Legislature(2013 - 2014)SENATE FINANCE 532
04/12/2013 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB129 | |
| HB76 | |
| HB23 | |
| SB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 90 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 129 | TELECONFERENCED | |
| += | HB 23 | TELECONFERENCED | |
| += | SB 13 | TELECONFERENCED | |
| += | HB 76 | TELECONFERENCED | |
2d CS FOR HOUSE BILL NO. 23(RLS)
"An Act creating the Knik Crossing Development
Corporation as a subsidiary corporation of the Alaska
Housing Finance Corporation and relating to bonds of
the Knik Crossing Development Corporation."
2:21:07 PM
Vice-Chair Fairclough noted that there were varying
opinions on the audit that was before the committee. She
stated that the Division of Legislative Audit (DLA) had
full support from legislative auditors and had worked
within the parameters that had been requested by the
legislature. She relayed that the Knik Arm Bridge and Toll
Authority (KABATA) board had worked diligently to move the
project forward. She offered support for the legislation
and expressed an obligation to protect the audit staff that
had been working on behalf of the legislature.
2:22:43 PM
MICHAEL FOSTER, CHAIRMAN, KNIK ARM BRIDGE AND TOLL
AUTHORITY, introduced his support staff. He recognized the
work that had been done by the DLA committee and the
legislature on the audit. He stated that KABATA had
concerns with the models that were used in the findings to
predict population and social economic and demographic
numbers.
2:23:54 PM
JUDY DOUGHERTY, DEPUTY EXECUTIVE DIRECTOR, KNIK ARM BRIDGE
AND TOLL AUTHORITY, gave a brief overview of her
credentials. She relayed that the audit had found nothing
wrong with the Knik Arm Crossing project development
process or governance and no problems with contracting
practices. She said that a DLA auditor had testified
earlier in the week that KABATA'a draft document could not
be audited because they were a "moving target." She
explained that in accordance with standard auditing
practices a scope change was identified and KABATA was
informed. She asserted that a balanced accounting of the
general risk/reward calculus of and availability P3
agreement could and should have been included in the
report. She addressed the issue of reasonableness. She
offered that reasonableness was what had blown the audit
out of proportion and damaged the progress of the project.
She opined that the auditors contended that the assumptions
made for the project model were not supported by
independent sources.
2:25:45 PM
Ms. Dougherty asserted that 6 different traffic demand
models had been completed since 2005 that predicted traffic
on the Knik Arm Crossing. She referred to "Knik Arm
Crossing, Traffic Study FAQs" (copy on file). She pointed
out to the committee that Page 2 of the document contained
a table detailing the studies. She relayed that the studies
were performed for DOT's Highway to Highway project and the
AMATS Metropolitan Transportation Plan in addition to
KABATA. She asserted that each study had been done with
their own set of underlying assumptions, variables and
limitations; each study had indicated that 4 lanes would
likely be necessary on the crossing on later than 2035. She
said that each study had study boundaries that included the
crossing location and assumed economic growth in the lower
Mat-Su borough as a result of economic "spill-over" from
Anchorage once the crossing was constructed. She shared
that 3 of the studies could have been used as a basis for
comparison analysis by DLA or a qualified consultant. She
felt that the auditors had dismissed the studies and had
based their conclusions on a traffic model prepared for a
DOT project located near Wasilla; more than 30 miles from
the crossing location, and the study boundaries did not
include the crossing location. She said that the population
and variables used in DLA's selected model were based on
the assumption that there would be no change to the
traditional population and economic growth in the lower
Mat-Su borough as a result of the bridge opening. She
furthered that DLA's assumption made no consideration for a
change in job growth or population growth, and had used a
model that predicted that there would be 30 percent fewer
jobs in Port Mackenzie than ISER had predicted would be
generated by providing ferry service alone at the crossing
site. She contended that the audit findings did not sound
reasonable. She said that the crossing project had had
traffic studies performed by 2 separate consultants who had
arrived at similar traffic volumes on the bridge, but that
the information had been dismissed by DLA as not being
independent. She thought that varying definitions between
auditing standards and professional standards among
engineers of how "independent information" was defined
could have catered to the problem. She stressed that the
professional engineering firms that performed the studies
were independent and had no reason to stake their
professional integrity for the benefit of KABATA. She said
that the concerns of the DLA auditor had been addressed in
one-on-one correspondence with KABATA's traffic and revenue
consultant who provided insight to local conditions of the
project site and variances in population projections.
2:31:05 PM
Ms. Dougherty cited Page 257 of the "Legislative Budget and
Audit Committee Report of the Department of Transportation
and Public Facilities Knik Arm Bridge and Toll Authority
Knik Arm Crossing Project" (copy on file):
Since both the transportation model and the financial
model are computer based, performing "what if" changes
in underlying assumptions and data, and evaluating
their effect on outcomes should not be overly
burdensome.
Ms. Dougherty relayed that KABATA agreed with the
statement. She said that over 2,000 simulations of key
traffic control revenue variables had been performed in 5
year increments and used as input to the financial risk
analysis previously presented by David Livingstone of CITI
Bank. She furthered that. She opined that the auditors
failed to recognize that the traffic volumes projected by
DLA's "what if" scenario had been accounted for in the
range of risk analysis when the risk analysis was
evaluated. She asserted that KABATA's consultants
represented the industry's "who's who" in transportation
engineering, financing, traffic and toll revenue
forecasting and contract development legal support and had
been involved in nearly every successfully delivered toll
road financing P3 project in the country.
2:33:39 PM
Vice-Chair Fairclough remarked that she was Chair of the
Legislative Budget and Audit (LB&A) Committee. She informed
the committee that the audit had been requested by the
previous LB&A chair.
2:34:30 PM
Co-Chair Meyer wondered when the auditors had contacted
KABATA for information about the project.
Ms. Dougherty replied that she was not sure. She stated
that management letter number 1 had been received on
February 1, 2013. She said that the strong language used in
the response to the report was due to the fact that KABATA
had been rushed in their response; they had been given ten
days to respond and the legislative session was already
underway. She felt that there was a lack of understanding
between KABATA and DLA.
2:35:39 PM
Vice-Chair Fairclough felt that the lack of understanding
stemmed from a different understanding of the P3 agreement.
Ms. Dougherty thought that there was a concern regarding
"toll friction." She said that toll friction could reduce
the traffic count on a bridge because people had to be
willing to pay the toll. She stated that a community was
going to develop in the Mat-Su quickly and that the borough
had establish several pound sites in anticipation.
2:36:59 PM
Vice-Chair Fairclough wondered if the auditors had access
to the P3 agreement. She understood that it had not been
finalized yet and imagined that it would be difficult for
an auditor to audit something that was not complete. She
wondered what additional information would have been found
by the auditor had the P3 agreement been complete.
2:37:35 PM
Mr. Foster responded that KABATA had provided the draft RFP
and draft PPA to the auditor. He relayed that both
documents had yet to go through final review. He shared
that the governor had legal consultants reviewing the
document. He said that he told auditors that the document
was confidential because KABATA was engaged in ongoing
procurement.
2:39:02 PM
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.
Vice-Chair Fairclough noted that the draft was
confidential. She was unsure whether the contractor would
have been provided anything in the P3 agreement that they
could consider as they moved forward with the audit. She
said that the auditors had returned to the committee and
amended the framework of how they would go forward with
the audit.
Mr. Foster deferred legal questions to the Department of
Law.
2:40:18 PM
Ms. Dougherty added that there were a number of benefits
and risks associated with the general structure of a P3
agreement that had not been reflected in the report.
2:40:43 PM
Senator Olson noted several projects that had been invested
with millions of dollars and then had been abandoned. He
wondered how the crossing project differed. He expressed
concern that if the numbers were wrong that the State of
Alaska would be left footing the bill.
Mr. Foster responded that there was a need for
infrastructure in the area. He stated that the Point
Mackenzie area was looking to incorporate and would be the
4th largest city in the state. He said that the increase in
traffic in the area reflected the real need for increased
infrastructure in the area. He warned that not building the
bridge could result in an estimated $3 billion plus in Glen
Highway improvements. He stressed that all the areas in the
Mat-Su were expected to grow in population in the future
and that the crossing would be the best plan to accommodate
the increase.
2:47:38 PM
Senator Olson remarked that the money for the bridge could
be going towards education. He argued that people who were
independent of the audit and the legislature were coming up
with numbers that were one-third of what KABATA had
presented. He noted that on April 2, 2013, Mr. Foster had
testified that the Highland Area in 1985 was 33,000; in
2010 the number increased to 53,000. He pointed out to the
committee that that was not a doubling of the numbers, but
was 63 percent more. He furthered that the numbers offered
by KABATA for 2035 showed the area at 110,000, which was
more than double the current number. He felt that KABATA's
projections presented serious problems. He said that the
people contracted by KABATA to come up with the numbers had
a reputation of being overly optimistic in their estimates.
Mr. Foster rebutted that he did not believe that that was
true.
2:49:49 PM
Senator Dunleavy believed that this was one of the few
projects that he could guarantee, with 100 percent
certainty, that once completed would be used. He said that
the use would be continual and growing. He quoted Page 1 of
the audit:
The risks and rewards in totality as outlined in the
P3 agreement could not be evaluated because the
agreement has not been finalized and is subject to
further changes.
Senator Dunleavy relayed that he did not fault the auditors
for their methodology. He did not believe that the project
should be likened to the failed projects mentioned by
Senator Olson. He wondered what could be otherwise done to
serve the growing area; would it be more cost effective to
build more lanes instead. He did not believe that there was
any question about whether there would be traffic on the
bridge.
2:52:53 PM
Senator Hoffman directed attention to Page 19:
In August 2012, KABATA management submitted a TIFIA
loan request for $500 million at a 49 percent
participation rate in eligible costs. In a letter to
KABATA, dated September 25, 2012, the Federal Highway
Administration (FHWA) pended reviewing the request
stating that:
compelling justification" for providing
assistance above a 33 percent participation
level.
Senator Hoffman continued to Page 27, "Findings and
Recommendations." He felt that the legislature should
address the findings. He wondered whether KABATA would
address the findings as the project moved forward. He noted
that there was one recommendation:
Recommendation No. 1
Knik Arm Bridge and Toll Authority (KABATA) management
should revise traffic and toll revenue projections to
address deficiencies.
The audit of key assumptions and inputs used in
KABATA's transportation modeling process identified
several deficiencies regarding the validity of
assumptions and inputs used as a basis for projecting
toll revenues. Deficiencies are as follows.
projected for 2035 were overly optimistic when
compared to the household growth rates and levels
projected by University of Alaska's Institute of
Social and Economic Research and the State's
Department of Labor and Workforce Development.
The discrepancy stems from KABATA's economic
growth rate projections in the Point MacKenzie
region, specifically in the Port MacKenzie (Port)
area.
percent is significantly higher than the actual
growth rate of 2.5 percent based on the
Department of Transportation and Public
Facilities' traffic counts. The differences are
partially caused by the anticipated growth in
population and employment in the Point MacKenzie
area.
traffic is unsupported.
commercial vehicle traffic for the KAC is high
compared to actual traffic count data for the
Glenn Highway which indicates a split of
4.9 to 6.6 percent. KABATA's 12 percent split is
based on DOTPF's 2003 through 2006 traffic data.
Since then, DOTPF has improved its traffic data
collection methodology and now reports much lower
traffic count splits that better reflect the
actual count between personal and commercial
vehicles.
employment level of 14,337 is significantly
higher than the level noted in the Matanuska-
Susitna Borough plan of 4,515. A majority of
KABATA's employment (13,828) is based on
projected Port economic development which is
inconsistent with the Port's master plan and
regulations.
All of the above concerns have the effect of
overstating traffic volume. Overstated traffic volume
in KABATA's modeling process has the effect of
overstating projected toll revenues.
Senator Hoffman highlighted:
The Federal Highway Administration's (FHWA) guidelines
for P3s20 state:
Inaccurate or overly optimistic traffic
projections and underestimated project costs can
lead to the development of pro forma financials
that appear to justify the investment decision,
but that do not reflect the project's actual
ability to repay debt or to meet equity
investor's return requirements.
Under KABATA's planned P3 arrangement, lower than
expected toll revenues would necessitate the need for
additional funding as availability payments must be
paid to the private partner regardless of how much the
bridge is used.
In recognition of the risk that overstated toll
revenues pose to the State, we recommend KABATA
management revise the traffic and toll revenue
projections to address noted concerns.
Senator Hoffman stated that as a legislator he could not
ignore the recommendations of DLA. He queried the timeframe
for the KABATA board to address the deficiencies as pointed
out by the audit.
Ms. Dougherty responded that the bullet points had been
addressed in the KABATA response to the preliminary audit
report. She noted that three of the bullets specifically
referenced the Point Mackenzie area she did not believe
that the model used by the auditor addressed the influx of
traffic and economic growth that would be generated by the
project.
2:57:46 PM
Mr. Foster furthered that KABATA's response to the
preliminary report could be found on Page 211 of the audit.
2:58:28 PM
Senator Bishop echoed the comments made by Senator Hoffman.
He believed that all involved parties needed to agree on
the cost scheduling numbers in order for the project to
move forward.
2:59:18 PM
Senator Olson remarked that the proposed area for the
project had a history of expensive and unused projects. He
noted that the audit had highlighted that if the toll
revenues were lower than expected, the state would be
required to make payments to the private partners
regardless of how much the bridge was used.
Mr. Foster replied in the affirmative.
Senator Olson contended that there was no reason to support
a project that was driven by suspect numbers. He asked Mr.
Foster if the speculation concerning the numbers was
reasonable.
Mr. Foster agreed that the residents of Alaska should
evaluate every proposed project. He denied any ulterior
motive on behalf of KABATA to move the project forward. He
offered that the decision about whether the project would
move forward should be made by the state. He explained that
KABATA's job was to provide information to the legislature.
3:02:10 PM
Mr. Foster referred to Page 37 of the audit report, which
contained a table that compared the LB&A numbers to the
KABATA population/traffic financial model. He asserted that
the auditor's model did not consider the impacts of the
crossing.
3:04:28 PM
Senator Olson stated the state did not have the population
to generate the tolls that would pay for the project. He
understood that KABATA had been turned down 4 times for
low-interest federal loans.
Mr. Foster replied that letters of interest had been
submitted 4 times. He said that at the time of application
the project had not been a mature as it was currently. He
stated that there were now more federal dollars available
and the chances of some of them reaching the project were
improved.
3:06:58 PM
Senator Dunleavy commented that approximately 360,000
people were using the one major road in the area of the
proposed project. He reiterated that the bridge would be
used immediately upon completion. He stated that having a
large project that paid for itself was a worthwhile concept
to explore. He suggested that all of the major projects
executed by the state should pay for themselves.
3:08:46 PM
Senator Olson reiterated that if there were lower than
expected toll revenues then the state would have to make
the inevitability payments to private partners, leaving the
state on the hook for billions of dollars.
Mr. Foster replied that there were sideboards on the
project which would keep the cost to the state down.
3:10:48 PM
Vice-Chair Fairclough quoted Pages 19 - 20 of the audit:
justification" for providing assistance above a 33
percent participation level
$150 million reserve fund is appropriated by the State
or it becomes clear that the funding is "reasonably
likely" to be appropriated.
She noted that the auditors had attempted to provided
checks and balances to guide the project forward. She
queried the consequence of not acting on the project during
the current legislative session.
Mr. Foster responded that KABATA would still move forward
with the RFP process and the PPA agreement. He added that
there were permits that were being finalized. He shared
that if the legislation did not pass the project would fall
further down the Transportation Infrastructure Finance and
Innovation Act (TIFIA) list. He thought that the project
could be viable for the federal funds in a year, but that
would be dependent on how much of the money was allocated
within the next year. He said that there was no guarantee
that the legislation would put us in the TIFIA pot, but
that it could move the state closer. He noted that the
state had been invited to submit the application which
meant that Alaska was in line for the federal funding.
3:14:41 PM
Mr. Foster shared that if the legislation was not passed
KABATA would continue to move forward.
3:16:35 PM
Senator Dunleavy wondered about plans to upgrade the Glenn
Highway.
Mr. Foster replied that there was three mile expansion
currently occurring, funded by a general obligation bond.
3:16:59 PM
Senator Dunleavy asked if a toll was being charged for the
Glenn Highway expansion.
Mr. Foster replied that a toll could not be required
because the road was built using federal highway money. He
said that the Glenn Highway could be tolled but it would
require a dedicated lane; the commuter must have an option
if the road is constructed with federal dollars.
Vice-Chair Fairclough returned the gavel to Co-Chair Meyer.
3:17:37 PM
SB 13 was HEARD and HELD in committee for further
consideration.
2d CS HB 23 (RLS) was HEARD and HELD in committee for
further consideration.
3:19:00 PM
AT EASE
3:30:15 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 13 30068 - DOTPF KABATA Final Digest.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 KABATA Audit Conclusions Findings and Recommendations.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 KABATA Audit.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 Traffic Study FAQ April 2013 (2)1.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |