Legislature(2009 - 2010)CAPITOL 17

02/12/2009 01:00 PM House TRANSPORTATION


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01:06:45 PM Start
01:06:57 PM Alaska Transportation Finance Study
02:02:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: TELECONFERENCED
Alaska Transportation Finance Study
                    ALASKA STATE LEGISLATURE                                                                                  
            HOUSE TRANSPORTATION STANDING COMMITTEE                                                                           
                       February 12, 2009                                                                                        
                           1:06 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Peggy Wilson, Chair                                                                                              
Representative Craig Johnson, Vice Chair                                                                                        
Representative Kyle Johansen                                                                                                    
Representative Cathy Engstrom Munoz                                                                                             
Representative Mike Doogan                                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative John Harris                                                                                                      
Representative Max Gruenberg                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Presentation:  Alaska Transportation Finance Study                                                                              
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DENISE MICHELS, Mayor, City of Nome; President                                                                                  
Alaska Municipal League (AML)                                                                                                   
Nome, Alaska                                                                                                                    
POSITION STATEMENT:  Testified on behalf of the AML during the                                                                
presentation on the Alaska Transportation Finance Study.                                                                        
                                                                                                                                
CHRISTOPHER WORNUM, Principal                                                                                                   
Cambridge Systematics                                                                                                           
Oakland, California                                                                                                             
POSITION STATEMENT:  Testified and answered questions during the                                                              
presentation on the Alaska Transportation Finance Study.                                                                        
                                                                                                                                
JEFF OTTESEN, Director                                                                                                          
Division of Program Development                                                                                                 
Department of Transportation & Public Facilities (DOT&PF)                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and answered questions during the                                                              
discussion of the Alaska Transportation Finance Study.                                                                          
                                                                                                                                
PETER FREER, Staff Assistant/Project Manager                                                                                    
Alaska Municipal League (AML)                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and  answered questions during the                                                             
discussion of the Alaska Transportation Finance Study.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:06:45 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
CHAIR  PEGGY  WILSON  called the  House  Transportation  Standing                                                             
Committee meeting to order at  1:06 p.m.  Representatives Doogan,                                                               
Johnson,  and  Wilson   were  present  at  the   call  to  order.                                                               
Representatives Munoz and Johansen arrived  as the meeting was in                                                               
progress.                                                                                                                       
                                                                                                                                
^Alaska Transportation Finance Study                                                                                          
                                                                                                                                
                                                                                                                              
1:06:57 PM                                                                                                                    
                                                                                                                                
CHAIR WILSON announced  that the only order of  business would be                                                               
an overview  of the Alaska  Transportation Finance  Study (ATFS).                                                               
She explained that  the Alaska Municipal League  would provide an                                                               
overview  and the  contractor  will review  the  findings of  the                                                               
study.                                                                                                                          
                                                                                                                                
1:08:01 PM                                                                                                                    
                                                                                                                                
DENISE  MICHELS,  Mayor,  City  of Nome,  and  President,  Alaska                                                               
Municipal League,  began her presentation by  reading a statement                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Good afternoon, my name is  Denise Michels.  I serve as                                                                    
     the  Mayor  of  Nome,  Board President  of  the  Alaska                                                                    
     Municipal  League  and  Vice  President  for  Community                                                                    
     Services Division at Kawerak.   Within Kawerak I manage                                                                    
     the  Indian Reservation  Roads Program  for the  Bering                                                                    
     Straits Region.   I was also honored  to participate as                                                                    
     a   Stakeholder    for   DOT's   [2030]    Long   Range                                                                    
     Transportation Plan update.                                                                                                
                                                                                                                                
     The  Alaska  Municipal  League represents  the  unified                                                                    
     voice  of   Alaska's  municipalities   to  successfully                                                                    
     influence favorable federal and  state legislation.  We                                                                    
     also    build    censuses   and    partnerships    with                                                                    
     organizations   and  the   public  to   solve  Alaska's                                                                    
     challenges.                                                                                                                
                                                                                                                                
     Last  year  members  of  AML  began  discussing  issues                                                                    
     regarding transportation  and energy.  We  came up with                                                                    
     a plan to communicate,  collaborate, and bring ideas to                                                                    
     help  solve some  of our  transportation  issues.   AML                                                                    
     created  a   transportation  ad  hoc   committee  which                                                                    
     developed a  transportation policy for the  AML board's                                                                    
     consideration.                                                                                                             
                                                                                                                                
     At   our    November   annual   meeting    energy   and                                                                    
     transportation were  included in  our priorities.   The                                                                    
     membership  adopted Resolution  number 2009-12,  urging                                                                    
     the Governor  and the  Legislature to  capitalize long-                                                                    
     term transportation funding for Alaska.                                                                                    
                                                                                                                                
     The Highway Trust Fund ran  out of money last fall, and                                                                    
     was re-capitalized  with a  general fund  transfer, but                                                                    
     it's  widely  viewed  as  insufficient  to  fund  state                                                                    
      highway programs at the same levels as the past.  Re-                                                                     
     authorization  of  federal highway  legislation,  i.e.,                                                                    
     SAFETEA-LU, may  shift funding away from  rural states,                                                                    
     and move  toward greenhouse gas reduction,  transit and                                                                    
     congestion relief  in the country's  major metropolitan                                                                    
     areas.    Both  these  factors will  work  against  the                                                                    
     interests of Alaska.   Alaska is one-fifth  the size of                                                                    
     the U.S.  and our  transportation needs are  great both                                                                    
     for rural and urban Alaska.   The State of Alaska needs                                                                    
     to create  a reliable option of  transportation funding                                                                    
     to meet the unmet transportation demands.                                                                                  
                                                                                                                                
     In  October 2008,  the  Alaska  Municipal League  (AML)                                                                    
     contracted with Cambridge  Systematics, who specializes                                                                    
     in transportation  finance analysis.  They  were tasked                                                                    
     to  examine  state  transportation funding,  trends  in                                                                    
     transportation  funding in  other  states, and  changes                                                                    
     anticipated in federal transportation  funding.  Due to                                                                    
     the short  timeline and limited funding  for the study,                                                                    
     the  primary focus  is on  surface transportation.   We                                                                    
     did not  fail to  recognize the critical  importance of                                                                    
     the  marine  and  aviation components  of  the  state's                                                                    
     transportation system,  but simply  to give us  a place                                                                    
     to start.   We  understand that we  must look  at those                                                                    
     systems   for  a   holistic   approach  to   intermodal                                                                    
     transportation.                                                                                                            
                                                                                                                                
     AML  firmly   believes  that  transportation   and  its                                                                    
     support systems  are just  the foundation  for economic                                                                    
     development.  The transportation  systems must be safe,                                                                    
     reliable,     efficient,     cost     effective     and                                                                    
     environmentally sound, most  important adequate funding                                                                    
     is required to meet these specifications.                                                                                  
                                                                                                                                
     We  hope that  this  report will  start the  discussion                                                                    
     about how the State of  Alaska will address the looming                                                                    
     shortage  of  highway  funding for  our  transportation                                                                    
     system.   We believe this report  has information, data                                                                    
     and  statistics for  us to  work  together to  consider                                                                    
     various funding options.                                                                                                   
                                                                                                                                
     The  consultant  has  been  working  for  three  months                                                                    
     through  a series  of reviews  by our  project steering                                                                    
     committee  that consists  of  former DOT  commissioners                                                                    
     Joe  Perkins,  Mark  Hickey  and  Mike  Burton;  Former                                                                    
     Deputy Commissioner John  MacKinnon; Tom Brigham former                                                                    
     Director  of  Statewide   Planning;  Dan  Sterley  with                                                                    
     CH2MHill;  John  Duffy,  Borough  Manager  for  Mat-Su;                                                                    
     Michael  Catsi  with  SWAMC  and AML  staff.    We  are                                                                    
     pleased  to   have  Chris  Wornum,  a   Principal  with                                                                    
     Cambridge  Systematics,  and  project manager  for  the                                                                    
     Alaska  Transportation Finance  Study, here  to present                                                                    
     the report.   We welcome  your thoughts and  ideas, and                                                                    
     hope  that today  will  be the  start  of a  continuing                                                                    
     dialogue on transportation funding.                                                                                        
                                                                                                                                
1:12:04 PM                                                                                                                    
                                                                                                                                
CHRISTOPHER  WORNUM,   Principal,  Cambridge   Systematics,  Inc.                                                               
explained  that  the  report contains  many  statistics,  but  he                                                               
offered  to summarize  and  provide the  committee  with a  brief                                                               
synopsis  of Cambridge  Systematic, Inc.'s  Alaska Transportation                                                               
Finance  Study (ATSF)  objectives.   He asked  to focus  on three                                                               
points  of  the study.    First,  the  study identifies  that  an                                                               
underinvestment  exists  in  the   state's  infrastructure.    He                                                               
offered  to  provide information  based  on  studies prepared  by                                                               
others since  that topic was  not central to this  study although                                                               
the ATSF  study did review the  material.  This study  focuses on                                                               
the current risk in state  of federal funding diminishing because                                                               
of the changes currently happening.   However, federal funding is                                                               
more likely to  diminish with the reauthorization  of the federal                                                               
transportation  bill,  he opined.    He  related that  given  the                                                               
risks, and the  state's dependence on federal  funding, such that                                                               
roughly 75  percent comes  from federal  funding, that  the study                                                               
seeks to provide some options  to diminish dependence and to help                                                               
close the current gap between needs and revenues.                                                                               
                                                                                                                                
1:14:15 PM                                                                                                                    
                                                                                                                                
MR. WORNUM  reviewed the findings and  recommendations addressing                                                               
the  six   questions  posed  by   the  AML.     First,  Cambridge                                                               
Systematics,  Inc.  (CSI)  was  asked to  describe  some  of  the                                                               
current  transportation  finance  trends  in  the  operating  and                                                               
capital  needs of  the state.    Additionally, CSI  was asked  to                                                               
identify the  federal funding priorities  and the changes  in the                                                               
reauthorization  of the  Safe,  Accountable, Flexible,  Efficient                                                               
Transportation Equity  Act: A Legacy for  Users (SAFETEA-LU), and                                                               
what effects the changes may have on Alaska.                                                                                    
                                                                                                                                
1:14:50 PM                                                                                                                    
                                                                                                                                
MR. WORNUM continued.  The  Cambridge Systematics, Inc. (CSI) was                                                               
asked to  focus on transportation  finance trends that  rely more                                                               
on user  fees, public-private  partnerships, and  other financing                                                               
tools used  to leverage and  match federal funds.   He emphasized                                                               
that the CSI was asked  to identify strategies that could address                                                               
transportation financing challenges.   Finally, the CSI was asked                                                               
to  examine funding  options, examine  new  funding sources,  and                                                               
offer ways those options could be  used in a portfolio of funding                                                               
the state could develop.                                                                                                        
                                                                                                                                
1:15:35 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM indicated  he would  like to  focus on  three topics.                                                               
First,  he  noted  the  underinvestment   in  the  overall  state                                                               
transportation network.   He related that the  state's economy is                                                               
highly dependent  on resource  extraction and  traded industries,                                                               
or those  industries that  depend upon  linkages to  ports, rail,                                                               
air, and  other ways to export  their products.  He  related that                                                               
due to the intensity in the  state in the traded industry sector,                                                               
Alaska's   economy    depends   more   than   some    states   on                                                               
transportation.     Additionally,   the  growth   in  the   other                                                               
industries has become  a way to offset  declining oil production,                                                               
and to encourage economic diversification.   Thus, there exists a                                                               
higher  degree  of  concern  than   most  states  about  adequate                                                               
transportation network service.   Mr. Wornum remarked that Alaska                                                               
has  some   long  term  underlying   conditions  that   make  the                                                               
transportation network important to the quality of life.                                                                        
                                                                                                                                
1:16:44 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM explained  that CSI  reviewed the  "Let's Get  Moving                                                               
2030:   Alaska  Statewide Long-Range  Transportation Policy  Plan                                                               
(February  2008),  commonly referred  to  as  the "2030  report",                                                               
which represents a comprehensive analysis  of Alaska's needs.  It                                                               
would  appear  that  of  the  $1.1  billion  annually  needed  to                                                               
maintain  Alaska's highways  and  bridges, that  roughly half  is                                                               
unfunded.   Adding in  the Alaska  Marine Highway  System (AMHS),                                                               
the  figure swells  to  $720 million  per year,  he  stated.   He                                                               
indicated   that  the   backlog   for   life-cycle  and   routine                                                               
maintenance as of 2007 is  $750 million.  Additionally, the state                                                               
is  roughly  $104  million  annually behind  what  is  needed  to                                                               
maintain the current conditions.                                                                                                
                                                                                                                                
1:18:03 PM                                                                                                                    
                                                                                                                                
MR. WORNUM  stated that  finally, for AMHS,  of the  $180 million                                                               
needed annually, the state only  collects $44 million in revenues                                                               
to  keep the  system operational.   He  highlighted that  none of                                                               
these  findings takes  into account  maintenance  on the  transit                                                               
system's locally urban  and rural roads, aviation,  or adding any                                                               
capacity to handle additional growth.                                                                                           
                                                                                                                                
1:18:43 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM,  in response  to  Chair  Wilson answered  that  road                                                               
maintenance  is   included,  but  vessel  replacement   has  been                                                               
included.    He explained  that  the  life-cycle costs  for  AMHS                                                               
include  vessel   replacement,  just  as  on   roadways,  certain                                                               
components cycle through for replacement.                                                                                       
                                                                                                                                
1:19:57 PM                                                                                                                    
                                                                                                                                
MR. WORNUM explained that maintenance  was not the major focus of                                                               
the  study.     He  acknowledged  that  the  2030   report  is  a                                                               
comprehensive study with conservative  assumptions.  He explained                                                               
the  major   impetus  of  the   Cambridge  study,   confirmed  by                                                               
stakeholders,  was  that  the  continued  dependence  on  federal                                                               
funding places  Alaska at risk.   He explained that  past federal                                                               
policies are being  examined more closely in Washington  D.C.  He                                                               
offered one  measurement to  determine the  level of  the state's                                                               
dependence on federal monies is  to examine the level of spending                                                               
on transportation as  compared to the gross state  product.  When                                                               
examining  all states,  Alaska falls  in  the top  ten states  in                                                               
terms of  spending money on transportation  infrastructure.  This                                                               
includes maintenance  and capital  expenditures.  He  stated that                                                               
the average  for surface transportation spending  as a percentage                                                               
of gross state  product (GS) is 1.55 percent and  Alaska is close                                                               
to 2  percent [Figure 2.4].   However, when examining the  net of                                                               
federal  money that  is  spent,  the state  drops  to average  or                                                               
slightly below  average.  In  terms of capital  expenditures, for                                                               
building more transportation infrastructure  then Alaska drops to                                                               
the  lowest 4  percent.   Thus,  if federal  monies decline,  the                                                               
state's ability  becomes severely  constrained given  the current                                                               
spending patterns.                                                                                                              
                                                                                                                                
MR.  WORNUM stated  that by  examining the  risks of  the federal                                                               
funding  declining  and the  Federal  Highway  Trust Fund  (HTF),                                                               
which  is  the  funding  distributed to  all  states  by  formula                                                               
levels.   He  stated that  the authorized  program level  through                                                               
2015 is  flat as federal gas  tax is forecasted to  increase, but                                                               
fuel  efficiencies for  vehicles  is improving,  so despite  that                                                               
overall vehicle  mileage is up,  the fund does not  generate more                                                               
money.   In fact, last  year the HTF  declined to the  point that                                                               
the Congress  funded $8  billion dollars as  a one-year  stop gap                                                               
funding.   He offered that  longer term fixes being  discussed as                                                               
part of  reauthorization all include  a lower level  of spending.                                                               
He opined the federal stimulus  bill will help offset the problem                                                               
for approximately one year.                                                                                                     
                                                                                                                                
1:23:45 PM                                                                                                                    
                                                                                                                                
MR. WORNUM stated that given  the deficit and negative balance in                                                               
the  HFT, he  predicted that  the reauthorization  will not  have                                                               
increases  that  the  Transportation  Equity  Act  for  the  21st                                                               
Century  - 1998  (TEA-21) and  SAFETEA-LU.   He  said, "At  least                                                               
that's  what people  that  I  work with  in  Washington D.C.  are                                                               
telling  us."    He  identified  transportation  reauthorizations                                                               
consisting of  TEA-21 and  the current  reauthorization, SAFETEA-                                                               
LU, and projected  that the next reauthorization is  slated to go                                                               
into  effect next  year.   He stated  that of  the donor  states,                                                               
those states that  contribute more to the HTF,  that those states                                                               
received  90 percent  in TEA21  and 92.5  percent in  SAFETEA LU,                                                               
with projections of  95 percent in the next  reauthorization.  He                                                               
related that  Alaska is the  largest recipient, that  it receives                                                               
more  money  than  it  contributes  than any  other  state.    He                                                               
concluded that the effect of  the increasing donor share to other                                                               
states  means  that Alaska  will  stand  to  receive a  lot  less                                                               
funding.                                                                                                                        
                                                                                                                                
1:25:02 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM,  in response  to  Chair  Wilson, answered  that  the                                                               
number of  square miles is  not considered, although  route miles                                                               
are considered.   He surmised  that the federal  formulas undergo                                                               
enormous scrutiny.                                                                                                              
                                                                                                                                
CHAIR WILSON  inquired as to  whether any consideration  is given                                                               
to  the argument  that  Alaska  is a  young  state  and has  only                                                               
received federal  funding for  50 years,  while some  states have                                                               
received funding for over 150 years.                                                                                            
                                                                                                                                
                                                                                                                                
MR. WORNUM agreed that argument has  entered into the debate.  He                                                               
offered  his belief  that many  good  arguments can  be made  for                                                               
Alaska's current share of federal  spending.  He pointed out that                                                               
69 percent of land in Alaska  is owned by the federal government;                                                               
and that Alaska  has far flung communities  with expensive marine                                                               
and  aviation connections  that other  states  do not  have.   He                                                               
indicated  the  Cambridge Study  lists  many  of the  conditions.                                                               
However,  he   stressed  that  the  problem   with  the  proposed                                                               
reauthorization  is  a   change  in  value.     He  related  that                                                               
transportation needs  may be considered  a utility rather  than a                                                               
basic  good.    Thus,  the   basic  notion  is  that  instead  of                                                               
transportation  needs  being  considered  as a  benefit  for  the                                                               
entire society, it may be considered  more as a utility, in which                                                               
users  pay  for a  connection  charge  to  gain access,  plus  an                                                               
ongoing rate  for the supply of  the good.  He  offered that many                                                               
roadways nationwide are completely  capacity constrained and have                                                               
no way to build more capacity,  and more and more pricing will be                                                               
added.   While it is  not a  revenue source that  is particularly                                                               
effective in Alaska, pricing is an  emphasis in the Lower-48.  He                                                               
opined  that  if  the  next  reauthorization  considers  pricing,                                                               
Alaska  will be  at  a competitive  disadvantage.   Additionally,                                                               
earmarks are  likely to diminish,  he stated.  He  projected that                                                               
states will be asked to be more self-reliant.                                                                                   
                                                                                                                                
1:28:41 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM  pointed  out  the  Lower-48  and  Washington  D.C.'s                                                               
perspective Alaska  has an  the enormous  amount money  parked in                                                               
the Alaska's Permanent  Fund; Alaska has the lowest  gas tax rate                                                               
in the nation;  Alaska has no state income or  sales taxes and is                                                               
the only state  that does not have  one or the other.   He opined                                                               
these  conditions put  Alaska at  a  significant disadvantage  to                                                               
compete for its share of federal funds.                                                                                         
                                                                                                                                
1:29:25 PM                                                                                                                    
                                                                                                                                
MR. WORNUM  stated that the  options the CSI  considered includes                                                               
user fees, which range from instituting  a toll to an increase in                                                               
the gas tax, or anything that  assesses a price to a roadway user                                                               
that sends  the signal that  it costs  the state more  to provide                                                               
the service.                                                                                                                    
                                                                                                                                
1:30:10 PM                                                                                                                    
                                                                                                                                
MR. WORNUM,  in response to  Chair Wilson, agreed that  the state                                                               
cannot  impose a  toll on  an  interstate highway.   However,  he                                                               
mentioned that may  change as many bills have  been introduced to                                                               
allow tolls.  He related that  many states have "hot lanes" which                                                               
are carpool  lanes with a toll  for single occupants who  wish to                                                               
drive in the lane.  He opined that  the idea is to present a more                                                               
diverse  portfolio, one  that is  not  so dependent  on a  single                                                               
source  of  revenue,  that  is  likely  to  be  affected  by  the                                                               
volatility of  the business cycle,  one that has some  pricing to                                                               
change  behavior,  as well  as  other  criteria, such  as  yield,                                                               
reliability,  and equity.    He related  that  the ATFS  includes                                                               
sources and  tables in the  report.   He mentioned that  the ATFS                                                               
examines the economic efficiency.                                                                                               
                                                                                                                                
1:31:50 PM                                                                                                                    
                                                                                                                                
MR. WORNUM  pointed out that  the proposals are intended  to show                                                               
possibilities and  yields in  terms of the  amount of  money that                                                               
would be  generated for  transportation needs.   He  offered some                                                               
examples.                                                                                                                       
                                                                                                                                
1:33:38 PM                                                                                                                    
                                                                                                                                
MR. WORNUM  related that option  one would generate  roughly $151                                                               
million annually or about 38 percent  of the unfunded gap of $535                                                               
million  identified  in  2030  funding.    Option  one  has  five                                                               
components.   First, an increase in  the fuel taxes from  8 cents                                                               
per  gallon (cpg)  to  18  cpg, which  is  the national  average.                                                               
Second, an  increase in vehicle  registration fees by  50 percent                                                               
would generate  slightly les than  $23 million annually.   Third,                                                               
imposing a vehicle sales tax of  .5 percent would yield about $10                                                               
million annually.   Fourth, encourage jurisdictions  statewide to                                                               
impose  a .5  percent  sales  tax, which  would  yield about  $30                                                               
million annually,  and capitalize the Alaska  Transportation fund                                                               
with  $1 billion,  which should  earn  approximately $50  million                                                               
annually.                                                                                                                       
                                                                                                                                
MR. WORNUM reviewed  option two, which would  generate about $291                                                               
million annually or  about 55 percent of the  $535 million annual                                                               
gap.   That scenario  would raise  the fuel taxes  to 28  cpg and                                                               
index  the  rate  to  inflation,  generating  about  $76  million                                                               
annually.   Registration  fees  would double  from  $100 to  $200                                                               
biannual fee,  which would generate  about $76  million annually.                                                               
The  vehicle sales  tax would  be  raised to  1.5 percent,  which                                                               
would  yield  over  $31  million annually.    This  option  would                                                               
encourage local jurisdictions to impose  a 1.5 percent sales tax,                                                               
which would generate about $50  million annually.  Finally, again                                                               
capitalize the Alaska Transportation  fund with $1 billion, which                                                               
should earn approximately $50 million annually.                                                                                 
                                                                                                                                
1:35:25 PM                                                                                                                    
                                                                                                                                
MR. WORNUM reviewed  the third option, which  would also generate                                                               
$291 million  annually, but it  would reduce the two  sales taxes                                                               
and  instead  reinstitute  the Local  Service  Roads  and  Trails                                                               
(LSR&T)  fund.   He  detailed the  scenario,  explaining that  it                                                               
would also increase  fuel taxes to 28 cpg, would  also double the                                                               
vehicle registration  fees.  This  option would impose  a vehicle                                                               
sales tax  of 1.25 percent  and a  1.25 percent local  sales tax,                                                               
which  would   earn  $26  million   and  $74   million  annually,                                                               
respectively.    This option  would  also  capitalize the  Alaska                                                               
Transportation   Fund  with   $1  billion,   which  should   earn                                                               
approximately $50  million annually.  Finally,  this option would                                                               
reinstitute  the LSR&T  program  at about  $20 million  annually.                                                               
MR. WORNUM offered  that other sources could  also be considered.                                                               
He  related  that  there  is   an  enormous  amount  of  ease  in                                                               
collecting gas tax as opposed to collecting tolls.                                                                              
                                                                                                                                
1:36:56 PM                                                                                                                    
                                                                                                                                
MR. WORNUM reviewed the gas tax  since this tax has the potential                                                               
in Alaska.   He surmised that  it is very hard  to understand the                                                               
retail  cost for  gasoline.   He offered  that CSI  has performed                                                               
analysis in  other states,  have examined trends,  and it  is far                                                               
more complicated  than it appears.   He  said that somehow  a net                                                               
increase or  decrease in  gas tax  results in  a net  increase or                                                               
decrease at the  pump.  He offered that CSI  reviewed the data in                                                               
Alaska, and indexed  it to August 2007, recalling  that crude oil                                                               
prices peaked  in June or  July then  fell rapidly.   However, in                                                               
examining the national  price of gas during that  same period, he                                                               
said that  it follows the  trend pretty  closely.  He  noted that                                                               
gas  prices  were   already  declining  when  the   gas  tax  was                                                               
suspended.   During  that period,  he offered  that the  national                                                               
average  in fuel  prices  declined 21  percent,  but Alaska  only                                                               
declined  12 percent.   He  explained that  this trend  occurs in                                                               
many  states such  as Washington,  New Mexico  and Massachusetts.                                                               
It is  difficult to see how  changes in the gas  taxes affect the                                                               
retail cost of  gas, he opined.  He explained  that in economics,                                                               
that is  considered a  second derivative, such  that the  tax may                                                               
add to  the overall  cost of fuel,  but it is  not clear  that it                                                               
changes the  price at the pump.   He further explained  that this                                                               
is due  to the complicated  distribution system,  the oligopolies                                                               
that control  distribution, refinement,  and shipping,  with each                                                               
one affecting the price of gas.                                                                                                 
                                                                                                                                
1:39:35 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM, in  response  to  Representative Johnson,  explained                                                               
that  the  CSI considered  forms  of  innovative financing.    He                                                               
responded that  bonding requires  a revenue  source.   He related                                                               
that some  innovative measures put  forward as part of  a program                                                               
in SAFETEA that uses debt  instruments that allow local and state                                                               
agencies to  subordinate their public  debt to private debt.   He                                                               
referred  to  this  type of  debt  instrument  as  public/private                                                               
partnerships which  can be very  effective, he opined.   However,                                                               
the  public/private partnerships  do  not pay  for projects,  but                                                               
advance the timing of the project  so that it can be built sooner                                                               
rather than later.   He said, "You are still  stuck with the bill                                                               
and it still requires some source of money."                                                                                    
                                                                                                                                
1:40:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOOGAN  related his  understanding that  even with                                                               
the current federal funding scheme  the state is not receiving or                                                               
spending enough  money on roads  and bridges; and  the likelihood                                                               
is that  federal appropriations will  shrink.  And that  "even if                                                               
we tax  ferociously at all  levels, we're  still going to  end up                                                               
with  a gap  between  what we've  got to  spend  and what's  been                                                               
identified  as what  we  should  spend on  roads  and bridges  in                                                               
Alaska."                                                                                                                        
                                                                                                                                
MR. WORNUM agreed that was a fair summary of the CSI findings.                                                                  
                                                                                                                                
1:41:59 PM                                                                                                                    
                                                                                                                                
MR. WORNUM, in response to  Representative Johnson, that the list                                                               
of  required  projects came  from  the  "Let's Get  Moving  2030:                                                               
Alaska Statewide Long-Range  Transportation Policy Plan (February                                                               
2008),  commonly   referred  to  as   the  "2030  Report."     He                                                               
characterized  the plan  as a  comprehensive plan  of maintenance                                                               
and capital  investment.  In  further response  to Representative                                                               
Johnson, Mr. Wornum explained that  the "2030 Report" is prepared                                                               
by a contractor for the DOT&PF.                                                                                                 
                                                                                                                                
1:42:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ asked  which municipalities would contribute                                                               
30 percent of  the funding and how the CSI  would deal with areas                                                               
of  the state  that are  not  incorporated, with  respect to  the                                                               
70/30 plan.                                                                                                                     
                                                                                                                                
MR.   WORNUM  explained   that  this   is  intended   mostly  for                                                               
jurisdictions  that  have the  tax  base  and can  contribute  30                                                               
percent, but that  some unincorporated regions would  not be able                                                               
to  participate.   He  said,  "so,  not  a silver  bullet  across                                                               
everyone."                                                                                                                      
                                                                                                                                
1:43:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DOOGAN offered  that he  was unsure  of how  much                                                               
growth is built into the document.  He inquired as to whether the                                                               
plan includes building a road to Nome.                                                                                          
                                                                                                                                
1:44:04 PM                                                                                                                    
                                                                                                                                
JEFF   OTTESEN,  Director,   Division  of   Program  Development,                                                               
Department  of  Transportation   &  Public  Facilities  (DOT&PF),                                                               
answered that  some new mega  projects on the "2030  report" such                                                               
as the Juneau access  road.  He stated that the  road to Nome had                                                               
not  yet  been  identified.    The vast  majority  of  the  roads                                                               
contained in the "2030 report"  supplement roads that are grossly                                                               
under serving the population such  as the roads in the Matanuska-                                                               
Susitna area.                                                                                                                   
                                                                                                                                
REPRESENTATIVE DOOGAN  offered his  belief that  it seems  to him                                                               
that if Alaska  cannot afford the road systems  it currently has,                                                               
that perhaps  it needs fewer  roads.   He inquired as  to whether                                                               
any  other  alternative  might  allow   the  state  to  afford  a                                                               
reasonable road system.                                                                                                         
                                                                                                                                
1:45:39 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM acknowledged  other  states currently  face the  same                                                               
problem.   He  offered his  belief that  there are  not any  easy                                                               
solutions.    He  said  that  rural  states  face  challenges  to                                                               
maintain  a network  that was  built during  an economic  upturn.                                                               
Some  areas face  challenges with  congested urban  roadways, and                                                               
adding roads is  not an option.   Additionally, rural communities                                                               
have  long  distances  to  travel   and  believe  their  economic                                                               
betterment depends  on roads.   He mentioned  a huge area  in the                                                               
middle of the country, and Appalachian states fit that category.                                                                
                                                                                                                                
1:46:49 PM                                                                                                                    
                                                                                                                                
MR.   WORNUM   related   evidence  supports   that   under   some                                                               
circumstances,  maintaining  a road  to  a  rural community  will                                                               
allow the community  to sustain or grow.   However, some evidence                                                               
supports the idea  that the communities will shrink.   He offered                                                               
the  question that  some states  ask themselves  is whether  they                                                               
need to  spend money  given that  trend.   He offered  that these                                                               
states  are establishing  performance measures  and criteria,  to                                                               
determine  when to  stop investing  in  a roadway  system and  to                                                               
consider  downsizing.    He mentioned  some  solutions  in  urban                                                               
settings  include  intelligent  transportation  systems  such  as                                                               
light  rail,  pricing,  carpooling  that will  reduce  or  better                                                               
manage  demand.   He  emphasized  that  especially in  the  rural                                                               
context the  cost encountered for  per mile or per  person served                                                               
is enormous.                                                                                                                    
                                                                                                                                
1:48:17 PM                                                                                                                    
                                                                                                                                
CHAIR WILSON recalled  that she heard that  a municipality cannot                                                               
sustain itself  with a  sales tax  of 8 percent  or higher.   She                                                               
related her  community already has  a 7  percent sales tax.   She                                                               
asked for clarification  on whether the proposed  taxes took into                                                               
consideration current sales taxes in Alaskan communities.                                                                       
                                                                                                                                
MR. WORNUM  offered to review  the data.   He stated that  he has                                                               
not heard  of a  magic limit  for sales taxes.   He  offered that                                                               
some states collect more than 8  percent sales taxes.  He offered                                                               
his belief that the effects  become more acute when one community                                                               
imposes a sales tax and another  does not.  He opined that Europe                                                               
currently has a 33 percent value-added tax.                                                                                     
                                                                                                                                
1:50:26 PM                                                                                                                    
                                                                                                                                
MR. WORNUM, in further response  to Chair Wilson, reiterated that                                                               
he was  not familiar with  an upper limit  on sales taxes  that a                                                               
community can absorb.                                                                                                           
                                                                                                                                
1:50:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ suggested  that a  tax might  need to  be a                                                               
state   sales   tax,  since   the   state   cannot  force   local                                                               
jurisdictions to tax themselves.                                                                                                
                                                                                                                                
MR. WORNUM  responded that he  was not suggesting that  the state                                                               
force  communities to  impose sales  taxes.   However, he  stated                                                               
that a  community might be  inclined to vote  for a sales  tax if                                                               
the  state offered  an incentive  to  leverage state  money.   He                                                               
recalled  this practice  has been  used in  other states  and the                                                               
projects  funded are  important to  the communities.   He  opined                                                               
that a state tax is not as compelling to some voters.                                                                           
                                                                                                                                
1:51:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHANSEN  inquired as  to whether  Washington D.C.                                                               
recognized transportation funding as a nationwide challenge.                                                                    
                                                                                                                                
MR.  WORNUM  agreed  that the  Washington  D.C.  understands  the                                                               
magnitude  of the  issue.   He  related that  Washington D.C.  is                                                               
examining  interstate costs  and opined  that the  Congress would                                                               
like  to delegate  transportation costs  to the  state and  local                                                               
level.  He  speculated that the direction seems to  be for states                                                               
to do  more to solve issues  with the taxing and  revenue raising                                                               
capabilities they have.                                                                                                         
                                                                                                                                
1:54:25 PM                                                                                                                    
                                                                                                                                
MR.  WORNUM, in  response to  Representative Johansen,  explained                                                               
that the  18 cent  per gallon gas  tax has paid  for most  of the                                                               
interstate road  systems.  The  HTF is  the source for  the funds                                                               
for  the  Federal-Aid  Highway  Act of  1956.    The  Federal-Aid                                                               
Highway  Program  (FAHP)  is  distributed  to  the  states.    He                                                               
indicated that  a proposal to raise  the gas tax by  10 cents per                                                               
gallon   to  recapitalize   the  HTF.     He   agreed  that   the                                                               
infrastructure in many  states is mature, and  offered that there                                                               
are compelling  reasons for Alaska  to receive a larger  share of                                                               
federal funding.   He said  he was  not certain how  the argument                                                               
will hold up given that  Alaska has opportunities to generate its                                                               
own revenue.                                                                                                                    
                                                                                                                                
1:57:03 PM                                                                                                                    
                                                                                                                                
MR. WORNUM, in  response to Chair Wilson,  stated that Washington                                                               
D.C. might  understand that legislators cannot  use the permanent                                                               
fund.  However,  he noted that Washington D.C.,  will notice that                                                               
Alaska is not taxing itself as other states.                                                                                    
                                                                                                                                
1:58:19 PM                                                                                                                    
                                                                                                                                
MR. FREER, in  response to Chair Wilson, answered that  he is not                                                               
certain if  the AML Executive  Director, Kathy Wasserman  has had                                                               
discussions  with other  committee chairs,  but offered  that the                                                               
AML would be willing to bring the report to any committee.                                                                      
                                                                                                                                
1:58:51 PM                                                                                                                    
                                                                                                                                
MR.  FREER, in  response  to  Representative Johansen,  explained                                                               
that the  Alaska Transportation Finance  Study has been  paid for                                                               
by  diversified funding  from the  DOT&PF, the  Matanuska-Susitna                                                               
Borough,  the  Municipality  of  Anchorage,  the  Association  of                                                               
General Contractors  (AGC).  He  related that  additional funding                                                               
is  being  sought by  other  sources.    In further  response  to                                                               
Representative Johansen,  Mr. Freer  answered that the  report is                                                               
an  AML report.   He  stated that  the report  lists a  number of                                                               
options rather  than recommendations.   He  offered that  the AML                                                               
does not  know what the right  mix of funding will  be to achieve                                                               
the  goals of  expanded  state  funding.   He  mentioned the  AML                                                               
thought the proper forum for an  adjudication of that would be by                                                               
the legislature.                                                                                                                
                                                                                                                                
1:59:44 PM                                                                                                                    
                                                                                                                                
MS. MICHELS  interjected that  she received  the CSI  report last                                                               
week.   She  stated that  the recommendations  have not  yet been                                                               
vetted by the AML,  but that she plans to do so.   She offered to                                                               
provide the committee with the results.                                                                                         
                                                                                                                                
2:00:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHANSEN  thanked Ms. Michels for  hosting members                                                               
of the legislature in Nome.                                                                                                     
                                                                                                                                
2:00:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  inquired as  to how much  bonding authority                                                               
would be  necessary for  a fuel tax  that generated  $760 million                                                               
per year.                                                                                                                       
                                                                                                                                
MR. WORNUM answered that a rough rule would be a factor of ten.                                                                 
                                                                                                                                
2:02:20 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Transportation Standing  Committee meeting was adjourned  at 2:02                                                               
p.m.                                                                                                                            
                                                                                                                                

Document Name Date/Time Subjects
AK trans Fin Study (2).pdf HTRA 2/12/2009 1:00:00 PM