Legislature(2007 - 2008)CAPITOL 17
01/24/2008 01:30 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| Presentation: State Transportation Improvement Plan (stip) 101 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
January 24, 2008
1:34 p.m.
MEMBERS PRESENT
Representative Kyle Johansen, Chair
Representative Mark Neuman, Vice Chair
Representative Anna Fairclough
Representative Wes Keller
Representative Mike Doogan
Representative Woodie Salmon
MEMBERS ABSENT
Representative Craig Johnson
COMMITTEE CALENDAR
PRESENTATION: STATE TRANSPORTATION IMPROVEMENT PLAN (STIP) 101
- CONTINUED FROM 1/22/08
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
JEFF OTTESEN, Director
Division of Program Development
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Explained the Statewide Transportation
Improvement Plan (STIP) and answered questions.
ACTION NARRATIVE
CHAIR KYLE JOHANSEN called the House Transportation Standing
Committee meeting to order at 1:34:40 PM. Representatives
Johansen, Neuman, Fairclough, Keller, Doogan, and Salmon were
present at the call to order.
^PRESENTATION: STATE TRANSPORTATION IMPROVEMENT PLAN (STIP) 101
1:34:51 PM
CHAIR JOHANSEN announced that the only order of business would
be the continuation of the STIP 101 presentation from the
1/22/08 House Transportation Standing Committee meeting.
CHAIR JOHANSEN began by asking Mr. Ottesen:
When we took an at-ease to take up the [Alaska] Marine
Highways we were talking about records of decision and...
the relevance of that trigger being met. I believe on
Tuesday you testified that indeed, the record of decision
[ROD] is the legal conclusion to a process.
JEFF OTTESEN, Director, Division of Program Development,
Department of Transportation & Public Facilities (DOT&PF),
replied that is correct.
1:35:51 PM
CHAIR JOHANSEN continued:
So my question is once we meet that legal conclusion to the
process, not to imply or say that there were any legal
consequences or laws broken, by gosh, by the governor but
I'm wondering if maybe it was legally challenging to
basically cancel a project. Does it not - what is the step
from there? Does it not go back through a process again?
MR. OTTESEN explained that the record of decision is a decision
by a federal agency on an environmental impact statement (EIS)
over which it has jurisdiction, in this case the Federal Highway
Administration (FHA). If action on any of the build
alternatives in the EIS is selected in the record of decision,
DOT&PF is legally obligated to proceed with that project or pay
back the expended federal funds. He elaborated:
It becomes a decision point. You step over it, you now are
going to either incur the cost of building the project or
the cost of paying back the funds today. I guess the third
alternative, which I've seen handled in a few cases, is you
change your mind and go back and redo the EIS and once
again come to a new conclusion. An example of that would
have been the coastal trail where we actually made a
decision and then came back and undid that decision.
1:37:24 PM
CHAIR JOHANSEN asked if the record of decision was reached on
the [Anchorage] coastal trail.
MR. OTTESEN said as DOT&PF got into the process, it decided [the
original plan] would be very costly. The department decided to
re-open the EIS and select the no-build alternative so the
project was successfully terminated without repayment.
1:37:50 PM
CHAIR JOHANSEN asked whether any funds were expended on the
coastal trail project.
MR. OTTESEN said the EIS and some of the preliminary engineering
work were paid for with federal dollars and a state match. The
preliminary engineering showed which right-of-way parcels would
have to be acquired.
CHAIR JOHANSEN asked if funds were expended to begin
construction after the ROD.
MR. OTTESEN said no construction occurred to his knowledge.
1:38:29 PM
CHAIR JOHANSEN asked, when an alternative is selected, whether
the procedure entails a review of the preliminary EIS, the EIS
and the issuance of a new ROD.
MR. OTTESEN said if a new alternative is introduced, the new
alternative must be studied with the same vigor and degree of
investigation as any other alternatives studied. If one of the
existing alternatives is chosen, that process is "a shorter step
backward."
1:39:07 PM
CHAIR JOHANSEN asked if the process goes back to the EIS or
whether it just requires a new ROD.
MR. OTTESEN replied that depends upon whether a new alternative
is being opened. A final EIS could be reissued for public
comment for an existing alternative. From that a ROD could be
issued. The process would revert to issuing a draft EIS for a
new alternative.
REPRESENTATIVE FAIRCLOUGH clarified that the extension on the
coastal trail was revisited, not the entire coastal trail
project.
1:39:55 PM
REPRESENTATIVE SALMON informed Mr. Ottesen that he requested
information on the airports in his district from the
commissioner and has not yet received a response.
MR. OTTESEN said the response should arrive shortly and that he
helped write part of it today.
REPRESENTATIVE SALMON said he would also like information on the
dust control project in Eagle.
MR. OTTESEN said he will add that information to DOT&PF's
response.
CHAIR JOHANSEN interjected to say that Representative Salmon's
question was included in the memo to the commissioner that
contained all of the committee's questions. He expected to
receive one letter responding to all questions, which he would
distribute to all members.
1:40:46 PM
REPRESENTATIVE KELLER asked how much federal money is returned
and how often that occurs.
MR. OTTESEN said that DOT&PF rarely returns funds because it
does a lot of negotiating to avoid that outcome. He explained:
There are actually a large number of what we call time
traps on the books. Some of them we'll say okay, we
promise to build that, put it in the STIP [Statewide
Transportation and Improvement Plan] and get it built.
We've been doing that over time. It may be past the 10
years, but as long as we can show them intent to accomplish
the project, they'll kind of waive the hard rule of
payback. But we have, in some cases, decided to pay back
funding when we just didn't see a way out of the problem.
I think what we're facing now is just a much larger number
of such paybacks if we aren't careful. And that's why we
shut down the projects. We shut down the project to
McCarthy for this very reason. Almost a $100 million
project - we could not really fairly see a way to fund that
so we took an EIS and turned it down. We actually stopped
it before it was complete.
1:41:54 PM
REPRESENTATIVE FAIRCLOUGH asked if it is fair to say that
Alaska's federal income stream was drastically altered several
years ago. She remarked that Anchorage had projects consisting
of over $40 million every year in the early part of this decade;
however at a particular point of time, about 50 percent of those
funds disappeared. She asked whether that was caused by a
change in state or federal allocations.
MR. OTTESEN said the decrease was due to a change in the amount
of flexible federal funds. DOT&PF received more money under
SAFETEA-LU than it had previously but the state had less
decision making authority over that money because of new
categories of set-aside funds and earmarks. Those two changes
added up to a significant reduction in flexible dollars.
1:43:11 PM
REPRESENTATIVE FAIRCLOUGH asked:
If there [are] criteria for us to return federal money, in
most cases would that mean that we have a project that we
don't have a way to pay for those funds? Is that one of
the possibilities for turning back money? If we got a
small earmark where a project could be paid for by 10
percent of an allocation coming federally, but we still
needed to come up with a large percentage outside of that,
would that be one reason that we turned back money?
MR. OTTESEN replied affirmatively. He said the commissioner
recently talked to the committee about a new earmark policy. He
thought the list of earmarks adds up to 10 percent of a total
cost of about $700 million to complete those projects. He
stressed that the number of projects is small.
1:44:20 PM
CHAIR JOHANSEN said he believes the commissioner also stated
that in cases in which DOT&PF receives funds that do not meet
the entire cost of a project, the department actively pursues
solutions with those communities before that money is returned.
MR. OTTESEN said that is correct. The department engaged with
some of those communities yesterday. Some of those projects
simply need a title change; about 15 projects lack the correct
title to be useful to the community. John Katz of the
Governor's Washington, D.C. office got those project titles
added to the technical corrections bill, but that bill has been
stalled for several months.
1:45:35 PM
CHAIR JOHANSEN asked who decides that a specific alternative
will be chosen and how that process works.
MR. OTTESEN said that decision is usually made by the agency
that is advocating the project. It is done with consideration
of public input and agreement amongst the federal partners. All
sorts of agencies weigh in on these projects; EPA, the Army
Corps of Engineers, etcetera.
1:46:44 PM
CHAIR JOHANSEN questioned whether DOT&PF ever gets crosswise
with local communities on the choice of an alternative project.
MR. OTTESEN said certainly and gave the Juneau Access project as
an example. Some communities to the north are not interested in
linking up while others are. He said more commonly a community
will express support for a project and then change gears at a
later time. That is a weakness of the system. DOT&PF has to
pursue projects over a long time period during which public
sentiment can change. He noted that is the case with the bridge
road project to Nondalton because that community's world appears
to be changed by the Pebble Mine.
1:48:20 PM
CHAIR JOHANSEN asked if DOT&PF's position would override a local
concern or whether DOT&PF would adjust its plan according to
local input.
MR. OTTESEN replied:
... It's a tough question. When we make a decision
communities like - they pat you on the back and it's all
smiles. When you make a decision that communities disagree
with, it can be very controversial and typically the most
controversial decisions are ones where we can't go forward
because funding is not available or we ... don't have the
means to accomplish it. I spent some time yesterday with
mayors from the Kenai Peninsula area - very concerned about
two projects in their neighborhood on the national highway
system. They're state responsibility. They've been on the
design boards for literally decades. In the case of Cooper
Landing it started in the early '70s - a 35-year project.
It's now a project that's gone on beyond the term of a
young engineer who starts at 22 out of college and retires
after 30 years and we still can't proceed with that project
and they're upset because of that. So I see it from all
sides.
1:49:44 PM
MR. OTTESEN returned to his presentation:
... I think this sort of amplifies what Representative
Fairclough was speaking to. The date here is not firm. I
could've picked 2003. I could have picked 2005 but clearly
the kind of downhill easy trail coasting, so to speak,
changed about this time period in a number of ways. We
were running funding surpluses in the Highway Trust Fund
and those surpluses were being shared with states and so
the states had surplus money above sort of what had already
been promised.
1:49:59 PM
MR. OTTESEN continued:
They were actually giving us bonus money. The money was
largely directed to core needs. The state had dominion
over those decisions. It was going to, you know, all the
needs across the state. We were doing 10 to 12 major
projects on the National Highway System last summer, almost
two projects per main highway. We had more flexibility in
the STIP rules than we have today and the amendments were
easier and most of the earmarks at that time were additive.
They were coming to us above the line, so to speak, above
the money we got as formula funds. And some of the most
significant earmarks of that era would be the Glenn-Parks
Interchange, a $50 million earmark that built a project
that I think anyone in the state would stand up and say
that was truly a very high level state need. It was fully
funded and it addressed a clear state need.
It started to change. A number of things changed about
that timeframe.
1:51:17 PM
We started seeing reduced funding. We went from positive
funding in the Highway Trust Fund to negative funding so we
weren't getting full funding, we were getting less than
full funding. They passed SAFETEA-LU and gave us a number
of new set asides for programs that we have to spend money
on but we can't spend them on core needs. I would define
core needs as basically building and maintaining roads and
ferries, just the dirt and asphalt and steel type projects.
CHAIR JOHANSEN asked if that includes ferries.
MR. OTTESEN said it does. He said SHAKWAK funds were available
up until 2004.
1:52:07 PM
MR. OTTESEN continued:
The limitations I'll talk about and have talked about have
ramped up. The regulations have come on line. We've had a
large number of deductive earmarks. It started out at the
time of SAFETEA-LU the deductive earmarks were about $600
million. After the change to the two bridges, it's a
little bit more than $300 million in deductive earmarks.
That total number is pretty significant when you understand
that we had only about $1.5 billion in flexible money
remaining after earmarks. So $600 million out of $1500
million is a pretty healthy fraction.
1:52:55 PM
And then we've had a new word that we had to learn how to
spell, is rescissions. ...Rescissions are essentially an
act of Congress to take back money that has already been
authorized, to simply have the states give it back to them
in a certain amount. We get it in the form of a notice and
you have no choice. You have to send money back to the
federal government.
1:53:22 PM
MR. OTTESEN continued:
At the top of page 7, I'm sure you've probably seen this
slide before in previous presentations, but each one of
those dots is a major federal law that has been passed or
reenacted and added to and amplified. It basically says
environmental issues started to grow in the '60s and they
haven't slowed down and every one of those dots represents
some new rule, process, activity, barrier to accomplishing
our job. It makes that job a little bit more difficult
each time a dot is added to that line. Of course, this
presentation now is almost five years old. There have been
several more dots added to the line.
1:53:56 PM
REPRESENTATIVE NEUMAN asked if the environmental concerns fall
into a specific category, such as concerns about water.
MR. OTTESEN said the concerns are all over the map. Depending
on the project, concerns may pertain to the Clean Water Act,
wetlands, the Clean Air Act, the Endangered Species Act and
historic preservation. For example, DOT&PF is currently making
preparations to do safety work in downtown Anchorage, such as
making changes to curb lines, changes in "channelization" for
drivers, changes to signage, etcetera. He has heard that some
of the buildings in downtown are historic so the safety changes
may not be in keeping with the historic character of that area.
He said that is an example of the tension DOT&PF faces in
projects.
1:55:27 PM
REPRESENTATIVE NEUMAN asked if it is it up to the community to
notify DOT&PF of its concerns about preserving the historical
character of the area.
MR. OTTESEN said the State Historic Preservation Office (SHPO)
is advocating for historical preservation of the area. The
preservation is being done with federal and state dollars. He
noted it is not uncommon for a state agency to hold up a
project.
REPRESENTATIVE NEUMAN pointed out that one state agency is
increasing the cost of another state agency's project.
MR. OTTESEN agreed and said the same thing happens at the
federal level.
1:56:17 PM
REPRESENTATIVE NEUMAN asked Mr. Ottesen for information about
the expansion project on the Parks Highway.
MR. OTTESEN said most of the Parks Highway has a very wide
original right-of-way, which is advantageous. He believes the
wetlands issue will be of concern on that project. He noted
wetlands issues had to be considered at the Parks Glenn
Interchange, which is one reason bridges were used to avoid
embankment fill. DOT&PF spent more money on the design concept
but was able to get the project done. He said he thought the
impediment to any Parks Highway improvements is dollars, not
permitting.
1:57:07 PM
REPRESENTATIVE DOOGAN asked what historic area Mr. Ottesen was
referring to and what the historic concerns are.
MR. OTTESEN said he would provide that information.
1:57:33 PM
CHAIR JOHANSEN inquired:
Before we get off the top of page 7...it seems to me that
folks talk about the increased cost of planning, design,
engineering and litigation per...dollar spent. Obviously
these must have some impact on how much we actually spend
on concrete and construction, all of these hoops we jump
through. I don't know what the change is and you may not
have the numbers, but how do these impact that and how is
spending on non-dirt moving basically per dollar changed in
the last few years...?
MR. OTTESEN replied those costs have clearly increased.
DOT&PF's environmental staff is doing more studies. He has seen
a significant number of challenges during DOT&PF's planning
sets, both in and outside of court. DOT&PF has been to federal
and state court five times in the past six years. One case was
taken to the Ninth Circuit Court; DOT&PF prevailed but the case
was costly monetarily and time wise. He furthered, "It just
seems to be our fate as a state. We have a lot of people
watching us, what we do, wanting to somehow redirect those
decisions, particularly with regard to anything in the form of a
new road. So that's always controversial."
1:59:16 PM
CHAIR JOHANSEN asked what DOT&PF has done to address some of the
planning, design and engineering cost increases.
MR. OTTESEN said he is not the best person to address that
topic. He suggested asking the regional directors for that
information. He indicated in his area, staff is working with
state troopers and local law enforcement to provide traffic
officers with laptop computers that will allow them to issue
citations and traffic accident reports electronically. That
change has upfront costs but should save money in the long run
and safety benefits should result as well. Currently, a traffic
accident report must be made on paper. It is filed with the
Division of Motor Vehicles and then moves to DOT&PF to identify
safety problems. Copies are also sent to the Department of
Public Safety and sometimes the Court System. Moving that data
by hand takes months and is expensive; this slows the
identification of safety problems. He told members he was in a
traffic accident in the state of Washington recently at 9:00
a.m. By the close of business that day, the Washington
Department of Transportation faxed him the accident report.
DOT&PF is proposing to implement the same system.
2:01:42 PM
CHAIR JOHANSEN asked if Mr. Ottesen's area is design and
engineering.
MR. OTTESEN said his focus is on the planning side. The
department has made the STIP electronic and is collecting data
electronically. It has been researching new data collectors
that will allow DOT&PF to do intersection counts electronically.
In the past, a technician would sit at an intersection for
several days and count cars.
2:02:42 PM
REPRESENTATIVE NEUMAN asked how much money it will take to
implement the electronic report filing system and whether DOT&PF
requested funds in its budget for that project.
MR. OTTESEN said DOT&PF has a copy of the Shareware software,
which was produced by the State of Iowa. The department has
implemented a trial program used by both DOT&PF commercial
vehicle inspectors and by 10 to 15 law enforcement officers
across the state. The trial program began January 3 and is
scheduled to last 90 days. He has been told the users are so
enthusiastic about the program that they don't want to wait 90
days for the program to go live.
MR. OTTESEN added that DOT&PF has identified highway safety
money for laptops for half of the law enforcement officers. He
plans to meet with Colonel Holloway of the Department of Public
Safety to determine who should maintain the software and where
it should be maintained. Those aspects of the project remain
unfunded, as well as training of and outreach to law enforcement
officials. About 17 states use this software; who is
responsible for the maintenance is a mixed bag.
2:05:30 PM
REPRESENTATIVE FAIRCLOUGH questioned what the department is
doing internally to speed up the planning process and to begin
and complete projects. She additionally asked what
recommendations DOT&PF is making to alleviate delays due to
federal regulations so that state and federal processes can run
simultaneously. She said in the last five years the cost of
steel and other materials has doubled so delays are very costly.
MR. OTTESEN responded DOT&PF is striving to go faster but is
"feeling the sand slip between its toes." The department has
over $200 million in projects that have gone through the process
and are ready to go to bid but the designs are growing stale due
to lack of funding. Not all projects face a funding problem and
are completed quickly, but in many cases the problem is funding.
The department may be making progress but sometimes STIP rules
come along and gum up the process.
2:08:57 PM
REPRESENTATIVE FAIRCLOUGH said, for the record, she is inclined
to support the governor's proposal to create a transportation
fund or an endowment. She will be looking at the criteria
DOT&PF will use to evaluate the best use of and access to
federal funds on very large projects that have many hoops to
jump through and on more community-based projects. She
commented:
I'm wondering if the Chair or the Vice-Chair should be
invited to [American Association of State Highway and
Transportation Officials] AASHTO or [Western Association of
State Highway and Transportation Officials] WASHTO to
listen to some of the challenges so that we have relevant
information for this committee in first hand information as
to the challenges that the nation is facing with the
current system that they're working under to realize that
it's not just specific to Alaska but Alaska has been so
dependent, as has been said by other presenters in the last
two weeks that maybe that recognition would allow he and
the Vice Chair to disseminate to the rest of us those
challenges that we're facing as a nation that we need to
sing with other states to our federal delegation across
borders on why projects are costing so much. We're not
using the federal dollars in the way that the feds would
like us to use [them]. They want us to put roads in the
ground, ferries into service, bridges and infrastructure
rebuilt but...it seems like a real life experience and
exchange so that we understand very well how Alaska fits
into this may be helpful.
2:11:09 PM
MR. OTTESEN opined that is an excellent idea and said the CEO
Roundtable is scheduled around February 26 or 28. The CEOs of
each state transportation agency meet with Congress and are
updated on the Highway Trust Fund's status. He added the AASHTO
annual meeting is typically held in the fall and lasts about
four days. He said at a recent AASHTO meeting he learned that
Alaska is just a microcosm of what all states are facing; all
states are reeling from the high cost of construction. He said
this kind of inflation is unprecedented.
2:12:18 PM
REPRESENTATIVE NEUMAN asked how DOT&PF's $200 million worth of
projects that are planned and waiting for funding are rated in
importance.
MR. OTTESEN explained that DOT&PF uses a scored process for the
projects done at the community level. He pointed out that
DOT&PF was recently nationally recognized for having one of the
best STIP scoring mechanisms in the country. The department
relies on its management systems for National Highway System and
Alaska Highway project systems; congestion management data,
traffic safety data, condition data and the priorities of the
regional directors. He said DOT&PF continues to slow down
projects because of the funding dilemma. He told members:
I will just give you one current problem - cost increase in
Fairbanks of about $2 million on a project. Once the
project is underway, you know, the contractor is working,
you have to fund those projects. You can't change your
mind. You're now in a contract. We will have to stop in
that region an $8 million project on the Dalton Highway in
order to find the $2 million to give to the project that is
active. Then that project [the Dalton Highway] is
effectively stalled until we can find $2 million to
backfill its need. This give and take is going on a daily
basis and with high inflation; it just seems to be a new
paradigm as I showed you on the slide a few pages ago.
2:14:43 PM
MR. OTTESEN said, in response to a question from Chair Johansen,
that the amount of unfunded projects would be much higher than
$200 million if other modes of transportation were included,
such as the ferry system.
CHAIR JOHANSEN asked if DOT&PF is planning too quickly so that
plans get stale and need to be redone.
MR. OTTESEN said that is a real fear at this moment. He
directed members to the bottom of page 7, which addresses the
inflationary costs DOT&PF is facing. He said DOT&PF had a large
number of projects moving forward earlier in the decade; 10 or
12 on the National Highway System. Only two or three can be
funded now. DOT&PF and the consulting community are staffed for
the previous level of activity. Projects take five or six years
to get through the design process. He said the one consistent
statement he hears from staff and consultants is that the number
of projects on the street is not enough for those groups. That
reflects how short the effective dollars are.
2:17:09 PM
CHAIR JOHANSEN commented:
It seems to me just on the broad picture, when you start
doing designs and that gets out there, one, it heightens
the expectation of a project getting done, you know, and
you have to deal with the real funding issues. That's just
something that has to happen but, again, if we're spending
money on plans and the planning money goes stale, that goes
to money that doesn't get on the street for actual digging
and concrete so I think that follows up with Representative
Fairclough about what are you guys doing and are you doing
things to adjust to that or not have $200 million worth of
plans that may end up going stale.
MR. OTTESEN replied that very fear is what is driving the
earmark policy. That drove the decision to cancel several large
projects that were inadequately funded, two examples being the
road to McCarthy and the Baranof cross-island. The department
only had enough earmark money to do about one-quarter of an EIS.
CHAIR JOHANSEN asked how DOT&PF determines which projects are
ready to roll.
MR. OTTESEN said he would provide that information at a later
date.
2:18:09 PM
REPRESENTATIVE DOOGAN asked about the mechanics of how the state
ended up with $200 million in project designs that are stale.
He asked whether federal funds were provided for the planning
phase only.
MR. OTTESEN explained that typically the first phase that gets
funded is the environmental and preliminary engineering phase,
which produces an engineering document. In a few cases, DOT&PF
was able to take those projects one step further so they are
ready to go to bid. He furthered:
I think the reason is at the bottom of page 7. Bear in
mind, projects that would have been started that needed
this funding got so eroded by inflation they would have
been funded in some cases. They started three, four, five,
six, seven years in advance of that downturn of funding.
So you had a program that was delivering so many projects
and you start the same number that you are delivering out
the back end then all of a sudden the conveyor belt in the
factory slows down but you've got starts that are already
underway and consultants are already working on it and now,
as we get to the point of needing construction dollars,
they simply aren't there.
2:19:20 PM
REPRESENTATIVE DOOGAN asked if these projects were high up on
the priority list because they got design funding under the STIP
but, when it came time to deliver them, DOT&PF found its money
wasn't stretching far enough and had to decide which projects to
move forward because they were deemed less meritorious than
those that were funded.
MR. OTTESEN said that is correct and the problem was caused by
not having sustainable, reliable funds that are indexed to the
cost of construction.
2:20:26 PM
REPRESENTATIVE DOOGAN asked if this process is continuing so
that more projects will be taken out of the queue.
MR. OTTESEN said that is very likely, but DOT&PF is being
judicious about stopping or slowing projects. The new earmark
policy will stop several projects that DOT&PF knew could not be
funded. The department is in a difficult conundrum and is
trying to be mindful of the implications to staff and
consultants. He added:
That's the one thing under our constitution. We don't have
a dedicated fund. We don't have these ... tools to adjust
revenue. It's unusual. Most states have that but even the
states that have it are having problems so I don't want to
paint that picture too rosy. We are in a position where
the only thing we have is what's appropriated to us each
year and we are in an era now where even what gets
appropriated to us gets taken back in some cases so you'll
see some slides here a little deeper in the presentations
on rescissions where, you know, next year the $9 billion
rescission at hand. It's already written in law. It will
take a law to undo it.
2:21:50 PM
REPRESENTATIVE FAIRCLOUGH questioned whether contracts are let
when funds are about to lapse in October with the federal fiscal
year, because those funds can be spent for the planning process.
MR. OTTESEN said there used to be a scramble at the end of the
fiscal year to make sure no funds lapsed. However, several
years ago the federal government allowed states to do advanced
construction [AC]. That is a financing technique where state
dollars are used to construct projects but the state is
reimbursed with federal dollars at a later date. At present, if
any funds are about to lapse at year's end, DOT&PF rushes to pay
off those advanced constructions. That gives DOT&PF an infinite
ability to absorb lapsing dollars. He said to his knowledge,
DOT&PF has never lapsed a formula dollar.
2:23:33 PM
REPRESENTATIVE FAIRCLOUGH said she believes DOT&PF and Anchorage
have done a good job of making sure that those monies are
circulated inside the state. She asked Mr. Ottesen whether he
believes that Congress will address the nation's aging
infrastructure by appropriating funds, especially after the
collapse of the Minnesota bridge.
MR. OTTESEN indicated a report issued to Congress last week
recommended the Highway Trust Fund be radically overhauled and
that funding be tripled and indexed to inflation. However, he
said he was told that project is dead on arrival until the
election is over.
2:24:58 PM
REPRESENTATIVE FAIRCLOUGH felt it is not the time to consider a
gas tax in Alaska, but said Alaska has one of the lowest gas
taxes in the nation. She noted Alaska has generated six federal
dollars for every $1 the state spends and Congress is aware of
Alaska's low gas tax, which is one reason the federal funds are
decreasing. She asked when Alaska last increased its gas tax.
MR. OTTESEN said the tax was increased to 8 cents in 1961, at
which time it was the highest in the nation. The tax was
decreased to 7 cents in 1964 and raised to 8 cents again in
1967.
2:26:09 PM
REPRESENTATIVE FAIRCLOUGH reiterated that Alaska's federal
delegation is confronted with the fact that Alaska's gas tax has
not increased since 1967 when it tries to lobby for funds for
the state.
MR. OTTESEN said the 2030 report contains a lot of information
on that subject and that the Administration agrees an increase
to the gas tax is not the solution. He explained:
The $50 million that would come from the proposed Alaska
Transportation Fund, which is a start, not necessarily the
end of that idea, it's just something that we need to grow
to really be truly meaningful, would take a 12 cent per
gallon gas tax increase to achieve $50 million per year.
That would have to grow from 8 cents to 20 cents. I read
just today that the average household in America is now
paying almost $1,000 more per year for gasoline so they
don't need any more gas taxes.
REPRESENTATIVE FAIRCLOUGH said for the record that she is not
suggesting an increase but she surmised it is a leverage point
that could have been used in the past that is inaccessible now
because of the cost of fuel.
2:27:29 PM
REPRESENTATIVE KELLER said the increases shown on page 7 are
shocking. The cost of pavement in Alaska has doubled almost
twice as much as the U.S. average. He asked what is causing
that drastic increase.
MR. OTTESEN replied Alaska had a very heated construction market
and the number of firms consolidated. Factors like insurance
have increased the cost, as well as the sheer number of bidders.
When three companies bid rather than six, the price will
increase.
REPRESENTATIVE KELLER asked if there any problems with bidder
qualifications.
MR. OTTESEN said other than requiring a bid bond and insurance,
the bar to entry is fairly low.
MR. KELLER asked if the graph shows actual dollars.
MR. OTTESEN said no, it is indexed to 100. He explained, "So
basically the costs in 2000 were indexed to 100 and so
everything is relative basically as a percentage from that
year." He further explained that the price of oil and
construction declined for about three years throughout the
decade but then it increased dramatically. He noted those
numbers are not estimates; they are a sample based upon the
entire spectrum of bid tabs the department opens that had two
bid items: earthwork and asphalt.
2:30:09 PM
REPRESENTATIVE DOOGAN asked whether the $200 million worth of
projects now on the shelf were designed with STIP funds and
whether their inactive status could become a liability to the
state.
MR. OTTESEN replied, "Representative Doogan, absolutely. That
is clearly one of the implications and it is clearly one of the
things we are constantly managing."
2:30:42 PM
CHAIR JOHANSEN asked the amount for which the state is "on the
hook".
MR. OTTESEN said the design process typically accounts for 15 to
20 percent of the $200 million, which would amount to $30 or $40
million.
2:31:05 PM
CHAIR JOHANSEN referred to the advanced construction accounting
format and asked if DOT&PF is satisfied with the flexibility
that provides.
MR. OTTESEN said DOT&PF routinely uses advanced construction.
That tool became available in the mid-1990s. During DOT&PF's
analysis of that tool, it realized the state has no law that
allows or prohibits its use. The backlog of advanced
construction was about $100 million at the end of the Knowles
Administration. At the end of the Murkowski Administration, the
amount had increased to $300 million. The department has been
trying to slow its use and reduce the overhang. So, contractors
have been paid with state dollars for a lot of work that has
been done but DOT&PF is waiting on federal dollars. He said
postponing payment for one or two years is not good funds
management. He noted the States of New Jersey and Texas use it
for all projects.
2:33:09 PM
REPRESENTATIVE NEUMAN asked the amount of advanced construction
funds the state owes right now. He commented that between the
amount owed and borrowing money through bonds, the state is
putting a lot on its credit card.
MR. OTTESEN acknowledged that is a fear. He explained the $300
million is similar to a line of credit so it does not mean that
much cash has been expended. He provided the following example
of how advanced construction can be used in a meaningful way:
The contract to re-power a ferry would require perhaps two
years. One year, once you award the contract...the
contractor [would] simply order the engines and wait for
them to be manufactured. He wouldn't do any work. He
wouldn't even put the ship in the yard until the second
year when he finally had engines on hand ready to install.
But you have it under a single contract because you want a
single entity to be responsible. So you AC the project,
let's say, in 2006 and it's a $20 million contract but $2
[million] of it is for engines so he spends $2 million
buying the engines, ordering them. You reimburse him $2
million in state funds. The other $18 million is on the
books as an AC but no money is transacted. The state
hasn't put $18 million out. We come along to the second
year. The ship goes in the yard. That's the year that
we've identified federal funds in the STIP to pay off that
contract and so at the peak of that AC, $2 million of state
funds were put out without reimbursement, not the full $20
million. But on the books it would read as a $20 million
AC so you have to kind of look at the second number to
understand the full degree. I believe right how our second
number is in the range of $50 or $60 million, not $300
million.
2:35:46 PM
REPRESENTATIVE NEUMAN asked if the state is waiting for the
federal government to reimburse $50 million right now.
MR. OTTESEN affirmed it is. The Department of Revenue watches
that amount and will stop DOT&PF if it believes DOT&PF is
getting ahead of itself.
2:36:10 PM
REPRESENTATIVE NEUMAN asked:
That's the part that I questioned is making sure that we
follow through a public process, an open transparent
process that the public knows where that money is spent so,
if we've got capital budget projects that we're funding,
how does that look when it goes through finance and it
comes through here? I mean how does the Legislature, who
is in charge of spending the state's money, how do we see
that?
MR. OTTESEN commented that this is where it gets very
interesting. He continued:
Let me make a parallel. If you look at the federal
aviation program, it's been AC'd for decades. That's just
how that program works. The state is obligated to pay for
everything right up until almost the end and that can take
years and then finally get reimbursement. So that program
has been AC'd and has been AC'd and it's just the natural
course of events. That's how FAA does things. Federal
Highways is willing to pay you as you go along and they
don't require you to wait until certain stages of a project
are completed.
So when they authorize AC, and it is authorized in federal
law, like I said the state started small. We didn't even
show it in the STIP. We didn't make any reflection of it.
We just said we have authority to receive and expend
federal funds and we always - every project on the federal
highway side starts with state dollars but in some cases
the state dollars are reimbursed as quickly as two or three
days because now reimbursement occurs twice a week. It
occurs electronically. Our computer talks to their
computer and the money moves.
So...what we're doing is extending that period of time
between the state expenditure and the federal reimbursement
and we're doing it now probably in the most judicious
manner that I'm aware of. I watched this occur as sort of
a subordinate in the past and now I supervise it. Like I
said, we are managing it downward. We're trying to reduce
the backlog by $10 or $15 million each year.
2:38:10 PM
One of the things that got us into the AC kind of deep in
the barrel was in '05, when our federal funds hit one of
those hiccups in the road, we thought we were getting so
much money. If you remember that year, that was the year
that Congress issued I think it was 7 or 8 continuing
resolutions. They were giving us money in dribs and drabs
and we'd gotten to the tenth month and we had gotten
10/12ths of our money and it's pretty easy to calculate.
If you've gotten 10/12ths, well you're going to get 2 more
12ths. That's what we thought. We were sort of fat, dumb
and happy. Then bingo, we got a notice that said you're
not only not getting the last 2/12ths, pay back a good
chunk of some of that 10/12ths. We owed money back at that
point. We had about, if I recall right, about $55 million
in projects that were bid-ready, ready to go, the public
wanted, we AC'd them. That was when we kind of got deep
into it at that moment in time.
So we did that for the greater good to keep the contractor
community happy, to meet expectations of the public, and we
knew we would have to manage our way back down. We'd have
to lower that.
2:39:18 PM
We also have AC'd - the other category of AC that I think
is probably there's no way out of it is there has been an
awful lot of ER work, emergency relief work. That, by its
nature, has to be done AC. The state goes out and responds
to that emergency, puts up state dollars and gets
reimbursed with emergency relief dollars. Those emergency
relief dollars have been very scarce at the federal level
because of Katrina and other hurricanes and floods around
the country. There's only been so much to go around so
you're sort of on a list and you wait your turn to get
reimbursed. So ER work, by its very nature, is also AC'd.
2:40:13 PM
MR. OTTESEN continued his presentation, as follows:
... This is where we get into some of the nitty gritty. I
want to talk about the two kinds of funding terms in the
federal highway world, known as apportionments and
obligation limit. I apologize for bringing you down into
this technical detail but if you want to understand our
world, this is where it begins. This is where the
management of the STIP is really taking place.
Apportionment is essentially a promise. It's given to us
in a series of different categories. It has a shelf life
of four years - that is you don't have to spend it right
away. As you'll see in a minute, you can't spend it by
itself anyway. It's sort of a 1 plus 1 equals 1 formula.
One dollar of apportionment [plus] one dollar of obligation
limit actually yields one real dollar of spendable cash.
Apportionment is determined in the authorization bill,
which occurs every five or six years. It is spendable only
with obligation limit, or OL, and having some surplus. I
should say Congress has historically given us more
apportionment than they give [obligation] limit. The ratio
has varied year by year. In the last few years it's
between 85 and 90 percent. You're going to, by definition,
you're going to build up a surplus of apportionment because
you just simply don't have enough obligation limit to use
it all. I should add right now surplus apportionment not
only provides flexibility, as I'll explain a little further
in, it has also been the raw material that creates SHAKWAK
funds. So we'll talk about that with SHAKWAK but
apportionment is essentially the input to a SHAKWAK dollar.
Obligation limit is what sets the cap on total spending.
You get to spend up to your obligation limit, hence the
name. So this is when Congress, you know, the green eye
shades part of Congress, the Finance Committees, get
together and they set the obligation limit on an annual
basis whereas apportionment could have been decided six
years in the past. Obligation limit has a shelf life of
one year. This is what lapses so when we talk about
lapsing federal money, it's [the] obligation limit that's
lapsing. It's use it or lose it.
2:42:34 PM
MR. OTTESEN continued:
There literally is a process in August two months before
the end of the federal fiscal year where we're asked can
you spend all your obligation and, if so, could you spend
more and how much. That's when we actually end up and
historically have always gotten plus obligation limit from
other states, typically in the range of $3 to $5 million.
It is spendable only with a dollar of apportionment so,
it's like I said, a ratio. You've got to match one to one
to get one. It usually, historically, has been smaller in
total amount and let me also add what I said earlier in my
presentation. There are a lot of generalities here. There
are dozens of exceptions to these rules so the money has
gotten very complex. Some of the apportionment comes with
its own "ob" limit and it's one to one already. You don't
move it around but those tend to be the minority of the
program. The vast majority of it follows these rules that
I've laid out here.
So at the bottom of page 8 I talk about the types of
apportionment. Depending upon how you count these
categories, there [are] as many as 20, there may even be
more than that. You have to consider the transit program.
That's because there are categories and subcategories and,
in some cases, two or three subcategories to a main
category. But the core apportionments, the one where most
of our work gets done, is the National Highway System,
Surface Transportation Program, Interstate Maintenance, the
Congestion Mitigation or Air Quality, sometimes called
CMAC, and the bridge apportionment, so those are known as
the five core apportionments. If you look at our funding,
that's where most of the money comes to us is in those
categories.
2:44:26 PM
A couple of key points. The Surface Transportation Program
category is the one that we share with the MPOs. By law
that is the one that goes to MPOs. The equity bonus
category is in the arcane formulas found in federal law.
We earn these dollars through a formula. Each number of
miles, amount of traffic, you know blah, blah, blah - all
these sort of metrics. If we only got our dollars under
those formulas right there, we wouldn't get very many
dollars. There's then this category known as equity bonus,
which is actually our largest category by a large degree
and equity bonus is how Congress makes up for states like
Alaska that would otherwise be shortchanged from the strict
adherence to the latest formula they've drawn.
Prior to this bill, equity bonus was called minimum
guarantee. Prior to minimum guarantee it had a different
name so it's a category that changes names.
2:45:22 PM
The equity bonus money gets distributed to those other five
categories in the same proportion that you received that
money to begin with so if you got 20 percent of it in
National Highway System, 20 percent of equity bonus would
be converted to National Highway System. So equity bonus,
before it's all said and done, it gets changed and we treat
it like one of the other categories.
What apportionment does, and this is something I haven't
said yet, is define how you can use the money, the rules
that govern the money, the eligibility of the money. You
can't spend bridge money on a ferry. You can't spend
safety money on a defective ferry that has a safety
problem. You can only spend it on a defective road that
has a documented safety problem. If I'm getting my point
[across], every one of these categories has an arcane set
of rules and eligibility. As we get into the other
apportionments at the bottom of the list, there's safety,
transportation enhancement, metropolitan planning, a
statewide planning and research category, a safe routes to
school category, recreational trails, a category for a rail
highway crossing, a category for border infrastructure, and
then several transit categories of funding as well coming
out of the transit side.
So when we write a STIP we're not writing it to a single
flavor of money and one size fits all. We have to write a
STIP that also meets all of the different funding rules
associated with the amount of funding each category has
received. I'll stop there. I think that's probably....
2:46:58 PM
REPRESENTATIVE NEUMAN asked what apportionment means when he
tries to add that to obligations to get actual spendable cash.
MR. OTTESEN said that question can probably be best answered by
explaining the reason for this system. The question has two
answers. Most federal agencies do not use this system; it is
unique to the Federal Highway Program. He said the FAA or Army
Corps of Engineers appropriates money one year at a time. He
continued:
At the time in '56 when they said let's build the
interstate, they knew they were into a long year multi-
decade program to achieve that interstate. They had to
give states some degree of certainty so that they could
build a long term program and accomplish a series of
projects and know that future funding would be there
because if you are going to build a 100-mile chunk of
highway, you don't build it in one contract. You might
build it in 10 contracts. So you better have confidence
that you aren't going to get about 50 miles into that
highway and have the money to stop.
So the authorizing committees in Congress who authorize
these bills, they used to be four-year bills, then they
slowly blossomed to be six-year bills, authorizations as we
call them, and now SAFETEA-LU was a five-year bill but
that's only because it was a year late getting out of the
Congress. It was intended to be six years.
The authorizing committees, which are the subject matter
committees, the Transportation Committees, if you would, in
Congress, they do the authorization. They're trying to see
as far as six years into the future how much funding will
there be, and so they're sort of setting a plan, setting a
target. But the appropriation committees in Congress,
they're the ones that year-to-year have to look at that
Highway Trust Fund and say well, there's really only this
much cash so we've got to slow you down a little bit and
they'll set a spending cap, the obligation limit. That's
why you've got this hybrid system. It's like a proxy. You
need two parts to have a useful thing. We need one of each
to get a dollar of expendable money.
One is I think of obligation limit in my mind as the money
and I think of apportionment as the rules. Only when I
couple the two together is there something useful.
2:50:02 PM
REPRESENTATIVE FAIRCLOUGH asked whether DOT&PF is working with
the federal delegation on border responsibilities when it comes
to safety and border control.
MR. OTTESEN said a lot of border state activity has taken place.
The department has participated in a northern border state
consortium. He pointed out that Alaska has a relatively small
number of people crossing its border.
2:51:11 PM
REPRESENTATIVE FAIRCLOUGH asked if Pacific NorthWest Economic
Region (PNWER) or other agencies offer grants or pilot programs
to address border issues.
MR. OTTESEN said he has not heard of any. He said Alaska's
border program is relatively small. Last year funds were spent
on a 10-mile stretch of highway from the ferry terminal. Alaska
does not have that much infrastructure close to the border.
2:52:19 PM
REPRESENTATIVE DOOGAN asked for further clarification on the
relationship between apportionment and obligation limit. He
asked whether apportionment is the amount of money the State of
Alaska can receive from each program over a six-year period.
MR. OTTESEN explained apportionment is authorized annually so
DOT&PF gets a spreadsheet showing the amount by category and
year.
REPRESENTATIVE DOOGAN asked if it is money.
MR. OTTESEN said not without the obligation limit. He
explained:
One of the best analogies I've heard is you could actually
do it with props but I'll just explain it. If you imagine
I had several different shaped glasses here, some large
ones and some small ones and some in between ones, and each
one of those was a kind of apportionment and its size
represented how much money we could spend in that category.
And then I had a pitcher of money known as obligation limit
that the sum of the fluid in that picture equaled about 85
percent of the capacity of all the glasses. I can pour
that any way we want but at some point I run out so if I
poured into NHS and STP dollars, I can do those kinds of
projects to the maximum extent they are available. Now
I'll leave some of that other apportionment on the table
unused or unfilled because we didn't have enough in the
pitcher, the obligation limit.
2:53:54 PM
REPRESENTATIVE DOOGAN asked if the obligation limit could be
lower than the apportionment but not higher.
MR. OTTESEN said it can be higher and has been in a few rare
cases but, "you manage that because you had surplus
apportionment from prior years, apportionment having the four-
year shelf life lasting year-to-year and the obligation limit
having a one-year shelf life."
2:54:21 PM
MR. OTTESEN continued:
This is the arcane detail of managing the STIP. This is
what my staff deals with. If you look at our STIP you'll
see we reflect the type of apportionment going to every
project with a series of codes. When you actually get into
managing it on the accounting side, it gets even more
detailed. It's not only bridge funds, it is bridge funds
from the year 2007 or it's bridge funds from the year 2005.
Our general management of the STIP has done two things:
always use old apportionment first so you don't lapse it,
always use the most inflexible first so you preserve the
most flexible. That's important in a number of ways.
I'll give you an example of that. We could be building the
reconstruction of the Parks Highway. It has a bridge in it
and it has a realignment of a curve where there have been
several deaths and so, when we look at that, say, $20
million project, the bridge costs $5 million, the curve
work costs $3 million, and the rest of it was $12 million.
We can allocate bridge money to the bridge, safety money to
the curve reconstruction, and NHS money to the rest of it.
We would do that based upon the bid tabs right down to the
dollar at the time we processed the federal paperwork. So
we do it in the STIP as a planning number. We do it in the
accounting documents right down to the penny literally.
I've got a couple of staff that do this. They are
absolutely top notch and, I'll tell you, when those people
get sick, DOT sneezes.
2:56:04 PM
REPRESENTATIVE KELLER asked if it is safe to say the difference
between the apportionment and the obligation limit is set by the
politics between the Transportation Committee and the Ways and
Means Committee at the federal level.
MR. OTTESEN said he believes it has more to do with the
functions of the committees rather than politics. The
authorization committee is two to five years ahead of the
individual appropriations committees. The appropriations
committees look at the amount in the Highway Trust Fund.
2:56:58 PM
REPRESENTATIVE KELLER asked about the reliability.
MR. OTTESEN pointed out when DOT&PF received its SAFETEA-LU
funds during the first year of its implementation, it received
80 percent of its fund in some categories and 85 percent in
others. DOT&PF used 85 percent to plan for future years and set
the STIP at that point. He noted the amount has increased to 90
percent in the last few years, which has allowed DOT&PF to cover
a few cost overruns without having to stop another project. He
stated the STIP must be based on a reasonable estimate of future
revenue but DOT&PF doesn't receive notices in a timely manner.
2:58:08 PM
MR. OTTESEN continued his presentation:
Let's move to page 9. You're going to hear me talk a lot
about apportionment because it really has become an issue.
The 2008 balances of apportionment are at historic lows,
certainly the lowest I've seen in my career. We only had
about $40 million left of surplus apportionment. About $7
million of that was in our most flexible categories, the
kind of categories we really want to hang on to. $33
million of it was in the more restricted categories. Just
to give you one balance, the balance of any trust funds,
the kind of dollars that would work on the Parks Highway,
for example, 45 cents. I could dive into the couch
cushions and double the amount of money going to the NHS at
the start of the year, just from my own little personal
contribution. 45 cents - that's the kind of money that
would build a ferry, for example. If we want to build a
ferry, we have 45 cents on the books at the start of the
year. It kind of speaks to the problem we're facing.
2:59:11 PM
We also learned with the 2008 fund notices that we're going
to get less apportionment this year than obligation limit,
the very issue that you raise, Representative Keller. What
that means is not only do we have to use all that
apportionment that we're going to get in precisely the same
ratio that we receive it, we're going to have to use most
of this $40 million of surplus apportionment to use all the
obligation limit. It basically turns our world upside
down. Where before we had flexibility and we could make
last minute adjustments because we had ample surplus
apportionment...if a bridge project stalled for a permit,
we could move in a highway reconstruction project. We
can't do that under this new scenario. We've spent the
better part of the last six weeks talking to staff about
this, going to the regions, trying to explain to them,
because a lot of our regions don't want to deal with this.
To them this is just gobbledy gook and just tell me how
much money I've got and let me do my job. That's their job
is to engineer and build projects.
Unfortunately, with these changes that have come out of
decision makers inside the Beltway, we've lost that
flexibility. We're going to have a $6 million balance in
surplus apportionment at the end of '08. You'll see later
on why that's happened. It's happening because of
rescissions. There's been a pattern of rescissions that
began about three years ago where they take back surplus
apportionment. They're doing that to show budget savings
at the national level. It's essentially a direct result of
the Iraq war. They need to find a way to not make the
budget look like its gone so deep in red ink, so by taking
back apportionment, they can show a savings. Never mind
that apportionment without obligation limit is not money.
It's just a promise that has never been fulfilled.
3:00:56 PM
REPRESENTATIVE NEUMAN asked Mr. Ottesen how he thinks this will
play out in the next five years.
MR. OTTESEN said a "perfect storm" is building. He stated:
We have a lot coming. We have a 2010 reauthorization
coming. You have a commission that's proposing a dramatic
and complete rewrite of the rules, top to bottom, throw the
whole thing out. It's been 50 years of this. Let's start
with a fresh idea. Unfortunately the fresh ideas are, just
to give you a taste of it, none of them look good for
Alaska. They would focus on the 50 largest metropolitan
areas, for example. Anchorage doesn't rise to 51
nationally, just for example. That's just one example.
They would focus on high speed rail and freight corridors.
None of that solves our transportation needs at the road
level.
I think perhaps the biggest fear of the future is an awful
lot of talk about greenhouse gases, carbon footprint and
those kinds of rules coming to be tied to the
transportation program. In fact the advocates of that have
already got a name for the new T, it will be Green T. It's
got traction, I can tell you this right now, in the halls
of Congress. Green T could start to talk about more
transit, more walking, more bicycles, less cars, and, if
you think about it, Congress has used the transportation
program over the decades to influence the policies they
want to see happen, whether it be clean air or drunken
driving, they attach rules to transportation money. You
can almost bet this will happen.
3:02:48 PM
MR. OTTESEN continued:
So while you were out, Mr. Chairman, I talked about this
fact that we are going to see our apportionment balances
drive to historic lows. They are already at historic lows
at $40 million starting this year. If we use our
obligation limit, they'll be at about $6 million at the end
of the year.
There are four consequences to this change in our world.
One, STIP projects will now be restricted to whatever kind
of apportionment we have on hand. I talked to you I think
on Saturday. The STIP is losing flexibility to build the -
kind of our core mission, building roads, rebuilding roads,
that kind of thing. What we're losing is that kind of
money. What we're gaining in its stead is the more
restricted money. We will gain those dollars back and be
spendable in bridge and safety in particular. Those are
two categories that are really very well supplied with
apportionment. We will have about a $45 million bridge
program this year and about a $40 million highway safety
program. What's especially critical is we have to deliver
those projects and not have hiccups, not have permit slips,
not have other slips, or those dollars will simply vanish
and leave the state. That's a first. It never happened
before.
3:04:24 PM
REPRESENTATIVE DOOGAN asked if those funds will automatically
vanish or vanish due to rescission.
MR. OTTESEN clarified that every August the state must certify
that it is going to use the obligation limit. If it does not,
it must give those funds up. That is known as the August
redistribution. He said DOT&PF's 2030 plan is out for comment.
He must wrap that up and begin a STIP amendment to reflect all
of the changes that have occurred in the 2008 funding notices.
That process will take close to four months. Once that is
complete, DOT&PF can begin the work to make sure those funds are
not lost. Essentially, that is squeezing one year's worth of
work into two and a half months. His staff will probably have
to work on weekends.
3:05:32 PM
REPRESENTATIVE DOOGAN asked whether DOT&PF needs to make
structural changes to address the new reality of federal
funding.
MR. OTTESEN said the structural change that needs to be made is
state recognition that this program that has served it so well
for 50 years is at a crossroads. He told members:
And for us to have a successful transportation program
going forward, we will desperately need to have a state
funded program to come up to. If I have one message in my
long range plan in looking at all of this, this program is
not going to meet all our needs. We're not going to build
the ferries we need to build. We're not going to build the
bridges and roads we need to build or even keep up - and I
would encourage you if you haven't read it, to read 2030
because it paints this picture pretty well.
3:06:33 PM
REPRESENTATIVE DOOGAN questioned whether the problem is a matter
of making changes in order to manipulate or meet the federal
rules or that Alaska is just not going to get the money.
MR. OTTESEN said he believes the state isn't going to get the
money. At the AASHTO meeting last fall, its staff said the
federal legislation is going to be focused on strategies to
reduce greenhouse gases. It will focus on "complete streets."
He repeated that a lot of policy shifts are occurring at the
national level. He pointed out if the Highway Trust Fund is
opened up to high speed rail, 15 systems are ready to be built.
The trust fund delivers about $40 billion per year when the
highway system needs about $190 billion per year to deal with
population growth.
3:07:48 PM
REPRESENTATIVE DOOGAN said although the new system may fit the
Lower 48's needs better, it will be worse for Alaska's needs.
MR. OTTESEN agreed with that scenario and characterized Alaska
is an outlier compared to other states.
3:08:02 PM
REPRESENTATIVE SALMON asked if Mr. Ottesen is talking about real
time and real money when he refers to the obligation limit and
apportionment or whether that is the predicted amount the state
will get.
MR. OTTESEN said the obligation limit is real money. Once
notified, DOT&PF must spend those funds within a year or lose
them. The apportionment must be matched to the obligation limit
but it has a four-year shelf life and then expires.
3:08:30 PM
REPRESENTATIVE SALMON asked if DOT&PF could collect interest on
some of the funds.
MR. OTTESEN explained the apportionment is hollow. In addition,
interest cannot be collected on federal money. DOT&PF receives
federal money after it spends state dollars on the work.
3:08:52 PM
MR. OTTESEN continued his presentation:
So, I've already spoken to the bottom of page 9 that we
have less flexibility, we have to shift projects to meet
the apportionment notices and there's a chance these
dollars could leave the state if we don't act with great
haste.
At the top of page 10 we talk about SHAKWAK and I want to
focus on you that SHAKWAK is probably the least understood
part of our business. SHAKWAK is a geological term - the
SHAKWAK trench is where the Alaska Highway runs up at Big
Lake and Lake Kluane. It comes from the fact that going
back to the 1970s, the federal government saw the wisdom of
helping pay for the road between Haines and the Alaska
Highway just near Tok there and Northway.
We've been given different amounts of money. It has grown
over time. The latest number is around $30 million a year
to the Canadians to work on that Canadian portion of those
highways, of the Haines highway and the Alaska Highway but,
again, only in Canada. That program was known in law as
the Alaska Highway, Section 218 of Title 23, but in the
Canadian they called in the SHAKWAK program. They've
called it that for decades so they've been building pieces
of the road, rebuilding pieces of the road, replacing
bridges and they call it the SHAKWAK program, named after
that geological figure.
Well about a dozen years ago, Senator Stevens modified some
words in Section 218 and it was very, very creative
language and it allowed the state to turn in unused
apportionment and have it converted into this thing known
as SHAKWAK. To this day I don't entirely understand it,
although that I know it worked and it was spendable. Money
never got appropriated. It never got authorized by
Congress in the form of an authorization bill that you
could see a number or in an appropriation bill.
We essentially said we have this unused apportionment, we
don't have enough obligation limit to use it, we want to
convert it to SHAKWAK and they would do something back in
D.C. and put it on our computer system where we can see it,
which is much like going to your own on-line banking
system. There it was - millions and tens of millions of
dollars of SHAKWAK funds spendable originally on the Alaska
Marine Highway System and more recently on roads that lead
to the Alaska Marine Highway System and the Marine Highway
System itself. So the eligibility has changed a little bit
but the last time we were able to convert apportionment
into SHAKWAK was 2004 and, with these rescissions that
you'll see here in a minute, we have not been able to
convert any further unused apportionment. We haven't had
any and we're now out of SHAKWAK. The last SHAKWAK dollar
was spent last summer. There's a reason for that.
SHAKWAK, we always believed, lasted until spent. In other
words, it had no end date. A grammarian at Federal
Highways looked at a sentence and said you know, this word
is right here and that means that the "does not expire"
applies only to the Canadian money and not to the Alaskan
SHAKWAK money. They gave us until the end of the federal
fiscal year '07, which was last September, to spend it or
lose it so there was a rush last summer to find projects to
put all that SHAKWAK money to use and we got it spent.
Every dollar of that went to Marine Highways.
3:12:24 PM
CHAIR JOHANSEN asked whether DOT&PF challenged that federal
decision.
MR. OTTESEN said DOT&PF thought about it, but DOT&PF had good
projects to spend it on. The amount was $25 million and DOT&PF
was notified in June.
3:12:55 PM
CHAIR JOHANSEN asked for a list of how that money was spent.
MR. OTTESEN said he would be happy to provide one.
CHAIR JOHANSEN asked Mr. Ottesen if he recalled how much was
spent on vessels and terminals.
MR. OTTESEN said he did not, but recalled that the majority went
to vessels.
3:13:19 PM
CHAIR JOHANSEN pointed out those funds were not used for vessel
replacement because none was planned.
MR. OTTESEN said that is correct, but DOT&PF could not put the
money toward a vessel without full funding.
CHAIR JOHANSEN asked what year the road language was added.
MR. OTTESEN said that occurred at the time of SAFETEA-LU. He
told members:
There was an interesting history there. The SHAKWAK
language was originally intended to build Juneau access.
It was actually created by Pat Kemp (ph) at Southeast
Region. The Knowles Administration, when it went forward
to Congress, changed it to be for the Marine Highway System
so it started as a road tool and became a ferry tool. Now
it's sort of both but it's moot because there are no
dollars behind it.
3:14:24 PM
CHAIR JOHANSEN asked how long the money was spent specifically
on the Alaska Marine Highway System.
MR. OTTESEN said the vast majority was spent on the marine
highways; a small amount was spent on the Alaska portion of the
Haines highway.
3:14:47 PM
CHAIR JOHANSEN questioned whether the federal language specified
those funds were for Juneau access or for marine highways and
facilities.
MR. OTTESEN said the language was originally envisioned to fund
Juneau access. Pat Kemp originated the idea and language
suggestion.
CHAIR JOHANSEN asked what the actual law said.
MR. OTTESEN said the language was changed to the marine
highways.
3:15:21 PM
CHAIR JOHANSEN asked if, until the bill was amended with three
or four words, the fund was always to be used for the marine
highways.
MR. OTTESEN said that is correct with the exception of the
Haines highway.
CHAIR JOHANSEN commented:
I'd like to see a breakout of how the funds from the time
that new language was enacted that added the roads section,
how much money was moved over to the Juneau access and not
spent on ferries.
MR. OTTESEN said he didn't believe any was but would get that
information. For most of 2005, DOT&PF did not have any eligible
work to spend it on.
3:16:20 PM
CHAIR JOHANSEN asked if, after that bill was amended, the
Murkowski Administration focused on using the funds on Juneau
access. He asked, "In the time that we waited for that project
to be eligible for the money, was money spent on marine
highways, ferries, or facilities or were we just holding the
money waiting until we could put the whole package together and
build the road?"
MR. OTTESEN said the last time DOT&PF actually created a new
SHAKWAK dollar was in 2004. Those dollars were slowly used,
some on fast ferries and other projects, but everyone was trying
to preserve it. He furthered:
... I remember talking to then Deputy Commissioner Taylor,
Robin Taylor, about - was look, we predicted at the time
SAFETEA-LU got passed we would be able to convert $45
million per year of SHAKWAK. We said we want 15 for Juneau
access and 30 for the marine highways. We kind of had an
agreement that that was the right split and it never
happened because we never converted any more dollars. We
always told them that the old dollars were yours. We're
not going to do this until we get new SHAKWAK dollars but,
as the rescissions came on line, that whole plan sort of
collapsed. We just lost the ability to create SHAKWAK. So
all of this was in the talking stage but none of it ever
got into the action stage.
3:18:16 PM
CHAIR JOHANSEN asked at what point the grammarian reinterpreted
the language.
MR. OTTESEN said the grammarians found their voice last spring.
3:18:31 PM
MR. OTTESEN continued his presentation:
So I think I've talked - at the top of page of 11, I've
talked pretty much about everything at the top of the
slide. There is a zero balance in SHAKWAK. All the funds
that were available as of last summer went to marine
highways for certain. I know that to be a fact.
I think at the bottom of page 11 you see the pattern of
rescissions. This is annual amounts, not cumulative but
annual amounts. In 2004 there really had been only small
rescissions and then 2005 they started taking much larger
rescissions. It grew - 2006, 2007, and now 2008 they've
all been running at about $4 billion. That is about 10
percent of the original apportionment. If you just kind of
do the math, you have had roughly 90 percent obligation
limit per year and about 10 percent rescissions now so
we're losing ground on apportionment. There is a planned
rescission in 2009 of almost $9 billion. Alaska's share of
that rescission is either $55 million to give back or 86.
Why the difference? I think that's on the top of page, I
believe we're coming up here, I'm not sure I gave you that
number but let me just talk about it.
3:19:49 PM
MR. OTTESEN continued:
There [are] two interpretations of what Congress did and
... the legal beagles in Federal Highways and in Congress
are looking at how to interpret the words and, depending
upon the interpretation, it's either 55 or 86 billion to
Alaska. We're not well prepared to handle that. We're
going to end 2008 with a $6 billion surplus of
apportionment. This actually means our STIP could go
upside down and by that I mean we could end up having more
obligation limit than we have apportionment, which doesn't
do anyone any good. You can't spend obligation limit
without apportionment and you have to give it up to another
state by the end of the year. That's kind of where we're
at and when I talk to other states, they're in the same
predicament. I used to think we'd be in a little worse
shape because, you know, Alaska is the only state that can
do SHAKWAK and the only state that can turn apportionment,
which is hollow, into real money. But since apportionment
expires after four years and we haven't done a SHAKWAK
conversion since 2004, enough years have transpired that
all our old apportionment that we had transpired would have
gone off the shelf anyway. So I think this is a problem
facing all of the states.
3:21:16 PM
MR. OTTESEN continued:
You might ask why did the Congress plan this rescission of
$9 billion. It's because the bill was imbalanced when it
passed. SAFETEA-LU was trying to be very large and very
beneficial to all the states. You had a president saying
no new taxes. I will not let you raise the gas taxes. So
they did all sorts of, you know, you'd have to call them
tricks in the budgeting process to add up to the dollars
that they thought would be available so the Highway Trust
Fund would be whole. They did things with ethanol. They
did things with how money in the Highway Trust Fund is
accounted for. They could rely upon estimates a little bit
more than actual hard cash. They did a lot of things that
I think most of us will never understand but the whole
purpose behind those things was to try to demonstrate there
was more money. Even at the end of the day they said there
is not going to be enough money so what we'll do is we'll
postpone this problem for two election cycles that are in
the House, five years away. We'll just make all of the
states give back some of the money we gave them and
Congress in the future will have to solve that problem.
And so you have, this is written into SAFETEA-LU, it's in
the law. It's actually been enlarged last year. They
actually enlarged it a little bit so it's not like they're
getting ready to make it smaller. They've enlarged it. I
don't have a good thing to say about it. I just tell you
that when you write a STIP that has to be constrained, when
you look into the future about your future funding, these
are some of the problems that we're facing just in doing
our daily job and, from the state's standpoint, it means
there is less money to get things done.
3:22:52 PM
REPRESENTATIVE DOOGAN asked if there haven't been any SHAKWAK
conversions because rescission gets to the money first.
MR. OTTESEN affirmed that is correct. He added that a certain
amount of surplus must be left on the shelf to manage the
program. National estimates are that 30 percent of
transportation projects get delayed for some reason. Because
the obligation limit will lapse, there must be some way to
recycle that money to another project or the state will lose
those dollars. DOT&PF has to have one program ready to
substitute for another in case the first project is delayed.
DOT&PF is now delivering a program that is slavish to the
apportionment on the shelf because DOT&PF has no surplus. He
concluded, "This is no way to run a railroad, to be frank."
REPRESENTATIVE DOOGAN jested that he has more questions but
should probably direct them to a congressman.
3:24:29 PM
MR. OTTESEN continued his presentation:
If you recall what I said at the start of the presentation
I started two days ago, this is a program that has been
amended over 50 years. It has had a lot of amendments.
The one thing I haven't told you is the new law of the
land, passed in the energy bill at the end of 2007, is that
we now have to give up rescissions in the same proportion
that we received them. We no longer can decide which
apportionment to give back because we have a little too
much of that and we want to preserve this one over here.
We have to give them back. If we got 10 percent in a
category, 10 percent of our rescission has to go back to
them in our same category. The driver of this is two
things. It's the I-35 bridge collapse where some states
were found to have used their bridge money, some states
were found to have not. It's trail advocates that are
upset because some states have not used their
transportation enhancement apportionment, the State of
Texas being the prime example. They refused over the years
to use TE, as it is called, and have just let it lapse and
have given it back under the rescissions. The trails
advocates in that state have cried foul and gone to
Congress.
So the new law of the land is proportional rescissions.
All that means is we have to give - we're going to start
giving back NHS, STP, IM, the very three categories that
build roads and build ferries. That wouldn't be our
choice. In our state, just to give you an example of why
we might want to manage apportionment, bridge apportionment
has historically been one of our surplus categories. We've
had a lot of bridge apportionment. We have historically
chosen not to use it for one simple reason.
3:26:11 PM
It required a 20 percent match when all the other
categories required either 6 or 9 percent match. Those
categories, like NHS and STP, were eligible to build
bridges so why would I want to spend 80 percent federal
money when I can spend 94 percent federal money on a
bridge? But, you know, now that the I-35 collapse has
happened, and you get asked why you haven't spent that
bridge money, it's pretty hard to explain these arcane
details to a reporter calling about why did you give up
bridge money back in 2004. A lot of bridge money went into
SHAKWAK money. It wasn't because we didn't want to build
bridges. It was because we didn't want to build bridges at
80 percent when we could build them at 94 percent.
3:26:54 PM
MR. OTTESEN said he was ready to move on to another subject.
3:27:03 PM
CHAIR JOHANSEN announced a brief at-ease.
3:27:35 PM
CHAIR JOHANSEN called the meeting back to order and announced he
would resume the meeting on Tuesday for an overview of the 2030
long range plan. On Thursday, Mr. Ottesen would finish the STIP
presentation.
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 3:28
p.m.
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