Legislature(2019 - 2020)BUTROVICH 205

03/07/2019 01:30 PM TRANSPORTATION

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Audio Topic
01:31:38 PM Start
01:31:55 PM Presentation: Alaska Marine Highway System
02:56:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: TELECONFERENCED
Alaska Marine Highway System by Matt McLaren -
AMHS Business Enterprise & Development Manager
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
                         March 7, 2019                                                                                          
                           1:31 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Shelley Hughes, Chair                                                                                                   
Senator Jesse Kiehl                                                                                                             
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Mike Shower, Vice Chair                                                                                                 
Senator Peter Micciche                                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION: ALASKA MARINE HIGHWAY SYSTEM                                                                                      
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MATT MCLAREN, Manager                                                                                                           
Business Enterprise and Development                                                                                             
Alaska Marine Highway System (AMHS)                                                                                             
Department of Transportation and Public Facilities (DOTPF)                                                                      
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT: Participated in the presentation on the                                                                   
administration's plans for the AMHS.                                                                                            
                                                                                                                                
AMANDA HOLLAND, Management Director                                                                                             
Office of Management and Budget                                                                                                 
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Participated in the presentation on the                                                                   
administration's plans for the AMHS.                                                                                            
                                                                                                                                
ROBERT VENABLES, Chair                                                                                                          
Marine Transportation Advisory Board                                                                                            
Executive Director                                                                                                              
Southeast Conference                                                                                                            
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Spoke  about  the   Marine  Transportation                                                             
Advisory Board reform efforts.                                                                                                  
                                                                                                                                
MARY SIROKY, Deputy Commissioner                                                                                                
Department of Transportation and Public Facilities (DOTPF)                                                                      
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:  Participated  in the  presentation  on  the                                                             
administration's plans for the AMHS.                                                                                            
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
                                                                                                                                
1:31:38 PM                                                                                                                    
CHAIR SHELLEY  HUGHES called  the Senate  Transportation Standing                                                             
Committee meeting  to order at 1:31  p.m. Present at the  call to                                                               
order were Senators Kiehl, Wilson, and Chair Hughes.                                                                            
                                                                                                                                
^Presentation: Alaska Marine Highway System                                                                                     
           Presentation: Alaska Marine Highway System                                                                       
                                                                                                                                
1:31:55 PM                                                                                                                    
CHAIR  HUGHES  announced  the   presentation  the  Alaska  Marine                                                               
Highway  System. She  noted that  the administration  has made  a                                                               
proposal that  the current  ferry service  would cease  October 1                                                               
this  fall. She  noticed  that the  RFP  [request for  proposals]                                                               
referenced finding cost  savings in a way to  continue to provide                                                               
transportation but also to allow  economic growth in the regions.                                                               
She was  curious about  those two working  together and  what the                                                               
administration  has to  say  about the  different  options it  is                                                               
considering.                                                                                                                    
                                                                                                                                
1:33:26 PM                                                                                                                    
MATT  MCLAREN,  Business   Enterprise  and  Development  Manager,                                                               
Alaska    Marine   Highway    System   (AMHS),    Department   of                                                               
Transportation and Public  Facilities (DOTPF), Ketchikan, Alaska,                                                               
introduced himself.                                                                                                             
                                                                                                                                
AMANDA  HOLLAND, Management  Director, Office  of Management  and                                                               
Budget,  Office  of  the  Governor,  Juneau,  Alaska,  introduced                                                               
herself.                                                                                                                        
                                                                                                                                
1:34:01 PM                                                                                                                    
MS. HOLLAND  said that slide  2 shows the difference  between the                                                               
fiscal year (FY) 2020 budget and  the FY 2019 management plan for                                                               
the Alaska  Marine Highway  System. In  the AMHS  transition, the                                                               
amended  budget proposes  a combined  general  fund reduction  of                                                               
$97,988.8  million.  That  is broken  out  by  $64,179.7  million                                                               
unrestricted general fund (UGF)  and $44,809.1 million designated                                                               
general fund (DGF), which is  the Marine Highway Fund. The budget                                                               
position  comparison   shows  no  change  between   the  FY  2019                                                               
management  plan and  the governor's  February 13  amended budget                                                               
for FY  2020. No  positions are  deleted in  the amended  FY 2020                                                               
budget.                                                                                                                         
                                                                                                                                
SENATOR HUGHES mentioned that she  attended the AMHS presentation                                                               
to the Finance subcommittee for  transportation that morning. She                                                               
asked if the  amount shown in the gold on  the funding comparison                                                               
graph is the money collected at the fare box.                                                                                   
                                                                                                                                
MS. HOLLAND answered yes.                                                                                                       
                                                                                                                                
1:35:31 PM                                                                                                                    
SENATOR KIEHL asked if that was  the expected fare box revenue or                                                               
a drawdown on AMHS funds.                                                                                                       
                                                                                                                                
MS. HOLLAND responded that it was the projected revenue.                                                                        
                                                                                                                                
CHAIR  HUGHES  clarified  that  in FY  2020,  the  ferries  would                                                               
operate from July  1 to October 1 and positions  would be carried                                                               
through until  October 1.  After that, most  people would  not be                                                               
working.                                                                                                                        
                                                                                                                                
MS. HOLLAND responded that that was correct.                                                                                    
                                                                                                                                
CHAIR HUGHES asked how that would work.                                                                                         
                                                                                                                                
MS. HOLLAND  said all  the positions are  budgeted for  a certain                                                               
number of months, depending on  what the system would require for                                                               
FY 2020. If AMHS underwent a  reduction of force in October every                                                               
year, those positions  stay on the record. Employees  can stay in                                                               
those positions, but  there is no work for them  to perform for a                                                               
certain period of time.                                                                                                         
                                                                                                                                
1:37:31 PM                                                                                                                    
MS. HOLLAND said  that slide 3, Historical  Revenue and Operating                                                               
Cost: Alaska  Marine Highway System,  is one of the  metrics that                                                               
the Department  of Transportation  and Public  Facilities (DOTPF)                                                               
relies on  for trends in  AMHS operations. This is  an historical                                                               
revenue  and operating  cost metric.  It  looks at  the fare  box                                                               
recovery  rate. They  are looking  at how  much of  the operating                                                               
cost of  the department is  funded through receipts and  how much                                                               
is subsidized  by the  state general fund.  The highest  level of                                                               
fare box  recovery was 61 percent  in 1991 and 1992.  Starting in                                                               
2005 and 2006,  the cost recovery has been lower  than 35 percent                                                               
with increased operating costs.                                                                                                 
                                                                                                                                
1:38:38 PM                                                                                                                    
CHAIR HUGHES  asked why the  operating costs increased.  She also                                                               
mentioned  that other  committee  members were  absent because  a                                                               
Finance Committee meeting had been scheduled.                                                                                   
                                                                                                                                
MR. MCLAREN said  there were several factors.  In 2004-2005 three                                                               
new  vessels,  both  fast  ferries  and  the  Lituya,  went  into                                                               
service. The  plan was to  retire at  least one vessel.  That did                                                               
not  happen, so  there were  more vessels  running. They  started                                                               
going to  smaller communities,  which don't have  as high  a cost                                                               
recovery, and there were wage  increases. The fundamentals of the                                                               
system changed.                                                                                                                 
                                                                                                                                
CHAIR  HUGHES  asked why  the  vessel  was  not retired  and  why                                                               
additional service was added.                                                                                                   
                                                                                                                                
MR.  MCLAREN said  he was  not  sure. The  general manager  would                                                               
probably know.                                                                                                                  
                                                                                                                                
CHAIR HUGHES asked if that was before his time.                                                                                 
                                                                                                                                
MR. MCLAREN answered yes, but they could get the answer.                                                                        
                                                                                                                                
CHAIR  HUGHES said  the 61  percent recovery  rate was  good. She                                                               
asked if there was anything responsible for that in 1992.                                                                       
                                                                                                                                
MR.  MCLAREN said  he could  get the  traffic numbers.  They were                                                               
running fewer ships at the  time. Tariffs have not increased much                                                               
in  the past  10  to  15 years.  They  could  figure out  whether                                                               
anything significant had happened.                                                                                              
                                                                                                                                
CHAIR HUGHES  said if something  significant had  been happening,                                                               
maybe they could repeat it.                                                                                                     
                                                                                                                                
MS.  HOLLAND  said   slide  4  shows  a  10-year   look  back  of                                                               
unrestricted  general  fund in  the  AMHS  operating budget.  She                                                               
explained the dip  in UGF in FY 2018 was  because the legislature                                                               
in FY 17 put forward  a supplemental appropriation of $30 million                                                               
to  reduce FY  18 UGF  spending  in the  AMHS. There  was a  fund                                                               
source  swap  from  UGF  to  DGF, the  Marine  Highway  Fund.  In                                                               
addition, approximately  $9.4 million  UGF was  appropriated from                                                               
the  community quota  revolving loan  fund and  deposited in  the                                                               
DGF, the  Marine Highway Fund.  In FY  19, that fund  source swap                                                               
was reversed, so that Marine  Highway Fund authority was switched                                                               
back to UGF, which is why there  is a dip in 2018 and an increase                                                               
in 2019.                                                                                                                        
                                                                                                                                
1:43:27 PM                                                                                                                    
SENATOR KIEHL asked what the FY  18 number would look like if the                                                               
creative appropriation practices were undone.                                                                                   
                                                                                                                                
MS. HOLLAND  said the unrestricted  general fund would  have been                                                               
$40 million  higher in FY 18,  so it would have  been between $79                                                               
and $82 million.                                                                                                                
                                                                                                                                
CHAIR  HUGHES said  the UGF  for  FY 20  is for  three months  of                                                               
service. The blue  bar for FY 20  is a quarter of the  UGF for FY                                                               
19, which  was for 12 months.  It looks proportional to  her. She                                                               
added she was just thinking out loud.                                                                                           
                                                                                                                                
MS.  HOLLAND  said  slide  4  is  an  update  on  the  governor's                                                               
directive issued on February 13 for  DOTPF to enlist the aid of a                                                               
qualified,  economic   and  marine   consultant  to   review  and                                                               
incorporate   all   the   state's   financial   obligations   and                                                               
liabilities related to the Alaska  Marine Highway System with the                                                               
idea  of identifying  protentional reductions  to that  financial                                                               
liability and  obligation. The  consultant will  be incorporating                                                               
previous studies'  findings and providing an  analysis of various                                                               
options for  the AMHS  that would result  in those  reductions to                                                               
the state's financial liabilities for the system.                                                                               
                                                                                                                                
     March 1        Issued Informal Request for Proposal                                                                        
     March 11       Deadline for Receipt of Proposals                                                                           
     March 18       SOA Issues Notice to Award                                                                                  
     March 19       SOA Issues Contract and Performance Begins                                                                  
     May 15         Consultant Preliminary Recommendations                                                                      
     June 7         Consultant Preliminary Draft Report                                                                         
     June 14        DOT&PF Comments Due to Consultant                                                                           
     July 5         Consultant Final Draft Due                                                                                  
     July 12        DOT&PF Final Comments Due to Consultant                                                                     
     July 31        Consultant Final Report to DOT&PF                                                                           
     Contract Budget $60,000 - $90,000                                                                                          
                                                                                                                                
CHAIR HUGHES  commented that  it was  an aggressive  timeline. It                                                               
had been  discussed that  morning, but she  thought it  should be                                                               
brought up again. She asked why  there was such a tight timeline,                                                               
whether they  were confident  they would  get proposals,  and why                                                               
they were assured that the timeline would work.                                                                                 
                                                                                                                                
MS. HOLLAND  replied that Deputy  Commissioner Siroky  had spoken                                                               
to that  this morning.  The department recognizes  that it  is an                                                               
aggressive timeline.  They did engage three  potential sources or                                                               
consultants. They  have have  had inquiries  about this,  so they                                                               
felt the  aggressive timeline could  still result in  a qualified                                                               
consultant bid. They would like to  get moving on this project as                                                               
quickly as possible, so they have time to analyze options.                                                                      
                                                                                                                                
CHAIR HUGHES  asked whether  the numerous  studies done  over the                                                               
years and their solutions had  been considered. She read the RFP,                                                               
which  provides a  link  to  the reform  committee  that was  put                                                               
together  by the  Southeast Conference.  She asked  if there  had                                                               
been  a review  of prior  reports and  studies and  whether those                                                               
solutions were dismissed.  She asked why they  were doing another                                                               
study.                                                                                                                          
                                                                                                                                
1:48:08 PM                                                                                                                    
MS. HOLLAND  said quite a number  of studies have been  done over                                                               
the years.  There was a  systems analysis, a tariff  analysis, an                                                               
economic impact analysis,  the Marine Highway Reform  Phase 1 and                                                               
Phase 2 Reports, annual traffic  volume reports, vessel condition                                                               
reports, and  annual financial reports.  There is quite a  bit of                                                               
information out there,  she said. All those  studies are specific                                                               
to one  particular look,  one particular  scope. The  idea behind                                                               
bringing a qualified  consultant on board is  that the consultant                                                               
would review  all of  that and  bring in  expertise about  how to                                                               
maximize  the marine  highway system  and provide  the department                                                               
with  options, including  information from  these reports.  It is                                                               
bringing an  expert to  help them  evaluate all  this information                                                               
and make the best-informed decision possible.                                                                                   
                                                                                                                                
SENATOR   HUGHES   said   she  appreciated   the   administration                                                               
recognizing that they  can't keep doing what  they've been doing.                                                               
They need  to make changes.  She is concerned about  the timeline                                                               
and has many questions. One  would be whether any federal dollars                                                               
would be  lost, such  as for the  facilities and  terminals. When                                                               
they  move  too  quickly,   there  are  unintended  consequences.                                                               
Apparently, the  administration is confident with  this pace, but                                                               
this  gives her  pause. She  used to  live in  Southeast and  has                                                               
family here. The  weather is often inclement and  it's not always                                                               
safe to travel in small aircraft.  She wants to make sure they do                                                               
this right and continue to  provide transportation for people who                                                               
live in this region.                                                                                                            
                                                                                                                                
SENATOR KIEHL asked what the fund source was for the consultant.                                                                
                                                                                                                                
MS.  HOLLAND said  the fund  source was  existing Marine  Highway                                                               
Authority in the FY 2019 operating budget.                                                                                      
                                                                                                                                
SENATOR KIEHL  asked how much  excess authority there  was beyond                                                               
anticipated need.                                                                                                               
                                                                                                                                
MR. MCLAREN answered the budget  is tight this year on authority.                                                               
He will need  to investigate to find the exact  amount. They feel                                                               
there is enough to recover this.                                                                                                
                                                                                                                                
1:51:30 PM                                                                                                                    
SENATOR  KIEHL said  he appreciated  her question  about previous                                                               
studies. Many  of them are  thorough. The remarkable  thing about                                                               
them is that the  ones from 1969 read like the  ones from 2010 in                                                               
terms of  their recommendations. That was  his editorial comment.                                                               
In  terms of  deliverables,  the contract's  scope  of work,  the                                                               
marine  highway  system  has worked  on  efficiencies  trying  to                                                               
secure  long-term contracts  for supplies,  for maintenance,  and                                                               
things like  that. He asked  if the  consultant would get  to the                                                               
level of  granularity to  address the  cost of  terminating those                                                               
contracts.                                                                                                                      
                                                                                                                                
MS. HOLLAND answered that they  do anticipate that the consultant                                                               
report  will  address  those issues.  The  consultant  will  work                                                               
closely  with DOTPF.  The Department  of  Revenue economic  group                                                               
will also  be working DOTPF  to identify economic impacts  of the                                                               
various    options   that    the   consultant    identifies   for                                                               
consideration.                                                                                                                  
                                                                                                                                
CHAIR HUGHES  said the RFP  says that  the AMHS will  move toward                                                               
other  service  options  to realize  short-  and  long-term  cost                                                               
savings for  state government and  to promote economic  growth in                                                               
affected parts of  the state. If that is part  of it, they should                                                               
be looking at impacts on the economy.                                                                                           
                                                                                                                                
SENATOR  KIEHL  asked what  the  scope  of  that analysis  is  on                                                               
community impacts, especially economic impacts.                                                                                 
                                                                                                                                
MS.  HOLLAND  responded  that  they expect  to  see  impacts  for                                                               
opportunities  for private  operators and  how that  could change                                                               
the  economic situation  for communities  that currently  receive                                                               
marine highway services.                                                                                                        
                                                                                                                                
SENATOR KIEHL  said that is  a significant concern. He  asked the                                                               
department to  give him  the estimated cost  of state  staff time                                                               
for this effort.                                                                                                                
                                                                                                                                
CHAIR HUGHES  said the  scope of work  has ten  options, although                                                               
the RFP  is not limited  to those. There  is a lot  about public-                                                               
private  partnerships, public  corporations, the  state retaining                                                               
part but privatizing  others. It doesn't appear to  be only about                                                               
privatization, but  she has been hearing  more about privatizing.                                                               
She  asked  if the  administration  is  open  to the  other  nine                                                               
options.                                                                                                                        
                                                                                                                                
1:55:30 PM                                                                                                                    
MS. HOLLAND  said her understanding  was that  the administration                                                               
is  looking for  a variety  of options.  There is  no single  set                                                               
determined course.                                                                                                              
                                                                                                                                
CHAIR HUGHES said  that was good to hear. She  was hearing things                                                               
that  made it  sound like  they were  going down  only one  path.                                                               
Senator  Stedman  that  morning  had brought  up  that  the  AMHS                                                               
advisory  board  was  supposed  to   be  part  of  any  long-term                                                               
planning. She asked if they have  been involved and what the plan                                                               
was for that.                                                                                                                   
                                                                                                                                
MS. HOLLAND replied  that she would defer that  to the department                                                               
leadership. She asked if they could respond in writing.                                                                         
                                                                                                                                
CHAIR  HUGHES said  that she  saw that  the chair  of the  Marine                                                               
Transportation Advisory Board  (MTAB) was in the  room. She asked                                                               
him  to  come  up  to  speak  about  his  interactions  with  the                                                               
department as the chair of the board.                                                                                           
                                                                                                                                
1:56:55 PM                                                                                                                    
ROBERT  VENABLES, Chair,  Marine  Transportation Advisory  Board,                                                               
Executive  Director, Southeast  Conference, Juneau,  Alaska, said                                                               
it was not clear yet how  they will be involved. The commissioner                                                               
has reached  out to the chairs  of MTAB, the aviation  board, and                                                               
the highways  advisory board and asked  them to be part  of a new                                                               
ad  hoc committee.  They don't  have clarity  yet about  how that                                                               
committee will be  involved. The members of the  ad hoc committee                                                               
have not been  appointed. As far as MTAB, it  does state that the                                                               
Marine Advisory  Transportation Board shall, in  cooperation with                                                               
the  department,   prepare  and  submit  to   the  Department  of                                                               
Transpiration and  Public Facilities and the  governor for review                                                               
a strategic  plan. That  is what the  consultant will  be getting                                                               
at. He  was pleased to  see the link [in  the RFP] to  the reform                                                               
effort that the MTAB and  Southeast Conference have been part of.                                                               
He  offered  to  provide  more  information  about  that  if  the                                                               
committee would like it.                                                                                                        
                                                                                                                                
CHAIR HUGHES  said he was  welcome to provide any  information to                                                               
the committee. She asked him whether  he had been involved in any                                                               
discussions regarding his role with the reform committee work.                                                                  
                                                                                                                                
MR. VENABLES  said that  MTAB and  the steering  committee, which                                                               
has a  dozen members  across the  state, had  a joint  meeting in                                                               
December  in Anchorage.  The governor  had staff  there also.  As                                                               
part  of  the  reform  effort,  MTAB has  been  invited  to  each                                                               
meeting, so statutorily they are in compliance.                                                                                 
                                                                                                                                
CHAIR  HUGHES asked  what the  reform committee  was recommending                                                               
and if that dovetails with the RFP.                                                                                             
                                                                                                                                
1:59:55 PM                                                                                                                    
MR.  VENABLES  said  there  was  a lot  of  opportunity  for  the                                                               
committee work  to be  adopted by the  governor. Those  ten tasks                                                               
[in the RFP scope of work] are  so broad and so divergent in many                                                               
ways, that if  one of those paths were chosen,  very little could                                                               
be  adapted.  The  crux  of  the reform  effort  was  to  empower                                                               
management  to make  the business  decision  of the  day with  an                                                               
executive board  that is skilled in  maritime expertise, finance,                                                               
marketing,  and  labor.  There  is   a  lot  of  cost  and  waste                                                               
associated with  current operations  because of  the misalignment                                                               
between  labor and  management.  There  are opportunities  there.                                                               
They will  see how the  governor and  DOT utilizes MTAB  and that                                                               
information. All  of the reform  efforts and product  and process                                                               
were outside the Department of  Transportation. He can understand                                                               
why DOT might  want their own consultant, but this  work was done                                                               
by  Alaskans and  consultants  in  a public  manner.  He can  get                                                               
executive summaries to the committee.                                                                                           
                                                                                                                                
CHAIR  HUGHES  clarified  that   it  would  allow  public-private                                                               
partnerships where  it would  make sense. She  asked if  he could                                                               
give some  examples. She noted  that this morning  Senator Bishop                                                               
had suggested the possibility of reopening bars.                                                                                
                                                                                                                                
MR. VENABLES said  that was a poster child of  allowing the space                                                               
to be  used by the  private sector. Whether state  employees need                                                               
to be  serving alcohol  to the traveling  public was  a debatable                                                               
question that  would leave the  door open for an  entrepreneur to                                                               
come in  to provide  that service and  create some  revenue. Four                                                               
years ago,  he mentioned  to Senate Finance  that if  they really                                                               
wanted to  take the handcuffs  off and let the  enterprise system                                                               
create some revenue  on board the boats, perhaps  they could look                                                               
at  gaming also.  There are  many opportunities  that may  not be                                                               
embraced  by  all,  but  they  could  be  explored  if  empowered                                                               
management could look at those.  If empowered management could do                                                               
that, there are things that haven't even been considered yet.                                                                   
                                                                                                                                
CHAIR  HUGHES  said gaming  could  increase  ridership and  bring                                                               
people up  to Alaska who  might not come otherwise.  That ability                                                               
to  work with  the private  sector  sounds like  a positive.  She                                                               
likes the idea  of having private sector  expertise helping steer                                                               
the  ship, pun  intended. She  asked  if there  is anything  else                                                               
about solutions they have not discussed.                                                                                        
                                                                                                                                
2:02:56 PM                                                                                                                    
MR.  VENABLES said  regarding the  labor-management misalignment,                                                               
the marine highway  doesn't even manage their  own contracts with                                                               
their employees.  As Senator Bishop mentioned  this morning, they                                                               
don't talk  as much as they  should. An empowered board  that has                                                               
some private sector expertise could  look at ways to partner with                                                               
communities,  businesses, and  tribes.  They have  had some  good                                                               
conversations about how some of  those entities could come to the                                                               
table and  create infrastructure that would  provide efficiencies                                                               
for the system, as well as for terminals and other locations.                                                                   
                                                                                                                                
CHAIR  HUGHES said  this was  not the  Finance Committee,  but it                                                               
begs  the  question. This  was  being  discussed because  of  the                                                               
fiscal situation  and what  they have been  doing in  prior years                                                               
was not  sustainable. She asked  what level of state  subsidy his                                                               
proposal would need as a  public corporation. The Alaska railroad                                                               
is a  public corporation that  is not getting an  annual subsidy,                                                               
but  it has  other resources  and  ways of  getting revenue.  She                                                               
asked for his best estimate  and how involving private enterprise                                                               
might bring it down.                                                                                                            
                                                                                                                                
MR. VENABLES  replied that he  would surmise that it  would bring                                                               
it down dramatically, but they do  not have that number. They did                                                               
not get  to that lower  level of  granularity in the  planning of                                                               
different  scenarios.  They  felt   confident  after  looking  at                                                               
operational models  and governance  models around the  world that                                                               
what would work best for Alaska  would be an empowered board that                                                               
could  oversee  an  operation  still   owned  by  the  state  and                                                               
providing a  public service  mission but  empowered to  work with                                                               
the private sector to bring costs  down. They don't have an exact                                                               
number, but they think it would be dramatic.                                                                                    
                                                                                                                                
CHAIR  HUGHES  asked  if  they   are  at  about  $86  million  in                                                               
unrestricted general fund, was it  conceivable that they could do                                                               
it for about $50 million.                                                                                                       
                                                                                                                                
2:05:25 PM                                                                                                                    
MR. VENABLES replied  that there are a number  of scenarios where                                                               
that could happen,  but they have an aging fleet.  If looking for                                                               
an operator out  west, they would not offer  the Tustumena, which                                                               
is literally falling  apart. They would need new  boats. With new                                                               
boats  they would  have  more flexibility  for  revenue, but  the                                                               
capital  costs  of  repairs  becoming   dramatic  will  sink  the                                                               
enterprise.                                                                                                                     
                                                                                                                                
CHAIR HUGHES said there are lots  of puns today. She asked if his                                                               
model  would consider  the use  of catamarans  so that  passenger                                                               
service could  be more  readily provided  at a  lower cost  or if                                                               
they were only talking about larger vessels that can carry cars.                                                                
                                                                                                                                
MR.  VENABLES said  they were  looking at  the ideal  vessels for                                                               
mainline feeder  vessels in  the next phase  of their  work. They                                                               
haven't gotten  to that element  yet, but he imagines  they would                                                               
contemplate many of those scenarios.                                                                                            
                                                                                                                                
SENATOR  KIEHL  said  the  comparison  to  the  railroad  was  an                                                               
interesting   one.  They   receive   federal  transit   authority                                                               
operating grants for passenger service,  as well as capital. They                                                               
are not running the trains out  of the fare box. He asked whether                                                               
Mr. Venables  sees his work  as an opportunity to  stabilize some                                                               
of the  vision of the marine  highway system. In the  last decade                                                               
or two, they have seen the  idea of going to hub-and-spoke with a                                                               
bunch of fast  ferries with little of the traditional  model of a                                                               
lot of  mainline service  and a  village run  and more  day boats                                                               
that may  or may not be  able to operate  as day boats. He  has a                                                               
concern  about  how those  dollars,  primarily  federal but  some                                                               
state, are  being planned. He asked  if there is anything  in the                                                               
model they are  working on to stabilize the plan  or if that adds                                                               
to the long-term vision.                                                                                                        
                                                                                                                                
MR. VENABLES responded that was the  next level of what they were                                                               
getting into. Along with having  a fleet of viable vessels, there                                                               
needs  to be  deployment strategies  to utilize  them, much  like                                                               
airlines do  with their  expensive 737s.  Things to  consider are                                                               
different types  of marketing  and the  timing of  basic services                                                               
vs.  all services.  The board  would be  empowered to  make those                                                               
decisions  because that  would  be their  area  of expertise.  It                                                               
would bring a lot of stability to operations.                                                                                   
                                                                                                                                
CHAIR  HUGHES  said   that  the  Alaska  Railroad   is  a  public                                                               
corporation. It has  given some policy makers  heartburn over the                                                               
years that they  as legislators don't have access to  all the ins                                                               
and outs  of their  books. She  asked if that  would be  the same                                                               
arrangement if something like this went forward.                                                                                
                                                                                                                                
2:09:24 PM                                                                                                                    
MR. VENABLES  said his understanding  was that when  the railroad                                                               
was created,  there were  certain federal mandates  and it  was a                                                               
time  that allowed  for that  structure. "The  good news  for the                                                               
senators here is  that they'd have to  require significant change                                                               
of law  and so you would  get to make  sure that you had  all the                                                               
access you  needed into  that. Last year  HB 412  was introduced.                                                               
That kind  of provided a  framework. We're looking at  seeing how                                                               
to make  those kinds of  changes that  I think it's  important to                                                               
have the clarity and oversight that  would allow you to do that,"                                                               
he said.                                                                                                                        
                                                                                                                                
CHAIR HUGHES asked if he had anything else to add.                                                                              
                                                                                                                                
MR. VENABLES said  he would be happy to respond  to any questions                                                               
that come up throughout the session.                                                                                            
                                                                                                                                
CHAIR HUGHES  thanked him for  coming up and for  his committee's                                                               
work to find a  solution. She was pleased that it  was one of the                                                               
considerations in the RFP.                                                                                                      
                                                                                                                                
SENATOR KIEHL said he had noticed  that two amendments to the RFP                                                               
had  been  posted,  mostly  answering  questions  from  potential                                                               
bidders.  One was  about  access to  information  about what  the                                                               
state would  have to  provide back to  the federal  government by                                                               
vessel, by terminal,  or work done if they were  no longer run as                                                               
public transit  entities. He asked if  DOTPF had a sense  of what                                                               
those liabilities  to the federal  government would look  like if                                                               
they went down that road.                                                                                                       
                                                                                                                                
2:11:33 PM                                                                                                                    
MARY  SIROKY, Deputy  Commissioner, Department  of Transportation                                                               
and  Public Facilities  (DOTPF), Juneau,  replied that  they were                                                               
working  closely with  FHWA [Federal  Highway Administration]  on                                                               
that. She tried  in an earlier hearing to  articulate what little                                                               
she knows already  and failed miserably. She  proposed to respond                                                               
by early  next week with  a description of  how that works  and a                                                               
specific  example of  how that  payback  would work  and how  the                                                               
payback could be used.                                                                                                          
                                                                                                                                
CHAIR HUGHES  commented that the  RFP was quite the  project with                                                               
quite the timeline. She asked  who in the department was managing                                                               
this project.                                                                                                                   
                                                                                                                                
MS.  SIROKY answered  that Reuben  Yost was  on contract  to help                                                               
manage this  contract, but  she or  the commissioner  have direct                                                               
oversight  over  him and  any  decisions  and recommendations  he                                                               
makes.  "Ultimately,   we  are   the  decision  makers.   He's  a                                                               
recommender," she said.                                                                                                         
                                                                                                                                
CHAIR HUGHES asked who they  should route questions through after                                                               
the committee hearing.                                                                                                          
                                                                                                                                
MS. SIROKY responded that questions should come through her.                                                                    
                                                                                                                                
2:13:17 PM                                                                                                                    
MR. MCLAREN  said the next few  slides are of historical  data on                                                               
the operational side. Slide 6  shows the annual ridership for the                                                               
past ten years,  including passenger and vehicle  traffic. At the                                                               
top of  each bar is total  operating weeks for each  fiscal year.                                                               
An  operating week  is  a week  that that  vessels  run. If  five                                                               
vessels run in one week, that  is five operating weeks during the                                                               
one calendar  week. The passenger traffic  flow correlates almost                                                               
directly  to the  number  of  operating weeks  for  the past  ten                                                               
years. As  the number of  operating weeks decline,  the passenger                                                               
traffic  declines  almost by  the  same  percentage. The  vehicle                                                               
traffic has remained consistent for the past ten years.                                                                         
                                                                                                                                
CHAIR HUGHES asked  if he knew what had happened  along the route                                                               
as far  as population.  The ridership goes  with the  fewer weeks                                                               
the ships are in service,  but if they increased operating weeks,                                                               
if the population  has gone down, the ridership  wouldn't keep up                                                               
with that. She knows that budget  concerns are part of the reason                                                               
for ramping  down, but she  wondered if part  of that was  due to                                                               
population.                                                                                                                     
                                                                                                                                
MR. MCLAREN  said the population  along most of their  routes has                                                               
remained  consistent.  What  they  see is  that  other  modes  of                                                               
transportation  became  available,  especially in  the  passenger                                                               
realm.  As  airlines  became  more  accessible,  their  passenger                                                               
traffic decreased.  Back in the  early 1990s and 2000s,  they had                                                               
over 400,000 passengers [per year].  Now it is under 300,000, but                                                               
vehicle  volume for  the  entire history  of  the marine  highway                                                               
system has  hovered around  100,000 [per  year]. They  think that                                                               
decline is due to other modes of transportation being available.                                                                
                                                                                                                                
CHAIR  HUGHES asked  if  he  could verify  that  it  was not  the                                                               
population declining. She asked Senator  Kiehl if he could verify                                                               
that the population has gone down a few percentage points.                                                                      
                                                                                                                                
SENATOR KIEHL replied  a couple of percentage  points. He thought                                                               
Mr. McLaren  had the  more likely  explanation. He  gave examples                                                               
showing  the  cost   of  flying  has  dropped.   There  are  some                                                               
competitive elements  unrelated to  population and he  added that                                                               
vehicles don't move so well on an airplane.                                                                                     
                                                                                                                                
2:17:03 PM                                                                                                                    
CHAIR HUGHES  recounted a  story of  not being  able to  fly from                                                               
Juneau  to Hoonah  in October  last year  because of  the weather                                                               
when  someone offered  the services  of  a catamaran.  Catamarans                                                               
could be a good option  for moving passengers. Their focus should                                                               
be on  making sure  people can get  to where they  need to  go in                                                               
Southeast. Out  of curiosity, after the  [governor's] budget came                                                               
out, she asked people from Southeast  about whether the idea of a                                                               
catamaran  offering  more  passenger  service  but  less  vehicle                                                               
service  worked for  them.  No  one has  said  that it  wouldn't.                                                               
People in  Southeast want  to make  sure they  get to  where they                                                               
want to go. That is one option.                                                                                                 
                                                                                                                                
CHAIR HUGHES  said she has  lived in  Southeast and now  lives in                                                               
Southcentral, where they  are bursting at the  seams and building                                                               
new roads.  She also lived in  Bethel and Fort Yukon,  where they                                                               
were totally dependent  on air travel. Moving a car  is nice, and                                                               
easier  to do  on the  waterways than  on a  plane, but  the most                                                               
important  thing  to focus  on  is  moving  people. Alaska  is  a                                                               
lifestyle choice.  People who move  to a village  understand that                                                               
they have to  travel by air and that they  might be weathered in.                                                               
It is the same in Southeast. People  just can't get on a road and                                                               
go wherever they want to go.  It is a lifestyle choice. There are                                                               
differences. It  makes it unique,  it makes  it fun, but  it also                                                               
makes it  challenging. Whatever happens  with the  marine highway                                                               
system,  it   should  focus   on  moving   people  to   and  from                                                               
destinations. It could  mean less movement of  fewer vehicles. As                                                               
someone who lived somewhere where  she couldn't move her vehicle,                                                               
she wanted to  tell her friends in Southeast that  the sky didn't                                                               
fall. People get used to it and it works.                                                                                       
                                                                                                                                
MR.  MCLAREN  said  slide  7  shows  how  the  average  ridership                                                               
compares to  operating week for  the past ten years.  Even though                                                               
the previous slide shows the  passenger traffic declining overall                                                               
as  the operating  weeks are  going down,  passenger traffic  per                                                               
week  has remained  consistent  the past  ten  years and  vehicle                                                               
traffic has increased somewhat.                                                                                                 
                                                                                                                                
SENATOR KIEHL  asked if he knew  whether he could break  down the                                                               
vehicle traffic into commercial vehicles vs. personal vehicles.                                                                 
                                                                                                                                
MR. MCLAREN answered that they could get the information to him.                                                                
                                                                                                                                
SENATOR  KIEHL  replied   that  would  be  useful.   One  of  the                                                               
tremendous benefits of a marine  highway system is the ability to                                                               
move commerce when those vehicles can  be moved. When he looks at                                                               
some of  the communities he  represents, economies of  scale come                                                               
from a population base and the  infrastructure is the key. He has                                                               
communities  with asphalt  highways,  but  small populations,  so                                                               
commerce comes  from the regional  hub. Where the  private sector                                                               
can  move freight,  they are  doing it,  but if  someone needs  a                                                               
second  freight run  in Skagway  in  the summer  to serve  15,000                                                               
cruise ship passengers a day, it  can't be flown. It's not coming                                                               
over land  from Chicago.  It's coming  from a  supplier in  a hub                                                               
community.  That   enables  some   of  the   smaller  communities                                                               
throughout  Southeast to  have jobs  and  have vibrant  economies                                                               
that are  lacking in  some places in  the state.  That commercial                                                               
traffic will be a key part of the analysis.                                                                                     
                                                                                                                                
2:23:26 PM                                                                                                                    
MR.  MCLAREN said  slide  8  shows the  operating  weeks and  the                                                               
revenue generated  by the system  for the  past ten years.  FY 12                                                               
and FY 15  had the highest total revenue. Those  also happened to                                                               
be the  years of  highest systems  cost. The  last few  years the                                                               
operating  weeks have  come down,  but the  revenue generated  by                                                               
ticket sales has been consistent.                                                                                               
                                                                                                                                
CHAIR  HUGHES  said she  did  calculations  based on  an  average                                                               
ridership of  791 people per  operating week  in FY 18,  with six                                                               
operating weeks within one actual  calendar week. With estimating                                                               
six times  800 is 4,800 and  dividing the UGF of  $81 million for                                                               
the year  by 52,  it's taking  about $1.6  million to  move 4,800                                                               
people. That  is about $340 to  move a person, which  seems high.                                                               
The state  could be giving  an airline  ticket. To some  of these                                                               
communities, a  roundtrip airplane  ticket might  only be  $80 or                                                               
$150. She's  putting that out  there, that's her rough  math. She                                                               
asked if Mr. McLaren knows what it cost the state per person.                                                                   
                                                                                                                                
MR. MCLAREN  said they could get  the average cost per  person to                                                               
her. The cost  to the state depends on the  route and the revenue                                                               
generated.                                                                                                                      
                                                                                                                                
CHAIR HUGHES  said she was pointing  out that they are  putting a                                                               
lot of  money into  moving people. If  they had  perfect weather,                                                               
they could  just provide  airline tickets to  people. She  is not                                                               
suggesting that  they do that.  She's just letting them  know how                                                               
much they  are paying  per person,  and that  person also  pays a                                                               
fare. The  fare is DGF  on top of the  UGF, so an  airline ticket                                                               
would be a  lot cheaper. They have  to figure out how  to do this                                                               
in a more sustainable way.                                                                                                      
                                                                                                                                
MR.  MCLAREN said  that slide  9  shows the  average revenue  per                                                               
operating week. The  revenue per operating week for  the past ten                                                               
years has increased. FY 18  had the highest revenue per operating                                                               
week  in the  history of  the  system at  $149,000 per  operating                                                               
week. Other  years had higher  total revenue,  but FY 18  had the                                                               
highest revenue per operating week.                                                                                             
                                                                                                                                
2:27:54 PM                                                                                                                    
MR.  MCLAREN  said slide  10  shows  the governor's  February  13                                                               
budget. Possible scenarios are shown  in the next few slides. The                                                               
governor's February 13 budget shows  a schedule of 84.8 operating                                                               
weeks with  a fare box  recovery rate of  40 percent. He  said it                                                               
can be  misleading to just  look at  the fare box  recovery rate.                                                               
Some routes during some seasons have  a fare box recovery of rate                                                               
of 100 percent. If that was  the goal for the system, those would                                                               
be the only routes they run, but  that would be at the expense of                                                               
smaller communities  that rely on  the service. At the  other end                                                               
of the  spectrum, if they focus  solely on service, the  fare box                                                               
recovery rate is  much lower. This schedule  honors the published                                                               
schedule through  the end of  August with the  following schedule                                                               
after that:                                                                                                                     
                                                                                                                                
     FY 2020 Governor's 2/13 Budget                                                                                             
                                                                                                                                
     Published summer schedule remains intact through the end of                                                                
     August                                                                                                                     
                                                                                                                                
     September 1, 2019 through mid-September, operate:                                                                          
        • Matanuska and Malaspina on their Bellingham and SE                                                                    
          Alaska runs                                                                                                           
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Homer, Kodiak, Aleutian Chain, Whittier,                                                                
          Cordova, Valdez, Chenega Bay, Tatitlek, Yakutat,                                                                      
          Prince Rupert, Angoon, Tenakee, Pelican, Hoonah, and                                                                  
          Gustavus                                                                                                              
                                                                                                                                
     Mid-September through October 1, 2019, operate:                                                                            
        • Malaspina and Matanuska on their Bellingham and SE                                                                    
          Alaska runs                                                                                                           
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Homer, Kodiak, Aleutian Chain, Whittier,                                                                
          Cordova, Valdez, Chenega Bay, Tatitlek, Yakutat,                                                                      
          Prince Rupert, Angoon, Tenakee, Pelican, Hoonah, and                                                                  
          Gustavus                                                                                                              
                                                                                                                                
     October 1, 2019, through June 30, 2020:                                                                                    
        • No Service                                                                                                            
                                                                                                                                
SENATOR KIEHL asked  what his level of comfort was  that the list                                                               
of vessels would be available.                                                                                                  
                                                                                                                                
2:30:02 PM                                                                                                                    
MR. MCLAREN replied that the  Malaspina is currently running. The                                                               
Matanuska is in  a shipyard in Portland. It is  scheduled to come                                                               
out of  there in August.  The Colombia is  on that route.  If the                                                               
Matanuska is delayed,  they will use the Colombia  on that route.                                                               
They are almost  ready to take delivery of the  Tazlina. The plan                                                               
is begin operating that ship May  1, and the Lituya is continuing                                                               
to operate,  so they are very  confident that they can  keep this                                                               
service level on this route.                                                                                                    
                                                                                                                                
MR. MCLAREN pointed out that the  slide 10 shows the fund sources                                                               
for   the  governor's   February  13   budget.  The   expenditure                                                               
authorization  is $45  million with  generated revenue  of almost                                                               
$18 million, leaving a net deficit of $27 million.                                                                              
                                                                                                                                
MR. MCLAREN said they worked  on different scenarios because they                                                               
were asked  what it would look  like to add service  from October                                                               
through June.  They looked at  different fare box  recovery rates                                                               
when creating different scenarios. He  showed a schedule on slide                                                               
11  that  would keep  the  Kennicott  on the  Bellingham-Whittier                                                               
cross-gulf route:                                                                                                               
                                                                                                                                
     FY2020 AMHS Scenario 1                                                                                                     
     Add Oct-June Not Servicing All Ports                                                                                       
                                                                                                                                
     Published summer schedule remains intact through end of                                                                    
     August                                                                                                                     
                                                                                                                                
     September 1, 2019 through September 30, 2019, operate:                                                                     
        • Matanuska and Malaspina on their Bellingham and SE                                                                    
          Alaska runs                                                                                                           
        • Kennicott on the Bellingham  Whittier cross-gulf run                                                                  
      • Tustumena on the Homer-Kodiak/Aleutian Chain run                                                                        
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Angoon, Tenakee, and Pelican                                                                            
                                                                                                                                
     October 1, 2019 through March 30, 2020, operate:                                                                           
        • Matanuska on the Bellingham run                                                                                       
        • Tustumena on the Homer  Kodiak and Prince William                                                                     
          Sound (further vetting needed)                                                                                        
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Prince Rupert, Angoon, Tenakee, and                                                                     
          Pelican                                                                                                               
                                                                                                                                
     April 1, 2020, through June 30, 2020:                                                                                      
        • Matanuska and Malaspina on the Bellingham run                                                                         
        • Kennicott on the Juneau  Whittier cross-gulf run                                                                      
      • Tustumena on the Homer-Kodiak/Aleutian Chain run                                                                        
        • Hubbard in Prince William Sound                                                                                       
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No Service to Prince Rupert, Angoon, Tenakee, and                                                                     
          Pelican                                                                                                               
                                                                                                                                
Mr.  McLaren said  Angoon,  Tenakee, and  Pelican  would not  get                                                               
service  because they  can only  be serviced  by the  Aurora, the                                                               
LeConte, the  Tazlina, and Hubbard.  The Aurora and  LeConte will                                                               
not be  available. The  Tazlina would be  running but  because of                                                               
the  distance  between  ports, it's  difficult  because  of  time                                                               
constraints. Next  summer they  would shift  to more  service for                                                               
higher revenue routes.  Some ports would still  be covered, maybe                                                               
once a month  or once every two weeks, but  those ports would not                                                               
be completely cut out of service.                                                                                               
                                                                                                                                
Mr. McLaren said the Scenario 1  budget on slide 11 would provide                                                               
268.8  operating  weeks of  service  with  a potential  fare  box                                                               
recovery rate  of 50  percent. It would  require $40  million UGF                                                               
and generate  $46.9 million in  revenue with a  total expenditure                                                               
of $93 million.                                                                                                                 
                                                                                                                                
SENATOR  KIEHL  said he  was  still  reeling  from once  a  month                                                               
service in the  summer and figuring out how to  run a business in                                                               
a  community  with that  kind  of  service.  He asked  about  the                                                               
forecast of a roughly 3.5  percent reduction in revenue with that                                                               
kind of reduction in service.                                                                                                   
                                                                                                                                
MR. MCLAREN  said the  big reason  for that  is because  they are                                                               
shifting routes to  focus on routes that  generate high revenues,                                                               
but  still trying  to provide  service to  some communities  that                                                               
don't  generate  as  much  revenue.  This  would  increase  their                                                               
Bellingham runs  in the summer  from six runs from  Bellingham to                                                               
Skagway to eight.  They would also double the  Juneau to Whittier                                                               
cross-gulf route.  Those routes are  the most demand,  most high-                                                               
revenue routes  in the summer.  They would decrease costs  by not                                                               
running  some  of  the  more  costly ships  in  the  winter,  the                                                               
Kennicott, the Aurora, and the Malaspina.                                                                                       
                                                                                                                                
2:35:56 PM                                                                                                                    
SENATOR KIEHL  said he would  want to see those  projections. The                                                               
cost of  operating the  vessels isn't the  revenue. He  was doing                                                               
math on the fly, but they would  cut about a sixth of the service                                                               
weeks and lose  a thirtieth of the revenue. That  is a remarkable                                                               
projection. He would like to see the numbers behind that.                                                                       
                                                                                                                                
MR. MCLAREN agreed to supply the numbers.                                                                                       
                                                                                                                                
MR. MCLAREN  said the next  scenario may answer how  the schedule                                                               
and  vessels run  affect UGF  and  revenue. Scenario  2 adds  the                                                               
LeConte  so they  could  service  other ports.  The  rest of  the                                                               
schedule is the same as in Scenario 1.                                                                                          
                                                                                                                                
     FY2020 AMHS Scenario 2                                                                                                     
     Add October-June Servicing All Alaska Ports                                                                                
                                                                                                                                
     Published summer schedule remains intact through end of                                                                    
     August                                                                                                                     
                                                                                                                                
     September 1, 2019 through September 30, 2019, operate:                                                                     
        • Matanuska and Malaspina on their Bellingham and SE                                                                    
          Alaska runs                                                                                                           
        • Kennicott on the Bellingham  Whittier cross-gulf run                                                                  
      • Tustumena on the Homer-Kodiak/Aleutian Chain run                                                                        
        • LeConte on the SE Alaska Panhandle run                                                                                
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
                                                                                                                                
     October 1, 2019 through March 30, 2020, operate:                                                                           
        • Matanuska on the Bellingham run                                                                                       
        • Tustumena on the Homer  Kodiak and Prince William                                                                     
          Sound (further vetting needed)                                                                                        
      • LeConte in Northern Lynn Canal and SE Panhandle                                                                         
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Prince Rupert                                                                                           
                                                                                                                                
     April 1, 2020, through June 30, 2020:                                                                                      
        • Matanuska and Malaspina on the Bellingham run                                                                         
        • Kennicott on the Juneau  Whittier cross-gulf run                                                                      
      • Tustumena on the Homer-Kodiak/Aleutian Chain run                                                                        
        • LeConte on the SE Panhandle run                                                                                       
        • Hubbard in Prince William Sound                                                                                       
        • Tazlina in Northern Lynn Canal                                                                                        
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Prince Rupert                                                                                           
                                                                                                                                
MR. MCLAREN  said the total  cost of  Scenario 2 with  service to                                                               
the smaller  communities is $98  million in total  costs compared                                                               
to $93  million in  Scenario 1.  The total cost  goes up  but the                                                               
revenue  decreases  in  this  schedule.  The  UGF  need  in  this                                                               
schedule increases.  He noted a typo  on slide 12. It  should say                                                               
281.8 operating weeks with a  potential fare box recovery rate of                                                               
45 percent.                                                                                                                     
                                                                                                                                
2:38:35 PM                                                                                                                    
MR.  MCLAREN said  that in  Scenario 3  shown on  slide 13,  they                                                               
tried to look at what they could  do for an entire fiscal year if                                                               
they set  a goal to  match the  revenue generation with  UGF, and                                                               
this  schedule does  this. In  the summer  they would  be running                                                               
eight  vessels,  and they  would  be  increasing the  Bellingham-                                                               
Skagway and Juneau-Whitter cross-gulf routes.                                                                                   
                                                                                                                                
     FY 20XX AMHS Scenario 3                                                                                                    
     Full Year Servicing All Alaska Ports                                                                                       
     UGF=DGF                                                                                                                    
                                                                                                                                
     July 1 through September 30, and April 1 through June 30,                                                                  
     operate:                                                                                                                   
        • Matanuska and Malaspina on the Bellingham run                                                                         
        • Kennicott on the Juneau  Whittier cross-gulf run                                                                      
      • Tustumena on the Homer-Kodiak/Aleutian Chain run                                                                        
        • LeConte on the SE Alaska Panhandle run                                                                                
        • Tazlina in Northern Lynn Canal                                                                                        
        • Hubbard in Prince William Sound                                                                                       
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Prince Rupert                                                                                           
                                                                                                                                
     October 1 through March 30, operate:                                                                                       
        • Matanuska on the Bellingham run                                                                                       
        • Tustumena on the Homer  Kodiak and Prince William                                                                     
          Sound (further vetting needed)                                                                                        
      • LeConte in Northern Lynn Canal and SE Panhandle                                                                         
        • Lituya from Ketchikan  Annette Bay                                                                                    
        • No service to Prince Rupert                                                                                           
                                                                                                                                
MR.  MCLAREN said  this  provides more  services  and focuses  on                                                               
revenues,  but  it   provides  more  of  a   service  level  that                                                               
communities are  used to.  It decreases in  the winter;  they are                                                               
running four ships in the winter.  In past, they have run five to                                                               
six vessels  in the winter. There  is not as much  traffic in the                                                               
winter. They are trying to  get the service communities need, but                                                               
get  more revenue  generated  in the  summer.  It provides  286.6                                                               
weeks of  service with  a 47 percent  fare box  recovery. Revenue                                                               
would be $48.9 million along with $48.7 million of UGF.                                                                         
                                                                                                                                
2:40:44 PM                                                                                                                    
CHAIR HUGHES  said these plans  are based on current  vessels and                                                               
do  not incorporate  the concept  of  using catamarans,  possibly                                                               
partnering with  the private  sector. She  knows that  the Senate                                                               
Finance  co-chair wants  more information  about  what that  cost                                                               
might be. Although  this is not the Finance  Committee, once they                                                               
have the  cost, she  would be curious  about how  these scenarios                                                               
would be impacted  if that scenario were added.  She is realizing                                                               
that there  are lots of  levers they can pull  up and down  to do                                                               
all sorts  of things.  On slide 10,  shutting everything  down on                                                               
October 1  takes almost $22  million of  UGF for three  months of                                                               
service.  On slide  11, with  all the  towns in  red not  getting                                                               
service under  Scenario 1, the  UGF is  about $41 million  for 12                                                               
months  of service,  so  for  less than  double  the amount  some                                                               
little communities are getting service,  but not Angoon, Tenakee,                                                               
and Pelican. They can do  many things regarding revenue and ports                                                               
and UGF.  It is  fascinating to  her that it  is $22  million for                                                               
three months  of service  with a bunch  of communities  not being                                                               
served and  then there is  another plan  for 12 months  for twice                                                               
UGF with some communities being added back in for service.                                                                      
                                                                                                                                
MS. SIROKY  said that to get  a better picture, they  need to add                                                               
the revenue  into that conversation.  For the  governor's budget,                                                               
that is $39 million. For Scenario  1 that is $87 million. Between                                                               
the governor's budget and Scenario  1, they are collecting almost                                                               
$36 million more in revenue.                                                                                                    
                                                                                                                                
CHAIR  HUGHES said  she is  focused on  the UGF  because that  is                                                               
where the gap is.                                                                                                               
                                                                                                                                
SENATOR KIEHL asked how they  are modeling ridership changes with                                                               
the different scenarios.                                                                                                        
                                                                                                                                
2:43:59 PM                                                                                                                    
MR. MCLAREN  responded that the  reason revenue is  increasing so                                                               
much  is that  they  are  focusing on  keeping  those steady  and                                                               
regular  routes to  busy ports  to maintain  the ridership.  Some                                                               
ports have  gaps in service  because they are shifting  the focus                                                               
to routes  and times  of the  year with  the most  ridership that                                                               
generate  the most  revenue. That  comes at  the expense  of less                                                               
service to  smaller communities.  Scenario 2  shifts more  in the                                                               
direction   of  providing   more   services   to  those   smaller                                                               
communities.  The costs  of running  the ships  is generally  the                                                               
same, except that  adding the LeConte increases  total costs, but                                                               
those ports don't  generate as much traffic and  as much revenue.                                                               
That changes  how much  revenue they generate  and how  much more                                                               
UGF  they  need.  That  is  where the  cost  recovery  makes  the                                                               
difference.  From  a  traffic standpoint,  there  will  still  be                                                               
demand in a  lot of those communities, such  as getting groceries                                                               
to them. They feel that even  with running less frequently, a lot                                                               
of the ridership  will be there on  the days when they  do get to                                                               
port.  In  FY 12  and  13,  costs  were  really high.  They  were                                                               
providing  more  service to  more  communities,  but the  traffic                                                               
remained  the same  from  the previous  years  when they  weren't                                                               
providing  as much  service. In  many of  the ports,  traffic has                                                               
remained consistent,  even as operations  have shifted,  at least                                                               
for the higher traffic ports.                                                                                                   
                                                                                                                                
SENATOR  KIEHL said  the  question runs  in  both directions  for                                                               
those increases. He asked if  there were reliable and predictable                                                               
service, where  every Wednesday there would  be a boat or  was it                                                               
unpredictable.  He is  perplexed at  the notion  in the  modeling                                                               
that with  less reliable  service they  would see  increased unit                                                               
demand.                                                                                                                         
                                                                                                                                
MR.  MCLAREN replied  that having  reliable service  plays a  big                                                               
part. One of the assumptions in  each scenario is that the budget                                                               
would  be in  place and  that  service would  be predictable  and                                                               
reliable. They are  basing it on the notion that  they would have                                                               
a set schedule that the public  would know and that they would be                                                               
there when they say they're going to be.                                                                                        
                                                                                                                                
SENATOR KIEHL  said he noticed  in the previous slides  that they                                                               
are cutting  off Prince Rupert.  He asked  how far they  are into                                                               
the lease and what it costs.                                                                                                    
                                                                                                                                
MR. MCLAREN said he thought they  were five or six years into the                                                               
50-year lease.  They had  $3 million of  federal funds  that paid                                                               
that lease. That would also be something to consider.                                                                           
                                                                                                                                
MR. MCLAREN  said that slide  14 shows a  side-by-side comparison                                                               
of the scenarios.  Going from Scenario 2 to Scenario  3 shows the                                                               
impact of increased Bellingham and  cross-gulf routes. The UGF is                                                               
essentially the same. The total  costs of operating the system go                                                               
up,  but revenue  generation  also  goes up  by  nearly the  same                                                               
amount.                                                                                                                         
                                                                                                                                
2:48:54 PM                                                                                                                    
MR. MCLAREN said  slide 15 shows the history  of tariff increases                                                               
in the system. Back in  2016, a tariff study recommended leveling                                                               
and formulizing tariffs through  the system. Previously, they had                                                               
over 23,000 different  tariffs. No one could make  heads or tails                                                               
of it.  They have implemented  leveling those  tariffs. Beginning                                                               
May 1, 2019,  the whole system will be on  a formula-based tariff                                                               
system. The  same distance  in whatever  direction will  have the                                                               
same tariff.  The commissioner may  look at  demand-type pricing,                                                               
dynamic pricing, like airlines do.                                                                                              
                                                                                                                                
SENATOR KIEHL  there are  a number of  different models  for that                                                               
type of pricing. The last seat  tends to be expensive, but if the                                                               
boat  is already  going and  seats or  the car  deck are  not all                                                               
full, another  model says  to fill  those. He  asked if  they are                                                               
looking at both pieces of that.                                                                                                 
                                                                                                                                
MR. MCLAREN said deferred to Ms. Siroky.                                                                                        
                                                                                                                                
MS. SIROKY answered  that they would be looking at  all models to                                                               
see how that might work.                                                                                                        
                                                                                                                                
SENATOR KIEHL  said the department  is in a no-win  scenario that                                                               
he  wanted to  acknowledge. In  some of  the possible  scenarios,                                                               
they  have carefully  avoided saying  that they  are adding  more                                                               
tourist services  because they  make more  money, but  the system                                                               
exists to serve the entire economy.  That has to be a combination                                                               
of Alaskans and tourists. The same  goes with the tariffs in that                                                               
some  are  more  conducive  to nonresidents  and  some  are  more                                                               
conducive to  Alaskans. They  are in a  no-win scenario.  As they                                                               
continue to talk about this, he  hopes they will go ahead and say                                                               
it,  "We're all  grownups  and  we're all  going  to complain  no                                                               
matter what you  do, so it's worth having  the conversation right                                                               
up  front and  talk  about when  we're  maximizing revenue,  when                                                               
we're maximizing service, and from whom."                                                                                       
                                                                                                                                
MS.  SIROKY   replied,  "Exactly.  We  have   talked  about  that                                                               
internally. Are we  a system that's designed to  generate as much                                                               
revenue  as  possible or  are  we  a  system that's  designed  to                                                               
provide  service? And  that is  the big  policy question  that is                                                               
going to be happening through this legislative session."                                                                        
                                                                                                                                
SENATOR  KIEHL said,  "You're the  transportation infrastructure.                                                               
You must serve all the masters."  Alaskans must get from place to                                                               
place, commerce must  be able to move, and tourists  need to stay                                                               
in bed and  breakfasts and eat at restaurants. They  are in a no-                                                               
win  situation. They  are asking  them to  do it  all. "As  we're                                                               
having these  discussions, let's  just put in  on the  table," he                                                               
said.                                                                                                                           
                                                                                                                                
2:53:49 PM                                                                                                                    
CHAIR HUGHES said this has  been an interesting topic. Gauging by                                                               
the number of people in the room  and online, a lot of people are                                                               
interested. They  have known  it is a  looming problem  that they                                                               
need to  address. She is  glad the department is  still committed                                                               
to the mission  of getting people to and from  destinations. As a                                                               
legislator, she  is committed  to that.  Sometimes when  they hit                                                               
tough situations it is time  for change. She believes that making                                                               
those  changes can  bring improvement.  She thinks  the catamaran                                                               
model could  increase the number of  days in a month  that people                                                               
can get  to and from destinations.  She is pleased that  they are                                                               
doing  out-of-the-box  thinking.  She   is  concerned  about  the                                                               
timeline, but there  is a lot of work being  done. She asked what                                                               
they can share after the March 11 deadline.                                                                                     
                                                                                                                                
2:55:12 PM                                                                                                                    
MS. SIROKY said that  on March 11, they will be  able to tell her                                                               
how many bidders they have. Once  they have made a decision, they                                                               
will share who all the bidders were.                                                                                            
                                                                                                                                
CHAIR  HUGHES clarified  that in  July  they will  have a  better                                                               
sense of how things will be modeled.                                                                                            
                                                                                                                                
MS.  SIROKY answered  that the  RFP has  an aggressive  timeline.                                                               
They are hoping to have information  in May that may provide some                                                               
insight into  final conversations as the  legislature is thinking                                                               
they may not be done by May 1.                                                                                                  
                                                                                                                                
2:56:07 PM                                                                                                                    
CHAIR HUGHES  asked if it becomes  clear that the October  1 date                                                               
is not workable  whether the administration is open  to more time                                                               
if there is a commitment to a more sustainable plan.                                                                            
                                                                                                                                
MS. SIROKY said she cannot speak for the governor's office.                                                                     
                                                                                                                                
CHAIR HUGHES said she thought that would be the answer.                                                                         
                                                                                                                                
2:56:37 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Hughes adjourned the Senate Transportation Standing                                                                       
Committee at 2:56 p.m.                                                                                                          

Document Name Date/Time Subjects
STRA Agenda 3.7.19.pdf STRA 3/7/2019 1:30:00 PM
Alaska Marine Highway System presentation 3.7.19.pdf STRA 3/7/2019 1:30:00 PM
DOT&PF Follow Up AMHS 3.7.19.pdf STRA 3/7/2019 1:30:00 PM
Take Fed Share Calc DOT&PF Follow Up 3.7.19.pdf STRA 3/7/2019 1:30:00 PM