Legislature(2005 - 2006)SENATE FINANCE 532

03/14/2006 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 303(FIN) Out of Committee
Heard & Held
Moved SB 250 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
9:03:05 AM                                                                                                                    
     CS FOR SENATE BILL NO. 303(TRA)                                                                                            
     "An Act amending  the Knik Arm Bridge and  Toll Authority Act                                                              
     and  the powers  and authority  of the  authority to  finance                                                              
     construction and  maintenance of the Knik Arm  Bridge, to set                                                              
     and collect  tolls, and to  carry out its duties,  and making                                                              
     conforming   changes  to  statutes   relating  to   issuance,                                                              
     renewal, or  reinstatement of  driver's licenses and  to levy                                                              
     on permanent  fund dividends; and providing for  an effective                                                              
This was  the first hearing  for this bill  in the  Senate Finance                                                              
GEORGE  WUERCH,   Chair,  Knik  Arm  Bridge  and   Toll  Authority                                                              
(KABATA),   testified  that   the  legislation   passed  in   2003                                                              
establishing the toll  authority was one of the best  bills of its                                                              
kind in  the nation. However, some  improvements could be  made to                                                              
address  issues   identified  in  other  areas  of   the  country.                                                              
Additionally,  a provision  in the  current  statute requires  the                                                              
Authority to  obtain from  the legislature a  "debt ceiling"  of a                                                              
proposed $500 million, which is requested in this legislation.                                                                  
9:05:33 AM                                                                                                                    
BILL  GREENE,   Project   Counsel,  Knik   Arm  Bridge  and   Toll                                                              
Authority, informed  he is retained  under contract by  the Alaska                                                              
Attorney  General's   office.  He   noted  he  had   provided  the                                                              
Committee with  information pertaining  to this bill,  including a                                                              
statement of the purpose of the bill and a sectional analysis.                                                                  
Mr. Greene  reminded that  the Legislature enacted  a law  in 2003                                                              
that created the  Authority to construct a bridge  across the Knik                                                              
Arm, linking  the Matanuska-Susitna  Borough and the  Municipality                                                              
of   Anchorage   to  improve   the   transportation   system   and                                                              
infrastructure  in the Upper  Cook Inlet area  and to  support the                                                              
growth and development of the state.                                                                                            
Mr. Greene  disclosed  that over  the past two  years, KABATA  has                                                              
consulted with  financial consultants, transportation  departments                                                              
of  other states,  other  toll  authorities, the  Federal  Highway                                                              
Administration,  and others.  The Authority  has learned  that the                                                              
financing sectors  require significant  specificity, more  than is                                                              
currently   provided  in   statute.   This   legislation  is   the                                                              
culmination of these  efforts. It is a housekeeping  bill intended                                                              
to clarify and specify the powers of KABATA.                                                                                    
9:09:10 AM                                                                                                                    
Mr.  Greene acknowledged  that federal  funding  is available  for                                                              
this project. However,  regardless of the amount  of that funding,                                                              
private sector  funds and  other public  funds would be  necessary                                                              
to finance  the project. KABATA  requests the authority  to engage                                                              
in  securing   this  financing.   This  bill  would   provide  the                                                              
Authority   the  ability   to  enter  into   public  and   private                                                              
partnerships  for  equity  financing and  debt  financing.  KABATA                                                              
would also  have the ability to  establish the amount of  the toll                                                              
charges and to collect those tolls and other fines.                                                                             
9:10:45 AM                                                                                                                    
Mr. Greene  stressed the importance  of the provision in  the bill                                                              
that would allow  the Authority to set the limit  of the amount of                                                              
revenue bonds  it could  issue. Existing  statute provides  KABATA                                                              
must request this authorization from the Legislature.                                                                           
9:11:29 AM                                                                                                                    
Co-Chair  Green   recalled  discussions  in   another  legislative                                                              
committee about the  reason this bill is necessary.  She requested                                                              
an  explanation of  the  "shortcomings or  inequities  or lack  of                                                              
authority" of the current statute.                                                                                              
9:11:59 AM                                                                                                                    
Mr.  Wuerch reiterated  the  proposed changes  are  the result  of                                                              
"lessons   learned"   from   the   experiences   of   other   toll                                                              
authorities.  The Federal  Highway  Administration  has enacted  a                                                              
new financing  program, the Transportation  Infrastructure Finance                                                              
and Innovation Act  (TIFIA), to finance loans, lines  of credit or                                                              
investment  equity  for  projects.   Some  toll  authorities  that                                                              
received this  financing were sued  with the charge  alleging that                                                              
the  authorities  did  not have  authorization  from  their  state                                                              
legislatures to borrow  from the federal government.  As a result,                                                              
changes  to the  TIFIA rules  now  provide that  unless a  state's                                                              
statute  specifies  the TIFIA  program  with  regard to  the  toll                                                              
authority, the  authority's application  for funding would  not be                                                              
Mr.  Wuerch  gave  the  Tacoma Narrows  Bridge  in  the  state  of                                                              
Washington as an  example. Funding for construction  of a new span                                                              
from  private investors  was  nearly  secured when  the  governing                                                              
authority   was  found  to   not  have   authorization  from   the                                                              
Washington  Legislature   to  secure  the  federal   funding  also                                                              
necessary  for  the  project.  He  provided  other  examples  with                                                              
similar situations.                                                                                                             
9:14:27 AM                                                                                                                    
Mr.  Wuerch remarked  that  the  estimated cost  of  the Knik  Arm                                                              
crossing  is $600 million.  Governor Frank  Murkowski submitted  a                                                              
request to the  legislature to appropriate $94  million in federal                                                              
funding  and  approximately   nine  percent  of   that  amount  in                                                              
matching  State general  funds  to total  about  $100 million.  If                                                              
appropriated,  the Authority  would  need to  raise the  remaining                                                              
$500  million   to  fund  the  project.   Preliminary  discussions                                                              
indicate  this would  be possible.  If  it were  found within  the                                                              
next  12 months  to not  be possible  and  that additional  public                                                              
funding  was   necessary,  an   appropriation  request   would  be                                                              
submitted the following legislative session.                                                                                    
Mr. Wuerch  predicted that  a toll fee  of $3 would  generate $1.5                                                              
billion  over  the 30  years.  The  revenue stream  would  justify                                                              
financing the $500  million KABATA was requesting  the legislature                                                              
authorize it to borrow.                                                                                                         
9:15:55 AM                                                                                                                    
Co-Chair Green  asked if this  legislation would enable  KABATA to                                                              
"more easily arrange  for funding, borrowing and  security for the                                                              
Mr. Wuerch answered that the assessment was correct.                                                                            
9:16:07 AM                                                                                                                    
Senator  Hoffman asked  the  State's liability  in  the event  the                                                              
Authority  was  unable to  repay  the  bonds  issued to  fund  the                                                              
9:16:36 AM                                                                                                                    
Mr. Wuerch deferred to the Department of Revenue.                                                                               
9:16:54 AM                                                                                                                    
TOM   BOUTIN,   Deputy  Commissioner,   Department   of   Revenue,                                                              
responded  that the  bonds issued  for  this project  would be  "a                                                              
typical  standalone  revenue  bond   structure".  The  expectation                                                              
would be that no  bonds associated with the state  of Alaska would                                                              
default.  This  has  never  occurred.   However,  protections  are                                                              
included  in   the  structure   such  as   a  requirement   for  a                                                              
feasibility  study  by  a nationally  recognized  consulting  firm                                                              
that  deals  solely with  toll  road  projects. This  study  would                                                              
determine whether  adequate revenue would  be generated to  fund a                                                              
debt  service reserve,  fund  operations  and other  requirements.                                                              
Additionally, fund  insurance would be purchased  from a financial                                                              
guarantor to protect,  not the State, but rather  the bondholders.                                                              
This structure  is similar  to that employed  for bonds  issued to                                                              
fund international airport projects.                                                                                            
9:18:48 AM                                                                                                                    
Senator Hoffman understood  the structure. He again  asked that if                                                              
the  Authority,  for whatever  reason,  was  unable to  repay  the                                                              
bonds, whether the State would be liable for the $.5 billion.                                                                   
9:19:17 AM                                                                                                                    
Mr.  Boutin  replied that  the  bondholders  would have  no  legal                                                              
claim  on any  State  resources,  apart from  the  bridge and  its                                                              
9:19:41 AM                                                                                                                    
Senator  Stedman asked  if the  "financial  layout" would  include                                                              
any provision to protect the purchaser of those bonds.                                                                          
9:19:59 AM                                                                                                                    
Mr.  Boutin  answered  yes;  that  financial  guarantee  insurance                                                              
would likely  be purchased utilizing  a portion of  bond proceeds.                                                              
Providers  of  this  insurance  would  research  the  project  and                                                              
determine whether  it was  an acceptable  risk. The project  would                                                              
be undertaken only after a due diligence was performed.                                                                         
9:21:24 AM                                                                                                                    
Senator Bunde understood  that the tolls are anticipated  to cover                                                              
operating  costs.  However,  should  the  tolls  not  cover  those                                                              
costs,  he predicted  that the State  would be  under pressure  to                                                              
supplant  the  bridge  costs under  threat  that  the  bondholders                                                              
would repossess the bridge.                                                                                                     
9:22:11 AM                                                                                                                    
Mr. Wuerch agreed  the concern is to implement a  method to insure                                                              
that  the  facility  would  continue  to  operate  and  serve  the                                                              
public. The  bridge would  be the asset  of KABATA,  and therefore                                                              
this effort  would be  essential. Discussions  were underway  with                                                              
the  Department   of  Transportation  and  Public   Facilities  to                                                              
determine the  delineation of the  State's responsibility  and the                                                              
Authority's.  The  Governor was  requesting  funding  to pave  the                                                              
road  in  the  Mat-Su  Borough   leading  to  Port  McKenzie,  the                                                              
proposed bridge  site. This  13 and one-half  mile road,  owned by                                                              
the  Borough, would  serve  the bridge.  The  Borough has  entered                                                              
into  an  agreement  with the  Department  to  assume  maintenance                                                              
responsibilities   of  the   road  once  it   is  upgraded.   This                                                              
arrangement  would lessen  the burden  of  the Authority.  Similar                                                              
arrangements could  be discussed for roads on  the eastern landing                                                              
of the bridge.                                                                                                                  
9:23:34 AM                                                                                                                    
Co-Chair  Green instructed  the  Committee to  limit questions  to                                                              
those specific to the legislation, and to not "revisit history".                                                                
9:23:52 AM                                                                                                                    
Co-Chair Wilken  characterized the  bridge as  a "project  for the                                                              
next generation",  which he was  "generally" in support.  However,                                                              
he  was concerned  that the  proposed "massive"  bridges would  be                                                              
constructed  at  the  expense  of  needed  infrastructure  in  the                                                              
remainder of the state.                                                                                                         
9:25:25 AM                                                                                                                    
Co-Chair  Wilken had  understood that  until July  2004, the  Knik                                                              
Arm Bridge  crossing and the Gravina  Island Bridge to  be located                                                              
in Ketchikan  would be funded with  "added money" not  included in                                                              
the  normal  federal  allocation  for  highways.  Changes  to  the                                                              
appropriation were  made and these funds would be  included in the                                                              
normal  allocation.  He asked  for  clarification  that the  funds                                                              
would be provided  "in total" and that the Legislature  would have                                                              
the responsibility  to allocate "as we see fit",  as traditionally                                                              
9:27:07 AM                                                                                                                    
Mr.  Wuerch emphasized  that the  State and  the Legislature  have                                                              
complete  authority to allocate  the funds.  The funds  originally                                                              
"earmarked"  for the  two  bridge projects  do  not require  State                                                              
matching  funds, under  the normal  formula  system. However,  the                                                              
Department  has opted  to request  treatment of  them as such  and                                                              
request State general funds to supplant the federal funding.                                                                    
9:27:48 AM                                                                                                                    
Co-Chair  Wilken   announced  he   had  sent   a  letter   to  the                                                              
Commissioner  of  the  Department  of  Transportation  and  Public                                                              
Facilities  approximately  six  weeks  ago  stating  he  would  be                                                              
unable  to  support  these  projects   until  he  had  received  a                                                              
financial  plan  indicating  how  they would  be  constructed  and                                                              
financed without  diverting funds otherwise intended  for projects                                                              
located in  the Interior  for the next  five years.  Senator Bunde                                                              
voiced concerns  that if bonds  were not sold, expectations  would                                                              
be  to finance  these  projects  at the  expense  of other  needed                                                              
9:29:24 AM                                                                                                                    
Co-Chair  Wilken directed  attention  to language  inserted to  AS                                                              
19.75.111(a)(8),  amended  through  Section 1  on  page  2 of  the                                                              
bill.  He interpreted  the  original  statutory language  and  the                                                              
proposed inserted  language to imply  that federal funds  were not                                                              
anticipated when the Authority was established.                                                                                 
9:30:11 AM                                                                                                                    
Mr. Greene stated  that the original bill allowed  KABATA to incur                                                              
indebtedness.   In  research   undertaken  since,   it  has   been                                                              
determined  that  the proposed  language  is necessary  to  comply                                                              
with  the federal  TIFIA  requirements.  The most  common  problem                                                              
encountered by  other toll  authorities is insufficient  statutory                                                              
language  to specify  authority.  This legislation  would  provide                                                              
the needed clarity  and specificity. It would allow  the Authority                                                              
to secure financial debt to fund this project.                                                                                  
9:32:28 AM                                                                                                                    
Senator Stedman counseled  on the need for members  to deemphasize                                                              
the  impact on  one's election  district when  setting policy  for                                                              
statewide  infrastructure.   A  presentation  was   given  by  the                                                              
Department  on the  proposed  bridges  to address  the  "political                                                              
agenda" and  to show  that the predicted  impacts in  future years                                                              
were "unrealistic" and would not materialize.                                                                                   
Senator  Stedman explained  that the  federal appropriation  would                                                              
be  $112 million  more than  was  provided in  the previous  year.                                                              
These funds  are not categorized  for surface transportation,  nor                                                              
are they  National Highway  System "formula  dollars". Rather  the                                                              
funds are included  in the Highway Priority Projects  Program, the                                                              
Bridge  Discretionary  Program,   the  Transportation  Improvement                                                              
Program,  and  the National  Corridor  Infrastructure  Improvement                                                              
Senator  Stedman  stressed  the   need  to  obtain  a  "clear  and                                                              
accurate  representation of  what we're faced  with" in  financing                                                              
these  proposed  bridges.  Co-Chair Wilken's  assertion  that  the                                                              
Department is furthering a political agenda was incorrect.                                                                      
Senator Stedman  informed that  he has  contacted the  Division of                                                              
Legal  and Research  Services,  and  the Division  of  Legislative                                                              
Finance  to  assist  in  understanding  the  impacts.  The  Alaska                                                              
Congressional  delegation had  differed  from that  of the  Alaska                                                              
Department  of   Transportation  and  Public  Facilities   in  the                                                              
assessment of impact.  Agreements for most issues  have since been                                                              
reached. However,  if Legislative  policies were adopted  based on                                                              
political  agendas "that  are driven  deep in  the bowels  of" the                                                              
Department, no projects would be undertaken.                                                                                    
9:35:44 AM                                                                                                                    
Co-Chair  Green returned  the discussion  to  this legislation:  a                                                              
housekeeping  bill  that  would  prepare the  Authority  to  enter                                                              
discussions with TIFIA personnel and private lenders.                                                                           
9:36:12 AM                                                                                                                    
Co-Chair  Green referenced  inserted language  to AS  19.75.111(7)                                                              
amended through  Section 1  of the  bill on page  2, line  21 that                                                              
would extend authority  to issue "and refund" bonds.  She asked if                                                              
this is similar to refinancing of bonds.                                                                                        
Co-Chair Green's assessment was confirmed.                                                                                      
Co-Chair Green next  directed attention to subparagraphs  (11) and                                                              
(12)  of the same  section  on page 3,  lines 10  through 18.  She                                                              
asked if  these provisions  were specific to  the toll  and bridge                                                              
facilities or whether  the Authority's ability to  bring civil and                                                              
criminal actions  to collect tolls  or fees, and  obligate revenue                                                              
generated from  the facilities,  could be  extended to  assets not                                                              
related to the bridge.                                                                                                          
9:37:30 AM                                                                                                                    
Mr. Wuerch replied  these provisions apply solely  to the proposed                                                              
9:37:40 AM                                                                                                                    
Co-Chair Green asked  if other authorities in the  state have this                                                              
ability, such as the Alaska Railroad Corporation.                                                                               
9:37:54 AM                                                                                                                    
Mr. Wuerch  clarified  that the  Alaska Railroad  is an entity  of                                                              
the  State  government.  The  provision  in  this  legislation  is                                                              
similar to  that employed by the  Railroad, although the  Knik Arm                                                              
Bridge  and  Toll  Authority would  have  more  "independence"  in                                                              
bonding  activities.   This  is   because  KABATA  would   oversee                                                              
primarily   an  infrastructure   facility  whereas  the   Railroad                                                              
entails more operational functions.                                                                                             
9:38:32 AM                                                                                                                    
Co-Chair  Green  asked about  the  treatment  of any  excess  toll                                                              
9:38:53 AM                                                                                                                    
Mr.  Wuerch  responded   that  the  funds  would   remain  in  the                                                              
possession of the  Authority for expenditure on  future expansions                                                              
or major repairs.                                                                                                               
9:39:11 AM                                                                                                                    
Senator Bunde  remarked that  KABATA would not  pay a  dividend to                                                              
the State.  Additionally, adoption of  this bill would  not commit                                                              
any federal funding to the project.                                                                                             
Co-Chair Green affirmed.                                                                                                        
9:39:43 AM                                                                                                                    
Senator  Olson   asked  if  this   legislation  would   allow  the                                                              
Authority to  change the toll  rate. He questioned  the conclusion                                                              
that $3  would be  sufficient to  generate revenue  to repay  debt                                                              
and  fund maintenance  and operations.  The  appropriate toll  fee                                                              
for  the  Whittier  Tunnel was  originally  calculated  at  $1.50;                                                              
however, the toll is currently $12.                                                                                             
9:40:33 AM                                                                                                                    
Mr.  Wuerch responded  that lenders  and  investors are  concerned                                                              
about  which  entities   could  change  a  toll   structure.  This                                                              
legislation  would  provide that  only  the Authority's  board  of                                                              
directors could make such changes.                                                                                              
Mr. Wuerch  agreed that  $3 would be  inadequate. That  figure was                                                              
calculated  using  an  assumption  that  $200  million  of  public                                                              
funding  would be  provided rather  than  the currently  requested                                                              
$100 million.                                                                                                                   
9:42:14 AM                                                                                                                    
Senator Olson  noted that other  cost projections for  this bridge                                                              
estimate  the amount  would be  greater than  $1.5 billion  rather                                                              
than the  $600 million claimed  by KABATA. Cost  overruns incurred                                                              
during   the   expansion   and   upgrade  of   the   Ted   Stevens                                                              
International  Airport   amount  to  "hundreds  of   millions"  of                                                              
dollars more  than anticipated. He  asked how he could  assure his                                                              
constituents  that the  project  would not  stop  with the  bridge                                                              
only halfway constructed.                                                                                                       
9:43:43 AM                                                                                                                    
Mr. Wuerch disclosed  that the Board "wrestles with"  the issue of                                                              
whether the cost  estimates are accurate. Three  engineering firms                                                              
have been  hired and  economist projections  of population  growth                                                              
have  been   consulted  to  achieve   the  revised   $600  million                                                              
estimate.  This estimate  includes $100  million specifically  for                                                              
inflation. Attempts  were made to  anticipate and  avoid problems.                                                              
The "investment  community" would not participate  in this project                                                              
without sufficient assurances.                                                                                                  
9:46:03 AM                                                                                                                    
Co-Chair Wilken pointed  to language in the bill  pertaining to an                                                              
individual's inability  to obtain or  renew a driver's  license if                                                              
unpaid tolls or  fees were owed. He suggested  that the imposition                                                              
of this  provision of  30 days after  the due date  of the  fee or                                                              
toll  should be  60  or  90 days.  The  shorter time  frame  could                                                              
result  in  undue bureaucracy.  Two  or  three months  of  overdue                                                              
remittance would demonstrate intent to avoid payment.                                                                           
9:47:02 AM                                                                                                                    
Mr. Wuerch did not object to extending the period to 60 days.                                                                   
9:47:38 AM                                                                                                                    
Amendment  #1: This  amendment deletes  "30" and  inserts "60"  to                                                              
subsection  (c)   of  Sec.19.75.915.  Liability  for   payment  of                                                              
tolls.,  inserted through  Section  9  on page  10,  line 22.  The                                                              
amended language reads as follows.                                                                                              
          (c) Upon agreement between the authority and the                                                                      
     commissioner of administration, a vehicle owner liable for                                                                 
     an unpaid  toll or fee due  the authority may, after  60 days                                                              
     after the  due date, be barred  from obtaining or  renewing a                                                              
     driver's  license  or  a  vehicle  registration  or  license,                                                              
     regardless   of  whether   the  vehicle   was  used   at  the                                                              
     authority's  facilities or  incurred the  toll or fee,  until                                                              
     the toll or fee is paid in full.                                                                                           
Co-Chair Wilken moved for adoption.                                                                                             
There was no objection and the amendment was ADOPTED.                                                                           
9:48:00 AM                                                                                                                    
STEVE  WALLACE testified  via teleconference  from Anchorage  that                                                              
he owns a house  located at Erickson Street on  Government Hill in                                                              
Anchorage, which  is the proposed  site of the eastern  landing of                                                              
the bridge.  He is dependant on  the expeditious progress  of this                                                              
project to determine  whether his property would  be condemned and                                                              
purchased by  the Authority. Meanwhile,  he is unable to  sell his                                                              
home  at  a  time  of  high  real  estate  values.  KABATA's  cost                                                              
estimates could  not be verified;  rather a study  commissioned by                                                              
the Department  of Transportation and Public  Facilities estimates                                                              
the  cost could  be as  high  as $1.9  billion.  The $600  million                                                              
projection  includes only  the  bridge and  does  not include  the                                                              
cost of road infrastructure on both shores.                                                                                     
9:51:52 AM                                                                                                                    
Co-Chair  Green interrupted  to direct  the witness  to limit  his                                                              
comments to this bill.                                                                                                          
9:52:03 AM                                                                                                                    
Mr.  Wallace stressed  that  this  legislation would  make  KABATA                                                              
more  independent. The  Committee should  review the  "underlying"                                                              
cost  of  the  project before  granting  "free  reign"  to  secure                                                              
financing.  The Authority  would be  "completely independent"  and                                                              
without "political oversight".                                                                                                  
9:52:58 AM                                                                                                                    
JAMES  CANTOR,   Chief  Assistant   Attorney  General,   Statewide                                                              
Section  Supervisor,   Transportation  Section,   Civil  Division,                                                              
Department  of Law  testified  via teleconference  from  Anchorage                                                              
that he was available to answer questions.                                                                                      
It was  determined that  the Committee had  no questions  for this                                                              
9:53:14 AM                                                                                                                    
STEPHANIE KESLER,  Government Hills  Community Council,  testified                                                              
via teleconference  from an offnet location, that  the Legislature                                                              
has a  fiduciary obligation to understand  the "true" cost  of the                                                              
proposed bridge. A  "fair" comparison must be made  of the current                                                              
estimates  to previous  estimates, including  the differences  and                                                              
items omitted in the updated version.                                                                                           
9:55:20 AM                                                                                                                    
Co-Chair Green  asked whether  any Member had  reason to  hold the                                                              
bill in Committee.                                                                                                              
9:55:28 AM                                                                                                                    
Senator Stedman  offered a  motion to report  CS SB 303  (TRA), as                                                              
amended  from   Committee  with  individual   recommendations  and                                                              
accompanying fiscal notes.                                                                                                      
Without objection  CS SB 303 (FIN)  was MOVED from  Committee with                                                              
zero fiscal  notes #1  from the  Department of Transportation  and                                                              
Public  Facilities,   and  #2  from  the  Department   of  Natural                                                              

Document Name Date/Time Subjects