Legislature(2007 - 2008)SENATE FINANCE 532
02/08/2007 01:00 PM House TRANSPORTATION
| Audio | Topic |
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| Start | |
| Department of Transportation Overview: Alaska Marine Highway System | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE AND SENATE TRANSPORTATION STANDING COMMITTEES
February 8, 2007
1:03 p.m.
MEMBERS PRESENT
HOUSE TRANSPORTATION
Representative Kyle Johansen, Chair
Representative Mark Neuman, Vice Chair
Representative Anna Fairclough
Representative Craig Johnson
Representative Vic Kohring
Representative Mike Doogan
Representative Woodie Salmon
SENATE TRANSPORTATION
Senator Albert Kookesh, Chair
Senator John Cowdery, Vice Chair
Senator Donny Olson
Senator Bill Wielechowski
Senator Gary Wilken
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Kim Elton
Senator Joe Thomas
Representative Andrea Doll
COMMITTEE CALENDAR
DEPARTMENT OF TRANSPORTATION OVERVIEW: ALASKA MARINE HIGHWAY
SYSTEM
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
LEO VON SCHEBEN, Commissioner
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Provided comments during the overview of
the Alaska Marine Highway System.
JOHN TORGERSON, Deputy Commissioner
of Aviation
Office of the Commissioner;
Acting Deputy Commissioner/Director of Marine Operations
Alaska Marine Highway System (AMHS)
Department of Transportation & Public Facilities (DOT&PF)
Anchorage, Alaska
POSITION STATEMENT: Assisted in presenting the overview of the
Alaska Marine Highway System and answered questions.
JOHN FALVEY, General Manager
Ketchikan Office
Alaska Marine Highway System (AMHS)
Department of Transportation & Public Facilities (DOT&PF)
Ketchikan, Alaska
POSITION STATEMENT: Assisted in presenting the overview of the
Alaska Marine Highway System and answered questions.
RICHARD LEARY, Business Enterprise & Development Manager
Alaska Marine Highway System (AMHS)
Department of Transportation & Public Facilities (DOT&PF)
Ketchikan, Alaska
POSITION STATEMENT: Assisted in presenting the overview of the
Alaska Marine Highway System and answered questions.
NANCY SLAGLE, Director
Division of Administrative Services
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the overview of
the Alaska Marine Highway System.
ACTION NARRATIVE
CHAIR ALBERT KOOKESH called the joint meeting of the House and
Senate Transportation Standing Committees to order at 1:03:52
PM. Present at the call to order from the House Transportation
Standing Committee were Representatives Johanson, Salmon,
Doogan, Neuman, and Fairclough; Representatives Johnson and
Kohring arrived as the meeting was in progress. Present from
the Senate Transportation Standing Committee were Senators
Kookesh, Cowdery, Wielechowski, and Wilken; Senator Olson
arrived as the meeting was in progress. Representative Doll and
Senators Elton and Thomas were also in attendance.
^DEPARTMENT OF TRANSPORTATION OVERVIEW: ALASKA MARINE HIGHWAY
SYSTEM
1:04:45 PM
CHAIR KOOKESH announced that the only order of business would be
an overview of the Alaska Marine Highway System.
1:05:18 PM
LEO VON SCHEBEN, Commissioner, Department of Transportation &
Public Facilities (DOT&PF), introduced himself and reviewed his
experience in the private sector. He said he is bringing his
private sector business philosophy to his job as the new DOT&PF
commissioner, and that his philosophy is based on client
satisfaction, employee satisfaction, [providing] a quality
product, having fun, and managing the money.
1:11:03 PM
JOHN TORGERSON, Deputy Commissioner of Aviation, Office of the
Commissioner; Acting Deputy Commissioner/Director of Marine
Operations, Alaska Marine Highway System (AMHS), Department of
Transportation & Public Facilities (DOT&PF), began the overview
by presenting the AMHS mission statement on slide 2 of the
PowerPoint presentation.
1:11:45 PM
JOHN FALVEY, General Manager, Ketchikan Office, Alaska Marine
Highway System (AMHS), Department of Transportation & Public
Facilities (DOT&PF), profiled the AMHS fleet of 11 vessels shown
on slide 3. He said the MV Matanuska is running out of Prince
Rupert, British Columbia, and turning around in Juneau in order
to give Sitka more service. The MV Malaspina is at the Todd
Pacific Shipyard ("Todd") in Seattle, Washington, undergoing a
major federal capital overhaul and is due out in the middle of
April. The MV Taku is also at Todd undergoing a federal capital
overhaul project and is due out in mid-July. He noted that
federal projects like these go out for bid and Todd won the
bids. This is different than the state-funded six-week capital
projects, he said. The MV Tustumena is in Seward Shipyard
undergoing her routine six-week state capital overhaul and will
be out in a few weeks.
MR. FALVEY said the MV Columbia recently underwent generator and
steering gear repair at the Alaska Ship and Drydock, Inc.
("ASD") in Ketchikan, but is now back running the system between
Bellingham, Washington, and ports on the Lynn Canal. The MV
LeConte is operating as a day boat out of Juneau. He noted that
her schedule and route were modified due to U.S. Coast Guard
rules and regulations regarding work rest and a 12-hour day.
The MV Aurora is running between Cordova, Valdez, and Whittier
in Prince William Sound.
MR. FALVEY said the MV Kennicott is running "the circuit" out of
Prince Rupert following an extensive stay at ASD for repair of
hydraulic life-saving gear and electrolysis problems. He noted
that the MV Kennicott is also currently picking up the run
between Homer and Kodiak while the MV Tustumena is in dry-dock,
just like in the summer when the MV Tustumena is running the
Aleutian Chain. The MV Lituya makes two runs a day, five days a
week, from Metlakatla to Ketchikan and is doing so well that
passengers must now make reservations in order to get on the
boat. The MV Fairweather, a [high-speed] ferry, runs four days
a week during the winter and runs seven days a week during the
summer. The MV Chenega, another [high-speed] ferry, is
currently in extended lay-up at ASD undergoing engine warranty
work for cylinder corrosion. He said this is the same problem
had by the MV Fairweather and is due to the manufacturer
incorrectly recommending a type of coolant that caused the
corrosion.
1:17:37 PM
MR. FALVEY, in response to a question, explained that the AMHS
receives about $20 million annually from the U.S. Department of
Transportation (DOT), Federal Highway Administration (FHWA) to
conduct large maintenance projects and that FHWA requires these
jobs to go out for bid. He said that ASD did not bid on the MV
Malaspina and MV Taku jobs. He then continued explaining the
ongoing problems with the reduction gears of both high-speed
ferries. He said some preliminary modifications have been done
to the MV Fairweather and that an outside company has been hired
to conduct an engineering analysis on the entire power trains of
both vessels.
1:18:55 PM
MR. FALVEY, in response to questions, related that the high-
speed ferries have problems with rough seas and debris
ingestion. He noted that the AMHS has established an internal
policy that requires the [high-speed] ferries to "stay at the
dock" during sustained 40 knot winds. In response to another
question, he noted that the draft of the high-speed ferries is
nine feet as compared to approximately twenty feet for standard
ferry vessels.
MR. FALVEY, in response to further questions, stated that the
manufacturer has paid over $1 million to rebore the MV
Fairweather and is also paying to rebore the MV Chenega. He
said the problem with reboring is that legally, there can only
be three passes and there have already been two; therefore, the
service life of the vessels has been reduced. He said AMHS is
working closely with the attorney general's office, the
shipyard, and the manufacturer to address the issue of reduced
engine life. Mr. Falvey said he would provide the committees
with specific information about how the corrosion occurred.
1:22:43 PM
CHAIR JOHANSEN noted that four of the AMHS vessels are older
than the youngest senator at the table. He asked what the
challenges are with the age of the fleet.
MR. FALVEY responded that it is one problem after another and
that additional problems are always discovered each time a
vessel goes in for repair. An AMHS study of several years ago
determined that the service life of a hull is 60 years, but
mechanically it is very challenging to keep the "guts" of the
ship running. He said there is about $16 million in deferred
maintenance that needs to be done and that AMHS needs
recapitalization and new ships. He said that he believes AMHS
could operate much more efficiently with new, more efficient
ships. He said that newer ships are cheaper to maintain
technically and that they are more efficient to run because they
are more automated. It will continue costing more and more to
keep the older ships running, he said. In response to an
additional question, Mr. Falvey stated that the total engine
life for a fast ferry would be about 20,000-30,000 hours.
1:25:50 PM
MR. FALVEY reviewed the 32 ports of call shown on slide 4 of the
PowerPoint presentation. He said 17 of those ports are state
facilities and that the system covers 3500 miles. Slides 5 and
6 depicted maps of the Southeast and Southwest Alaska vessel
routes. He noted that the Southwest system is now receiving
much more service than it did in the past, but that work still
needs to be done on the Southeast system.
1:26:57 PM
RICHARD LEARY, Business Enterprise & Development Manager, Alaska
Marine Highway System (AMHS), Department of Transportation &
Public Facilities (DOT&PF), pointed out that the number of
departures throughout the ferry system grew during the calendar
years of 2003-2006, as shown on slide 7. He then referred to
slide 8 and noted that passenger traffic increased by 10 percent
between the calendar years of 2005-2006. In response to a
question, he said that he would provide the committees with
information comparing vessel capacity to the actual number of
passengers per departure.
1:29:56 PM
MR. FALVEY, in response to a question, stated that AMHS tracks
whether passengers are tourists or Alaska residents. He said
that Alaskans are price sensitive and the previous downward
trend in ridership was reversed when AMHS implemented a 30
percent roundtrip discount during the winter months, along with
the vehicle's driver riding free. He noted that AMHS now has a
very aggressive marketing plan that is also increasing
ridership.
1:31:02 PM
MR. LEARY reported that vehicle traffic increased for the
calendar years of 2005-2006, as shown on slide 9, but that the
increase was not as great as for passenger traffic. He said
that AMHS considers the income from vehicle traffic to be "free
money" because the cost of sailing is the same whether the
ship's car deck is full or empty. Therefore, he continued, the
marketing emphasis is aimed at filling the car deck. He then
reviewed the amount of revenue collected by AMHS for the fiscal
years (FY) 2002-2006 and noted that revenues increased by 10
percent from 2005 to 2006, reaching a total collected revenue of
$51.2 million.
1:32:08 PM
MR. FALVEY discussed the passenger survey results depicted on
slide 11. He commended the service of AMHS employees and said
that the passengers' predominant ratings of satisfactory, good,
and excellent are a result of the good work by employees.
1:33:22 PM
MR. LEARY explained that the pie chart on slide 12 portrays the
FY 2006 revenue by passenger place of residence.
1:34:22 PM
MR. TORGERSON said that the marine highway system serves the
entire state, not just coastal Alaska, as indicated on slide 13.
He noted that the final destinations of AMHS travelers include
areas in interior and northern Alaska.
1:35:50 PM
CHAIR JOHANSEN commented that ferry system travelers are
important contributors to the entire state economy. He said
that many of the travelers are military personnel transferring
to Interior and other bases.
MR. FALVEY confirmed that the number of military families riding
the ferry system is quite large and that he would get that
figure to the committees.
1:38:15 PM
MR. TORGERSON, in response to a question, highlighted that 67
percent of ferry passengers are Alaskans and that they are
traveling to destinations throughout the state, not just
Southeast Alaska. He said this was true for 2006 as well as
previous years. He next explained that a goal of AMHS is to
establish a minimum core level of service that both the
legislature and the Southeast Conference will agree to support.
Even if this minimum core schedule is not as frequent as what
the communities would like, it will at least be a minimum amount
of service that the traveling public can depend upon on a
sustained basis, he said. More sailings could then be added to
the minimum schedule if the legislature elects to appropriate
additional funding.
MR. TORGERSON outlined the FY 08 budget depicted on slide 16.
He said the total budget authority is $152.4 million, of which
$98.1 million is the general fund (GF) request and $52.5 million
is the estimate for [fare] receipts. He compared these figures
to the total FY 07 budget of $133 million, of which $54 million
was [fare] receipts. Mr. Torgerson then directed attention to
the FY 08 budget of $235.3 million for the entire transportation
department and said this will be reduced by $21.3 million, the
department's share of the governor's request for reducing the
state's budget by $150 million.
1:44:20 PM
MR. FALVEY, in response to a question, explained that a ship
currently being built in Ketchikan is for the U.S. Navy and will
not be operated by AMHS. It is an experimental craft that will
also be used to provide passenger service between Anchorage and
the Matanuska-Susitna (Mat-Su) Valley.
MR. TORGERSON said it is his understanding that the cost of
operating the experimental craft will be borne by the U.S. Navy
and the Matanuska-Susitna (Mat-Su) Borough.
1:45:04 PM
SENATOR WILKEN referenced statistics from FHWA and said that
99.1 percent of the miles traveled in Alaska are by road and 0.9
percent of the miles traveled are by ferry. Using these numbers
he calculated that half of DOT&PF's general funds are spent on
0.9 percent of the total miles traveled. He expressed his
belief that there must be a better way of transportation than
the ferry system.
1:46:52 PM
MR. TORGERSON returned to the FY 08 budget request on slide 16
and again reviewed the budget components, including the $1.8
million in Capital Improvement Funds.
1:47:33 PM
MR. LEARY reviewed slide 17 depicting the projected percentage
of self-financing by each vessel during FY 08.
1:49:40 PM
MR. FALVEY reviewed the overall transportation plan and the
regional transportation plans outlined on slides 18-21. He
acknowledged that there is still work to be done on the
Southeast transportation plan, but that the Prince William Sound
and Southwest transportation plans have been implemented.
1:52:08 PM
MR. TORGERSON concluded the overview by reviewing slide 22 and
noting that the AMHS is in transition due to its aging fleet and
awaiting implementation of the aforementioned Southeast
transportation plan.
1:56:16 PM
SENATOR WILKEN stated his belief that all of the AMHS ports of
call also have other transportation alternatives, unlike the
many roadless Interior communities. He asked whether an
analysis has been done to determine the cost difference between
state and private transportation services.
MR. TORGERSON related that an in-depth study was done a few
years ago for the larger communities. The study compared the
transportation fees charged by the large airlines, air charter
services, and barge companies for moving goods and services. He
said that AMHS used that study to set its rates. He offered to
provide the study report to the committees. Mr. Torgerson, in
response to a question, further stated that while price is
important, other considerations also come into play, such as the
urgency of the travel needed, what is being hauled and whether
it can go in an airplane versus a boat, and whether it is a
vehicle.
1:59:05 PM
SENATOR WILKEN re-stated his opinion that people receiving
marine highway service should make use of other travel
alternatives instead of requesting an increase in state
subsidized ferry service. He requested AMHS to put together a
listing of the annual subsidy amounts that it has received over
the past 10 years.
MR. TORGERSON agreed to provide a 10-year summary. He then
emphasized that it is important to understand that port security
costs alone have increased by $8 million since [the terrorist
attacks of September 11, 2001,] and that fuel costs added
another $15 million. He pointed out that the cost of the Public
Employees' Retirement System (PERS) is included within the AMHS
operating budget instead of listing it as a separate cost
elsewhere. He expressed his hope that AMHS will receive enough
funding to provide the minimum core service or more.
2:04:31 PM
SENATOR WILKEN specified that in addition to the annual dollar
amount of the state subsidy, he would like the 10-year summary
to include the subsidy's percentage of the GF budget so that it
can be determined whether the state subsidy, as a percentage of
the GF request, is growing or diminishing. Senator Wilken
further noted that both the MV Chenega and the MV Aurora travel
in and out of Valdez on the same day. He referred to slide [17]
which shows that the MV Chenega is the least self-financed
vessel in the fleet. He requested that AMHS provide the
committees with the load capacities and the percent of capacity
utilization for the MV Chenega and the MV Aurora over the past
two years.
2:06:59 PM
SENATOR WILKEN questioned why the MV Chenega was home ported in
Cordova during the summer. He stated that he believes the
Prince William Sound transportation plan should change how the
MV Chenega is run. He asked that the committees be provided
with additional, detailed information about the new roads and
shuttle ferries that are being proposed under the Southeast
transportation plan. He expressed his belief that a day boat
type of system with only one mainliner traveling out of the Port
of Bellingham is the way to go in the future.
MR. TORGERSON, in response to a further question from Senator
Wilken, said that there is no federal money for [marine highway]
operations, but that there is some federal money for a couple of
shuttle ferries if the [Southeast transportation plan] roads are
built. He said that currently there is not enough federal money
for all of the planned "build out" and that the state would need
to ask the U.S. Congress for additional funding.
2:11:53 PM
MR. FALVEY related that cost increases were anticipated during
the time period of building the [Southeast transportation plan]
roads and shuttle ferries because AMHS would still need to
operate "mainliners" until the new system is in place.
2:13:15 PM
MR. TORGERSON, in response to a question, reported that labor
costs constitutes 62 percent of operations cost. He said that
the hours that a crew might work depends on the vessel; for
example, a vessel might operate 24 hours a day and that while a
crew member is on the vessel that entire time, he or she would
only work 8-12 hours.
MR. TORGERSON, in response to another question, stated that AMHS
has not conducted an analysis in regard to selling the vessels
on the profitable routes to private enterprise while the state
retains and subsidizes the less profitable routes. He further
responded that the state has not sent formal inquiries to the
private sector to determine whether there is interest in the
aforementioned scenario.
2:18:20 PM
REPRESENTATIVE NEUMAN asked what AMHS has done to cut costs and
what is done with personnel who work less than a full year.
MR. LEARY referred to the vessel expenses shown on slide 17. He
stated that labor costs constitute 62 percent of a vessel's
expenses. He explained that when a vessel is put into service,
labor contracts are written that control the wages and number of
personnel on the boat. He noted that a vessel's particular
route drives the amount of overtime that is paid and that
exchanging crews in order to avoid paying overtime also has
costs. He said fuel constitutes 22-23 percent of the service
costs and that keeping the engines in good order helps with fuel
efficiency. After labor and fuel costs, only 15-18 percent is
left for discretionary costs. Some of these discretionary funds
are used to buy food that is sold on board for a profit, and
this is accounted for under the expense and revenue columns. He
noted that once AMHS decides to provide the service, there is
very little control over operational costs, but there is
discretion in controlling administrative costs. He emphasized
that security and regulations have added major costs in the last
few years.
2:22:44 PM
MR. TORGERSON reported that much of the vessel staffing is
controlled by U.S. Coast Guard regulations and remains the same
whether or not the number of passengers is at capacity. He said
that current labor contracts expire in June 2007. He explained
that when a vessel goes into the shipyard, some may then work on
the projects that the ship is undergoing, some of the crew may
transfer to other vessels in the fleet, and some may take
vacation. He explained that a hiring freeze has been put into
place, but that the only way to save money is to dock the ships
and not operate.
MR. FALVEY added that AMHS is in the process of activating a new
crew dispatch system that will help cut costs considerably. He
noted that costs are also cut by running a vessel fewer days of
the week during the winter months. He emphasized that running
ships is very expensive because it is highly regulated by the
federal government and security is now "costing a fortune." He
said he did not know how many takers there might be if the state
tried to outsource, and remarked that outsourcing can be more
expensive. He reiterated his belief that the key is "new
tonnage" because newer vessels are automated, less labor
intensive, and less costly to repair.
2:29:35 PM
REPRESENTATIVE DOOGAN requested further clarification regarding
the study that was used for setting the fare rates.
MR. TORGERSON explained that the report compared costs and then
suggested rates that AMHS could charge. Comparisons were made
to airlines and to other ferry systems operating in Washington
and British Columbia. The study was used as a basis for setting
the rates that began in FY 05.
MR. TORGERSON, in response to a further question, confirmed that
the study did determine what would have been, at that time, the
true cost to the ferry system of moving a passenger from one
port to another. He said he will get the report to the
committees.
2:32:27 PM
REPRESENTATIVE FAIRCLOUGH asked a series of accounting-related
questions: are AMHS vessels being depreciated according to the
Governmental Accounting Standards Board (GASB); are depreciation
costs being moved into a real account that has real dollars for
replacing the fleet; are records available for comparing the
cost and maintenance expenses of the fast ferries to that of the
older vessels; will the apparent higher profitability of
carrying passengers versus vehicles be considered when replacing
vessels; and why not run fewer vessels all year around instead
of running more ships in the summer and dry-docking unneeded
vessels during the winter.
NANCY SLAGLE, Director, Division of Administrative Services,
Department of Transportation & Public Facilities (DOT&PF),
explained that for financial reporting purposes the department
is required to show the value of its vessels and depreciation.
She said there is a replacement fund in statute that is funded
through appropriations by the legislature from the GF, but that
it is not funded at this time. She said there is no connection
between the combined annual financial reporting and money
appropriated to the replacement fund. In response to a further
question, she confirmed that GASB [Statement 34] is a
requirement for the state as well as local communities, and that
the department is bound by that requirement in its financial
reporting.
2:37:26 PM
REPRESENTATIVE FAIRCLOUGH asked whether the trend in vessels
that transport fewer vehicles was a conscious decision.
MR. TORGERSON advised that all of the plans call for shuttle
ferries that are smaller, faster, more efficient, and require
less crew than mainliners. He noted that while shuttle service
requires vessels that are faster than conventional ships, they
do not necessarily need to be high-speed ferries.
MR. FALVEY further pointed out that AMHS has lowered the
capacity on all its ships because of security. Vessels carrying
more than 499 passengers are subject to much higher screening
levels and many more security patrols that are economically
unsustainable for the AMHS. He said that AMHS has a case-by-
case agreement with the U.S. Coast Guard for those times when a
vessel does need to carry 500 or more passengers.
2:40:45 PM
REPRESENTATIVE SALMON asked in which direction AMHS planned to
go in regard to management style and deciding whether to
increase the number of sailings and whether to purchase new
ships.
MR. TORGERSON said he did not yet have those answers because the
new [DOT&PF] commissioner only recently came on board. He
expressed his belief that it comes back to the new roads and
shuttle ferries as outlined in the Southeast transportation
plan. Until this plan is implemented, he said, the question is,
what level does the legislature want to fund the marine highway.
Mr. Torgerson added that he realizes there are routes that will
never break even, but that the marine highway is a major
transportation link for moving goods and services.
2:45:25 PM
SENATOR WIELECHOWSKI inquired as to whether any studies have
been done on the economic impacts of the marine highway system
on the overall economy of Alaska, and what ramifications would
result from reductions in the system.
MR. TORGERSON said that the McDowell Group Research and
Consulting Firm has conducted several studies. He said he could
not quote any specific facts or figures, but surmised that the
level of reduction would determine the level of impact. He
promised to get the studies to the committees.
2:46:44 PM
REPRESENTATIVE NEUMAN asked whether a cost analysis has been
done for providing ferry service on the Yukon River, and a
determination made for the number of people that it would serve.
MR. TORGERSON said he is not aware of any.
REPRESENTATIVE SALMON reported that there was a study done in
the 1960s, and that he is introducing a bill to undertake
another study.
2:48:10 PM
CHAIR JOHANSEN commented that there are many different factors
that go into the numbers seen in the AMHS budget. In relation
to increasing costs, he noted that many more communities are
served today than 20 years ago and that this is a benefit to the
state. He asked whether the new governor will be re-instituting
the Marine Transportation Advisory Board (MTAB).
MR. TORGERSON related his understanding that Governor Palin is
considering re-implementing MTAB. He said he thought that the
previous MTAB was good, but that he would have liked to have
seen more board members with business experience.
MR. FALVEY added that he thinks MTAB could help in deciding the
bigger picture such as what ports to serve.
2:51:53 PM
CHAIR JOHANSEN stated that MTAB was made up of stakeholders in
the marine highway system and that it is important to have the
stakeholders at the table.
2:54:14 PM
ADJOURNMENT
There being no further business before the committees, the joint
meeting of the House and Senate Transportation Standing
Committees was adjourned at 2:54 p.m.
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