  the  tax  that goes  into                                                               
gasoline  at the  retail pump  gets  passed upstream  as well  as                                                               
downstream to the  consumer. There is a very  complicated and not                                                               
very   competitive  arrangement   in  drilling   for,  exporting,                                                               
refining, and  distributing fuel, but  what they have found  in a                                                               
lot of  states is  that the  retail price of  gas does  not track                                                               
with the gas  tax. That can be explored further  but New York and                                                               
New Jersey  provide an interesting  comparison. New York  has the                                                               
highest gas  tax in the  country at 42  cents per gallon  and New                                                               
Jersey has one of the lowest at  about 12 or 14 cents per gallon.                                                               
The cost of gas in those two states is exactly the same.                                                                        
                                                                                                                                
1:35:24 PM                                                                                                                    
SENATOR  MEYER noted  that  he  understood him  to  say that  the                                                               
consumer  didn't realize  a savings  when the  8 cent  per gallon                                                               
state gas tax was rescinded.                                                                                                    
                                                                                                                                
MR. WORNUM agreed that it's  not clear that consumers did realize                                                               
a savings.                                                                                                                      
                                                                                                                                
SENATOR MEYER  asked if he has  a cost comparison for  building a                                                               
mile of road  in Alaska versus any other states  because the rule                                                               
of thumb used to be that it  would cost between $6 million and $8                                                               
million per  mile. He surmised  that other northern  states would                                                               
face the same issues as Alaska.                                                                                                 
                                                                                                                                
MR. WORNUM said  he would defer to DOTPF to  give exact costs but                                                               
he  would say  that Alaska  faces a  number of  costly challenges                                                               
before  getting  down to  construction.  It  has higher  up-front                                                               
costs because of endangered species and environmental concerns.                                                                 
                                                                                                                                
SENATOR MEYER commented that in  some ways Alaska is justified in                                                               
getting  so much  money from  the federal  government because  so                                                               
many  of those  costs  are related  to  federal requirements.  He                                                               
asked if other states use property  taxes as a revenue source for                                                               
roads; that's  what Anchorage  does and  he prefers  that because                                                               
they're deductible.                                                                                                             
                                                                                                                                
1:37:59 PM                                                                                                                    
MR. WORNUM said yes, but a  lot of states have tremendous demands                                                               
on  property  taxes  for other  municipal  infrastructure.  Also,                                                               
propositions similar  to [California] Proposition 13  have caused                                                               
some states to back down  on increasing property taxes. He agrees                                                               
that  sales  tax   is  not  the  ideal  source   of  funding  for                                                               
transportation because it fluctuates  with the business cycle and                                                               
doesn't correlate to the amount of transportation that's used.                                                                  
                                                                                                                                
SENATOR  MEYER described  tolling as  an interesting  concept and                                                               
noted that  in some  states the private  sector builds  roads and                                                               
bridges and then recoups their  costs through tolling. He doesn't                                                               
recall that being  done in Alaska, but there has  been talk about                                                               
letting  the private  sector build  a toll  bridge over  the Knik                                                               
Arm.                                                                                                                            
                                                                                                                                
MR. WORNUM responded  that in the Lower 48 tolling  is close to a                                                               
fad  and projects  that can  be tolled  are being  cherry-picked.                                                               
They  aren't  a  viable  option  for  Alaska  but  The  Roads  to                                                               
Resources  program  appears  to  be  an  equivalent  opportunity.                                                               
Extraction  companies  would  realize  significant  benefit  from                                                               
these roads  and could  reasonably be  asked to  pay for  a large                                                               
portion if not  the entire cost. There are some  issues but these                                                               
roads would also benefit public travel.                                                                                         
                                                                                                                                
1:41:25 PM                                                                                                                    
CHAIR MENARD asked if Alaska is  the only state that doesn't have                                                               
either a state sales tax or a state income tax.                                                                                 
                                                                                                                                
MR.  WORNUM clarified  that Alaska  is  the only  state that  has                                                               
neither.                                                                                                                        
                                                                                                                                
CHAIR MENARD  asked if several  states have  "senior forgiveness"                                                               
on vehicle registration.                                                                                                        
                                                                                                                                
MR. WORNUM  said he isn't sure  but it's likely. It's  one of the                                                               
few user  fees that  sends a  price signal  to a  user as  to the                                                               
capital cost of maintaining roads.                                                                                              
                                                                                                                                
CHAIR  MENARD   asked  if  he's   aware  of  the   difficulty  of                                                               
instituting an  income tax in  this state or even  getting voters                                                               
to agree to a municipal tax.                                                                                                    
                                                                                                                                
MR.  WORNUM acknowledged  that it  would be  challenging. Polling                                                               
that was  done in Alaska  in the 90s  and more recently  in other                                                               
states indicates  that people  are more  willing to  support user                                                               
fees and other  taxes when they know that the  money is dedicated                                                               
to a  specific public  service like  transportation. It's  not as                                                               
clear that tolling receives that same support.                                                                                  
                                                                                                                                
1:44:49 PM                                                                                                                    
CHAIR MENARD asked  if the Alaska Municipal League  has asked his                                                               
firm to do further work.                                                                                                        
                                                                                                                                
MR. WORNUM replied this is the end of the current assignment.                                                                   
                                                                                                                                
SENATOR PASKVAN  asked if he has  figured what it would  cost per                                                               
mile to fill the $585 million gap.                                                                                              
                                                                                                                                
MR. WORNUM replied  no, but that could be figured  with data they                                                               
have on hand.  He noted that other states  have experimented with                                                               
a VMT  (vehicle miles  traveled) charge,  which converts  the gas                                                               
tax from  a cents per  gallon calculation  to a percent  per mile                                                               
pricing system. The argument for  that is that drivers should pay                                                               
according to  how much, where,  and at  what time they  drive. He                                                               
noted that some interesting experiments  have been completed, but                                                               
there are  associated privacy  issues. He  can't imagine  the VMT                                                               
fee having  much purchase since  the gas tax  is such an  easy to                                                               
collect, low-cost,  low-evasion source of  revenue. It has  a lot                                                               
going for it except  for the fact that a lot  of vehicles are now                                                               
using  untaxed fuels  and vehicle  mileage is  going to  steadily                                                               
improve.                                                                                                                        
                                                                                                                                
SENATOR  PASKVAN asked  what gas  tax  rate would  fill the  $585                                                               
million gap.                                                                                                                    
                                                                                                                                
MR. WORNUM replied  the calculation could be done.  He added that                                                               
in other states  they have studied a revenue  neutral switch from                                                               
the gas  tax to a VMT  fee and Washington needed  about 1.2 cents                                                               
per  mile  to  replace  what they  currently  collect,  which  he                                                               
recalled is about 25 cents per gallon.                                                                                          
                                                                                                                                
1:46:53 PM                                                                                                                    
JEFF   OTTESEN,  Director,   Division  of   Program  Development,                                                               
Department  of  Transportation  and  Public  Facilities  (DOTPF),                                                               
responded  to Senator  Paskvan's question  and related  that each                                                               
year the state road network sees  about 5 billion miles of travel                                                               
and he calculates that to fill the  gap a mileage fee of about 12                                                               
cent per mile would be needed.  Another metric that might help in                                                               
understanding  that number  comes  from  the American  Automobile                                                               
Association,  which has  said that  it costs  the average  driver                                                               
about 50 cents a mile to  own and operate an automobile and about                                                               
75 cents  per mile  to own  and operate an  SUV or  large pickup.                                                               
Ownership   costs   include   the  vehicle   cost,   maintenance,                                                               
registration,  fuel, and  insurance. The  state gas  tax accounts                                                               
for about one-half a penny of  that cost and when the federal gas                                                               
tax is  added the total cost  is about 2 cents.  He remarked that                                                               
another way of  looking at it is that Alaskans  don't mind paying                                                               
for their vehicles, but they don't want to pay for the roads.                                                                   
                                                                                                                                
1:48:25 PM                                                                                                                    
SENATOR MEYER summarized that the  committee has ascertained that                                                               
federal regulations  and requirements  account for  a lot  of the                                                               
cost to  build highways  in Alaska.  Also it's  a lot  cheaper to                                                               
build state roads using state  funds than going through the AMATS                                                               
process.                                                                                                                        
                                                                                                                                
MR. OTTESEN agreed.                                                                                                             
                                                                                                                                
SENATOR MEYER asked if cheap  asphalt, studded tires or something                                                               
else is the source of the ruts that plague Alaska highways.                                                                     
                                                                                                                                
MR.  OTTESEN replied  the  rutting is  primarily  due to  studded                                                               
tires on  cars. For  the most  part highway  ruts are  spaced the                                                               
axel width of an automobile,  not an 18-wheel semi-trailer truck.                                                               
Currently DOTPF is experimenting with  a hard aggregate to resist                                                               
that wear and tear and it  has worked well where it's been tried.                                                               
Juneau's Egan Drive was paved  with hard aggregate 8-9 years ago,                                                               
and  it has  lasted twice  as long  as the  previous paving.  The                                                               
expectation is that it will last  about 15 years. The drawback is                                                               
that  few sources  of hard  rock are  available in  the state  so                                                               
transportation costs  are an  issue. Most  of the  hard aggregate                                                               
for  the Juneau  project  had to  be shipped  in  via barge  from                                                               
Haines or Puget  Sound. Responding to the comment  about the high                                                               
cost  of  roads,  he  said  there's been  an  explosion  in  road                                                               
construction  costs. In  2003  the average  project  cost was  $5                                                               
million to  $10 million and  now it's  routine for the  same size                                                               
project to cost $30 million to $50 million.                                                                                     
                                                                                                                                
1:51:07 PM                                                                                                                    
SENATOR MEYER asked if the state still has a studded-tire tax.                                                                  
                                                                                                                                
MR. OTTESEN replied there was  legislation to remove the fee, but                                                               
he doesn't recall the outcome.                                                                                                  
                                                                                                                                
CHAIR MENARD  asked if  an argument for  doing away  with studded                                                               
tires is that all-weather tires accomplish the same thing.                                                                      
                                                                                                                                
MR. OTTESEN replied the anecdotal  reports are positive, but some                                                               
people  believe studs  are an  important  safety feature.  During                                                               
some freeze-thaw cycles, they make a difference, he said.                                                                       
                                                                                                                                
SENATOR PASKVAN calculated that a  vehicle that gets 20 mpg would                                                               
need to  pay $2.40  per gallon in  gas tax in  order to  fill the                                                               
$585 million gap.                                                                                                               
                                                                                                                                
1:52:56 PM                                                                                                                    
MR. OTTESEN observed that Alaska  is resource rich and population                                                               
poor so it's  not realistic to ask the population  to pay for the                                                               
roads. Last  year a  bill was introduced  that would  have funded                                                               
the Alaska Transportation  Fund with $1 billion  from the state's                                                               
resources and he believes that  the state will ultimately have to                                                               
take another  look at something  like that. The  Australians call                                                               
it the  tyranny of geography -  the state is large  and expensive                                                               
to cross, but there aren't many people to pay for the roads.                                                                    
                                                                                                                                
SENATOR  MEYER  asked  what  the  administration  recommends  for                                                               
funding roads and bridges.                                                                                                      
                                                                                                                                
MR. OTTESEN  replied he  isn't sure there's  an answer  now. When                                                               
the AML  study was commissioned  last fall  the price of  oil was                                                               
relatively high  and the stock  market was healthy.  There's been                                                               
significant  change  since   that  time  and  the   idea  of  the                                                               
transportation fund is  clearly difficult in the  world today. At                                                               
the same  time, Alaskans don't  like taxes  and it's been  a long                                                               
time since  anything has been done  to the gas tax  other than to                                                               
suspend  it. When  the  Alaska Road  Commission  first came  into                                                               
being, mining  camps like Juneau,  Nome and Fairbanks had  a two-                                                               
day  labor  tax on  every  able-bodied  man  for the  purpose  of                                                               
building roads. At that time  people understood they needed roads                                                               
and they contributed quite a lot in  terms of labor. In 1961 an 8                                                               
cent gas tax was  passed, which was the highest of  any of the 50                                                               
states.                                                                                                                         
                                                                                                                                
1:56:35 PM                                                                                                                    
SENATOR MEYER  highlighted that DOTPF  will receive  $175 million                                                               
of the economic  stimulus and asked if that is  the right amount.                                                               
He recalled  that former Senator  Ted Stevens used to  argue that                                                               
Alaska needs more federal money because  it is a young state that                                                               
doesn't have an infrastructure like  Lower 48 states have. "Based                                                               
on  the stimulus  being  over $2  billion,  $175 million  doesn't                                                               
sound like very much," he said.                                                                                                 
                                                                                                                                
MR. OTTESEN acknowledged that it's  a good point. He related that                                                               
the percentage  of stimulus  money coming to  DOTPF is  about six                                                               
tenths  of  one  percent.  Historically,  federal  transportation                                                               
authorizations  were closer  to  1.1 percent  or  1.2 percent  so                                                               
already the  share of the pie  is shrinking. He said  he believes                                                               
it's  a  sign  of  the  shift toward  greater  funding  to  large                                                               
population states  and large metropolitan areas.  Less money will                                                               
go to  small towns and  rural America,  which will be  harmful to                                                               
Alaska.                                                                                                                         
                                                                                                                                
1:59:04 PM                                                                                                                    
CHAIR MENARD asked Mr. Wornum if he had closing comments.                                                                       
                                                                                                                                
MR. WORNUM  said Alaska  is facing the  same challenges  as other                                                               
states, but  the difference is  that diversification  of spending                                                               
isn't very  workable here.  Although he  agrees with  Mr. Ottesen                                                               
that geography  is a  disadvantage, he  believes that  Alaska has                                                               
put itself  at a disadvantage.  Traditional user fees  that other                                                               
states have  imposed to fund transportation  haven't been imposed                                                               
here  and that  leaves Alaska  at a  disadvantage for  leveraging                                                               
federal funds  for immediate  help. But over  the long  term that                                                               
won't solve the problem.                                                                                                        
                                                                                                                                
2:00:21 PM                                                                                                                    
KATHY  WASSERMAN,  Executive  Director, Alaska  Municipal  League                                                               
(AML),  stated that  AML  did  not bring  this  study forward  to                                                               
demand any immediate action. Rather,  it is intended to start the                                                               
conversation. She  suggested that some legislators  might want to                                                               
read the study  during the Interim in preparation  for next year.                                                               
More  than  anything  else  this   was  meant  to  help  get  the                                                               
discussion rolling  with municipalities, the  Legislature, DOTPF,                                                               
and whoever  else might help come  up with answers to  fund roads                                                               
in the future, she said.                                                                                                        
                                                                                                                                
2:01:21 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair Menard adjourned the meeting at 2:01 pm.                                                                                  
                                                                                                                                

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