Legislature(2011 - 2012)HOUSE FINANCE 519
03/22/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB158 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 158 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
HOUSE BILL NO. 158
"An Act relating to the authority and obligations of
the Knik Arm Bridge and Toll Authority, to bonds of
the authority, and to reserve funds of the authority;
authorizing the state to provide support for certain
obligations of the authority; relating to taxes and
assessments on a person that is a party to an
agreement with the authority; and establishing the
Knik Arm Crossing fund."
1:39:07 PM
Vice-chair Fairclough MOVED to ADOPT proposed committee
substitute for HB 158, Work Draft 27-LS0431\T (Martin,
3/22/12) as a working document.
Co-Chair Stoltze OBJECTED for purpose of discussion.
JOE MICHEL, STAFF, CO-CHAIR STOLTZE, relayed that the
committee substitute (CS) included two changes. The
following language was deleted from the original bill
(Section 1 part of AS 19.75.111(a)):
Monetary obligations incurred by the authority under
the partnership or contract are obligations of the
state and satisfactions of those obligations from
funds other than authority funds is subject to
appropriation.
Mr. Michel shared that the additional bill sections had
been renumbered. The second change was on page 4, line 25
where the words "ad valorem taxes on real or personal
property and special property tax assessments" were
inserted following the words "shall be exempt from all."
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered.
1:41:26 PM
REPRESENTATIVE MARK NEUMAN, SPONSOR, presented the bill
relating to bonds and the authority of the Knik Arm Bridge
and Toll Authority (KABATA). He relayed that he had been a
non-voting member on the KABATA board for five years. He
believed the state had opportunities moving forward with
the bridge and that it was part of the critical
infrastructure development. The bridge would cross the Knik
Arm and would provide access to the potential gas pipeline
terminus, opportunities to move into western Alaska, gas or
coal reserves, and a potential gas pipeline from Cook Inlet
into the Interior. He stated that the bridge connected many
of the different infrastructure projects together. The
bridge would also link the Port of Anchorage (that received
the majority of freight imported into the state) and Port
MacKenzie (an industrial port with 14 square miles of land
designated for industry). He stressed that the industry
utilizing Port MacKenzie could help support an instate gas
pipeline, oil and gas storage facilities, a gas to liquids
facility, and other. He communicated that there were
experts available to discuss the issue in depth. He
communicated the intent to address the state's obligation
in relation to the project; the section had been removed
from the legislation.
Representative Neuman discussed that a portion of the bill
proposed an increase in the bonding authority from $500
million to $600 million. He furthered that the bill would
create a reserve fund, but funds were not being requested
currently; work continued to determine how to progress. He
emphasized that the project represented an opportunity to
provide income to the state; within the first ten years the
bridge was expected to bring in over $1 billion for instate
transportation projects (e.g. ferry, airport, road, or port
projects). He opined that with a drop in throughput in the
Trans-Alaska Pipeline System (TAPS) it was important to
diversify the economy and locate new revenue streams for
the future. He accentuated that the bridge "literally is
free to the state government" and would be funded by toll
revenues that would cover maintenance for the first 35
years. Additionally, within the first 35 years over $10
billion in revenue projects were estimated for the state;
the excess revenue would go through the general fund for
designation by the legislature for transportation projects.
He stressed that the bridge would not cost the state
government money. He introduced individuals involved in the
project development.
Co-Chair Stoltze asked several mayors to provide brief
statements regarding their position on the legislation.
LARRY DEVILBISS, MAYOR, MAT-SU BOROUGH, supported the
bridge. He pointed to road and traffic problems in Palmer
and Wasilla that would need to be addressed by a bridge or
significant improvements to the Glenn Highway; if the
industrial traffic going north could bypass the areas it
would be a huge relief. He emphasized that the economic
element in Mat-Su was significant; Port MacKenzie was an
industrial port and a direct connection to Anchorage
provided great potential for economic expansion. He relayed
that the economic development would eventually occur
without the bridge; however, the project would accelerate
the development, jobs, and revenue. He reiterated the
borough's support for the project.
DELENA JOHNSON, MAYOR, CITY OF PALMER, spoke in support of
the bridge. She explained that all residents from the Mat-
Su Valley drove the road frequently to reach the major
facilities in Anchorage. She opined that it was important
to have an alternate route to Anchorage for safety and
population expansion reasons. She was concerned that
currently there was only one way to reach the valley by
road for emergency response vehicles. She encouraged the
committee to help "make something happen."
1:51:06 PM
Mr. DeVilbiss communicated that Wasilla Mayor Verne
Rupright and the Mayor of Houston were also very supportive
of the project.
Co-Chair Stoltze believed the two mayors had litigated
against some "forces" in the City of Anchorage on behalf of
the project in the past.
Representative Gara noted that approach roads, a tunnel,
and possibly a second bridge were also included in the
project. He wondered what necessary improvements would be
made on the Wasilla side of the bridge to get drivers from
the bridge to Wasilla and Willow. He asked about a cost
estimate related to the items.
Mr. DeVilbiss answered that the legislature had set aside
$250,000 for the items the prior year. The "Port to Parks"
project was of "imminent" importance and the goal was to
bypass the traffic heading north around the west side of
Big Lake. Currently the project terminated where the Knik
Goose Bay road turned towards Wasilla. He stated that the
project was not a road to nowhere.
Representative Gara asked about the required length of the
road to Willow from the bridge drop-off and its estimated
cost. Mr. DeVilbiss replied that he did not have a cost
estimate.
Co-Chair Stoltze remarked that the Department of
Transportation and Public Facilities (DOT) would be better
equipped to answer the question.
Mr. DeVilbiss continued that the road would be less than 30
miles; the rail extension was 32 miles and went to the
port. The bridge included a road component of approximately
11 miles that went considerably away from the port.
Representative Gara wondered whether any improvements would
be required on Knik Goose Bay Road in order to accommodate
the bridge. Mr. DeVilbiss replied that "that's already
scheduled and in the in design process." He added that DOT
could speak better to the question.
Co-Chair Stoltze commented that the projects were a highway
safety corridor and were irrespective of the Knik bridge
project. He relayed that Representative Neuman had put the
$250,000 through for an impact study and to help local
communities plan and be involved in the process.
1:54:52 PM
Representative Neuman addressed what would happen after the
bridge was built. He explained that if a new road followed,
(such as the railroad corridor) it could help reduce
traffic by 25,000 to 30,000 vehicles per day on the Glenn
Highway. He furthered that the state spent $40 million to
$50 million every five years on highway rehabilitation,
which could be extended out further if traffic was funneled
onto a new road that continued north off of the bridge. He
surmised that the cost of the road would be substantially
less than the maintenance that would be required on
existing roads. He discussed increasing safety and reducing
traffic congestion.
DAN SULLIVAN, MAYOR, ANCHORAGE, vocalized support for the
legislation. He had been a proponent of the bridge for
decades and believed it was timely for the state to
complete the project. He discussed that the Port of
Anchorage brought in approximately 240,000 containers per
year and that a significant number were sent up the highway
to Palmer, Wasilla, Fairbanks, and other; unfortunately,
each of the shipments had to travel through downtown
Anchorage; therefore, reducing the number of trucks
traveling through downtown would increase the quality of
life in the city. He opined that a secondary access route
through the two most populated areas of the state made
sense; he pointed to Glenn Highway road closures (due to
accidents or other) that resulted in 18,000 to 20,000
people being stranded for up to many hours; time is money
and when people were stranded economic loss resulted. He
furthered that there were significant resources north of
Anchorage and access by road, rail, and port provided the
critical infrastructure needed to get the items to market.
Mr. Sullivan expounded that Anchorage was running out of
developable land. He stated that there were large numbers
of people moving to the Mat-Su Valley and access to more
available land for residential and industrial use made
sense from an economic standpoint. He was a "100 percent
supporter" of the project. He would prefer that the bridge
was not a toll bridge and believed the state was
responsible for building critical infrastructure that were
essential to the developmental needs of its regions;
however, he was confident that after a number of years
there would be an economic benefit to the state from the
tolls that would then help fund projects statewide.
Co-Chair Stoltze asked Mr. DeVilbiss to confirm that there
was no plan to annex any part of Anchorage. Mr. DeVilbiss
affirmed.
2:00:05 PM
MICHAEL FOSTER, CHAIRMAN, KNICK ARM BRIDGE and TOLL
AUTHORITY, appreciated the opportunity to testify. He
discussed that KABATA had been established by legislation
in 2003 with a mission to connect the east and west sides
of the inlet. The property boundary was a bridge structure
of approximately 14,000 feet and 18 miles of connecting
road. He relayed that there had been some changes from the
previous bill version offered the prior year and that he
had worked diligently with the governor's office on the
legislation. He relayed that the bill had three parts. The
first part was the increase of the private activity bond
from $500 million up to $600 million. The bond would allow
a private equity and partner to be a conduit for the bond;
the entity would be able to access the bond through the
federal government. The limit was currently $600 million
and the legislation allowed the limit to be available to a
private partner.
Mr. Foster relayed that KABATA was pursuing a public (the
state) and private (private investor) partnership. He
reiterated that the project was a conduit and that the
state had no obligation or risk associated with the
project; the bill provided a conduit for a private partner
to access cheaper money; if the money was cheaper the
state's payments would be less. The second part of the
legislation clarified that the bridge would be part of the
state's transportation system and was therefore not subject
to property tax. The language was to ensure that a private
developer would not apply a risk factor that would cost the
state more money. The third part of the bill established a
reserve fund. Excess revenue generated by the bridge would
go into the fund. He relayed that according to the project
model the reserve fund needed to have approximately $150
million by the time the bridge opened; it was the
equivalent to a secured line of credit that showed the
developer the state could make its payments if toll revenue
was not sufficient. He relayed that a secured a line of
credit would lead to cheaper money and a lower cost
proposal to the state.
Mr. Foster informed the committee that the project had been
approved by the Federal Highway Administration; it had also
received a no-jeopardy determination related to the
endangered Beluga whale species. The entity was currently
working to obtain core and coast guard permits and a letter
of authorization from the National Marine Fisheries
Service. The project was in the right-of-way acquisition
phase; phase 1 on the east side had two residential
properties, a strip-mall, and two business properties; one
of the properties had been acquired and KABATA was in
negotiations to purchase the remaining four. He noted that
some relocation had been done as part of the right-of-way
acquisition. He relayed that the project was in line with
the federal highway's right of way process. He noted that
his colleague would talk more extensively about the issue.
Mr. Foster explained that KABATA was currently in a
solicitation process. The solicitation had received a
substantial response from six highly qualified firms
(designers, financers, operators, and builders) and the
list had been reduced to three. The entity and the
governor's office were working on the draft Request for
Proposal (RFP) process; he provided detail on the process.
He expressed that population was the key word. He explained
that the bridge was built for the future and not for the
current population. He stated that population models by the
University of Alaska Anchorage Institute of Social and
Economic Research (ISER), Department of Labor and Workforce
Development, Woods & Poole, and Wilbur Smith all showed the
same data for the Mat-Su Borough. He referenced the
Anchorage Metro Area Transportation Solution (AMATS)
Metropolitan Transportation Plan, which showed that the
Mat-Su Borough had approximately 90,000 residents in 2010;
models showed that the borough would increase by 118
percent to 190,000 by 2035. He relayed that all of the
population models were very similar. The same models showed
that the Eagle River to Eklutna would grow by 74 percent
(from 39,000 to 68,000). He stated that the models
indicated that the Anchorage area was running out of room
(the models showed 15 percent growth in the Anchorage
"bowl" area). He stressed that the models showed the
population growth would occur with or without a bridge.
2:10:20 PM
Mr. Foster highlighted what things would look like in 25
years related to population and traffic growth with no
bridge. Currently at the Eklutna Bridge the average daily
traffic count was 30,000; the daily average had been 15,000
25 years earlier (the Mat-Su Borough population had been
almost half of the current population). He discussed what a
population growth of 119 percent would mean for traffic at
the Eklutna Bridge; the KABATA model showed that in 25
years the average daily traffic would be 65,000 vehicles.
For context he explained that in 2010 the average daily
traffic was 52,000 by the weigh station at the Highland
Bridge in Eagle River; 25 years earlier it had been 39,000;
projections showed that without a bridge the number would
go to 110,000. According to a 2008 DOT study, improvements
to the Glenn Highway would cost $3 billion and would
include 8 traffic lanes to handle the traffic if a bridge
was not built. He stated that the Glenn Highway would slow
down without a bridge to handle the population growth. He
did not know whether federal highway money would be
available to fund the Glenn Highway improvements; the
state's match would be at least $300 million if the federal
money was available.
Mr. Foster addressed what no bridge would mean for traffic,
safety, and corridors. The $3 billion in improvements did
not include impacts to Eagle River, Chugiak, Peters Creek,
or Eklutna. He pointed to the argument that the bridge
would require significant work on the west side of the
inlet and stressed that the state would have to spend more
money on infrastructure if a bridge was not built. He
emphasized that the commute would be closer from Point
MacKenzie than it was from Eagle River. He reiterated that
there was available commercial, industrial, and residential
land in the west. He accentuated that the bridge would be
utilized by traffic in both directions; trucks moving
containers from the Port of Anchorage would utilize the
bridge instead of driving through the city to the Glenn
Highway. He observed that the cost to the state without a
bridge was "pretty phenomenal." The bridge is "private
equity" and it "cost the state nothing." He stated that
there was risk and the state did have "skin in the game,"
but risk represented reward. The project was a public-
private partnership. The state's risk was related to
whether there would be sufficient traffic to generate
enough revenue to make the annual payments; the KABATA
model showed that there was. He relayed that there was a
choice; without a bridge there was a definite cost and with
a bridge using private equity there was infrastructure that
paid a return back to the state. He expounded that a bridge
would create economy.
Mr. Foster continued to discuss the project. He referenced
a conversation with a Kenai assembly member who had relayed
that 47 percent of the Kenai Borough land was located on
the west side of the inlet and the bridge represented the
first connection to the west side. He detailed that 28
miles from the bridge on the west side was a connection to
existing roads. He had met with the governor and had
communicated that the road would be the first true road to
resources.
2:18:04 PM
JEFF OTTESON, DIRECTOR, PROGRAM DEVELOPMENT, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES (DOT), addressed the
concept of a public-private partnership (P3s), which was
new to the state. He explained that P3s were used globally
in many jurisdictions (e.g. Korea, Australia, New Zealand,
South America, Europe, British Columbia, and other). He had
visited an office called Partnership B.C. in British
Columbia (B.C.); the purpose of the office was to determine
whether an infrastructure project should be done by P3 (the
default choice was P3). The province used P3 for
infrastructure, utility projects, hospitals, and all types
of government built construction. He referred to the
availability model approach, which meant the owner (the
state) was responsible for making the annual bond payment
if the revenue was not there; B.C. also used the approach
as a default and preferred method in conjunction with a P3.
He explained that the approach lowered financial risk and
in turn provided a better financing rate. He addressed why
a P3 would be used if the revenue risk was taken off of the
builder and placed on the owner. He detailed that
Partnership B.C. liked the idea of giving a single entity
responsibility for all parts of a project (i.e. design,
financing, construction, and long-term maintenance); the
risk involved was placed on the P3. He elaborated that the
"best and brightest" were brought in from around the globe;
he stated that the listed teams represented a "who's who"
of infrastructure. The partnerships were widely used;
Canada had approximately one-tenth of the U.S. population,
but its dollar volume of P3s was 10 times greater (per
capita Canada was using P3s 100 times the U.S. rate).
Mr. Otteson pointed to the availability payment issue that
required some amount of state money backing the bonds to
cover the difference between earnings and the bond payments
in the early years of the bridge. He relayed that the
concept was not unusual and that it was used in B.C. He
referred to the Red Dog Mine as an example of an
infrastructure project where the state made payments to a
private investor; state funds to supplement the mine
revenue after 19 years (it took 19 years for the project to
break even). He believed the project had been very good for
the state and Nenana region.
Mr. Otteson discussed that the project was the only surface
transportation project in the state that was proposing to
pay for its operating, maintenance, and capital. He
stressed that all other projects that came before the
committee required the entire capital cost to be funded by
the state. He expounded that the bridge was the only
project that would provide a dividend to the state when
revenues exceeded the payments in the future; he believed
there was approximately $9 billion in excess revenue
expected that would begin in about 20 years; the funds
would then be available to fund any other surface
transportation projects (ferries, roads, bridge, and
transit). He referenced an earlier question about how the
road to Willow/Houston would be funded. He explained that
if the bridge was not built other roads would need to be
built in the Mat-Su area to deal with the population. He
relayed that the road cost would be determined by
population and not the project. He stressed that population
led to traffic and traffic led to investment needs. He
emphasized that rebuilding costs would be higher to go
around the Parks/Glenn Interchange because the distance was
longer.
2:24:29 PM
Representative Doogan asked whether Mr. Otteson currently
worked for the state. Mr. Otteson replied in the
affirmative.
Representative Doogan asked whether the governor supported
the legislation. Mr. Otteson answered that the governor
supported the project and intended to make a decision on
the financing model once permits had been obtained.
Representative Doogan asked for verification that the
governor supported the project but did not want to fund it
with state dollars at present. Mr. Otteson responded that
the governor had not proposed any state funding in the FY
13 capital budget.
Co-Chair Stoltze asked whether the project was currently
waiting on some federal processes. Mr. Otteson responded
that the project was awaiting permits from the Corps [Army
Corps of Engineers] and the Coast Guard, which could change
the overall cost due to mitigation or changes in structural
design.
2:25:37 PM
Representative Gara noted that the committee had only heard
from supporters of the project and requested that Bob
French be allowed to present his side of the story. He
relayed that Mr. French had worked on the project for many
years and was the president of the Government Hill
Community Council.
Co-Chair Stoltze agreed.
Representative Gara expressed frustration that although the
project had not gone forward, KABATA had engaged in
imminent domain and had purchased and made property offers
to residents in Government Hill; the gas station, mall,
hotel, and two homes were being purchased so KABATA could
build a tunnel through the area. He asked Mr. Foster
whether it was premature to spend the money before the
project had been secured.
Mr. Foster responded in the negative. He elaborated that
DOT was currently working on the right-of-way acquisition
for the state, which had begun after the state had federal
authorization. The process entailed that the right-of-way
acquisition was to occur during the project design phase.
Typically under a P3 model the right-of-way was acquired
and established prior to the contract. He corrected that
the infrastructure would be a cut-and-cover tunnel with a
greenbelt on top. He noted that Mr. Otteson could expound
on the federal highway process.
2:28:25 PM
Mr. Otteson explained that the right-of-way stage occurred
after the environmental documents and record of decision
had been received. He detailed that the record of decision
had a three-year shelf life; the environmental document may
need to be redone if a project did not go forward during
the three-year period, which could be time consuming and
expensive. He stressed that once a record of decision had
been issued those involved were "under the gun" to execute
the next steps of the project. The right-of-way had been
authorized by the Federal Highway Administration. He
emphasized the importance of moving forward and noted that
there were many items that tended to act as roadblocks to
major infrastructure projects.
Vice-chair Fairclough inquired whether the right-of-way was
similar to the one at Lake Otis and Tudor when a motel and
gas station had been removed prior to the road work. Mr.
Otteson replied in the affirmative. He relayed that the
properties had been bought by the Municipality [of
Anchorage] several years in advance of the project.
Representative Gara asked how much time remained to
purchase the Government Hill property under federal rules.
Mr. Otteson answered that work would need to begin within
approximately 21 months. He reiterated that if the work had
not begun there was risk that the environmental document
would go stale.
Representative Gara believed KABATA should have waited for
the legislation to pass prior to "condemning people's
property and businesses in the city's oldest neighborhood."
He pointed to a $600 million bonding allowance in the
legislation and wondered who was responsible for the money
if the private party defaulted. Mr. Foster replied that the
state had no fiscal responsibility for the bond; if the
private developer defaulted the issue was between the
private party and the federal government. He reiterated
that the state was only a conduit and had no fiscal
responsibility for the bond.
Representative Gara asked for verification that if the
private developer defaulted the state would not be held
liable for the money under any circumstance. Mr. Foster
responded in the affirmative.
Representative Gara asked for verification that (according
to the original KABATA studies) the time travel estimate
would be longer to Palmer and Wasilla if the bridge and
road upgrades were completed than it would be on the Glenn
Highway.
Mr. Foster believed so. He thought there was a point in
Wasilla where there would be a 7 minute savings if the
bridge were constructed. He referenced his earlier
testimony that the bridge would provide a time savings for
future populations. He did not expect people in Eagle River
or Wasilla to quit using the Glenn Highway unless there was
a road closure.
Representative Gara pointed to use estimates that were
relevant to determine whether the private party would make
sufficient money on toll revenue. He surmised that for many
years to come with a limited population in the Knik area
nobody would want to spend money on a toll bridge if they
could drive a highway for free and could get home at a
similar time in the Palmer and Wasilla areas.
2:32:48 PM
Mr. Foster believed the statement was fair; however, he
opined that businesses would build in the area near the
bridge site if the project went forward. He remarked that a
bridge was not needed if a person did not believe in Alaska
or that its population would grow.
Representative Gara hoped that Mr. Foster did not mean that
people who disagreed with the plan did not believe in
Alaska. Mr. Foster replied in the negative. He believed the
population growth would occur and that new infrastructure
was needed.
Representative Gara wondered whether it would be the
state's responsibility to pay for the approach and
departure roads on both sides of the bridge. He pointed to
a previous proposal that would have privately financed the
roads in addition to the bridge. He listed the tunnel from
Government Hill, a bridge from Ingra and Gamble Streets,
roads to Wasilla and Willow. He wondered what the private
contractor would pay for.
Mr. Foster responded that the cut-and-cover bridge and the
approach roads were covered under phase one of the project.
The Ingra/Gamble connection under phase two was not
included in the existing P3; it may be added at a later
time. He furthered that the Ingra/Gamble connection would
not be built until user revenue had been created. Phases
one and two were through KABATA; phase one was through a
contract with KABATA and a private partner; phase two would
be paid for with project user fees.
Representative Gara took Mr. Foster's testimony to be up to
date, but noted that written plans showed that the
Ingra/Gamble connection would be built ten years after the
bridge. He asked for the total cost to public entities for
roads to Wasilla and Willow, Knik Goose Bay Road upgrades,
and roads on the Anchorage side.
Mr. Otteson addressed each road individually. He explained
that the Knik Goose Bay Road needed to be widened due to
current traffic. He noted that environmental documents for
the work were underway.
Co-Chair Stoltze asked for discussion to focus on projects
that were currently in the Statewide Transportation
Improvement Program (STIP) to accurately reflect costs.
Mr. Otteson did not have an exact cost estimate. He
discussed that there were a couple of possibilities for the
alignment of the connection to the Big Lake and Houston
areas. There was a right-of-way along the new rail
alignment that had been made available by the borough; he
noted it would be a huge cost savings to have the right-of-
way already available. Projects would be driven based on
how soon they were needed. He relayed that initially Vine
Street would be used, which bypassed congested areas of
Wasilla and the Knik Goose Bay Road.
2:38:11 PM
Mr. Otteson furthered that as the bridge generated traffic
it would generate enough revenue to begin to pay for the
additional improvements. He detailed that the timing of the
Ingra/Gamble connection would be determined by the pace of
traffic growth; it could be in 8 years, 12 years, or other.
Representative Gara noted that he had not received an
answer related to the cost estimate.
Co-Chair Stoltze explained that the projects were all
ongoing and he believed that the answer would only be a
speculation. He asked Mr. Otteson if the assessment was
fair.
Mr. Otteson agreed. He added that many of the roads would
be needed regardless of the bridge.
Representative Gara doubted a highway was needed from
Willow to Knik in the absence of a bridge.
Co-Chair Stoltze remarked that there was a rail spur and
encouraged committee members to drive out to look at it.
2:39:50 PM
Representative Costello asked how important it was for the
bridge to self-finance its operations, maintenance, and
capital costs.
Mr. Otteson replied that the project would bring its own
money to the table, would solve a transportation need
between Mat-Su and Anchorage, and would be funded by a non-
state or non-federal source. He expounded that the bridge
would allow money to be spent elsewhere in the state. He
added that the project would self-fund operating costs for
the life of the P3, which always constrained projects.
Representative Costello asked whether there were examples
of the state backing bonds on private investors in relation
to transportation in Alaska. Mr. Otteson was not aware of
any apart from the Red Dog Mine. He believed that the fact
that Red Dog had required state support of the bonds for
close to 20 years was a good example.
Representative Costello asked which other projects the
state would look at and how they would be financed if
KABATA did not go forward.
Mr. Otteson responded that it would be necessary to widen
the Glenn and Parks Highways sooner. He believed that the
widening would occur with or without the bridge due to
population growth in Mat-Su. He furthered that even
postponing the widening would allow other projects to go
forward across the state. He believed that the ability to
postpone the widening for 5 or 10 years would be a
"powerful benefit" for Alaskans.
Representative Costello enquired whether assumptions had
been built into the projections that related to pipeline
throughput. She pointed to ISER's research on the Alaska
economy and that one out of three jobs was related to one
industry. Mr. Otteson did not have the information.
2:42:40 PM
Representative Guttenberg asked about the foundation for
the legal justification that the state would not be
responsible for debt if the private entity defaulted.
Mr. Foster answered that the private activity bonds were a
conduit. The private partner would apply for the bonds from
the federal government and the activity did not fall under
the state's books. He furthered that in the event of a
private partner default, the state (as the owner) would
have a commitment to make payments, but the liabilities of
the private partner would not come back to the state.
JEFF STARK, CHIEF ASSISTANT ATTORNEY GENERAL,
TRANSPORTATION SECTION, DEPARTMENT OF LAW, elaborated that
the protection was in the type of bond sold; private
activity bonds were a relatively common form of financing
and the protection was in the documentation included in the
bond sale. He discussed 2003 legislation that had given
KABATA the authority to sell up to $500 million in bonds;
the current bill increased the authority by 20 percent to
$600 million. The legislation did not limit the type of
bonds that would be sold; theoretically if the P3 structure
fell apart, KABATA would have the legal authority to sell
bonds that it would be responsible for; however, KABATA's
current focus was on requiring a private developer to raise
all of the financing. The entity would have the ability to
secure the financing of its choice (i.e. through a bank or
other) and the state would have no involvement. He detailed
that private activity bonds issued by a state entity were
free from federal income taxes; therefore, the rate and
deal for the state were much better. The state would issue
the bonds, but under the terms of the bonds it would have
no obligation to pay them; the sole obligation would fall
to the private developer. He furthered that the state's
only obligation would be the availability payments to the
developer. He detailed that if the developer defaulted on
the bonds, the bond investors would have a claim against
the developer, but not the state. He explained that if the
state defaulted on its payments to the developer, the bond
holders would have no right against the state; the
developers would have the right to pursue the state. He
reiterated that the financing technique was common and was
not unique to Alaska.
Representative Guttenberg communicated that he was always
concerned when states were compared because each state has
different laws.
2:48:22 PM
Representative Doogan asked whether the information
provided by Mr. Stark represented a settled matter of law.
Mr. Stark responded in the affirmative. He detailed that
the types of bonds were issued on a regular basis and the
public entity did not have a liability if they were sold as
private activity bonds.
Representative Doogan queried whether the issue had been
litigated and that courts had agreed with the assessment
provided. Mr. Stark replied that he did not know the
answer. He stressed that it was his firm understanding from
talking to innumerable lawyers and financial experts that
the technique was common and that there was no liability
[to the public entity].
Representative Doogan requested any information on whether
or not the issue had been litigated. He wanted to know
whether the issue was a settled matter of law, an economic
assumption, or other. Mr. Stark would follow up with the
information.
Representative Gara queried earlier testimony that the
state would be liable for obligation payments.
Mr. Stark answered that KABATA would enter into a contract
with a private developer under a public-private agreement
(PPA); the agreement would require KABATA to make quarterly
or monthly availability payments to the private developer
once the bridge was in use. He clarified his earlier
testimony that the payments would be KABATA's (and not the
state's) only obligation. He explained that if the private
developer chose to issue public activity bonds, the bonds
would be issued by KABATA, but only the private developer
would have an obligation to pay the bonds. The bond holders
would have no claim or lawsuit against KABATA if the
private entity defaulted on payments. He added that if
KABATA failed to pay the developer [the availability
payments] the private developer could sue KABATA. He
summarized that there was one contractual relationship
between KABATA and the developer and a separate contractual
relationship between the developer and the bond holders.
2:51:54 PM
BOB FRENCH, CHAIRMAN, GOVERNMENT HILL COMMUNITY COUNCIL,
clarified that his testimony was on behalf of himself. He
stated that although the removal of language that would
have made any obligations of KABATA into obligations of the
state may have made the bill more palatable, it was
important look at what KABATA had promised the federal
government and the prospective P3 partners. He read from
KABATA's pro forma that had been included in its TIGER
[Transportation Investment Generating Economic Recovery]
grant application (page 8) related to the $150 million
reserve fund proposed under the legislation: "If the ending
balance falls below $50 million the state will replenish
the account back to $50 million." He encouraged the
committee to look at the entity's next loan application to
determine whether the information was still included. He
believed that KABATA would probably give assurance of the
state guarantee even if language making KABATA's
obligations into obligations of the state was removed.
Mr. French stated that it was clear that the full faith and
credit of the state was still being pledged if the bonds
were issued through a state agency. He communicated that
the obligation of the state was to make availability
payments to the developer. He continued that KABATA's pro
formas showed that the availability payments totaled $2.98
billion over the life of the project; the payments were
intended to be paid for with tolls; however, they would be
paid by the state if tolls were not sufficient. He stated
that data disputed the accuracy of future traffic
estimates. Two separate traffic projections done for DOT
showed traffic counts of approximately half of those
predicted by KABATA; the forecasts had been conducted for
the most recent Anchorage MTP [Metropolitan Transportation
Plan] and Mat-Su LRTP [Long Range Transportation Plan]. He
noted that DOT had not released the Mat-Su information
despite multiple requests; the council had filed a public
records act in an effort to obtain the information. He
stated that having half of the traffic prediction come to
fruition would be more accurate than 12 other nationwide
toll project projections that KABATA's traffic consultants
Wilbur Smith Associates had made. He referred to an exposé
that had been released in January 2012 showing that Wilbur
Smith's projections were 2.27 times greater than the actual
traffic in the first five years of operation.
Mr. French related that two toll roads Wilbur Smith had
provided projections for (one in South Carolina and one in
California) had gone bankrupt; two others had been forced
into changes in ownership and/or debt restructuring. He
referred to a KABATA graph (copy on file); the green line
showed a projection that toll revenues would significantly
exceed cost. He explained that if only half of the traffic
showed up, the cost (red line) would be below the revenue
line for the entire life of the project. He discussed that
in a 2011 traffic and revenue forecast for a traffic zone
on the Mat-Su side of the bridge, Wilbur Smith predicted
13,828 new jobs for 2035, which was 1,000 jobs less than
the entire employment in the Mat-Su Borough in 2009. The
number was also 673 jobs more than there were in the Kenai
Peninsula and 3,000 jobs more than there were in Juneau. He
noted that in 2007 Wilbur Smith had predicted 6,740 jobs
for the same areas for the same time period. He addressed
what had changed between 2007 and 2011. He explained that
in 2007 KABATA had a population estimate for Mat-Su of
approximately 250,000 and in 2011 the estimate had gone
down to 200,000. He believed the entity had to boost its
traffic projections somehow and that it looked like KABATA
was trying to show that there were additional jobs in Point
Mackenzie that would create traffic going both directions
on the bridge. He stated that the numbers were not
compatible with the 14 square mile industrial zone that
Representative Neuman had discussed. He stressed that the
industrial zone would not support the high job number.
Mr. French referred to a real cost paper that showed an
average annual shortfall of $55 million. He emphasized that
it was important to note that the $55 million would come
from the state in order to make the availability payments.
He surmised that there would be a number of necessary
statewide projects that would not have funding if the state
had to fund the availability payments. He referenced a
Legislative Budget and Audit Committee (LB&A) audit that
was underway and opined that it was worthwhile to wait for
its completion. He thought it was a good idea to review the
accuracy of the population and toll numbers that KABATA
used for its financial plan. He also believed LB&A should
conduct an audit of past spending and predicted future
spending to determine whether KABATA's projected rate of
return made sense. He opined that LB&A should make a
recommendation on whether further state investment was
justified. He noted that in KABATA's absence, there were
currently approximately $58 million in transportation funds
that could be used for other federally eligible
transportation projects throughout the state; he pointed to
alternatives (e.g. bridge upgrades over Eagle River
estimated at $60 million).
3:00:58 PM
Representative Neuman asked whether Mr. French had any
credentials or background in traffic studies or if he was
an engineer. Mr. French answered that he is a professional
engineer, but not a traffic engineer.
Vice-chair Fairclough thanked Mr. French for his testimony
and participation in community council. She was curious
about the $55 million shortfall that would occur if the
traffic did not show up. She asked about the formula that
had been used to determine the number.
Mr. French replied that the formula was fairly complicated
and had been developed by Jamie Kenworthy. He deferred the
question to Mr. Kenworthy.
Vice-chair Fairclough asked for detail regarding the number
just under $3 billion if no tolls were collected. Mr.
French answered that KABATA's 2011 pro forma showed that
the availability payments would be $2.98 billion over the
life of the P3 process.
Representative Gara asked how the state would be on the
hook for availability payments if the tolls did not match
the cost to the contractor. Mr. French believed that the
availability payments were the obligation that the state
said would happen. He equated the payments to having a
guaranteed income when applying for a home loan. He
detailed that payments would be made to the developer and
the developer would acquire the private activity bonds for
financing.
Representative Gara queried where the state's legal
obligation to make the availability payments was located in
the legislation. Mr. French deferred the question to Mr.
Stark.
3:04:38 PM
LYN CARDEN, WASILLA, EXECUTIVE DIRECTOR, WASILLA CHAMBER OF
COMMERCE (via teleconference), spoke in support of the
bill. She stated that the project would support Wasilla's
expanding population and economy and would provide jobs,
housing, and reliable transportation across the state. She
relayed that Port MacKenzie was a strategic port designed
to export bulk commodities (e.g. base and rare earth
mineral ores, coal, wood chips, and gravel); the port was
also utilized to import materials (e.g. cement and steel
pipe). The project would support freight handling capacity,
mobility, and improved regional operations; thereby
supporting airport, military, and consumer needs while
improving safety for Southcentral residents through an
alternate north-south emergency response and disaster
evacuation route. She furthered that the project would
support a transportation infrastructure for existing and
projected population and economic growth statewide. She
believed that the bridge would foster economic development
at Port MacKenzie on the west side of Cook Inlet. She
explained that port's industrial district had over 8,000
available acres for future economic development expansion.
Ms. Carden relayed that additional projects (including the
Port MacKenzie rail extension) were currently underway to
take advantage of the port's "strategic" location. She
opined that the bridge would provide a unique opportunity
for Alaska to expand its economy. She urged the committee
to pass the legislation.
PETE MULCAHY, PRESIDENT, CHUGIAK AND EAGLE RIVER CHAMBER OF
COMMERCE (via teleconference), voiced support of the bill
on behalf of the chamber. He discussed that the chamber was
focused on projects that would increase the economic health
and vitality of the local community and Alaska. He
addressed the importance of appropriate infrastructure that
would support the development of resources. He relayed that
the board had not made a final approval of the KABATA
project; its last resolution had been in 2001 that
supported the project's fact finding phase. The chamber
understood that there were some fiscal concerns, but noted
that it had consensus on several of the aspects related to
KABATA. He relayed that the chamber had always agreed that
the creation of a beltway road system would ease pressure
on the Glenn Highway and would provide a second access in
and out of Anchorage. He stated that transportation
infrastructure needed to move forward with large resource
development projects was not in place. He stressed that the
projects would demand much greater capacity than what
currently existed. The chamber believed that the bridge
would solve multiple problems that would benefit the
Chugiak/Eagle River area including increased economic
activity and solving the congestion issues on the Glenn
Highway.
Mr. Mulcahy understood and liked that the bill provided a
funding framework and state oversight of the project. The
chamber liked that the bill clarified the process of the
public-private partnership. He relayed that the issue was
on the March 2012 board meeting agenda; the board would
discuss a resolution at that time.
3:11:02 PM
AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING
ASSOCIATION (ATA) (via teleconference), vocalized support
for the bill. The ATA saw the Knik Arm crossing as a vital
link in the state's future transportation network that
would provide an alternative route to and from the Port of
Anchorage for northbound freight and would improve the
ability to safely and efficiently move freight on the road
system. He believed the project represented a once in a
generation opportunity to build on the state's
transportation system. He urged the passage of the
legislation.
DARCIE SALMON, ASSEMBLY MEMBER, MAT-SU BOROUGH (via
teleconference), voiced support for the bill on behalf of
himself. He relayed that when Port MacKenzie had been built
there had been discussion that it would increase economic
activity to justify the Knik Arm Bridge. He stated that he
had been working on the issue for over 25 years. He likened
Point Mackenzie to the fulcrum of a teeter-totter with
Fairbanks, the Interior, and resources on one end and
Anchorage and the workforce on the other end; he pointed to
the "natural ebb and flow of economic activity" that the
analogy depicted. He communicated that the project had been
titled a "360 degree economic transportation corridor" to
create a cyclical flow. He pointed to the new prison in the
area that would create jobs. He believed a new city would
be created in the future in Point MacKenzie; he discussed
that the combination of the Point MacKenzie Port, Anchorage
Port, rail spur, Knik Arm Bridge, labor force, and natural
resources would result in progress, opportunity, and
prosperity. Additionally, he believed there would be a
pipeline to Point MacKenzie in the future. He opined that
the benefits outweighed the negatives. He stressed that the
bridge, rail, and port brought together 500,000 Alaskans
economically. He reiterated his "ardent" support for the
project.
3:17:22 PM
JAMES KENWORTHY, SELF, ANCHORAGE (via teleconference),
relayed that his total bridge deficit estimate was $2.5
billion or $55 million per year until 2035. He had
determined the number based on three calculations. First,
he pointed to the 2011 KABATA pro forma done by Citigroup
(page 7) that showed $4.5 billion in cumulative toll
revenue to 2050; he estimated that the number would be half
of the $4.5 billion. He elaborated that when CH2M Hill had
modeled the ISER demographic data it included 17,700 trips
crossing the bridge in 2035 as opposed to KABATA's 36,000
trips (the KABATA figure was 103 percent higher). Second,
he shared that the former CIA economist who tracked Wilbur
Smith's national projects reported that the company had a
118 percent over-estimation error rate. Third, he addressed
a land conflict issue at Point MacKenzie, which he believed
was appropriately zoned for industrial and manufacturing;
however, the KABATA data showed $1.7 million square feet of
retail at Point MacKenzie, which he thought conflicted with
the industrial plan. He opined that the degree of retail
would not work next to coal processing and Liquid to
Natural Gas (LNG) plants.
Mr. Kenworthy summarized that his toll revenue estimate was
$2.3 billion; he believed that KABATA would not receive a
$308 million federal TIFIA [Transportation Infrastructure
Finance and Innovation Act] loan it had been turned down
for in 2007, 2010, and 2011 (the loan was included on page
1 of KABATA's financial plan); and that he had reduced
KABATA's estimate of the return on investment the developer
would receive from 12 percent to 10 percent, which would
add $150 million back in. He pointed to page 1 of the pro
forma and noted that KABATA was counting on $79 million of
equity going in, but the developer was projected to get a
net cash flow (page 5) of $920 million going out. He
wondered why the state with a AA credit rating (that could
borrow long at less than 4 percent) would pay a developer
10 or 12 percent to finance the project. He referred to the
committee's questions related to what would occur if the
developer defaulted and advised that a better focus would
be on the state's ability to make the annual availability
payments, which totaled $3 billion (page 4). He believed
that the focus should be on the toll shortfall and opined
that it would suck money out of the transportation budget.
Co-Chair Thomas asked whether Mr. Kenworthy was
representing himself. Mr. Kenworthy responded in the
affirmative. He provided his credentials. He was the former
director of the Alaska Science and Technology Foundation,
had read business plans for a living for 30 years, and was
a private investor.
Representative Gara asked how the state would become liable
for the availability payments. He wondered whether the
state had signed a contract related to the payments.
Mr. Kenworthy responded that the contract would presumably
be signed after KABATA conducted a request for proposal
(RFP). The contract would not pledge a direct state credit.
Like a Alaska Industrial Development and Export Authority
(AIDEA) or a Alaska Housing Finance Corporation (AHFC)
bond, KABATA would be on the hook to make the annual
availability payment that was estimated at $3 billion. He
noted that the appropriate question was what would happen
if the toll revenue shortfall occurred and the state had to
appropriate $55 million per year to make up the money. He
likened the situation to what would occur if AIDEA or AHFC
did not make payments on their bonds. He noted that the
agency bonds clearly indicated that the purchase of the
bonds was not a direct obligation to the state; however, he
believed there was a moral obligation to the state as it
would impact the state's credit rating.
3:23:48 PM
BEN NORTHEY, PRESIDENT, COLASKA INC., spoke in support of
the bill. He stressed that it was time to build the bridge.
He had worked in the infrastructure industry for 30 years
and wanted to be able to travel safely to the Mat-Su
Valley. He quoted a slogan that "Anchorage is only 15
minutes from the true Alaska."
ROBERT DUN, ENGINEER, COLASKA INC., urged support for the
bill. He stated that there would be a population increase
in the Anchorage and Mat-Su areas. He opined that it made
sense to have the population growth as close to the center
of Anchorage as possible and believed the closest area was
directly across the Knik Arm. He discussed that alternative
areas for development were to increase population in Eagle
River and in Wasilla. He emphasized that there was no zero
cost alternative to the bridge. He stated that the failure
to perform long-term planning could be painful (as
experienced in the effort to connect the Glenn and Seward
Highways); the project was stuck because there was no
right-of-way in the area. He believed that the problems
would only be exacerbated by time and further development
in the Government Hill area. He encouraged the committee to
view the bridge as an investment for the future and in the
short-term health of the state. He related that the project
construction timeline was parallel to the time that there
would be a decrease in federal highway funding. He surmised
that from a jobs perspective that the future looked bleak
without the bridge. He stressed that the benefits that the
bridge would bring to the state would be provided by
funding from private investment.
Representative Gara asked whether the state or KABATA's
obligation to make the availability payments in the event
of toll revenue deficits would be included in contract. Mr.
Dun replied that Colaska Inc. was on the technical side and
could not answer the question.
3:28:50 PM
Kirk Zerkel, Project Manager, Alaska Interstate
Construction, voiced his support for the project. He stated
that the bridge would provide thousands of valuable
construction jobs and would be funded by the user. He
believed that the project would eventually create a
surplus, which could fund other statewide projects thereby
providing for ongoing jobs. He stressed that the project
would provide invaluable training and expertise needed for
Alaska's future. He communicated that the bridge would free
up quality land for residential, commercial, and
recreational purposes in Mat-Su; he opined that the items
would increase the quality of life and decrease the cost of
living in Anchorage. He expounded that the bridge would
ease congestion of large truck traffic through downtown
Anchorage and would decrease traffic along the Glenn
Highway, thereby decreasing the safety hazards in the
areas. The project would decrease the burden of record gas
prices facing Alaskans. He emphasized that the project was
for future Alaskans and urged the legislature to help
continue to grow and develop the state to provide for
future jobs and commerce.
3:31:33 PM
DOUG SMITH, PRESIDENT and CEO, LITTLE RED SERVICES, spoke
in support of the bill on behalf of the Alliance [Alaska
Support Industry Alliance]. He noted that there were
several gates left in the process and that the passage of
the bill did not mean the state was committed to build the
bridge or to make up the difference in tolls before the
commercial terms were known. The Alliance felt that the
bridge was so important to the state that it would warrant
building it without a toll. He relayed that the Alliance
did not see the risk as a reason not to go forward with the
project; if the state had to make up a slight difference in
availability payments the investment level was lower than
would be required without private participation. He
discussed Alaska's bright future. He believed that Outer
Continental Shelf resource development would happen in the
future. He had participated in construction in Alaska for
years, some of which would not have been possible without
AIDEA investment. He believed that the types of projects
brought opportunities but the overall value was
significant. The industrial zone that would be created by
the bridge would help support fabrication and large module
development to support offshore drilling. He pointed to
landlocked areas that had no way to expand in Anchorage and
opined that a better footprint was needed to participate
fully in development for Alaska's future.
Co-Chair Thomas CLOSED public testimony.
3:35:08 PM
Representative Gara asked for KABATA to confirm where the
potential state liability came from.
Mr. Foster clarified that the availability payment was not
on top of a return on investment. He explained that the
availability payment was like a lease payment; a return on
investment was not guaranteed. Under the PPA the private
partner was responsible for financing, designing, building,
operating, and collecting tolls for 35 years; in turn the
state paid the developer an availability payment (also
known as a lease payment). He elaborated that the state's
obligation was to make the payment to a private developer.
From the time the developer began spending the $700 million
to $800 million it was approximately four or five years
before the developer would receive the first payment;
availability payments would not be made until the bridge
opened for use. He relayed that the total payment would be
approximately $3 billion; he equated it to a house payment
- payments needed to be made or the owner would default.
The state would be in default if payments to the developer
were not made. He reiterated that the model was not tied to
return on investment or toll shortfall; the state would
still be required to make the payment in the absence of
traffic. He furthered that KABATA's model showed that there
would be enough toll in the long-term to make the payments;
however, in the beginning there would be a shortfall.
Representative Gara queried whether the state's liability
would be $1.5 billion if tolls fell short of construction
by that amount. Mr. Foster answered that the state would
make up the difference if the tolls fell short. The state
would have to invest approximately $100 million in capital
if it chose to build the bridge itself using the federal
highway model that provided matching funds; the state would
also be responsible for the ongoing maintenance and
operation of the facility, including the toll collection if
applicable. When comparing a state built project with a P3
model it was necessary to look at apples to apples; if the
traffic was short and a deficit resulted the state would be
required to pay; if the state built the bridge itself it
would be responsible for a portion of the project. He had
trouble understanding how people could expect the developer
to invest over $1 billion, but did not want the state to be
obligated to make payments. One could argue whether there
would be enough toll revenue to make the payments, but the
obligation of the state was to pay the developer for its
investment in the project.
3:40:50 PM
Vice-chair Fairclough asked whether there was an estimate
for the annual payment.
Mr. Foster referred to a KABATA graph and answered that the
payment cost built over time. He relayed that the graph
showed a shortfall for the first seven years of operation;
the proposed reserve fund would make up the initial
shortfall. The total availability payment equaled
approximately $3 billion over 35 years. He pointed out that
the contract would contain a termination for convenience
clause, which would allow the state to terminate at any
point; if the state decided it wanted to own the project
the total exposure was roughly $1 billion. He likened the
purchase to a home purchase and explained that the
principle would go down annually after the initial $1
billion payment.
Vice-chair Fairclough asked for verification that the terms
to be negotiated would fall under a 30 year contract. Mr.
Foster answered that the contract would be 35 years.
Vice-chair Fairclough asked for a copy of the KABATA pro
forma that had been generated by Citigroup. Mr. Foster
replied that it could be provided to committee members.
Vice-chair Fairclough asked for an explanation on the loan
that KABATA had applied for. Mr. Foster responded that
TIFIA [Transportation Infrastructure Finance and Innovation
Act] was part of the federal highway program and provided
low cost financing for infrastructure projects. In
reference to earlier testimony he explained that a TIGER
grant was another part of the major projects or TIFIA
program for federal highways. The TIFIA was funded through
Congress and was a leveraging of money at a 10-to-1 ratio.
He believed Alaska received up to two TIGER grant
applications in the prior DOT submittal. He elaborated that
the grants were a process; his team had met with the
administrators of the program in December 2011. He
explained that every time KABATA had applied for the loan
in the past it had expected to be turned down because the
project had not been ready (right-of-way and procurement
had not been achieved and permits were still needed). He
expounded that as the project matured it got "closer and
closer to that TIFIA gate"; the process was competitive. He
relayed that KABATA felt positive about its current TIFIA
application and that the legislation helped it get closer
to obtaining the loan. He relayed that in terms of low cost
financing, TIFIA was worth approximately $300 million to
private partners; if the loan was obtained it would lower
the cost of the availability payments and the obligation of
the state.
Vice-chair Fairclough asked whether KABATA had been
provided feedback when its grant applications had been
rejected. She wondered whether feedback had given the
entity a better outlook on the possibility of acquiring the
financing.
Mr. Foster responded in the affirmative. He relayed that
KABATA always asked to know what it was missing from the
application. He added that a current U.S. Senate
transportation bill included approximately $1 billion for
TIFIA, which would increase the available pool of money. He
had met with U.S. Department of Transportation Secretary
LaHood twice on TIFIA; at the prior meeting KABATA had been
told that the project was mature and was the type of
project the administration looked for (i.e. toll type and
private investment projects). He felt confident about the
KABATA team and that the project would be at the top of the
list if the TIFIA money was be available.
Vice-chair Fairclough discussed the need to manage mega
projects carefully due to their susceptibility to exceed
their original cost. She asked whether KABATA was looking
at the lowest cost bid or whether it had a way to ensure
that quality individuals were managing the project.
Mr. Foster answered that the issue had been included in
KABATA's statement of qualifications. He expounded that six
firms had submitted applications and through a rigorous
review process, three had been selected. He furthered that
all three were quality firms made up of local, national,
and international firms (including engineering,
construction, and operation firms). He reiterated earlier
testimony that responsibility of the private partner was to
finance, design, build, and operate the bridge; project
cost overruns would not be the state's liability. The
state's commitment to the developer would be the
availability payments. He detailed that the expansive
contract included penalties for items such as clearing snow
too slowly, lane closures, failure to collect tolls, and
other, all of which were the responsibility of the private
partner. Through DOL the state had been diligent in making
sure its liabilities were protected; therefore, it did not
have liability for construction, operations, and
maintenance overruns. He hoped the developer and the state
would both make money. He opined that a good partnership
was one in which both parties did well; both parties would
have their own risk and returns.
3:50:14 PM
Co-Chair Thomas asked whether there was someone from
Legislative Legal present.
Representative Doogan pointed to page 2, line 29 of the
legislation that read "deposits made into the reserve fund
established under this section must include" and provided a
list of sources; one source was money that the legislature
had appropriated for "that purpose." He had never seen the
language "must include" and asked for an explanation.
Mr. Stark explained that the intent was to create security
for the developer. He furthered that the developer would
enter into the agreement with KABATA, which would describe
the developer's responsibility in great detail (the
agreement was approximately 1,000 pages). The developer
would be responsible for building and financing the project
and would have to put 10 percent of its own money in; it
would be on the hook for over $700 million and would be
required to operate and maintain the bridge for 35 years.
He related that KABATA's only responsibility was to make
the availability payments. The legislation was intended to
create a level of certainty for the developer that the
money would be there. The legislation and the PPA both
included an obligation for KABATA to place the toll revenue
into a reserve account to be held as security for the
payments owed to the developer. In the event of a revenue
shortfall, KABATA would need to request funds from the
legislature to fund the reserve account. He reiterated that
the design was intended to lower the risk to the developer
and investors and to reduce the cost of the developer,
which would reduce the cost to KABATA.
Representative Doogan was concerned about the bill's
prescriptive language that required the state to pay money
that the legislature would appropriate for the purpose. Mr.
Stark clarified that the purpose was for the money to go
into the reserve account.
Representative Doogan understood what the language was for;
however, he believed it read that the state would be
required to put money in the reserve account. He opined
that the wording should be revised if it was not the
intent.
Mr. Stark replied that he did not believe the language
meant that the legislature must appropriate money. Section
5(l) included language that the KABATA chair would come to
the legislature or governor in the event of a shortfall in
revenue. The section provided that the legislature "may
appropriate to the authority the amount certified by the
chair of the board that is needed to restore a reserve fund
to the reserve fund requirement." He expounded that the
obligation of the legislature was a "may"; there was no
legal obligation to appropriate the funds. He clarified
that the funds must go into the reserve account if the
funds were appropriated.
Representative Doogan wondered why the language did not
read "may." Mr. Stark answered that the funds must go into
the reserve fund if the funds were appropriated; if the
funds were not appropriated they would not.
Representative Doogan surmised that the language should
read "may include" rather than "must include" as it related
to the establishment of a reserve fund. Mr. Stark clarified
that the intent was to provide certainty to assure the
developer that the money would be available; the stronger
the language, the more assurance was provided to the
developer, which meant cost would be lower to KABATA.
Representative Doogan believed Mr. Stark's explanation
conflicted itself. He thought Mr. Stark had said that the
language required the legislature to appropriate money into
the reserve fund and that he had previously indicated that
it "may" put the money in the reserve fund. Mr. Stark
responded in the negative.
Vice-chair Fairclough clarified that the state may choose
to appropriate the money; however, once KABATA received the
money could not put it into any account but the reserve
fund.
Representative Neuman MOVED to report CSHB 158(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
Representative Gara OBJECTED for discussion. He had been
surprised that language naming the state liable for a
shortfall if toll revenue did not cover the cost of
operation and construction; however, he had learned that
the requirement would be included in the contract. He
appreciated Mr. French's explanation of the state's
liability related to the availability payment. He discussed
that in a free enterprise system companies were free to
take risk, but he opined that it was no longer free
enterprise when the government guaranteed that a company
would not lose any money. He had initially thought the bill
had been substantially changed from the prior version, but
he believed that was not the case; the state's obligation
to pay for shortfalls that could be $1.5 billion was
included in the contract. He was unhappy that a straight
forward answer had not been provided by KABATA. He relayed
that he would vote against the bill on the House floor.
Representative Gara WITHDREW his OBJECTION.
Representative Doogan OBJECTED for discussion. He did not
believe in the concept that putting more money into a
project would guarantee success; he pointed to a fish plant
in his district that had failed despite a $50 million
investment by the state. He listed additional items the
state had invested in that had failed including, a Point
MacKenzie milk facility, grain terminals, and other. He
stressed that he could not vote for something of that
nature. He referenced a saying "fool me once, shame on me.
Fool me twice, shame on you"; he had been fooled before and
did not believe that the current argument was either the
"best job that's been done or the most compelling job
that's been done."
Representative Doogan WITHDREW his OBJECTION. There being
NO further OBJECTION, it was so ordered.
CSHB 158(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one new zero fiscal note from
the Department of Transportation and Public Facilities.
4:04:46 PM
RECESSED
5:12:33 PM
RECONVENED