Legislature(2011 - 2012)BUTROVICH 205

02/15/2011 01:00 PM Senate TRANSPORTATION

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01:00:55 PM Start
01:01:31 PM SB79|| SB80
02:15:28 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 79 Out of Committee
Moved SB 80 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
                       February 15, 2011                                                                                        
                           1:00 p.m.                                                                                            
MEMBERS PRESENT                                                                                                              
Senator Albert Kookesh, Chair                                                                                                   
Senator Joe Thomas, Vice Chair                                                                                                  
Senator Dennis Egan                                                                                                             
Senator Linda Menard                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Charlie Huggins                                                                                                         
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 79                                                                                                              
"An Act making  a special appropriation to the  Knik Arm Crossing                                                               
fund; and providing for an effective date."                                                                                     
     - MOVED SB 79 OUT OF COMMITTEE                                                                                             
SENATE BILL NO. 80                                                                                                              
"An Act  relating to  the authority and  obligations of  the Knik                                                               
Arm Bridge and Toll Authority, to  bonds of the authority, and to                                                               
reserve funds of the authority;  authorizing the state to provide                                                               
support  for certain  obligations 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."                                                                                                                 
     - MOVED SB 80 OUT OF COMMITTEE                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB  79                                                                                                                  
SHORT TITLE: APPROP.: KNIK ARM CROSSING FUND                                                                                    
SPONSOR(s): SENATOR(s) MENARD                                                                                                   
02/04/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/04/11       (S)       TRA, FIN                                                                                               
02/15/11       (S)       TRA AT 1:00 PM BUTROVICH 205                                                                           
BILL: SB  80                                                                                                                  
SHORT TITLE: KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                                 
SPONSOR(s): SENATOR(s) MENARD                                                                                                   
02/04/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/04/11       (S)       TRA, FIN                                                                                               
02/15/11       (S)       TRA AT 1:00 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
MICHAEL L. FOSTER, Chair                                                                                                        
KABATA Board                                                                                                                    
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Provided an overview of the Knik Arm                                                                     
Crossing and provided information on SB 79 and SB 80.                                                                           
ANDREW NIEMIEC, Executive Director                                                                                              
Knik Arm Bridge and Toll Authority                                                                                              
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Provided supporting information related to                                                               
SB 79 and SB 8080.                                                                                                              
KEVIN HEMENWAY, Chief Financial Officer                                                                                         
Knik Arm Bridge and Toll Authority (KABATA)                                                                                     
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Provided supporting information related to                                                               
SB 79 and SB 80.                                                                                                                
JAMIE KENWORTHY, representing himself                                                                                           
POSITION STATEMENT:  Testified in opposition to SB 79 and SB 80.                                                              
JEFF OTTESEN, Director                                                                                                          
Program Development                                                                                                             
Department of Transportation and Public Facilities                                                                              
Juneau, AK                                                                                                                      
POSITION STATEMENT:  Testified in support of SB 79 and SB 80.                                                                 
ACTION NARRATIVE                                                                                                              
1:00:55 PM                                                                                                                    
CHAIR ALBERT KOOKESH called the Senate Transportation Standing                                                                
Committee meeting to order at 1:00 p.m. Present at the call to                                                                  
order were Senators Menard, Thomas, Egan, and Kookesh.                                                                          
             SB  79-APPROP.: KNIK ARM CROSSING FUND                                                                         
           SB  80-KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                        
1:01:31 PM                                                                                                                    
CHAIR KOOKESH  announced the consideration  of both SB 79  and SB
SENATOR MENARD, sponsor of SB 79  and SB 80 said these bills will                                                               
ensure  a private/public  partnership  procurement  (P3) for  the                                                               
Knik Arm  Crossing Project that  generates the best value  to the                                                               
state of Alaska. The passage  of this legislation will facilitate                                                               
the Knik  Arm crossing being open  for traffic in the  year 2015,                                                               
thus  expediting  for  Alaska the  benefits  generated  from  the                                                               
crossing. Both bills  were written in consultation  with the Knik                                                               
Arm Bridge and  Toll Authority (KABATA), which  has been recently                                                               
successful in its assurance of  the Record of Decision (ROD) from                                                               
the federal  highway administration. She  said that a  project is                                                               
only  as good  as the  person behind  it, and  introduced Michael                                                               
Foster, chair of the KABTA board  and engineer behind the Red Dog                                                               
Mine. She also introduced Kevin Hemenway and Andrew Niemiec.                                                                    
SENATOR MENARD  explained that  SB 80  will accomplish  4 things:                                                               
First,  an  increase  in KABATA's  bonding  authority  from  $500                                                               
million  to $600  million; second,  property tax  relief for  the                                                               
crossing and  associated facilities; third,  contractual monetary                                                               
obligations; and fourth, a project reserve fund.                                                                                
1:03:52 PM                                                                                                                    
She also explained that SB  79 will appropriate $150 million into                                                               
the  project reserve  fund created  by SB  80. The  fund will  be                                                               
housed  in  the  Department  of   Revenue  (DOR).  This  bill  is                                                               
supported  by many,  including the  Alaska Trucking  Association,                                                               
the Alaska  Support Industry Alliance,  the Mat-Su  Borough, City                                                               
of Wasilla, and  the Municipality of Anchorage It  also has wide-                                                               
spread public support, and the project is ready to go.                                                                          
1:05:01 PM                                                                                                                    
SENATOR  KOOKESH asked  why there  is no  fiscal note  associated                                                               
with the bills.                                                                                                                 
SENATOR MENARD  cited the memo  from Legislative  Legal Services,                                                               
which says  that a  fiscal note  shall be attached  to a  bill or                                                               
resolution,  unless  it  is an  appropriations  bill,  before  it                                                               
passes the first committee of referral.                                                                                         
SENATOR THOMAS  said he supports  infrastructure and  he believes                                                               
that the  question now is  the legal  liability of the  state for                                                               
completing or  maintaining the  bridge. However,  SB 80,  page 2,                                                               
line  17,  states  "the  monetary  obligations  incurred  by  the                                                               
authority under  the partnership or contracts  are obligations of                                                               
the state  and satisfaction of  those contracts from  funds other                                                               
than authority  funds is subject  to appropriation." He  hopes to                                                               
be assured about the amount that could be at risk.                                                                              
1:08:49 PM                                                                                                                    
MICHAEL L.  FOSTER, Chair,  KABATA Board, said  he would  give an                                                               
overview and address SB 79.                                                                                                     
He assured  the members that  the federal department  of highways                                                               
supports the  Knik Arm project,  and said that KABATA  received a                                                               
Record  of Decision  in  December. The  project  has been  listed                                                               
under  the National  Highway System  and lane  miles are  already                                                               
He noted  the article in the  Anchorage Daily News, as  well as a                                                               
Dittman survey  which shows overwhelming  public support  for the                                                               
project.  Mayor  Sullivan  also sent  a  letter  encouraging  the                                                               
Legislature to pass these bills in a timely manner.                                                                             
1:12:34 PM                                                                                                                    
MR.   FOSTER  noted   there  has   been   discussion  about   the                                                               
appropriation   to  KABATA;   he   clarified   that  the   actual                                                               
appropriation was  $229 million.  In 2006,  $128 million  of that                                                               
was  reappropriated to  other projects  throughout the  state. If                                                               
that money  was still  allocated to the  Knik Arm  crossing, they                                                               
would  be asking  for  less. That  $128  million represented  the                                                               
reserve  fund  needed  for the  public/private  partnership.  The                                                               
reserve fund  would be managed  by DOR,  and allows KABATA  to go                                                               
out to market and obtain  private capital. The infrastructure and                                                               
revenue stream  is owned by the  State of Alaska. The  capital to                                                               
build the project is private  sector capital; no state or federal                                                               
capital will be used to  construct the facility. The reserve fund                                                               
is not to operate KABATA today; it  is to be used when the bridge                                                               
is  open for  use. During  the first  several years,  the revenue                                                               
stream  may  be   less  than  the  payment   stream,  and  KABATA                                                               
anticipates  it  will need  the  reserve  at  that time  and  for                                                               
several  years thereafter.  After that,  they expect  that excess                                                               
revenue will  pay that reserve back,  and they project over  a 60                                                               
year time  frame, $8.6  billion will roll  back into  the reserve                                                               
fund. This  money can  be used for  Title 23  services statewide,                                                               
which includes  marine highways, boardwalks, bridges,  ports, and                                                               
infrastructure. He again pointed  out that the money appropriated                                                               
by these bills would not be used  until 2015 or 2016, and is only                                                               
used  in  the initial  years  to  cover the  currently  projected                                                               
shortfall. It  is not a  capital appropriation, but  a short-term                                                               
use with a payback based on revenue stream.                                                                                     
1:16:20 PM                                                                                                                    
ANDREW  NIEMIEC, Executive  Director,  Knik Arm  Bridge and  Toll                                                               
Authority,  said   that  SB  80   will  aid  in   the  successful                                                               
procurement of the Knik Arm  Crossing, reduce the cost of project                                                               
finance, and generate the best value  to the state. Passage of SB
80 will facilitate  the project being opened to  traffic by 2015.                                                               
The  bill is  designed  to increase  KABATA's bonding  authority,                                                               
address  contractual  monetary  obligations,  and  establish  and                                                               
manage  a reserve  fund. An  increase in  bonding authority  from                                                               
$500 million to $600 million  matches the $600 million allocation                                                               
of private  activity bond  capacity (PABS)  that was  provided by                                                               
the U.S.  Department of  Transportation. That  allocation remains                                                               
with the project. Any PABs issued  are a liability of the private                                                               
borrower, not the state. The  property tax language clarifies and                                                               
clearly specifies  that the bridge and  associated connectors are                                                               
not subject  to property tax  if operated by a  private developer                                                               
on behalf  of the state.  Any private facilities  installed along                                                               
with  the  project, but  not  for  transportation use,  would  be                                                               
subject to local property tax.                                                                                                  
1:18:21 PM                                                                                                                    
AS  19.75.111(a)  would  be modified  to  clarify  that  monetary                                                               
obligations under  a public/private  partnership for  the purpose                                                               
of constructing  this project are  obligations of the  state, and                                                               
satisfaction of  those obligations  is subject  to appropriation.                                                               
This only  applies to those  obligations that are subject  to the                                                               
public/private   partnership,  and   not  other   contractual  or                                                               
corporate  obligations of  KABATA.  This change  is necessary  to                                                               
attract investors, and will keep tolls affordable.                                                                              
The reserve fund  will apply sources of  revenue, including tolls                                                               
and any  appropriations, for specific purposes  such as providing                                                               
the annual  payment to the  private partner. Surplus  funds would                                                               
then be  available for capacity improvements  and other federally                                                               
eligible transportation purposes. Surplus  funds would be held by                                                               
the  DOR until  a  private partnership  agreement  is signed,  at                                                               
which  time the  funds would  be available  for deposit  into the                                                               
reserve  fund.  Procurement  advisors  under  contract  with  the                                                               
Department  of Law  have reviewed  the  proposed legislation  for                                                               
consistency  with  AS 19.75  and  other  related statutes.  These                                                               
provisions will  enhance project  credit and allow  the developer                                                               
to  obtain  the  lowest  cost   capital,  thereby  providing  the                                                               
greatest benefit to the state.                                                                                                  
1:20:32 PM                                                                                                                    
KEVIN  HEMENWAY, Chief  Financial  Officer, Knik  Arm Bridge  and                                                               
Toll  Authority (KABATA),  said  this toll  bridge will  generate                                                               
revenue.  The Record  of Decision  was  a significant  milestone,                                                               
which allows KABATA  to move forward with  procurement. Under the                                                               
proposed structure,  the private  sector will be  responsible for                                                               
the  design, construction,  financing, operation  and maintenance                                                               
of  the  facility  for approximately  35-40  years.  The  private                                                               
sector, not the state, will raise  the equity and borrow the debt                                                               
to finance  the project.  That debt will  be non-recourse  to the                                                               
state.  The  private sector  will  also  be responsible  for  the                                                               
design-build contract  and substantially all of  the construction                                                               
risk. They  will do this  in exchange  for payments that  will be                                                               
used  to repay  their financing  and  to pay  for operations  and                                                               
maintenance  of  the  facility.  At  the end  of  the  term,  the                                                               
facility will be returned to the state.                                                                                         
The state,  through KABATA,  will own  the bridge  facilities and                                                               
will receive the  toll revenue. That toll revenue  stream will be                                                               
used  to make  the periodic  payments; in  the event  the revenue                                                               
stream  is insufficient,  the reserve  fund is  there to  provide                                                               
credit enhancement  to the  creditors' lenders,  but they  do not                                                               
have a direct interest in that account.                                                                                         
The  competition for  the project  will  be based  on the  lowest                                                               
annual  periodic   payment  and  technical   specifications.  The                                                               
proposals will  be evaluated by  a committee that  includes input                                                               
from the  departments of law,  transportation and  revenue. Final                                                               
approval will  reside with the  administration and  KABATA board,                                                               
many of whom  are legislators. This is  a regimented, disciplined                                                               
procurement strategy.  SB 79  and 80  establishes a  framework to                                                               
attract the  proposal, but actual  commitments don't  occur until                                                               
the  contractual  arrangement  is   entered  into.  The  cost  of                                                               
financing is clearly a significant component.                                                                                   
1:24:10 PM                                                                                                                    
To  the extent  that capital  cost  is reduced,  it will  attract                                                               
better proposals  at a lower periodic  payment. SB 79 and  80 are                                                               
important to  achieving that, precisely  because they  will lower                                                               
the  cost of  financing and  provide the  mechanisms required  to                                                               
establish  the   contractual  structures  that   the  marketplace                                                               
expects.  KABATA is  also working  to lower  the cost  of capital                                                               
through the Transportation  Infrastructure Finance and Innovation                                                               
Act (TIFIA) program. KABATA feels  there is a good possibility of                                                               
receiving  TIFIA  financing  for  the project.  KABATA  has  also                                                               
obtained,  through DOT,  $600 million  of  private activity  bond                                                               
capacity that the  developers can choose to use  that allows them                                                               
to borrow funds at tax exempt  rates. This is directly related to                                                               
the request  to increase, under  SB 80, the $500  million bonding                                                               
capacity to $600 million. If  developers choose to use the entire                                                               
capacity in their  proposals, KABATA want to be in  a position to                                                               
accommodate them as a conduit issuer, but not a borrower.                                                                       
There are numerous successful P3s  in the U.S. and throughout the                                                               
world.  Failures  have   been  rare,  but  in   those  cases  the                                                               
demonstrated  risk transfer  proves  that P3  works.  In none  of                                                               
those  cases  was the  state  obligated  for  the debt  or  other                                                               
obligations of the  private partner. Some examples  are SR125 and                                                               
the Dulles Greenway.  In both instances of  bankruptcy, there was                                                               
no recourse  to the  state for project  financing, and  the state                                                               
continued to own the assets.                                                                                                    
1:27:20 PM                                                                                                                    
Traffic  and toll  revenue is  a  place where  the state  retains                                                               
ownership, and  there is front  end risk. The base  case forecast                                                               
over the 35  year term of operations indicates  that toll revenue                                                               
would cover annual payment obligations  by a factor of 1.7 times.                                                               
There is about  $20 million over the first three  years that gets                                                               
repaid under the base case. He  cautioned that the models are pro                                                               
forma,  prepared  by  KABATA and  other  consultants  using  best                                                               
available market  indicators. The  real model won't  be available                                                               
until  they attract  proposals through  the  RFP process.  Wilbur                                                               
Smith  Associates  is  the  preeminent  traffic  control  revenue                                                               
forecaster; their studies are bankable  on Wall Street, and their                                                               
track record is exemplary. Over  the last ten years their traffic                                                               
and  revenue studies  have  supported  approximately $33  billion                                                               
worth of toll road financing,  and the last five years represents                                                               
about $20  billion of  the total. KABATA  is confident  that over                                                               
the life  of the crossing  the state will recover  its investment                                                               
and earn a substantial return.                                                                                                  
1:29:41 PM                                                                                                                    
In conclusion, SB 79 and 80  establish a framework to attract the                                                               
most competitive proposals  at the lowest cost and  best value to                                                               
the state.  They do not commit  the state to anything  unless the                                                               
private sector proposals are accepted  and finalized, which would                                                               
occur in the first half  of 2012, at the earliest. Appropriations                                                               
under  SB  79 will  be  held  by  the  Department of  Revenue  as                                                               
fiduciary until  acceptable proposals have been  received for the                                                               
project. Amendments under SB 80  serve to establish mechanisms to                                                               
develop  a successful  public/private contracting  framework, and                                                               
the  funds appropriated  under  SB  79 will  serve  as a  project                                                               
reserve, demonstrating  to prospective private partners  that the                                                               
state is  serious about the  essential nature of the  project and                                                               
its role in the public/private  agreement as project owner. Funds                                                               
will be paid back over the  term of the project. The project will                                                               
produce  a  continuing revenue  stream  that  will support  other                                                               
infrastructure projects  throughout the  state, and is  needed to                                                               
support   economic  development,   jobs,  access   to  land   for                                                               
population  and  industrial  growth,  and  for  safety.  It  will                                                               
benefit generations of Alaskans.                                                                                                
1:31:08 PM                                                                                                                    
SENATOR THOMAS said he is still  struggling with page 2, line 17.                                                               
The $150 million  is potentially obligated, but  the toll revenue                                                               
is obligated to pay the debt service first.                                                                                     
MR.  HEMENWAY  responded  it  is actually  not  paying  the  debt                                                               
service, but instead  is paying an annual  availability fee. This                                                               
is an annual  payment to the developer that he  uses to repay his                                                               
financing and  to pay for  the operations and maintenance  of the                                                               
project.  So  the state's  major  contractual  obligation is  the                                                               
commitment to make that payment.                                                                                                
SENATOR THOMAS asked if there was federal participation.                                                                        
MR. HEMENWAY replied  there is some federal  participation. As of                                                               
today there is  about $65 million available  for right-of-way and                                                               
construction  phases  of  the  project.  Some  of  that  will  be                                                               
acquired prior to  the partnership, so the  remainder will likely                                                               
go into some component of construction.                                                                                         
SENATOR THOMAS asked if there was federal participation.                                                                        
MR. FOSTER replied the state's  commitment to its private partner                                                               
is  the annual  payment; as  toll revenue  exceeds payments,  the                                                               
revenue would pay back the reserve fund                                                                                         
1:34:10 PM                                                                                                                    
SENATOR  THOMAS  said  his  understanding is  that  if  there  is                                                               
federal  participation, the  first thing  to be  repaid would  be                                                               
debt service, then reasonable return  on investment, and then any                                                               
private financing of the project.                                                                                               
1:34:39 PM                                                                                                                    
MR. HEMENWAY said  the toll revenue would fund  the lease payment                                                               
to the developer and they will  use that revenue for repayment of                                                               
their  financing,  operations  and  maintenance,  and  reasonable                                                               
returns of their equity investors.  The toll agreement stipulates                                                               
that  any  surplus  toll  revenue  remaining  after  meeting  the                                                               
contractual  obligations  will  be  used for  Title  23  eligible                                                               
SENATOR THOMAS  said he's looking  at the potential  for problems                                                               
if  things don't  go  according  to plan.  In  that  case, he  is                                                               
looking for  what the state's  obligation would  be. Construction                                                               
costs are increasing, and costs  overruns could impact toll fees.                                                               
He said  he would  like a  simple answer to  what happens  if the                                                               
worst  situation  occurs.  Would  the  state  only  be  out  $150                                                               
million, or would more funds be needed?                                                                                         
MR. FOSTER  replied the toll  is set  by KABATA, and  the capital                                                               
cost  is  the  private   partner's  responsibility.  The  state's                                                               
responsibility is the  annual payment to the  private partner. If                                                               
the private partner underestimates the  cost, that is part of his                                                               
business model. His annual payment  does not get adjusted because                                                               
it costs him more than he expected.                                                                                             
1:39:40 PM                                                                                                                    
SENATOR  THOMAS  asked why  the  page  2,  line 17,  language  is                                                               
necessary if that's the case.                                                                                                   
MR. NIEMIEC  responded that the  major contractual  obligation of                                                               
the state is the commitment to make that annual payment.                                                                        
SENATOR  THOMAS asked  if  it  wouldn't it  be  the  same if  the                                                               
bonding  wasn't sufficient  to  pay  for the  last  third of  the                                                               
MR.  NIEMIEC responded  generally that  is the  responsibility of                                                               
the private developer, not the state.                                                                                           
1:42:14 PM                                                                                                                    
JAMIE KENWORTHY,  former executive  director, Alaska  Science and                                                               
Technology  Foundation, said  the  project will  lead  to a  $250                                                               
million liability on the state's  balance sheet; with interest it                                                               
would easily  be over $1  billion. SB  80 does not  just transfer                                                               
$150  million to  cover KABATA's  current estimate  of the  first                                                               
three years of  the bridge deficit, it also says  that KABATA can                                                               
enter  into partnerships  that would  become  obligations of  the                                                               
state. That  is AS 19.75.111.  The current statute  allows KABATA                                                               
to  issue $500  million in  bonds in  its own  name, but  not the                                                               
state's  name.  If  these  bonds that  KABATA  issues  after  the                                                               
partnership agreement is  made are obligations of  the state, the                                                               
state is  on the hook  for them.  He suggested the  committee ask                                                               
the  directors of  AHFC  about moral  obligations;  if the  bonds                                                               
fail, it would  affect the agency's credit rating.  It would also                                                               
affect the state's credit rating.                                                                                               
The  original definition  of the  public/private partnership  was                                                               
for  a private  sector firm  to finance,  build, and  operate the                                                               
Knik  Arm project.  Under  these  two bills  the  state would  be                                                               
responsible for the  full bonding. If the Legislature  is to sign                                                               
that  blank check,  shouldn't that  check  at least  be based  on                                                               
accurate  traffic  numbers?  Wilbur  Smith  is  now  redoing  the                                                               
traffic numbers, more based on a Mat-Su population forecast.                                                                    
All the revenue  projections that KABATA has used are  based on a                                                               
2030  Mat-Su  population number  nearly  50  percent higher  than                                                               
today.  That projection  was developed  in 2007  by a  Texas firm                                                               
under contract  to KABATA.  The projected  deficit for  the first                                                               
ten years  of the  bridge is  $25 million  per year.  Since March                                                               
three events have  occurred that make the  projects finances much                                                               
worse.  First,  they discovered the population  error that caused                                                               
revenue to  be overestimated by  50 percent. Second,  in November                                                               
KABATA was  turned down  for a federal  TIFIA loan  for one-third                                                               
project cost. KABATA is going  to reapply, but he estimates their                                                               
chances are between slim and none.                                                                                              
Third,  rates for  investment grade  bonds are  up to  5 percent;                                                               
without  a  state  guarantee,  the  bonds  will  not  receive  an                                                               
investment  grade  and  will  not  find  a  market.  Attaching  a                                                               
guarantee to such iffy bonds  would jeopardize the state's credit                                                               
rating.  The payments  on a  $650  million bond  at five  percent                                                               
interest, amortized over  37.5 years, would be  $38.3 million per                                                               
year.  You  would need  20,900  one-way  trips  per day  at  five                                                               
dollars each just to make the annual bond payment.                                                                              
1:48:37 PM                                                                                                                    
The  current traffic  to and  from  the Mat-Su  Valley is  29,000                                                               
trips per day, and most of  the valley would continue to take the                                                               
toll-free  trip on  the Glenn  Highway. The  KABATA estimate  for                                                               
bridge  trips in  2030 is  about  40,000. We  are having  trouble                                                               
getting DOTPF  current traffic estimates  for the bridge  and the                                                               
Glenn Highway  for the  same year.  He expects  it will  be about                                                               
half of KABATA's estimate. Trip  forecasts should account for the                                                               
fact  that  a toll  reduces  demand.  There  will not  be  enough                                                               
traffic to repay the bonds, even if they are interest free.                                                                     
MR. KENWORTHY  questioned how KABATA  can project a  huge return.                                                               
He  suggested  that the  private  sector  should decide  if  this                                                               
project  is  feasible.  Perhaps  in 30  years  this  will  become                                                               
feasible, but  right now  it is speculative.  If the  RFP process                                                               
goes forward,  the Legislature should repeat  the conditions that                                                               
the Anchorage Assembly originally set,  to make sure this project                                                               
does not crowd  out other projects. One, no  further state funds;                                                               
two, no state  guarantee; and three, a private  sector willing to                                                               
finance, build, and operate the project.                                                                                        
1:51:23 PM                                                                                                                    
He also  pointed out  that last year  the TIFIA  application said                                                               
that all shortfalls would be  covered by annual appropriations by                                                               
of  the state  Legislature to  make the  bond payments  and cover                                                               
operating funds.                                                                                                                
1:52:12 PM                                                                                                                    
SENATOR THOMAS asked  what interest rate he was using  to come up                                                               
with $38 million.                                                                                                               
MR. KENWORTHY replied five percent.                                                                                             
SENATOR THOMAS  stated that conduit  financing isn't  using state                                                               
bonding authority, just state employees.                                                                                        
MR. KENWORTHY said the businesses  backed by the banks are taking                                                               
the risk. If AIDEA does its  own appropriation and is not using a                                                               
conduit, then they are putting the  bonds on the street and it is                                                               
not  an obligation  of  the State  of  Alaska. However,  everyone                                                               
understands that it is a  moral obligation. The interest rates on                                                               
those bonds are higher than  a state general obligation bond, but                                                               
significantly lower  than if just  a private sector firm  came to                                                               
the marketplace.  AIDEA cares  about its  credit rating,  and the                                                               
State of Alaska cares about AIDEA's credit rating.                                                                              
1:54:40 PM                                                                                                                    
JEFF  OTTESEN,  Director,   Program  Development,  Department  of                                                               
Transportation  and Public  Facilities  (DOTPF),  said the  TIFIA                                                               
issue  isn't dead.  Yesterday President  Obama  announced a  $450                                                               
million  allocation for  TIFIA  in the  federal  budget. He  also                                                               
announced a  $5 billion per  year infrastructure bank  that would                                                               
be $5 billion for six years.  This would be a new opportunity for                                                               
KABATA  coming  from  the federal  side.  Last  summer  Secretary                                                               
LaHood  visited  the  site,  so there  is  clearly  some  federal                                                               
MR. OTTESEN said that this state  was built on risk and who would                                                               
be a  better risk  than the  state itself.  The traffic  from the                                                               
North Slope  and the Interior  would pay for this  bridge. Mat-Su                                                               
isn't the  only source of  traffic. It's a bridge  for Fairbanks,                                                               
the North  Slope, and tourism  traffic. But the growth  that does                                                               
occur in Mat-Su  will be reflected by this bridge.  If this isn't                                                               
built there will be a need for more highway improvements.                                                                       
1:58:49 PM                                                                                                                    
He confirmed that  this project was accepted by the  FHWA as part                                                               
of the  National Highway System.  This is important,  because the                                                               
project doesn't compete with AMATS.                                                                                             
Finally, P3 is becoming a way  of life in transportation, and not                                                               
for just infrastructure. In Europe  P3s are being used to develop                                                               
vaccines, for example.  In Washington State a P3  is developing a                                                               
toll  bridge that  will replace  an existing  bridge and  tolling                                                               
will start prior to the bridge being built.                                                                                     
2:01:06 PM                                                                                                                    
SENATOR THOMAS  said he doesn't mind  risk he just wants  to know                                                               
what it will  be. If the risk  is $150 million that's  one set of                                                               
circumstances,  but  it's  another  if  it's  $700  million.  The                                                               
language  in  the bill  is  unclear.  The explanation  seemed  to                                                               
clarify that there is more potential risk.                                                                                      
MR. OTTESEN  responded the risk is  on the P3, and  it boils down                                                               
to traffic. He  said it is important to look  at the next traffic                                                               
predictions being done by Wilbur Smith.                                                                                         
SENATOR THOMAS asked if there is a guarantee on the numbers.                                                                    
MR. OTTESEN replied  there is no guarantee, but  Wilbur Smith has                                                               
a reputation of being credible.                                                                                                 
2:03:57 PM                                                                                                                    
CHAIR KOOKESH asked  for a response from the  project with regard                                                               
to Mr. Kenworthy's testimony.                                                                                                   
MR. FOSTER  said the reserve fund  allows KABATA to go  to market                                                               
and obtain the best available  annual payment to take the initial                                                               
risk.  A lot  is based  on  traffic modeling.  The consultant  is                                                               
doing  a  new model.  But  the  real test  is  to  get a  private                                                               
partner. Passing  these bills allows  KABATA to go to  market and                                                               
attract proposals.  However, if  the risk is  disproportionate it                                                               
won't  move  forward.  KABATA believes  it  will  get  attractive                                                               
proposals.  He said  the idea  of  the P3  partnership is  shared                                                               
responsibility. The risk to the  state depends on the reliability                                                               
of the traffic model.                                                                                                           
CHAIR KOOKESH asked about the TIFIA application.                                                                                
MR.  FOSTER explained  that they  submitted  the application  and                                                               
were encouraged.  This is  a DOT  project. Initially  they didn't                                                               
expect approval because KABATA didn't  have a record of decision,                                                               
but now  they do. There is  $450 billion, which is  threefold the                                                               
previous TIFIA. They feel confident  they will get that TIFIA and                                                               
therefore  the ability  to get  the  loan for  financing for  the                                                               
private partner.                                                                                                                
2:10:15 PM                                                                                                                    
CHAIR KOOKESH announced a brief t ease                                                                                          
2:14:17 PM                                                                                                                    
CHAIR KOOKESH reconvened the meeting.                                                                                           
SENATOR MENARD introduced Janet Kincaid, KABATA board member.                                                                   
CHAIR KOOKESH  stated that he  intended to move the  bills today;                                                               
two of the members are on  the finance committee and will have an                                                               
opportunity  to  address the  finance  issues.  He closed  public                                                               
testimony and asked the will of the committee.                                                                                  
2:15:13 PM                                                                                                                    
SENATOR  MENARD  moved to  report  both  SB  79  and SB  80  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
note(s). There  being no objection,  SB 79  and SB 80  moved from                                                               
the Senate Transportation Standing Committee.                                                                                   
2:15:28 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Kookesh  adjourned   the  Senate  Transportation  Standing                                                               
Committee meeting at 2:15 p.m.                                                                                                  

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