Legislature(2009 - 2010)Anch LIO Rm 220
10/01/2009 09:30 AM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska Transportation Needs and Challenges - Dot&pf | |
| 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
October 1, 2009
9:41 a.m.
MEMBERS PRESENT
Representative Peggy Wilson, Chair
Representative Kyle Johansen
Representative Cathy Engstrom Munoz
Representative Mike Doogan
Representative Max Gruenberg
MEMBERS ABSENT
Representative Craig Johnson, Vice Chair
Representative John Harris
OTHER LEGISLATORS PRESENT
Senator Linda Menard
Representative Mike Kelly
COMMITTEE CALENDAR
ALASKA TRANSPORTATION NEEDS AND CHALLENGES - DOT/PF
- 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: Testified and answered questions during the
Overview of Alaska Transportation Needs and Challenges.
CHRISTINE KLEIN, Deputy Commissioner
Aviation
Department of Transportation & Public Facilities (DOT&PF)
Anchorage, Alaska
POSITION STATEMENT: Presented the Aviation portion of the
Overview of Alaska Transportation Needs and Challenges.
ROGER MAAGARD, Rural System Airport Development Manager
Statewide Aviation
Department of Transportation & Public Facilities (DOT&PF)
Anchorage, Alaska
POSITION STATEMENT: Presented and answered questions on the
rural airports.
JIM BEEDLE, Deputy Commissioner of Marine Operations
Marine Highway System (AMHS)
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
overview of Alaska Transportation Needs and Challenges.
FRANK RICHARDS, Deputy Commissioner
Highways and Public Facilities
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
Overview of Alaska Transportation Needs and Challenges.
JEFF OTTESEN, Director
Division of Program Development
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the update of the
Alaska Transportation Needs.
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Asked questions during the DOT&PF update.
KATHIE WASSERMAN, Executive Director
Alaska Municipal League (AML)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on
Alaska's transportation needs.
JIM REED, Transportation Program Director
National Council of State Legislatures (NCSL)
Denver, Colorado
POSITION STATEMENT: Presented and answered questions during the
Overview of Alaska transportation Needs and Challenges.
LARRY PERSILY, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on funding
options for a long-range transportation initiative.
PETER MILLS
Dye Management, Inc.
Victoria, British Columbia
POSITION STATEMENT: Provided a PowerPoint presentation on State
Infrastructure Banks and Other borrowing instruments.
ACTION NARRATIVE
9:41:46 AM
CHAIR PEGGY WILSON called the House Transportation Standing
Committee meeting to order at 9:41 a.m. Representatives Wilson,
Johansen, Munoz, Gruenberg, and Doogan were present at the call
to order. Also in attendance were Representative Mike Kelly
(via teleconference) and Senator Linda Menard.
9:44:31 AM
The committee took an at-ease form 9:44 a.m. to 9:49 p.m.
9:49:14 AM
^Overview: Alaska Transportation Needs and Challenges - DOT&PF
9:50:36 AM
CHAIR WILSON announced the only order of business will be an
Overview of Alaska Transportation Needs and Challenges - DOT&PF.
She remarked on the committee work the past two days as the
committee traveled to review rural and urban airports and roads.
On Tuesday the committee flew to Bethel to discuss
transportation issues, toured three airports, and the road
system. Yesterday, the committee toured Anchorage by bus to
consider urban issues. The committee traveled the Seward
Highway and discussed the Highway Safety Corridors.
9:53:42 AM
LEO VON SCHEBEN, Commissioner, Department of Transportation &
Public Facilities (DOT&PF), explained that the DOT&PF has been
extremely busy since the passage of the American Recovery and
Reinvestment Act of 2009 (ARRA). The ARRA increased the DOT&PF
funds by about 20 percent. The DOT&PF received approximately
$170 million in ARRA funds, was required to obligate 50 percent
by midsummer, and has more than met that requirement. The
DOT&PF has 19 ARRA projects in full swing this year. Of the
states that receive ARRA funds, Alaska is ranked 13th in terms
of spending its share and 38th nationally for meeting spending
obligations. The Federal Highway Administration (FHWA)
currently has the federal aid agreement in hand, which
essentially tells the FHWA that the state intends to spend all
of the 2009 funds.
MR. VON SCHEBEN offered to briefly touch on the state's needs.
First, he explained Alaska's needs dictate about $8 billion of
required transportation infrastructure. The state's current
deferred maintenance needs exceed $430 million, which are
divided between aviation, highways, facilities and statewide
harbor maintenance, and the Alaska Marine Highway System (AMHS).
Our challenges are preserving and protecting Alaska's
infrastructure. Once certainty is that FHWA funds are
decreasing and Alaska will receive less in federal funding. The
annual trend has been for inflation to outpace maintenance and
operations, which has happened for more than 20 years. He
pointed out that Alaska is not eligible for about 20 percent of
the new funds from the Surface Transportation Authorization bill
since funding will be tied to population and Alaska has a small
population. Alaska's overall funding for highways will remain
flat or may be less than flat. The federal funding bill in the
reauthorization mode lends itself to transit, trains, and
trails, or the 3 T's. This bill will not address new highways,
congestion, or similar funding needs. The AMHS continues to
perform well and he is pleased that while the AMHS has an aging
fleet, the AMHS is working to replace vessels. The DOT&PF is
currently working on Alaska Quest Ferry. Three of the motor
vessels (M/V), the M/V Taku, the M/V Malaspina and the M/V
Matanuska are over 46 years old, and the M/V Tustumena is 45
years old, and the DOT&PF views ferry replacement at 50 -55 of
age, with 5 - 6 years required to build the vessels; therefore
it is a good time to begin the planning phase.
COMMISISONER VON SCHEBEN turned to a brief overview of aviation.
One of the department's highest priorities is the need for more
than $54 million in deferred maintenance for the state's
airports. These airports remain the state's responsibility;
under the federal Gramm assurances airports must be maintained
or the state risks affecting potential capital grants. One
troubling challenge has been workforce retention; the workforce
is "graying." One-third of his employees will be eligible to
retire in the next five years. Hiring is still difficult, even
in face of the troubled economy.
10:01:12 AM
COMMISISONER VON SCHEBEN acknowledged his great staff at the
DOT&PF. Without them the department would not be able to
perform well. He mentioned numerous projects statewide,
including the airport at Unalakleet near Nome, and the highway
interchange at North Pole. He concluded by stating that his
staff will update the committee.
10:05:50 AM
REPRESENTATIVE GRUENBERG asked about the impact of defined
contribution plan on early retirements with respect to workforce
retention.
COMMISSIONER VON SCHEBEN said he did not believe that is the
problem so much as the state salaries cannot compete with the
salary schedule of the federal government or the private sector.
He recalled at one time the state salaries were much greater
than the private sector, but that gradually changed. However,
he said he believes that even if the state offers more money,
people will still retire, but he hates to see productive people
retire.
REPRESENTATIVE GRUENBERG asked if the defined contribution had
any impact on the department's ability to attract employees.
COMMISSIONER VON SCHEBEN answered that he finds the biggest
issue is the lower salary and secondly, finding the talent. He
agreed to provide the results of an in-house survey to the
committee
10:08:23 AM
REPRESENTATIVE MUNOZ asked if the ARRA requirements are onerous.
COMMISSIONER VON SCHEBEN answered yes, but while meeting the
ARRA is a lot of work, it is worth the benefits the state
receives. Furthermore, the DOT&PF had numerous projects on the
shelf to take advantage of the stimulus funds, but the
department does not currently have many projects on the shelf.
10:10:02 AM
SENATOR MENARD asked whether the state's policy that limits re-
hiring retired state engineers or other professionals as
contract employees has hurt his department.
COMMISSIONER VON SCHEBEN answered yes, adding that he has
employees who will need to phase out because of the policy.
SENATOR MENARD related her concern that as some employees
retire, agencies are not attempting to hire new employees, but
are simply hiring the retirees within a couple of days of their
retirement.
COMMISSIONER VON SCHEBEN answered that as commissioner he wants
to have all the tools available for hiring personnel. He
characterized his mentality as a private sector mentality so he
tries hard to keep his good staff.
10:12:49 AM
REPRESENTATIVE JOHANSEN related his understanding that currently
the administration is working with the governor on the budget
and the Surface Transportation Improvement Program (STIP). He
asked for the process for submitting projects for inclusion in
the governor's capital budget, and what is the process to rank
or score projects for general fund consideration.
COMMISSIONER VON SCHEBEN answered that the DOT&PF is currently
still in the planning process and no decisions have been made as
yet.
COMMISSIONER VON SCHEBEN, in response to Representative
Johansen, said he was unsure that he could answer whether any
strictly general fund project was placed in the Governor's
budget or the speak to the process.
10:15:15 AM
REPRESENTATIVE DOOGAN expressed interest in how confident the
DOT&PF is that it can prioritize the projects; and whether the
DOT&PF's project priority list is available to the committee.
COMMISSIONER VON SCHEBEN answered the DOT&PF prioritizes
projects and once the priorities are made the results could be
shared.
10:17:02 AM
REPRESENTATIVE DOOGAN offered that he wants to be sure a
sufficient departmental priority list based on criteria will be
available.
COMMISSIONER VON SCHEBEN answered that the figures for
transportation needs are staggering, including the estimate for
infrastructure for the proposed natural gas line. The general
obligation (G.O.) bonds necessary are estimated at $270 million.
The DOT&PF is one of the three legs of the three-legged stool,
and DOT&PF must work closely with the executive and legislative
branches to insure that the process works well. He offered to
share information on the department's project priorities once it
is finalized.
10:18:50 AM
REPRESENTATIVE JOHANSEN asked if commissioner is one of the
scorers of the STIP.
COMMISSIONER VON SCHEBEN replied no, that he reviews the overall
process.
REPRESENTATIVE JOHANSEN recalled the regional directors
prioritize and asked whether the process is open to the public.
COMMISSIONER VON SCHEBEN replied yes.
CHAIR WILSON said she has previously attended the scoring
sessions.
10:20:20 AM
REPRESENTATIVE GRUENBERG expressed concern that Alaska will not
be eligible for about 20 percent of the federal funding for
trains, trails, and transit due to the population restrictions.
He asked to focus on the AMHS as a means of mass transit and the
only means for some. He inquired whether an exception to the
federal population requirement is being considered for the 3 Ts.
COMMISSIONER VON SCHEBEN agreed that the AMHS serves such a
large area, yet funding the AMHS remains a problem. He deferred
to staff, but agreed the population constraint will hurt the
state since a population of 500,000 is the cut-off.
10:23:56 AM
CHRISTINE KLEIN, Deputy Commissioner, Aviation, Department of
Transportation & Public Facilities (DOT&PF), reviewed the
strengths of Alaska's aviation system, including that it is the
largest in the U.S. and larger than the Russian Federation of
Airports, with 258 state-owned airports, and over 700 airports
recognized by the Federal Aviation Administration [slide 1].
She noted 173 airports are gravel, and Southeast Alaska has 37
seaplane docks, since it relies on floatplanes. In Alaska,
aviation is the main mode of transportation and in 77 percent of
the communities, this mode often provides the only access in and
out of the community, but 88 percent of communities in the
Northern and Central Regions of state rely solely on aviation
for access.
10:27:32 AM
MS. KLEIN discussed the economic contribution of airports to the
state [slide 2]. Some 47,000 jobs statewide in rural and urban
areas are related to aviation and airports. If the Department
of Labor & Workforce Development (DLWD) separated out this
sector it would be the fifth largest provider of the state's
gross product since it contributes $3.5 billion to the state's
$44 billion gross product, or about 8 percent of the state's
economy. She explained that the aviation jobs and economic
impact is twice the national average. Even villages have
someone who works in the airport or on airport related
activities [slide 3]. About 2,000 jobs are directly related to
municipal and state airport operations, with 25,000 jobs related
to on-site businesses, the air carriers, the cargo carriers, and
fuel and support service providers, and an additional 20,000
jobs due to the multiplier effect, totaling 47,000 jobs
statewide. Thus, 10 percent of all jobs in Alaska are due to
the aviation industry, she said. In 2007, of $3.4 billion of
the state's gross domestic product; based on the DLWD, $2
billion were direct expenditures on the airports, and $1.4
billion were indirect expenditures, for a total of 8 percent of
the state's gross state product (GSP), compared to 5.6 percent
nationwide. The aviation industry is larger than the trade,
construction and manufacturing, health and education, and
hospitality and leisure sections.
10:30:34 AM
MS. KLEIN highlighted issues and challenges, including that
Alaska has a small population but receives a larger share of
federal funds [slide 4]. The state received $78.3 million for
airport projects, one the largest sums in ARRA funding due to
the state's aviation system. Even some small communities such
as Ouzinkie have airports. The DOT&PF follows an onerous
project prioritization process for all its projects. Over 16
technical and engineering criteria are used to rank every
project considered for funding. She invited members to
participate.
10:32:40 AM
MS. KLEIN, in response to Representative Johansen, explained
that project prioritization applies to federally funded
projects, but also applies to state-funded airport projects,
although there are not many state-funded airport projects. In
further response, Ms. Klein answered that the DOT&PF would still
rank projects even if the DOT&PF requested general fund monies.
She offered that sometimes legislators add projects in addition
to the DOT&PF process for project inclusion.
10:33:30 AM
REPRESENTATIVE JOHANSEN surmised that whether a project is
funded through federal funds or state general funds and is
submitted by a legislator or the Governor, the same
prioritization process is used.
MS. KLEIN replied yes. She related that 95 percent of the
airport projects are federally-funded projects.
10:34:25 AM
REPRESENTATIVE JOHANSEN recalled the DOT&PF commissioner's
discussion yesterday regarding road projects. He asked whether
the system is different for aviation.
MS. KLEIN agreed that the process DOT&PF uses for aviation
projects is a different system and process than the one used to
prioritize road projects. In response to Representative
Johansen, Ms. Klein agreed that the process for aviation general
fund projects is different than the one used to develop
priorities for road projects.
10:35:16 AM
MS. KLEIN explained that some concern was expressed by Lower 48
states since Alaska receives a large sum of federal Aviation
Improvement Program (AIP) authorizations. Alaska receives about
7 percent of all AIP funding. Thus, questions arise as to
whether Alaska should spend such large sums for such small
communities. One of the criteria considered is if aviation
provides the only access for communities. Therefore, the AIP
becomes heavily weighted due to access and safety issues in such
situations.
10:36:45 AM
CHAIR WILSON recalled that one airport, Bethel, averaged three
MEDEVACs per day due to smaller villages funneling in injuries
to the regional hub.
MS. KLEIN related that the Bethel hub is the third busiest
airport in the state, serving 27 active villages in the area.
10:37:31 AM
MS. KLEIN reviewed another challenge, which she identified as
the federal unfunded mandate and the costs [slide 5]. This is a
particularly difficult challenge in maintenance and operations
for airports, roads, and the AMHS. Aviation has seen increases
in federal oversight for security from the Transportation
Security Administration, the Department of Homeland Security; as
well as increased requirements, including runway marking
standards, wetlands mitigation, and de-icing. Many of the
requirements have become more stringent over the years, which
add costs to projects without funds to address them. The runway
safety standards can add $20 -$40 million to a project for the
FAA requirements for safety for larger aircraft. The FAA Part
139 airports, which are the larger airports that provide jet
service, have even more onerous requirements due to additional
safety, fire protection, law enforcement and other requirements.
Thus, the additional requirements create large impacts to the
DOT&PF budget, which remain at the same level of funding for
many years. Additionally, there are escalating costs in remote
locations and materials. She remarked that most of the gravel
is barged in or shipped to some of the airports the committee
toured. Thus, the cost can double or triple because the
materials must be transported to villages from other regions in
the state, particularly in Southwest Alaska.
10:39:47 AM
REPRESENTATIVE JOHANSEN recalled an article by the University of
Alaska Fairbanks (UAF) on its efforts to explore using
experimental northern grasses on runways. He further recalled
that it was about $600 per yard for gravel. He asked whether
the DOT&PF has considered this as an option.
MS. KLEIN said she has not yet had a chance to coordinate with
UAF. The UAF agricultural components have been using grasses
and sedges to control dust and slopes, and some of these grasses
may be applicable. She offered to check into the issue.
10:42:10 AM
REPRESENTATIVE DOOGAN reverted to the question Representative
Johansen asked earlier. He inquired as to how projects that are
strictly state general fund are prioritized. He related his
understanding that the division and the department has a list of
prioritized projects complied in a list to seek legislative
funding approval.
MS. KLEIN said she was unaware of any 100 percent general funded
airport projects, but offered to check on this matter. In
response to Representative Doogan, Ms. Klein agreed that the
aviation projects are compiled on one list, but she asked to
defer to staff.
10:43:47 AM
ROGER MAAGARD, Rural System Airport Development Manager,
Statewide Aviation, Department of Transportation & Public
Facilities (DOT&PF), explained the funding process. He said
that the DOT&PF uses 3 sets of criteria to evaluate airport
projects: One for airfield projects, the second for facility
projects, and the third for construction projects. These are
DOT&PF criteria. The FAA has its own set of criteria, the
national priority rating, which uses different criteria. The
state uses its criteria to study internal priorities. While the
FAA does not specifically require the state to have its own
criteria, the state's criteria is specific to Alaska to
emphasize the safety and economic development concerns. He
recapped that the three set of criteria the state uses each
generates priority scores, which aren't necessarily comparable
with buildings, the airfield, and any equipment. Thus, the
state maintains a balancing act between the aforementioned three
sets of criteria designed to meet the highest building needs,
equipment, and airfield needs such as paving and gravel.
10:46:33 AM
REPRESENTATIVE DOOGAN recalled that Commissioner von Scheben
advised the committee DOT&PF road projects can be built faster
when the department uses general funds to build highways because
fewer hoops are required. He asked if the same thing is true
for airports.
MR. MAAGARD replied yes. He explained that that process would
avoid going through the environmental processes. The typical
environmental assessment and development process generally
requires 18 months. If a project, such as one in Sitka,
requires an environmental impact statement (EIS), the FAA is in
charge of the EIS and it has spent eight years evaluating
impacts at the Sitka airport. If the solution is a simple
matter like putting down gravel on an existing runway or
repaving an existing runway, it can generally be done by using a
categorical exclusion to the EIS, which can be processed in a
matter of weeks or months.
REPRESENTATIVE DOOGAN recalled the committee's tour of rural
airports, and visiting the Chefornak airway, which desperately
needs work. He asked if the legislature decided to fix up that
airport, whether the project would undergo the same evaluation
process as everything else or would it have the same advantages
as a general fund road.
MR. MAAGARD agreed the project could be done quicker. In
response to Representative Doogan, he clarified that the
evaluation process would be faster.
10:50:07 AM
MS. KLEIN explained that federal earmarks require grant
assurances. Most of the airports in Alaska were built with
federal funds. Thus, when accepting the earmarks, the state
must consent to a 20-year obligation to manage and operate these
airports to a higher standard. The deferred maintenance and
life safety maintenance are performed with general fund monies.
MS. KLEIN described some challenges for fiscal year 2011 and on
since the state anticipates receiving less federal funding for
airports, particularly for smaller airports [slide 7]. On
average, the state receives about $180 million in federal
funding for its airports. The rural airports receive about 80
percent, while the international airports receive about 20
percent of the annual funding. The funding formula is 95
percent federal funds, and the DOT&PF primarily requests general
fund for the matching funds. Requests for operating and
maintenance costs are general fund requests for rural airports.
MS. KLEIN explained that the demand for airport services is
increasing faster than the DOT&PF can address them [slide 8].
For example, the Bethel Airport would like longer hours of
operation since it is a busy hub. Faster airplanes require
longer runways, and also have additional safety concerns. As
people demand faster aircraft, the DOT&PF needs better runway
surfaces, turning areas, and aprons.
MS. KLEIN discussed airport maintenance and operations [slide
8]. Many issues the committee saw during its tour are safety
issues such as surface and snow removal issues. The airport
managers typically have small contracts but try to keep the
airports open longer and fulfill higher expectations. The
operating funds from the state's general fund are stretched
further and further. Thus some demands aren't met. She pointed
out some airports produce a small amount of funds through
leases, totaling about $3.9 million per year.
10:54:35 AM
MS. KLEIN explained that this photograph illustrates the soft
runway surface at South Naknek airport which becomes a safety
issue, [slide 8]. In the past two years the DOT&PF identified
over $98 million in deferred maintenance for over 200
maintenance project. The core funds that are relied upon are
from four sources: Airport Safety Requests - covers lights,
wind aids, and navigation aids; Runway - covers surfaces,
vegetations, and paving; Deferred Maintenance - drainage
erosion, buildings, equipment; and Security - fences and gates.
10:56:36 AM
MS. KLEIN characterized the deferred maintenance needs as
significant. The DOT&PF has identified over $98.9 million in
deferred maintenance, which includes access roadways. She
related to four "buckets" of funds for airport capital needs :
airport safety including lighting, navaids, electrical, and
windsocks; the airport surfaces, which includes gravel for
Southwest Alaska and Northwest Alaska areas; deferred
maintenance, including drainage erosion issues, and building
repair; and security requirements including fences and gates.
MS. KLEIN offered that the DOT&PF capital funding needs total
about $1.5 billion - similar to roads. Airports are held to
different standards, depending on whether it is a primary
airport or non-primary.
10:57:22 AM
CHAIR WILSON inquired as to how many primary airports are in the
state.
MS. KLEIN answered that between 22 - 27 airports are considered
primary airports, including Bethel. However, the Bethel airport
is dependent upon the 140,000 emplanements and over 200,000
operations. In further response to Chair Wilson, she answered
that about 230 airports are non-primary airports.
10:58:14 AM
MS. KLEIN discussed rural workforce and training [slide 11].
She explained that workforce presents challenges, particularly
in rural Alaska in terms of obtaining a skilled workforce. She
stated that one challenge is to provide training to rural
maintenance and operations contractors on how to appropriately
operate equipment on an airport runway. The DOT&PF is also
reviewing technical airport training on the airport surfaces,
consisting of at least five components. She related that the
DOT&PF continues to seek approval of an apprenticeship program.
11:00:07 AM
MS. KLEIN provided a recap [slide 12]. She explained that the
state needs to review a new funding model to operate and
maintain rural airports. Currently, it costs from $30 - $35
million to operate the 256 airports in the state. Revenues have
increased by 6.5 percent in the past year. The DOT&PF needs to
train its workforce better, and increase operating hours.
Commissioner von Scheben has discussed and will continue to
discuss a state-funded transportation fund in order to move
projects through faster and avoid the 20-year grant guarantee.
MS. KLEIN stated that the Nunapitchuk airport must be reached by
ferry [slide 13].
11:02:05 AM
SENATOR MENARD asked whether the state has coordinated efforts
with other cold climates regions with respect to materials.
MS. KLEIN answered that there are some organizations, primarily
American Association of Airport Executives, and the Airports
Council International, of which Alaska is a member. She said
there is not an organization strictly for northern airports,
because it is a much smaller group, particularly the large scale
airports. The state has won awards for its efforts on snow
removal, and the DOT&PF does coordinate with Russia and Siberia.
She offered that she has hosted two groups, and has also visited
Moscow. The DOT&PF was just notified this week that the Russian
Federation of Aviation would like to return to Alaska to observe
rural airports.
SENATOR MENARD suggested that Midwestern states could also be
helpful in such discussions.
11:05:25 AM
REPRESENTATIVE GRUENBERG explained that the state is facing a
lawsuit on the constitutionality of cruise ship head tax. He
further explained that the allowable uses of those funds are
governed by new federal law and constitutional principles are
largely governed by the Interstate Commerce Clause. The model
is based on federal legislation that involves airports and
assesses fees. He asked if there is a list as to the allowable
uses of those federal funds that the state could review as a
template for the allowable uses of cruise ship head tax.
MS. KLEIN answered yes. The funds in question are passenger
facility charges, which are collected by the airlines, submitted
to the FAA, and the monies are returned to airports in the form
of grants. The process must undergo federal approval and abide
by federal regulations. She characterized the process as
lengthy with strict requirements for how the funds can be used,
typically for those things that are not funded such as
terminals, and buildings. She offered to provide the federal
guidelines to the committee.
REPRESENTATIVE GRUENBERG remarked that the definite parallels
between the industries and perhaps the state should review what
has been done with airport fees.
11:08:53 AM
CHAIR WILSON remarked that Sitka receives funds because of the
passenger tax, but not every airport receives the funding. She
recalled that the first or second airport receives the funding.
11:09:52 AM
REPRESENTATIVE GRUENBERG clarified that he is interested in the
projects themselves. He remarked that one case allows maritime
taxes to be used for emergency vehicles.
MS. KLEIN agreed to provide federal criteria list to the
committee.
11:11:35 AM
REPRESENTATIVE JOHANSEN pointed out the extensive capital needs,
of which 70 percent is for runway surfaces. He stated that he
will ask the commissioner for ways the department is seeking
solutions in the area of rural airports.
11:13:24 AM
JIM BEEDLE, Deputy Commissioner of Marine Operations, Marine
Highway System (AMHS), Department of Transportation & Public
Facilities (DOT&PF), shared a photo of an older ferry and a
newer fast ferry [cover slide - slide 1]. He pointed out that
the older ferry runs about 17 knots, and the fast ferry runs
about 36 knots. He remarked that the AMHS is really running
fairly smoothly. In September 2005, the DOT&PF recognized the
AMHS as an all American road. The AMHS is the only road in the
nation with this distinction. The AMHS has committed
professional staff on the vessels and at its central office in
Ketchikan. He commended Captain John Falvey for his performance
and Commissioner von Scheben for his guidance.
MR. BEEDLE provided statistics on the ferry system, which is
3,500 miles long [slide 2]. He compared the number of miles in
the British Columbia (BC) ferry systems with the BC ferry route
at 755 miles and the Washington State Ferries at 200 miles.
Then he compared the low ferry ridership in Alaska to the 25 and
21 million people transported in the BC and Washington State
systems. The DOT&PF has been working to insure that ferry boat
discretionary fund considers the length of AMHS to insure Alaska
obtain funds.
MR. BEEDLE discussed the AMHS route [slide 3]. He described the
route since it passes through Canada. New rules from 9/11,
Canadian customs, differences between the felony crimes in
Canada and the U.S. creates issues, including that a driving
while under the influence conviction in the U.S. is considered a
felony in Canada. The AMHS passengers are affected by Canadian
custom's requirements for single parent travel, custom's
restrictions, and new passport requirements.
11:19:41 AM
MR. BEEDLE explained that the four vessels highlighted [M/V
Malaspina, M/V Taku, M/V Matanuska, and M/V Tustumena] were
purchased with voter approved general obligation (GO) bonds in
November 1960 [slide 3]. Of the $18 million total cost, $3
million went to the docks, the remaining $15 million was spent
on vessels. All four vessels will come to end of life at the
same period of time. The DOT&PF's challenge will be to manage
replacement cost of these vessels as soon as possible. The
Alaska Class ferry is just the beginning, he said. Since the
M/V Tustumena is an ocean going vessel, its replacement will
also need to be replaced in-kind with staterooms due to the
length of the run. New engines are needed on three vessels, the
M/V Columbia, M/V Malaspina, and the M/V Aurora, which are high
cost items with long lead times. The M/V Columbia must be done
soon; the plan is to replace the M/V Malaspina with an Alaska
Class ferry, if not, the engines will need to be replaced. The
M/V Aurora's engines are working well but will need replaced.
The fast ferries will require repowering in 2013 and 2014 due to
the wear and tear on high speed engines.
MR. BEEDLE discussed federal funding [slide 6]. He related that
AMHS has two federal earmarks in the ferry boat discretionary
portion of the federal highway bill. The AMHS receives $17.5
million per year from the two federal earmarks. He anticipated
what will come out of the new federal authorization is unknown.
Even if the AMHS receives the full $17 million, the cost to
repair and maintain the aging vessels has increased so
additional monies will be needed. The AMHS will come to the
legislature with requests to cover any federal short falls, as
the maintenance is important to meet safety requirements.
11:23:20 AM
MR. BEEDLE explained the AMHS early vessel schedule releases,
which help the public plan trips, but falls ahead of the
appropriation schedule [slide 6].
REPRESENTATIVE JOHANSEN remarked that the AMHS competes with
other transportation system. He asked whether the cruise
industry books reservations two years out.
MR. BEEDLE responded that the travel industry has begged the
AMHS for an early released schedule, in fact, while October 1st
is the earliest the AMHS can schedule each year; it cannot plan
a two-year in advance schedule due to budget schedule and how
the AMHS is funded.
REPRESENTATIVE JOHANSEN stated that the AMHS should just move
forward and have confidence the legislature will support. He
applauded the DOT&PF performance with respect to the AMHS. He
offered that the DOT&PF will lose if it cannot plan in advance.
Consistency is necessary for successful AMHS operation. In
response to Representative Johansen, Mr. Beedle advised that the
administration has provided cooperation and support to allow the
AMHS to publish a schedule in October. However, he stated that
if he overspends his budget, he could be prosecuted.
CHAIR WILSON offered the committee's assistance in terms of
forward funding for the AMHS.
11:28:41 AM
MR. BEEDLE, in response to Representative Doogan explained that
disclaimer information is currently printed in the schedule, but
customer service problems result when schedule changes are made.
He surmised that when some people travel to Alaska they are
taking the trip of their life, and become very angry if the AMHS
schedule changes and they cannot make their destination. It is
not as though they can put their recreational vehicle on an
airplane. He has worked for the agency for 30 years and has
seen people suffer when the ferries have mechanical problems.
There seems to be a willingness by the public to understand
mechanical failures, but it does not extend to schedule changes
do to financial issues or other administrative issues.
REPRESENTATIVE DOOGAN asked whether the state is just that much
more risk averse. The airlines frequently change their
schedules, he stated.
MR. BEEDLE surmised that has to do with the service level. He
described a scenario in which a passenger in Bellingham awaits a
one-week sailing which is then cancelled. The stranded person
may need to route through Canada to reach Alaska, he said.
Alternatives are complicated, especially in instances in which
the only monthly trip to the Aleutians or a ferry crossing Gulf
of Alaska is eliminated, especially since many people are
driving recreational vehicles. There are not necessarily other
options, or even timely ones, he said.
REPRESENTATIVE DOOGAN surmised that the AMHS has a fairly
healthy dose of bureaucratic risk aversion. If the state is
going to operate the ferry as a business operates, that it must
be ruthless. He remarked that if one of the problems associated
with low ridership is the lack of two-year advance schedule,
that AMHA should address the issue. He advocated for a two-year
schedule, with the understanding that changes may occur.
11:33:19 AM
SENATOR MENARD suggested that a disclaimer should be included on
brochure or printed schedule.
MR. BEEDLE pointed out that the AMHS already has a disclaimer in
its brochures, on its websites, and on its tickets. Still, from
a customer service perspective the issue is different. He
agreed the day boat schedules can be printed in advance, but the
AMHS found that tourists would rather take the long-haul
ferries. He agreed that further the scheduling can be done in
advance, the better. It is a huge risk if the budget changes
and the AMHS does not secure sufficient funding, that the local
public is affected by the associated budget cuts since it will
result in cuts in fall/winter when it hurts Alaskans. Nearly
the entire state capital budget for AMHS is used for vessel
licensing for the next year. The legislature has directed AMHS
to perform overhauls within the state and the rates are
negotiated in advance since the only way to program the
overhauls is to have built-in costs. When the Governor's
capital budget is cut, it affects vessel licensing, he said.
Additionally, breakdowns of ferries cannot be predicted or
subsequently addressed in the schedule. Thus, risks are
inherently involved to schedule two years in advance.
11:37:05 AM
SENATOR MENARD understood that the AMHS wants forward funding.
She thinks the AMHS needs a "think tank" approach to lower some
of this concern in order to provide solutions.
MR. BEEDLE said that currently he is quite happy just to have
the schedule already printed for next summer.
11:38:41 AM
REPRESENTATIVE MUNOZ supported the concept of forward funding of
the AMHS. She asked how the new requirements for passports
would affect her constituents as they travel through Canada on
the AMHS system.
MR. BEEDLE explained that as long as passengers are traveling on
an Alaskan ferry, they will not actually enter Canada since they
do not stop in a Canadian port enroute Alaska. Thus, her
constituents will not need a passport to travel from Juneau to
Bellingham.
REPRESENTATIVE MUNOZ understood that passports are for those
getting disembarking in Prince Rupert, Canada, or traveling
northbound to Haines, and then driving through Canada.
MR. BEEDLE replied yes.
REPRESENTATIVE MUNOZ remarked that Washington State is also
facing similar passport issues and is proposing identification
with more information embedded in the license.
MR. BEEDLE pointed out that a U.S. Customs passport
identification card is also available in addition to a full
passport. The identification cards can be used by persons
driving to Canada or Mexico. However, the key is that a person
traveling needs to know in advance about the identification
cards to allow for processing time.
11:41:50 AM
REPRESENTATIVE JOHANSEN commended Mr. Beedle on his job
performance.
MR. BEEDLE, in response to Representative Johansen, explained
that the decision to reduce the second sailing from Bellingham
to Ketchikan was timely due to the economic downturn. The
second vessel in the Bellingham run only increases revenue by 18
percent. The second ferry run, with the availability of
staterooms and vehicle space, made it very comfortable and
practical for passengers since they could always get a vehicle
and cabin. The second vessel elimination saved the state money,
although it created inconvenience for passengers, he said. He
then discussed the Prince Rupert schedule and passport issues.
If the terminus was Prince Rupert, two round trips could be made
in one week, while departing from Bellingham only one northbound
and southbound ferry trip is possible during the same time. The
issue with the passport requirement is the processing time so
passengers must know in advance of reaching the border, he
stressed. Prince Rupert is still very important in regard to
providing adequate service levels in Southeast Alaska.
11:46:28 AM
MR. BEEDLE, in response to Representative Johansen, returned to
slide 4, and answered that the M/V Lituya provides two trips a
day between Ketchikan and Metlakatla. He explained that five
employees and one crew provide service five days per week. The
community extended the road system to shorten the run. A dock
is also being considered, and if implemented will reduce costs,
including AMHS overtime. In further response to Representative
Johansen, Mr. Beedle answered that the M/V Lituya is the
smallest vessel, but it manages to serve one community of 13,000
and another of 1,300, with each resident traveling about ten
times a year. The M/V Lituya is a model of what is possible to
achieve in the future, he said.
11:48:58 AM
REPRESENTATIVE DOOGAN inquired as to which are the four oldest
would be replaced by Alaska Class vessels.
MR. BEEDLE answered that the M/V Malaspina is using its original
engine, but the other three vessels of the same age have already
had engine replacements. Since the proposed replacement vessel
is anticipated at $25 million, the state will save money if it
can replace the M/V Malaspina's engine. All three vessels are
in different conditions, so when the Alaska Class ferries come
on line the AMHS will need to reassess ferry vessel conditions
and prioritize vessel replacements. It is difficult to project
at this point, he said.
MR. BEEDLE, in response to Representative Doogan, explained that
if three Alaska class vessels were purchased, two of main liners
would be eliminated, and the AMHS would have to decide which two
would be replaced. Currently, the AMHS is focused on replacing
the M/V Malaspina. In order to enter Canada vessels must meet
safety of life at sea (SOLACE) regulations - the M/V Malaspina
and M/V Matanuska do not meet the regulations, which is one
reason these vessels are on the Bellingham run or are used as
day boats. The Alaska Class vessels will meet the SOLACE
requirements.
11:51:43 AM
REPRESENTATIVE GRUENBERG recalled Commissioner von Scheben
previously stated the DOT&PF is losing 20 percent of the federal
funding because the state is not eligible for federal mass
transit funding. He asked if AMHS is only considered transit
for certain parts of the state.
MR. BEEDLE related that the department makes comments and
recommendations to the FHWA. He agreed that Alaska's low
population proves to be difficult, but if the state is
successful in making its case to the FHWA to use distance as
criteria, that would be considered a victory for Alaska.
REPRESENTATIVE GRUENBERG recalled traveling to Scotland and
traveling on some of the ferry systems. He related that several
private companies provide ferry service. He offered to share
his books and information on the Scotland ferry system to the
administration.
MR. BEEDLE expressed his interest in reviewing the information.
The contract for the Southeast Transportation Plan will research
whether lower-end vessels that are more economical to run and
these smaller vessels may help address needs of smaller
communities. The goal is to take care of the small communities
in an economical and efficient manner. In further response, Mr.
Beedle offered to make the information available to the
committee.
11:56:59 AM
REPRESENTATIVE GRUENBERG expressed concern with the new federal
9/11 requirements that make it difficult for Canadians and
Alaskans to cross the border. He offered that it may be helpful
to share information with British Columbia and work together to
make it easier for travelers.
MR. BEEDLE discussed increasing regulations [slide 12]. He
remarked that most of the changes in Canada are driven from the
U.S. laws stemming from 9/11 restrictions. Radiation detection
systems are under consideration in the airline industry, and
whatever occurs in the airline industry tends to filter down to
marine industry. The rules could drastically change the system,
particularly as it pertains to another country, such as Canada,
he opined.
CHAIR WILSON asked whether the AMHS brochures could include
information suggesting to potential travelers that it may be
wise to bring a passport in case it is necessary for the ferry
to stop at a port such as one in Canada.
MR. BEEDLE agreed that is a good idea and he will follow up on
it.
12:00:31 PM
MR. BEEDLE, in response to Representative Johansen, answered
that the AMHS negotiates its employee contracts and one of the
negotiated terms is for employees to travel for free travel on
the AMHS. He explained that union contract negotiations have
much control over how AMHS does its business, for example, with
setting the crew schedules. In further response to
Representative Johansen, he confirmed that the crew terms and
travel are negotiated by contract.
12:02:27 PM
MR. BEEDLE, in response to Representative Munoz, answered that
the specific restriction on Americans convicted of a DUI has
been in place for some time and is one of many ways that an
individual can be inadmissible to Canada. In further response
to Representative Munoz, he explained the Canadian process for
handling DUIs; that a fee for entry is established for
rehabilitation. He surmised that the fee for DUI rehabilitation
diminishes over time, but recalled the standard fee for U.S.
residents with a DUI conviction is $250 to be admitted to
Canada.
12:03:35 PM
MR. BEEDLE continued. He explained that federal regulations
impact the AMHS in different ways, but add to the cost of doing
business and can result in a vessel being shut down. For
example, the AMHS has a $5 million fund established to upgrade
the marine sanitary devices.
12:05:08 PM
The committee took an at-ease from 12:05 p.m. to 12:17 p.m.
12:17:35 PM
FRANK RICHARDS, Deputy Commissioner, Highways and Public
Facilities, Department of Transportation & Public Facilities
(DOT&PF), remarked on the importance of the committee travel
taken the past two days to see the state's infrastructure first-
hand, which is invaluable. He recognized efforts that the
Central Region staff took to present to the committee. He
explained that his overview today will review funding issues,
including the next federal authorization, and will provide an
update on the stimulus funds, or the American Recovery and
Reinvestment Act of 2009 (ARRA) funds.
MR. RICHARDS reviewed the DOT&PF's mission, which is to provide
for the safe movement of people and goods and the delivery of
state services [slide 2]. He identified ports and harbors that
the state still owns after divestiture [slide 3 -4]. The DOT&PF
previously owned 100 harbors, but many have now been turned over
to local governments in the state. The state currently has 25
state-owned harbors. Most of the facilities the state still
owns are located in unincorporated areas, and these harbors are
the focal point of economic activity, including marine and
aviation activities. The DOT&PF's goal has been to provide the
harbors to the communities who charge and collect harbor fees
that fund on-going harbor maintenance. The DOT&PF has capital
programs, under the Corps of Engineers Program and Municipal
Harbor Facility Grants under AS 29.60.800.
MR. RICHARDS offered challenges and harbor needs, including
depictions of bent piles, corroded pipes, and timber floats in
disrepair [slide 5]. He reviewed current statewide harbor
projects [slide 6]. He explained that the statewide harbor
projects use Municipal Harbor Facility Grants, matching funds,
debt reimbursement, and U.S. Army Corps of Engineers funds. The
projects run across the coastal spectrum of the state as far
north as the Port of Nome. The DOT&PF has noticed more needs
for northern ports that are opening up to traffic due to warming
trends, he stated.
MR. RICHARDS provided details on the Municipal Harbor Facility
Grants program [slide 7]. The grant program was established in
2006 to provide financial assistance to municipal harbor
facilities. The program requires an annual appropriation from
the legislature, offers 50/50 matching grants, ranging from $5
thousand to a cap of $50 thousand. He explained that the
projects are locally managed projects; Tier I grants can be used
on previously owned facilities for major maintenance, and Tier
II grants can be used for projects for all municipal facilities.
12:23:20 PM
MR. RICHARDS shifted to the National Highway System (NHS) and
referred to a photograph and map which illustrates the major
highways in the state that represents the 2,113 center line
miles in the state [slide 8]. The state has different highway
categories, and the NHS falls under the FHWA definitions, which
are basically the major highways, the major economic byways,
which include the Dalton Highway, Parks Highway, Seward Highway,
and Glenn Highway representing 2,113 center line miles.
12:23:59 PM
CHAIR WILSON returned to the Tier I and II grants and inquired
whether some communities did not take advantage of the grants
because of lack of funds or due to the communities' status. She
recalled a town in her district with few year-round residents.
MR. RICHARDS answered that state facilities in unincorporated
areas fall under state responsibility, but the DOT&PF would not
apply for grants. Instead, these grants are awarded for
municipal-owned facilities. Thus, if the facility is located in
an unincorporated area, and is not a state asset, the
constituents would request a direct appropriation from the
legislature. For example, near Juneau, the port facility at
Point Couverton is a state asset and maintenance is funded by
the department rather than the grant program.
12:25:20 PM
CHAIR WILSON asked what the state does when the state-owned
port facility's deterioration poses a hazard.
MR. RICHARDS related that when the DOT&PF is made aware of an
emergency situation, it would determine whether existing funding
was available for the repairs. If not, the DOT&PF would ask for
supplemental budget funding from the legislature for the
repairs. Part of the DOT&PF's mission is to provide for safe
transportation so when an emergency arises, for example, a dock
is damaged during a vessel docking, that the DOT&PF would take
the necessary steps to repair the state's asset, and if
necessary would request additional funding from the legislature
to perform the work. The process is similar to the one taken
when a road washes out and the DOT&PF must repair the road.
12:27:09 PM
MR. RICHARDS reviewed the Alaska Highway System (AHS) [slide 9].
These roads are roads that are outside specific municipalities,
including the Steese Highway, Denali Highway, or the 110 miles
of gravel roads outside Nome leading to other communities.
These roads typically face funding challenges so the DOT&PF
classified them as the AHS category roads in order to help
provide funding opportunities to meet residents' needs. He
provided details on specific current highway funding needs
totaling $8 billion [slide 10]. He noted that the list is only
a partial list limited to highway needs and not facility needs.
The list addresses needs such as urban capacity and congestion
relief, Highway Safety Corridors (HSC), and bringing the
National Highway System (NHS) up to current standards. The
stretch of the Glenn Highway between Palmer and Glennallen
remains in the same condition and shape as it has for the past
several decades. This section of the Glenn Highway needs to be
brought up to current safety standards as it is currently a two-
lane road, without shoulders, dropping off to steep terrain on
the side of the road. As previously mentioned, the ferry system
and railroad need upgrades, as well, and including other transit
needs totals $1 billion. The state's road systems and bridges
may not be adequate to meet needs of transporting freight
necessary for the proposed natural gas pipeline.
MR. RICHARDS read Federal Energy Regulatory Commission (FERC)
progress report to Congress:
Recent infrastructure needs assessed by the Denali,
TransCanada Alaska, and the Alaska DOT&PF indicate
there are a large number of projects to improve or
repair highways, bridges, ports, and airstrips that
must be completed prior to initiating construction of
an Alaska Natural Gas pipeline. Because these
infrastructure improvements are long-term efforts that
require permitting and funding, greater progress in
this area must be made to avoid conflicting with
projected timeline for the pipeline construction.
12:30:37 PM
REPRESENTATIVE JOHANSEN asked whether FERC is requiring the
DOT&PF to build roads.
MR. RICHARDS answered that the FERC simply acknowledges
infrastructure needs in advance of pipeline construction as an
issue, particularly in terms of timeliness of the proposed
natural gas pipeline.
12:31:16 PM
MR. RICHARDS continued. The truck weight restriction funding is
for road repairs due to frost and other sub-grade issues. The
DOT&PF requires seasonal load limitations that impact the flow
of goods, and ultimately will impact hauling freight for the
natural gas pipeline construction. In particular, the DOT&PF
would like to improve the Parks Highway so trucks can run legal
loads year around.
MR. RICHARDS outlined the HSC needs [slide 11]. The legislature
authorized the DOT&PF to designate Highway Safety Corridors to
address high fatality and major injury crashes. Currently, the
DOT&PF has identified four corridors: The Parks Highway, Seward
Highway, Sterling Highway, and the Knik/Goose Bay Road. The
challenges of improving the Seward Highway are difficult as it
is bounded by Turnagain Arm on one side and the hillside on the
other, as well as the Alaska Railroad parallels the highway.
Nearly $1 billion is needed to improve these highways from a
two-lane to four-lane divided highways. He stressed that the
DOT&PF's primarily funding needs for highways is for safety
upgrades or repairs.
MR. RICHARDS outlined the deferred maintenance needs by mode
which totaled $429,188.6 million [slide 12]. The deferred
maintenance needs are the ones the DOT&PF cannot normally
accomplish within its existing budget. These maintenance needs
are broken out in five categories: highways, facilities,
statewide harbor maintenance, AMHS, and aviation, and include
preventative surface treatment, lighting systems at airports,
and maintaining the 700 buildings statewide that have urgent
needs.
12:34:34 PM
MR. RICHARDS referred to issues along the Seward Highway Safety
Corridor and to the planned safety enhancements. He listed
upcoming improvements, including that the DOT&PF will begin soon
to install rumble strips, and in 2010 will install curb warning
and delineated signage, as well as implement milepost 88 curb
improvements for enhanced safety. Additionally, the DOT&PF uses
a process called the 3 E approach - education, enforcement, and
engineering - to reduce crashes on the Seward Highway Safety
Corridor. The DOT&PF's responsibility lies with the engineering
aspects for the Seward Highway. The DOT&PF has partnered with
the Department of Public Safety to address fatalities and
crashes in the Seward Highway Corridor. The DPS created the
Bureau of Highway Patrol (BHP) within DPS to provide additional
enforcement activity, which is funded by an approximately $4.5
million federal grant via the Alaska Highway Safety Office
(AHSO). This funding will allow the DPS to add new Alaska State
Trooper (AST) positions, police vehicles, and will cover the
necessary equipment and training. Unfortunately, the grant has
a finite life of three years. Thus, the department will need to
seek additional funding from the legislature when the grants
end. He provided first-hand knowledge that the BHP efforts and
increased enforcement along the Seward Highway appear to have
changed drivers' attitudes.
12:36:26 PM
CHAIR WILSON surmised that the extra manpower has decreased the
rate of fatalities on the Highway Safety Corridors.
MR. RICHARDS agreed. He stated that currently fewer deaths are
attributed to highway accidents on Alaska's roads. He said that
the department is on track to continue to reduce fatalities,
which he attributed to the additional funding and education
efforts taken.
12:37:40 PM
MR. RICHARDS highlighted bridge deficiencies [slide 13].
Bridges are damaged when bridge trusses are hit by vehicles that
exceed the maximum height restrictions and the DOT&PF must
immediately repair the bridge for safety reasons. The DOT&PF
must also inspect bridges annually to identify deferred
maintenance or other safety items and provide repairs to insure
safe travel.
12:38:52 PM
MR. RICHARDS, in response to Chair Wilson, answered that the
DOT&PF does not track the number of bridges that need repairs,
but does track the amount of square footage of bridge deck from
structurally deficient to an improved status. He said he did
not have that figure with him.
JEFF OTTESEN, Director, Division of Program Development,
Department of Transportation & Public Facilities (DOT&PF),
stated that the division has made significant progress in this
area.
CHAIR WILSON stated that she did not need an answer immediately.
MR. RICHARDS related that the maintenance needs for ruts in
roadways just in the Central Region alone costs $286 million
[slide 14]. He remarked that the work the committee recently
observed on the Glenn Highway and Minnesota Bypass has reduced
some of the department's pavement resurfacing needs. He
recalled discovering ruts almost an inch and three-quarters deep
in one intersection in Spenard during yesterday's tour. He
remarked the he DOT&PF needs to work smarter, such as install
rut resistant pavement that ultimately will need fewer repairs.
MR. RICHARDS related the problems caused by environmental
warming [slide 15]. He explained that the DOT&PF has been
observing permafrost settling, and the ensuing frost heaves,
which ultimately lead to cracks in the roadway, visible in the
photograph in this slide. Alaska is currently experiencing
heavier rain which causes more erosion as well as effects from
adjacent rivers and streams. Additionally, the communities in
the coastal regions in Western Alaska continue to experience
extensive erosion from fall sea storms no longer protected by
ice.
MR. RICHARDS provided an overview of new federal Municipal
Separate Strom Sewer System (MS4) Permit requirements [slide
16]. These requirements apply to the Municipality of Anchorage
(MOA) and will require more street sweeping than ever before.
He highlighted that this spring the DOT&PF had problems with the
funding contract for street sweeping and was unable to perform
all of the street sweeping. The federal government has
increased requirements for street sweeping of all streets in the
MOA by June 1st. Previously the DOT&PF's goal has been to sweep
the streets once. Now street sweeping must occur twice a month
on high frequency streets and once a month on mid-frequency
roads and only the initial sweeping on low-frequency roads.
This will all come at a cost, he said.
12:42:12 PM
MR. RICHARDS, in response to Chair Wilson, explained the reason
for the federal changes is due to provisions in the Clean Water
Act. As the transportation asset owner, the DOT&PF must take
action to prevent inhibiting, polluting, or degrading waters of
the U.S. The department must take action to prevent sand placed
on the road for surface friction in the winter from entering
streams and degrading water quality. In addition to sweeping,
the DOT&PF must clean storm drains and work with the MOA, who
must also meet these same requirements, and develop digital maps
to illustrate water flow. The DOT&PF must also build covered
facilities for its sand storage to prevent the sand from washing
into streams. He estimated the cost in Anchorage to cover the
sand at the Tudor facility and the satellite stockpile at
Birchwood at $10 million.
MR. RICHARDS, in response to Chair Wilson, answered that the
state will be required to comply with the new federal
requirements by 2012.
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, asked for
the impact on the state for failing to meet the federal
requirements.
MR. RICHARDS understood that the Environmental Protection Agency
(EPA) will not reveal the specific amount of any potential
fines, but the EPA can fine up to $37,500 per day and can
legally prosecute the chief executive officer of the DOT&PF for
non-compliance.
12:45:02 PM
MR. RICHARDS related that street sweeping is currently budgeted
at $416,300 but will increase to $2.1 million to meet the
additional street sweeping requirements. In response to a
comment, he explained that the permits will go into effect as of
September 1, 2009. Thus, the DOT&PF will need to commence
sweeping by next spring and complete its work by June 1, 2010.
In response to Chair Wilson, he related that the state contracts
out street sweeping and storm cleaning work to the private
sector.
MR. RICHARDS, in response to Representative Munoz, related that
the federal government does not provide any assistance to states
to meet the additional requirements.
CHAIR WILSON remarked these are "unfunded mandates."
REPRESENTATIVE GRUENBERG asked whether these requirements will
be passed on to the municipalities as unfunded mandates.
MR. RICHARDS clarified that the MOA already must meet the same
EPA requirements. Thus, the state is working in conjunction
with the MOA to apply for the necessary permits. In further
response to Representative Gruenberg, he offered that the DOT&PF
does not pay for municipal street sweeping and the
responsibility must be absorbed by the MOA. He also agreed that
the MOA has more streets to sweep in Anchorage than the DOT&PF.
12:47:42 PM
REPRESENTATIVE DOOGAN asked whether the problem is caused by the
sand, and if the municipality does a good job in May, if it is
necessary to continue to perform street sweeping activities for
subsequent summer months.
MR. RICHARDS said the department has not been able to find a
logical reason for the specifics of the permit, but the EPA sets
the frequency schedule. In further response to Representative
Doogan, he concurred that the DOT&PF will comply with the
federal government.
MR. RICHARDS, in response to Chair Wilson, stated that the state
does not use salt alone for winter road maintenance. He
provided details for winter deicing and sanding streets. In
Anchorage, the state mixes salt with the sand to prevent the
sand pile from freezing. The DOT&PF imports salt from Baja
Mexico at a cost of $300 per ton, whereas the DOT&PF can acquire
sand locally for about $12 per ton. Other states have found
when they apply only salt to street that pollution of their
waterways is still an issue due to the chloride runoff from the
roadways. In Southeast Alaska, the DOT&PF uses a liquid anti-
icing containing chloride but this chloride does not have the
same environmental impacts as sodium chloride. However, the
chloride deicer is a relatively expensive product, he remarked.
Thus, the DOT&PF uses chloride in areas with the certain
temperature regimes and also takes into account storm events for
frequency of application. Currently, in Fairbanks the chloride
is also being used at some intersections. Some people prefer to
use studs to create friction, but others prefer salt for
friction on winter roads. He said the DOT&PF is somewhat caught
in the middle, but does the best it can to balance the needs
while maintaining its budget.
12:52:16 PM
MR. RICHARDS discussed the balance of the Federal Highway
Administration Trust Fund, which provides the state with funding
for its program [slide 17]. In 2008 and 2009, the fund nearly
went bankrupt, which is depicted by the blue line and orange
lines on the graph. It took an Act of Congress to infuse the
fund with $7 to $8 billion to make the FHWA trust fund solvent
and allow states to continue to receive funding. He remarked
that Mr. Ottesen will provide details on the current federal
legislative update.
MR. RICHARDS reviewed the federal formula funds the state
receives for the State Transportation Improvement Program (STIP)
[slide 18]. The chart shown depicts the challenges the state
has seen with the federal earmarks reductions under the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A
Legacy for Users (SAFETEA LU). He explained that the state
receives formula funding for the National Highway System (NHS)
the Community Transportation Program (CTP), and the Trails and
Recreational Access for Alaska (TRAAC) programs. The state has
also created a preventative maintenance program to take care of
surface issues. He remarked on the large impact that earmarks
has had on funding levels in Alaska. Alaska received formula
funds, but since they were earmarks in the federal legislation,
the earmarked amounts were deducted from the state's normal
formula program.
MR. RICHARDS outlined the state's general fund (GF) capital
appropriations [slide 19]. He explained that this slide shows
the general fund appropriations the DOT&PF has received in the
last decade. He pointed out that in FY 2007, the state's
general fund dollars spiked at $398.7 million. Approximately
$50 million of the appropriations are for matching funds for the
federal dollars from the FHWA and federal aviation partners.
Thus, the amount remaining for projects is very small unless
additional capital appropriations are made. He turned to the
maintenance and operations (M&O) general fund authorizations
depicted on the graph [slide 20]. The base line year is FY 83,
the red line on the bottom of the chart represents the
appropriations, and the top line in green, which reflects the FY
83 values adjusted for inflation. The DOT&PF is losing ground
and is currently about $50 million "under water" from where the
state would be if the state been inflation adjusted for the
assets the state is responsible to maintain and operate. In the
meantime, the DOT&PF has added responsibilities to its inventory
across the modal spectrum including ferries, airports,
buildings, and highways.
12:55:59 PM
REPRESENTATIVE DOOGAN asked why FY 83 was selected instead of FY
85.
MR. RICHARDS stated he did not know why FY 83 was selected, that
the previous administrative director prepared this chart and the
data was simply updated.
MR. RICHARDS recalled yesterday's discussions on state versus
federally-funded projects [slide 22]. Primarily, the difference
is in time and cost savings, he remarked. The use of federal
funds is significant on large, complex projects, since following
the federal process requires more time and money to construct
projects [slide 23]. He discussed Trunk Road in the Matanuska-
Susitna Valley [slide 24]. The DOT&PF has considered this
project for several decades. The work was initiated in 1984,
and right-of-way costs were estimated at $1.3 million. The two
timelines depict the changes, with the blue line showing the
actual timeline of the project, and the green shows the ideal
timeline had the DOT&PF followed the process and if it had
secured the funding to perform the environmental documents,
design, and right-of-way process, and construction. The Trunk
road project was bid this year, is currently under construction,
but from the initial cost estimates in 1984 to the actual
construction costs in 2009, the right-of-way costs rose from
$1.3 million to $26.5 million, which is almost 20 times the
original estimate.
12:58:16 PM
REPRESENTATIVE JOHANSEN asked for the reason that design has
increased so dramatically.
MR. RICHARDS surmised that it is because when in the right-of-
way phase, the design phase is also kept open to deal with
changes as a result of the right-of-way work.
12:59:19 PM
MR. RICHARDS discussed the Glenn Highway/Bragaw Street
Interchange [slide 25]. From the 2005 appropriation to the
exchange completion date only took three years since the project
was built using general fund funds instead of federal funds. He
speculated that if the project had been built using federal
funds the project would likely still be in the EIS phase.
MR. RICHARDS reviewed the current Surface Transportation
Authorization bill drafted by U.S. Representative Jim Oberstar
and the U.S. Transportation committee. He offered that this
bill will be vastly different than any previous highway
authorization bill. He explained that the funding reliance is
on highways and is geared to the largest 100 metropolitan areas
at the expense of rural areas. The state finds that many of
decision-making aspects of the bill would be shifted from the
state on state-owned highways to non-state entities.
MR. RICHARDS continued. He explained there will be significant
non-construction costs as the current focus in the authorization
bill is to shift focus on planning, data collection, and public
processes. The federal bill will preclude new roads or
expanding capacity, such as adding a lane. It will add new
national offices, such as the Office of Livability, the Office
of Sustainability, the Office of Expedited Delivery, and Office
of Public Benefit. These new offices would reside in the
Secretary of Transportation and FHWA. Thus, additional
processes will be put into place. Additionally, the bill will
include performance measures, such as the International
Roughness Index (IRI), ride quality, and other performance
measures across the modal spectrum.
MR. RICHARDS, in response to Chair Wilson, explained that there
will not be any funding for the Denali Commission Transportation
Program, which was authorized in the previous bill.
MR. RICHARDS continued [slide 28]. He said that Alaska will not
be eligible for approximately 20 percent of funds due to its low
population. The top 20 percent of the proposed federal funding
will be designated for high speed rail, intercity connections,
and freight corridors. The proposed federal funding will shift
to urban areas, such as the Metropolitan Planning Organization
(MPO) with populations greater than 500,000. Since Alaska does
not have any MPO cities over 500,000 the state will not be
eligible for the funding. The DOT&PF is working with the
Governor's Washington D.C. office in so Alaska's Congressional
Delegation can fight for Alaska.
MR. RICHARDS briefed members on the status of the American Clean
Energy Security Act of 2009, which has passed the House of
Representatives [slide 29]. This Act will shift federal policy
toward major reductions in greenhouse gases in the U.S. The
federal goal is to reach an 83 percent reduction of passenger
vehicle emissions by 2050. He remarked that this will have a
large impact on U.S. citizens. He clarified that this is for a
reduction in overall emissions. In essence, this Act shifts
transportation policies to the federal regulators, in
particular, grants responsibility to the EPA to review projects
in terms of greenhouse gas (GHG) reductions.
1:05:40 PM
MR. RICHARDS, in response to Chair Wilson, offered his
understanding the federal law will require individual projects
to demonstrate that greenhouse gas emissions will not be
increased and would show a net decrease overall instead.
MR. RICHARDS expressed concern that the greenhouse gas reduction
under the bill is at odds with construction of a natural gas
pipeline or any supporting facilities in Alaska. While the
natural gas pipeline goal is to reduce reliance on fossil fuels
and reduce emissions, the construction phase will not do so.
Thus, the project may not get built, he said. The EPA will
certify all emissions plans and ultimately any transportation
plans.
1:06:54 PM
MR. RICHARDS continued [slide 31]. He explained that
transportation greenhouse gas emissions plans could include user
fees or increase taxes on carbon based fuels, and are federally
mandated for land use and zoning. The federal bill will reduce
funds for roads and increase funds for sidewalks and trails.
Thus, this bill could have a broad-ranging impact on Americans
and Alaskans and will soon be considered in the U.S. Senate, he
said.
MR. RICHARDS provided an update on the status of the ARRA
(stimulus) funds [slide 32]. With respect to the $175 million
for the federal highway and bridge program, the DOT&PF has met
the first deadline to obligate $121 million, or 50 percent of
the funds by June 29, 2009. The DOT&PF's focus has been to use
the money in economically distressed areas, even though this was
only a guideline rather than a mandate. The remaining 33
percent must be obligated in the next four months, and staff is
currently diligently working to meet the schedule while still
adhering to the federal guidelines. Additionally, the DOT&PF
has obligated the $9.4 million for transit, and the department
is currently issuing individual transit grants to communities.
Additionally, the DOT&PF has five to six projects under contract
for the $75.8 million in aviation funds.
1:09:21 PM
REPRESENTATIVE GRUENBERG asked how much of the $9.4 in transit
funding is designated for Anchorage projects.
MR. RICHARDS answered that Anchorage received $24 million direct
from the FHWA bypassing the DOT&PF. He offered that the lion's
share went to the Alaska Railroad Corporation (ARRC), with the
remaining funds was disbursed to the MOA to be used specifically
for transit-related projects.
REPRESENTATIVE DOOGAN asked whether the department had any
"shovel-ready" but unfunded transportation projects.
1:10:48 PM
MR. RICHARDS explained that the Governor's transportation-
related ARRA funding bill contained the DOT&PF's approximately
$300 million of projects which were "shovel-ready." These
projects were identified as ones that met the federal
guidelines. Under the ARRA, states must obligate their funding
before February 2010. Initially, the DOT&PF compiled a list of
$175 million in projects, then created a secondary list of
contingency projects that met the same eligibility requirements,
in case any of the primary projects had issues and could not be
obligated. The list was rearranged through the legislative
process, and the DOT&PF was authorized $175 million in
appropriations. Subsequently, some bids came in under budget
and the department sought and received additional authority
during the legislative interim to proceed with contingency
projects before the Legislative Budget and Audit Committee.
MR. RICHARDS, in further response to Representative Doogan,
explained that the DOT&PF develops projects for inclusion in the
STIP in anticipation of future funding. Thus, projects
previously authorized for design were on their list awaiting
construction dollars. The DOT&PF has had less funding since
federal earmarks have been eliminated. Thus, the DOT&PF has a
backlog of projects ready to construct. He remarked that during
the 2005 - 2009 period construction costs escalated at a
substantial rate.
CHAIR WILSON understood that the state might be able to obtain
additional funding destined for other states unable to obligate
the funds. She asked whether the DOT&PF has enough projects
ready to absorb any additional projects that might become
available.
MR. RICHARDS related the department had hoped other states would
not be able to meet the obligation deadline of June, because if
that had happened Alaska could have picked up additional federal
ARRA funding. However, every state was able to meet the initial
obligation deadline. He predicted that other states will also
meet the next deadline of February 2010 well in advance of the
deadline date. Further, the Congressional rescissions will have
a huge impact on projects because hundreds of millions in
projects will not be funded. Thus, states have incentives to
capture all possible federal funding for existing projects. The
anticipated $8 billion in federal funds is urgently needed
nationwide to fund construction projects. The DOT&PF constantly
monitors project bids so in the event that bids come in lower
than expected other projects can be substituted so long as the
projects meet the federal criteria.
1:16:27 PM
MR. RICHARDS, in response to Senator Menard, responded that the
costs for adding a carpool lane depends on many factors,
including whether the state owns the right-of-way or if any
environmental issues must be addressed. Additional factors
include the bidding environment, and the cost of construction
materials. He offered to provide the estimated costs of a
carpool lane for the Glenn Highway to the committee. In further
response to Senator Menard, he indicated he was unsure of
whether the DOT&PF has addressed carpool lanes on the Glenn
Highway recently. He recalled that the ARRA transit dollars
were spent to add carpool lanes in order to encourage additional
carpooling between Anchorage and the communities in the
Matanuska-Susitna Borough. The department has also expanded the
existing Park-and-Ride lots to help reduce congestion on the
Glenn Highway between the Matanuska-Susitna Valley and
Anchorage.
MR. RICHARDS reviewed the DOT&PF's ARRA oversight [slide 33].
He explained the ARRA funding will receive greater scrutiny from
the Federal Aviation Administration (FAA) including plan set and
contractor payment reviews to insure that states follow all
provisions of federal law. Further, one additional ARRA
requirement is that the DOT&PF must increase the number and
level of reports and provide the information in different
formats for various agencies. He expressed concern that the
Congress will enjoy the expanded reporting so much the same
reporting requirements will be adopted in the next authorization
bill. If so, the bureaucracy will likely grow with the process,
he stated.
REPRESENTATIVE MUNOZ expressed concern with the new federal
requirements, in particular, the effect that the new
requirements will have on rural states like Alaska. She asked
whether the administration has identified the cumulative effects
and communicated with the federal government the difficulty for
smaller populated states to comply.
MR. RICHARDS related that the DOT&PF Commissioner routinely
meets with Governor Parnell to brief him on any challenges and
also communicates with the Governor's Washington D.C. office on
federal legislation. He was unsure of specific communications
from Governor Parnell to the federal agencies.
1:22:07 PM
MR. RICHARDS, in response to Representative Johansen, suggested
that the DOT&PF avoids re-design of projects, but is also
constrained by the STIP to be fiscally responsible. The DOT&PF
is challenged to design projects that the department anticipates
will be funded. Typically, environmental documents are the ones
that become stale and must be refreshed. If the department were
to receive additional general fund appropriations, the DOT&PF
could construct projects more quickly and avoid stale project
components. He offered that Mr. Ottesen will discuss the
specifics of the STIP and will also cover the new federal rules
for fiscal constraint, responsibility, and project completion
mandates that are required once projects reach a certain point
in the construction process. The DOT&PF currently has pending
projects that are not funded by the ARRA and will likely be
completed with the next Federal Highway Administration funding
bill. If so, these projects will help keep contractors employed
and improve the state's highway system. The DOT&PF must be
careful to not place too much emphasis on funding the design
phase of projects, which might result in future slack
construction years, he stated.
1:26:44 PM
MR. RICHARDS, in response to Representative Johansen, related
the STIP identifies projects that are ready for construction
funding in the next fiscal year.
MR. RICHARDS deferred the question of shifting projects within
the STIP projects to Mr. Ottesen. In further response to
Representative Johansen, he explained that the DOT&PF identifies
buildable projects and places them in the STIP. If for some
reason a STIP project encounters impediments for funding, the
DOT&PF would discuss the project internally and also with the
community that expects the project to be built. The DOT&PF
attempts to keep communities informed and works continually to
improve its communication.
REPRESENTATIVE JOHANSEN pointed out that the DOT&PF could also
simply decline to build a project when it reaches a point of
needing perpetual redesign work.
1:31:21 PM
SENATOR MENARD asked whether stipulations can be made in the
Request for Proposals (RFP) that would require contractors to
perform any necessary redesign for up to ten years in order to
allow the right-of-way or environmental documents to be
resolved.
MR. RICHARDS offered his belief that consultants usually
continue with the same project unless the department has reason
to terminate the contract. He characterized the department's
relationship with its consultants as good. Once design is
started, the DOT&PF's goal is to reach construction and
considers projects that cannot be completed as a failure by the
department.
SENATOR MENARD surmised that almost all legislators can cite
instances in which projects have been designed and not built.
She expressed her appreciation for Mr. Richard's sentiments on
the DOT&PF's goals.
MR. RICHARDS, in response to Chair Wilson, answered that an
Environmental Impact Statement (EIS) is generally satisfactory
for about three to four years although the environmental process
is under federal control.
REPRESENTATIVE JOHANSEN offered his belief that projects can be
drawn out for many years.
1:34:46 PM
The committee took an at-ease from 1:34 p.m. to 1:42 p.m.
1:42:02 PM
CHAIR WILSON relayed that the next portion of the presentation
will focus on potential funding mechanisms.
KATHIE WASSERMAN, Executive Director, Alaska Municipal League
(AML), stated that the AML gave its contractor a set of
questions and objectives, with respect to transportation
infrastructure.
MS. WASSERMAN suggested that Alaska's economy is more dependent
on resource extraction more than some other states. The FHWA
funding became depleted and the federal government provided only
a one-year stopgap. She cautioned that states cannot continue
to fund one year at a time. A large gap has been created
between donor states and recipient states, with the donor states
providing more money to the federal government than they
receive. However, Alaska is a state that does not provide much
but receives a large amount, she stated. Thus, other states and
the federal government are beginning to scrutinize Alaska. The
federal government has begun to place a greater emphasis on
tolls and other means for states to become more self-reliant.
Additionally, Alaska must fight the perception by some other
states that since it has plenty of oil revenues Alaska does not
need federal funding.
1:49:08 PM
MS. WASSERMAN related that the contractor's objectives were to
identify trends and changes in funding priorities, evaluate
future funding factors and strategies, and to evaluate funding
and financial tools. Alaska is the only state that does not
have dedicated revenues for transportation. The 2006 gross
state product (GSP) for Alaska's transportation funding is 0.15
percent, which is the fourth lowest in the country. When
federal funding is also included, the transportation spending,
as a percentage of the gross product, increases to 1.94 percent,
which places Alaska in the top ten in the nation for reliance on
federal funding. Thus, while the state is ranked at the bottom
for the amount of state funding, it is ranked at the top for
federal funding. Transit services are not generally federally
funded and are usually performed by local communities and non-
profits. The current surface transportation gap is $533 million
for highways and bridges, $20 million for rural streets and
roads, $32 million for public transit, and $135 million for the
AMHS, which totals $720 million in overall transportation needs.
MS. WASSERMAN stated that highway maintenance remains
underfunded and the backlog of needs is over three times the
level of spending of annual highway maintenance fees at the
state level, which does not include transit, aviation, local
roads, or transportation capacity needs to meet future travel
demand growth. The AML's contractor surmised that if the road
transportation maintenance needs were to directly keep pace with
the price of oil the state might be okay, but it does not do so.
MS. WASSERMAN compared how Alaska fares with other states, with
respect to the GSP with current federal spending. Alaska ranks
below other rural remote states such as North Dakota, South
Dakota, Montana, and also ranks below West Virginia. However,
comparing Alaska's total spending, excluding federal dollars, to
other states, Alaska is the fourth lowest in the nation. Alaska
is severely impacted by federal spending and without federal
funding, the state plummets. The current and projected account
balances of specific funding, which reflects the share of
funding from donor states has increased and is projected at 95
percent.
MS. WASSERMAN noted that fees from tolls must become a major
part of the state's funding since earmarks are now considered
negative. The federal government continues to shift more
responsibility for transportation to the states or local
governments. She listed Alaska's challenges when asking the
Congress for additional funding: the permanent dividend fund,
absence of a state income or state sales tax, and the lowest
motor fuel tax in the country.
MS. WASSERMAN described several scenarios that the legislature
may wish to consider. The AML study demonstrated the amount of
money raised by each scenario. The first scenario would
increase the fuel tax, institute a sales tax, increase a sales
tax on vehicles, and would increase vehicle registration fees.
The first scenario would fill a gap of $151 million only leaving
$384 million to fill. The second scenario would increase the
fuel tax and double the vehicle registration tax, impose a
vehicle sales tax of 1.5 percent, would encourage local
jurisdictions to impose a 1.5 percent sales tax, and would
capitalize the Alaska Transportation Fund with $1 billion. This
scenario would fill the transportation gap to $292 million, she
said.
MS. WASSERMAN described a third scenario which would increase
each of the previously mentioned items a bit more and would
assume that the state would reinstitute the Roads and Trails
Program. The third scenario would also fill the gap to $292
million.
MS. WASSERMAN concluded by stating that the AML membership
believes the legislature must consider raising taxes to meet the
state's transportation needs. While the AML has not taken a
stance on any of the scenarios previously highlighted, the AML
membership recommends that the legislature consider them. The
state needs to do something and do it soon before the federal
government simply decides to diminish its funding in Alaska, she
stated.
1:57:03 PM
REPRESENTATIVE JOHANSEN asked whether the AML has selected a
scenario, and whether all the scenarios to increase
transportation funding include increases in taxes.
MS. WASSERMAN clarified the AML has not selected a scenario to
support, but agreed that all the funding sources outlined
increased taxes. In further response to Representative
Johansen, she related that the AML wanted to begin start
somewhere but also did not envision any of the proposed
scenarios would raise the $1 billion needed. She opined that
temporarily repealing the state fuel tax was not the best option
to have taken, given the number of the state's transportation
projects needed.
REPRESENTATIVE JOHANSEN pointed out the proposed AML scenarios
would address a small fraction of the DOT&PF transportation
funding needs. He inquired as to whether other proposals were
also considered.
MS. WASSERMAN responded that many options were discussed, but
nothing was agreed upon by all members. She explained that some
people discussed the constitutional budget reserve (CBR) or the
Alaska Permanent Fund as potential options to fund
transportation needs. However, AML did not take a stance on any
options since its membership could not agree on solutions.
REPRESENTATIVE JOHANSEN suggested that the legislature may want
AML to contemplate other options and suggest them to the
legislature.
2:01:08 PM
REPRESENTATIVE GRUENBERG asked whether the AML membership has
taken a position on the lawsuit regarding the state's cruise
ship head tax.
MS. WASSERMAN said that it has not formally met since the
lawsuit was announced although she anticipated the AML will be
discussing the issue at future meetings since its membership is
comprised of many coastal communities.
REPRESENTATIVE GRUENBERG surmised that the cruise ship head tax
litigation will affect all communities regardless of whether
their interests are the same. He suggested that the AML give
consideration to the matter and keep the legislature informed.
He related that pre-litigation process is underway and so the
AML should weigh in now as this process will affect the outcome.
2:03:54 PM
REPRESENTATIVE DOOGAN appreciated the work the AML has done, but
stressed that the AML cannot only canvas for options, but must
take a firm position on the solutions.
MS. WASSERMAN said the AML typically takes that approach and
intends to do so.
2:06:37 PM
REPRESENTATIVE MUNOZ asked how Alaska compares to the other
states in terms of its use of general fund monies to fund
transportation needs.
2:08:03 PM
JIM REED, Transportation Program Director, National Council of
State Legislatures (NCSL), stated that he would discuss an
overview of the SAFETEA-LU funding bill, current Congressional
activity on the proposed authorization bill, the impact on
Alaska, and state revenue issues [slide 2].
MR. REED reviewed SAFETEA-LU funding levels [slide 3]. He
explained that the SAFETEA-LU funding expired last year, and
provided $286.4 billion over six years for transportation
funding. He further explained that $244 billion was provided
from 2005 - 2009, including $189.5 for highways, $45.3 billion
for public transportation, $5.6 billion for highway/motor
carrier safety, the $3.6 billion exempted from obligation limits
for emergency relief, the Equity Bonus Program, and for certain
projects funded prior to 1998. Part of the SAFETEA-LU included
a Safe Routes to School Program and the New Freedom Program,
which is a new public transportation program to help communities
with funding for persons with disabilities. He offered that
many have called the funding bill a place-holder authorization
bill.
MR. REED provided an overview of SAFETEA-LU financing, which was
primarily reauthorized by SAFETEA-LU. Many states have taken
advantage of innovative programs which has been very helpful in
obtaining supplementing funding. The State Infrastructure Bank
Program was expanded to all 50 states, which allows
capitalization with federal funds and is basically a revolving
fund. This program tends to be used for smaller projects but
has been helpful in some states, such as in Ohio, which has
issued 400 loans over a period of eight or ten years.
2:13:07 PM
REPRESENTATIVE GRUENBERG asked whether the Congress typically
will continue the one-month extension to prevent a gap.
MR. REED answered yes. He recalled the last authorization bill
had six or seven extensions prior to passage of SAFETEA-LU. The
only problem with this approach is that it is the same
authorization and for the same funding levels. In the past 20
years, the authorization has never lapsed, but if it did it
would pose a serious problem, he said.
MR. REED, in response to Representative Doogan, answered that
the funding levels previously mentioned represent the entire
authorization. Thus, the figures including the rescissions, for
example, the $8.6 currently being considered for rescinding is
part of the $286.4 billion. He explained that the $286.4
billion is for the authorized amount, but the appropriators will
then complete their work and provide the funding. The
rescissions return funds that have not yet been obligated or
appropriated yet either, he said.
MR. REED discussed the Transportation Infrastructure Finance and
Innovation Act (TIFIA) [slide 4]. The TIFIA has become an
important tool because it is a flexible way to obtain funding.
For example, Florida did not have enough funds to complete an I-
95 expansion, but worked out an arrangement with a private
company along with obtaining a TIFIA loan for $600 million to
complete funding for the $4 billion project. The advantage of
TIFIA loans is the flexibility they provide since repayment of
the loans happens five years after the projects are
substantially completed. The facilities are assumed to be toll
facilities so the money can be repaid. He remarked that the
stimulus bill, the ARRA, put an additional $200 million into
TIFIA.
MR. REED identified Private Activity Bonds as municipal bonds
that have expanded bonding authority for private purposes, such
as industrial expansion to bring economic activity to the
community and are repaid from revenue generated by the facility.
The cap was raised in order to make it easier for transportation
facilities. Additionally, SAFETEA-LU provided states increased
flexibility to use tolling for proposed projects.
MR. REED discussed the policy issues with SAFETEA-LU traffic
safety [slide 5]. He said that a new Highway Safety Improvement
Program, which includes highway improvements with a traffic
safety purpose, was funded at the $1.4 billion level. The bill
also includes a number of grants to provide incentives for
occupant protection such as child safety and booster seats.
Some laws also created sanctions, generally relating to driving
while under the influence of alcohol or drugs.
2:19:27 PM
REPRESENTATIVE GRUENBERG asked whether any federal legislation
that pertains to a ban on text messaging is under consideration.
MR. REED recalled that some legislation is being contemplated
for anti-texting laws and 18 states have already implemented
such laws. He surmised the NCSL's position would be that
progress is being made since some states have already enacted
anti-text laws, it is unnecessary to create a federal mandate.
However, some national interest has been expressed for anti-
texting laws and one topic at a White House summit just
completed today wrestled with the problem of distracted drivers,
including government officials. At this time, the federal
agencies have not weighed in on specific requirements for
states, he said.
2:21:18 PM
MR. REED noted that U.S. Representative Oberstar's [MN] bill
added some additional sanctions or incentives, including
provisions for changes to primary seat belts, use of ignition
interlocks for repeat DUI offenders, and driver's license
suspension for drug offenders. Again, the NCSL's view is that
each state must review and decide the pace for implementing
these laws. He understood the federal government's view since
lives are currently being lost, that some preventative measures
need to be taken.
2:22:36 PM
MR. REED reviewed the SAFETEA-LU Environmental and Congressional
activity [slides 6 - 7]. He stated some requirements have been
made to MPOs to bring in environmental factors in the planning
stage. In the past few years several studies, commissions, and
task forces have examined national transportation policies in
the U.S. Several extensive reports, as well as independent
analysis, agreed that the U.S. needs a new vision for
transportation since the Interstate Highway System is now
completed. Another area of general consensus is the need to
integrate between the modes of transportation to make it easier
for passengers and commercial activity to connect. The sense is
that the U.S. Transportation policy should not be considered in
a vacuum but, instead, should be considered in terms of health
and energy polices since changes in one policy area can
adversely affect policy in other areas. One conclusion has been
that more funding is needed in the system since transportation
has been underfunded for some time. Metropolitan areas are
congested and rural areas are not well-served by the highway
conditions. One traffic safety finding is that 60 percent of
the deaths occur on rural highways so improvements need to be
made.
MR. REED related since President Obama's focus has been on
health care that other measures, including transportation
measures, have been moving more slowly through the system.
However, this bill will likely surface and the bill's sponsor
hopes to provide $450 billion over six years, with an additional
$50 billion in anticipated funds for high-speed rail, which
totals $500 billion. He reviewed the anticipated breakout in
U.S. Representative Oberstar's proposed transportation bill:
$337 billion for highway construction, including at least $100
billion for Capital Asset Investment, $12.6 billion in Highway
And Motor Carrier Safety, $87.6 billion from the Mass Transit
Account of the Highway Trust Fund, and $12.2 billion from the
General Fund for Public Transit Investment. He highlighted the
challenge remaining is that the funding source has not yet been
identified. He has been made aware that the motor fuel tax and
other fees would only generate $350 billion over the six year
period. Thus, a shortfall of $150 billion exists. He remarked
that U.S. Representative Oberstar and President Obama do not
currently support an increase in the motor fuel tax.
2:26:46 PM
MR. REED continued his discussion of the Congressional activity,
in terms of the proposed transportation authorization bill, by
reviewing the current House of Representatives proposal [slides
8 - 9]. He explained that the proposed Oberstar bill, in an
effort to consolidate programs, would pare down the current 75
programs to four core highway categories and four core transit
categories. The proposed bill focuses on congestion relief and
would create a discretionary program to directly fund the
Metropolitan Planning Organization (MPOs). Additionally, the
proposed bill contains a large focus on livability and
environment, and sustainability of communities, in an effort to
merge policies between agencies to create livable communities.
2:28:07 PM
REPRESENTATIVE DOOGAN asked for a definition of "livability."
MR. REED offered to research the issue further, but ventured
that livability is related to the concept of new urbanism, which
is to create a living environment in which people can walk or
use public transportation for destinations, such as to work or
grocery stores instead of using motor vehicles. The goal is to
create more densely populated areas instead of having the
population so spread out. He suggested these goals might not
resonate in Alaska since it is a rural state. He characterized
this provision as an urban or suburban initiative. He said he
lives in Colorado so livability for him means blue skies, clean
air, and neighbors that do not live too closely.
MR. REED revisited his discussion of sanctions or incentive
grants [slide 9]. He related that the current proposal would
eliminate existing incentive grant programs and replace them
with mandates, such as primary seat belt laws, ignition
interlock laws, and revocation of licenses for those convicted
of drug offenses. He offered that the NCSL is not a fan of the
sanctions since states are moving forward and do not need
additional oversight. The tolling pilots programs contained in
SAFETEA-LU would be removed and would be replaced by incentives
and guidelines on tolling. The U.S. Department of
Transportation's role would be expanded with more public-private
partnerships. The NCSL would prefer not to add another layer,
he stated.
MR. REED discussed the National Infrastructure Bank (NIB) [slide
10]. He explained that creation of the National Infrastructure
Bank (NIB) is a proposal by the administration and members of
Congress to provide a financing mechanism rather than new
funding. The NIB would be an independent government entity
developed to target large-capacity building projects not
adequately served by current funding mechanisms, and would make
loans, insure bonds, and provide pre-construction phase
assistance to states. The suggested funding level is $60
billion over ten years; the proposal is currently being
considered by Congress, and is one that could be added into any
authorization proposal or it can stand alone. He characterized
the NIB as a potentially significant source of borrowing for
states.
2:33:00 PM
MR. REED reviewed where Alaska stands in terms of Congressional
activity [slide 11]. He noted the Congressional one-month
extension, but related that the Senate and the Obama
administration would prefer an 18-month extension to allow the
recession to end, and in hopes that the political climate might
change and be more open to funding mechanisms such as an
increase to the federal motor fuel tax. Currently, the U.S.
House of Representatives passed a three-month extension to last
through the end of the calendar year and the Senate is
considering a similar proposal. The Senate bill, authored by
Senator Barbara Boxer (CA), contains the rescission effort,
which would stop the rescission of $8.7 billion in unobligated
funding to the states. He surmised that the next few highway
extension bills may require transfers from the general fund to
the Highway Trust Fund to cover shortfalls.
2:35:29 PM
MR. REED interpreted what this might mean for Alaska [slide 12].
He offered that there is a lot of uncertainty at this point, and
he anticipated several extensions due to the difficulty in
identifying funding sources. He also predicted Alaska will
receive less dedicated funding in the future, pointing out that
SAFETEA-LU contained over a billion dollars in highway and
transit set asides. The consolidation of federal transportation
programs might be detrimental to Alaska, given the proposed
reduction from 75 programs to 4 programs, and recalling that
some of the programs scheduled for elimination were specifically
targeted for Alaska.
MR. REED turned to a comparison of average annual state sources
of transportation revenue [slide 13]. The NCSL compiled highway
revenue sources in other states nationwide from 1999 - 2005 and
compared them to Alaska. The initial percentage refers to the
national percentage of revenue taxes compared to the percentage
of revenue generated in Alaska for various taxes. The national
average of revenue generated from state motor fuel taxes is 28
percent, but in Alaska is 5 percent. Other states receive about
27 percent of their revenue from federal funding, whereas Alaska
receives 54 percent, which highlights Alaska's dependence on
federal funding. He compared the national average of revenues
generated by vehicle fee and taxes of 16 percent, with Alaska's
5 percent vehicle fee and tax. The average for bonding and
borrowing is 12 percent nationally but is 3.5 percent in Alaska.
And the national average of tolls generated in other states is 5
percent, while in Alaska is 3.2 percent.
MR. REED remarked that the national average for general fund
contributions in other states is 4 percent, but Alaska's general
fund provides 19.5 percent of its funding.
2:39:53 PM
MR. REED elaborated on the state responses to the revenue gap
[slide 13]. Some legislative responses included suggestions for
states, including that states should have more reliance on
general sales tax and the general fund, should grow
transportation funding by local entities, should create greater
efficiency and accountability in delivering transportation
projects, suggested an increase in public private partnerships,
and an increase in the use of tolling as a funding option.
States recognized the importance of transportation to their
economic growth and the impacts of dilapidated roads on their
economies. This year a number of states gave local entities the
authority to vote on local taxes, such as sales taxes or motor
fuel taxes. He ventured that some states with a heavy urban-
rural divide were willing to raise taxes to provide for better
roads. He recalled that in Virginia, the legislature allowed
its regions to vote on taxes. Northern Virginia voted for a tax
increase but Southern Virginia did not, and so the Virginia
Supreme Court did not uphold the tax. States have been
innovative in designing and building roads and transit projects.
Also, in the economic downturn, states have found the stimulus
funding has stretched further since bids have come in lower,
recognizing that labor costs may also have had some bearing on
the lower bids.
MR. REED related that states are borrowing more and tolling has
increased nationally by 36 percent over a five-year period
nationally. Other states cut programs and projects or have
worked to identify alternatives for funding, including
developing a per mile fee, express lanes, or creating tolls in
congested areas.
2:43:48 PM
MR. REED highlighted rural transportation challenges in public
transportation for disadvantaged [slide 15]. He remarked that
public transportation to accommodate the elderly, disabled, low-
income, and jobless people is more difficult in rural areas.
The NCSL is currently examining how existing transportation
programs can work together to provide better service for the
transportation disadvantaged and save money. In Alaska,
challenges exist for multi-modal travel, which includes
connecting air travel, rail, public transportation, and ferries.
Traffic fatalities occur predominantly in rural areas, he added.
MR. REED presented his conclusions [slide 16]. Additional
transportation funding is needed. One study identifies $225
billion in unmet needs in the U.S. for the next 50 years. Poor
infrastructure poses a threat in the U.S. to many needs,
including safety, security, economic prosperity, and our quality
of life. States cannot afford to disinvest, he said. Many
states have bridges in need of repair or replacement, and states
need to tackle deferred maintenance. Transportation funding
presents hard choices. Constituents just do not want to pay any
more taxes, but as policy makers, legislators understand the
need and future benefits. He recalled that three states raised
their motor fuel taxes while others raised vehicle fees.
2:47:37 PM
CHAIR WILSON related that the next presenter will outline
funding options for a long-range transportation initiative.
LARRY PERSILY, Staff, Representative Mike Hawker, Alaska State
Legislature, explained that he compiled a report for legislators
to consider developing a long-term comprehensive funding
mechanism for a statewide transportation plan. He viewed this
as a starting point for legislators to add to and develop as a
handbook to address funding for unmet transportation needs.
2:49:16 PM
MR. PERSILY discussed the need and the choices [slide 2]. He
thanked Jeff Ottesen and Laura Baker, DOT&PF, and Deven
Mitchell, State Debt Manager, Department of Revenue (DOR) for
their assistance. The starting premise for this plan is that
billions of dollars worth of projects are waiting to be built,
ranging from DOT&PF to community projects. However, the
projects lack funding. State and local communities hope for
high oil prices and large Capital Budgets or look for new
sources of revenue, such as a dedicated motor fuel tax to pay
for these proposed projects. Borrowing money is simply
shuffling existing funds, since the money usually must be
repaid. The legislature could use the Alaska Permanent Fund or
the Constitutional Budget Reserve, or could choose to divert
future royalties to the transportation fund. The legislature
might decide that the Alaska Permanent Fund would receive 25
percent of the royalties, the general fund would receive 72.5
percent, and the remaining 2.5 percent would be placed into a
transportation endowment.
MR. PERSILY related Jeff Ottesen's historical perspective on
transportation, the way it used to be [slide 3]. He said, "Long
ago in the territorial days, under the Alaska Road Commission,
all able-bodied men, men only, were required to work two days on
road building." Men could buy off their time at $4 per day.
Many mining communities built their roads in this way. While he
did not believe anyone was advocating this approach, he stated
that it provided a solution.
MR. PERSILY reviewed state capital expenditures for the past
decade [slide 3]. He explained that the list covers FY 2001 -
2009 and includes DOT&PF capital expenditures for roads,
airports, state ferries, ports, harbors, and docks. The
expenditures not included are state grants to municipalities or
federal funding. State spending has risen with higher oil
prices. He highlighted that expenditures are different from the
appropriations as there is less fluctuation so it reflects more
of an indication of the DOT&PF projects constructed each year.
MR. PERSILY, with respect to transportation projects, recalled
that the legislature had concerns either about overheating the
economy or taking on too many projects. He pointed out that
expenditures can lag appropriations by two or three years.
MR. PERSILY presented DOT&PF Capital Expenditures by Fiscal Year
[slide 4], as follows [original punctuation provided]:
FY2001: $85 million ($27.86 oil)
FY2002: $100 million ($21.79 oil)
FY2003: $142 million ($28.16 oil)
FY2004: $169 million ($32.36 oil)
FY2005: $150 million ($43.44 oil)
FY2006: $150 million ($60.80 oil)
FY2007: $191 million ($61.63 oil)
FY2008: $290 million ($91.12 oil)
FY2009: $277 million ($68.34 oil)
MR. PERSILY related that as oil prices have climbed, the state's
expenditures have also risen.
MR. PERSILY provided DOT&PF Capital Appropriations [slide 5], as
follows [original punctuation provided]:
FY2008: $830 million (oil at $63.92, April 2007)
FY2009: $1.4 billion (oil at $112.37, April 2008)
FY2010: $867 million (oil at $46.56, April 2009)
FY2010 includes $300 million federal stimulus funds
About 10% of FY2010 funding is state:
Roads, $29 million
Airports, $52 million
Ferries, $7 million
Ports/docks/harbors, $472,000
MR. PERSILY explained the appropriations are more directly tied
to oil prices. Thus, from FY 2008 - 2009, the capital
appropriations significantly increased due to high oil prices.
In 2008, the legislature was working on the FY 2009 budget, but
the FY 2010 appropriation is much smaller, less than half a
million for statewide ports, docks, and harbors. Leaving
appropriations to the volatility of oil prices carries a risk.
The state has had some occasional boosts, such as in 2002 when
voters approved $124 million in general obligation bonds (GO);
and $103 million in GARVEE bonds, which essentially allows
states to spend federal dollars in advance of federal receipts.
In 2006, the state sold off future revenues from tobacco
settlement funds, which provided $23 million for transportation
projects. In 2008, voters approved $272 million in
transportation bonds for DOT&PF projects and $43 million for
municipal projects. Half have already been sold and the last
$150 million will be issued next year, he stated.
MR. PERSILY detailed the expenditure of federal dollars, as
follows [slide 7] [original punctuation provided]:
FY2001: $343 million
FY2002: $406 million
FY2003: $504 million
FY2004: $492 million
FY2005: $492 million
FY2006: $525 million
FY2007: $535 million
FY2008: $506 million
FY2009: $514 million
MR. PERSILY reminded members the figures shown in slide 7 are
for expenditures and not appropriations. But it still has not
been enough and the federal funding has been uncertain, and with
stop-gap funding the past few years by the Congress - counting
on federal funding for the future is like counting on oil
prices, he said.
2:55:51 PM
MR. PERSILY, in response to Representative Doogan, offered
reasons for the doubling of expenditures in less than ten years:
Inflation has driven up costs, and in the 1990s the state ran a
budget deficit and the legislature removed $5.5 billion from the
CBR. Thus, the state's spending was very constrained, the
backlog of projects built up, and as oil prices started
climbing, increased appropriations kept pace with oil prices and
have stretched out projects this decade. The DOT&PF might be
better able to address the question, but that is his quasi-
educated answer.
REPRESENTATIVE DOOGAN said that a 100 percent increase in
expenditures in less than ten years is a huge increase by any
standard. He asked for reasons the state is facing a crisis
with respect to transportation costs.
MR. PERSILY deferred to the DOT&PF to answer that question.
2:58:36 PM
MR. PERSILY reviewed the state's tax history [slide 8]. In
1961, Alaska had the highest motor fuel tax in the nation, but
it now has the lowest tax in the nation at $.08 per gallon.
About half of the states have dedicated funds to use motor fuel
taxes to repay revenue bonds. The state had a dedicated fund
for transportation, which was abolished in 1960 [slide 9]. He
argued that the state could appropriate tax receipts each year
for projects, on a cash basis, or could pledge taxes to repay
debt on revenue bonds. Instead of parceling out money year to
year, the state could decide to borrow up front. The current
$.08 motor fuel tax raises $30 million per year and raises $41
million, including marine and jet aviation fuel taxes. He
compared that to the $39 million the state raises from alcohol
taxes, which falls considerably short of the $74 million the
state raises each year from taxing smokers.
3:00:26 PM
MR. PERSILY reviewed pros and cons of the motor fuel tax
options. The motor fuel tax is easy to collect and administer,
and it does not require any new program. There is a clear link
between the users and the payers. If the state used a motor
fuel tax to pay for transportation, an option would exist for
annual appropriations or dedicating the revenue stream to pay
off bonds, or both. The revenue stream would continue
indefinitely and taxing ourselves would provide the Congress
with a different view of Alaskans, instead of the one in which
Alaskans expect federal handouts. He related a scenario in
which the motor fuel tax was doubled to $.16 per gallon on
gasoline and diesel. If so, the state could probably issue $400
million in revenue bonds, or the state could issue $600 million
and pay a higher interest rate on a portion of the debt. He
remarked that the market would not loan out dollar for dollar.
MR. PERSILY pointed out reasons that the motor fuel tax option
is bad [slide 11]. He stated that consumers will not like it,
and philosophically, some are opposed to open the door to
dedicated funds, since advocates may want dedicated funds for
education, health care, or other purposes. The crafters of the
Alaska constitution were not in favor of dedicated funds. Some
concern exists that as people switch to more fuel efficient
vehicles, but their efficiencies could erode tax revenue. The
motor fuel taxes have been stable and do not tend to vary much
over time, although as fuel costs increase and vehicles become
more efficient, some reductions could happen. This might affect
how much bonding the state could receive. Additionally,
dedicated funds would require a constitutional amendment.
MR. PERSILY reviewed bonding options [slide 12]. He highlighted
several options for bonding, including issuing revenue bonds,
backed by motor fuel taxes or another source. Revenue bonds
must have a clearly identified, measurable, proven source of
funding, or the state will not be able to secure funding.
General obligation bonds do not require a specific revenue
source for repayment, since it is simply a pledge by the state
to pay off the bonds from the state's general fund. However,
general obligation bonds require a public vote, and there is a
limit to the level of state debt. General obligation bonds also
commit future state revenues and consume state bonding capacity.
The limit is not in law, but is a sense of how far an investor
is willing to go before raising interest rates.
3:04:01 PM
MR. PERSILY turned to state debt capacity [slide 13]. At the
$65 - $70 oil price per barrel balances the state budget, the
state could probably float a bond for $500 million, and the Wall
Street Market would not penalize the state with a downgraded
bond rating. It is possible to increase such a bond by an
additional $1.5 billion over next several years. The general
rule is that the state should keep its debt service within 5 - 8
percent of the unrestricted general fund revenues. That is not
just debt service on bonds but rather the state's share of
municipal school debt, the of municipal school debt, paying debt
on the new Matanuska-Susitna prison, certificates of
participation, the Atwood Building, or the Anchorage debt.
Further, he remarked that a lot of debt is not generally
considered because it is not part of the general obligation (GO)
bonds.
MR. PERSILY continued his review of state debt capacity [slide
14]. He explained that the Department of Revenue's spring oil
forecast for FY 2010 was at $58 a barrel. About five percent to
eight percent of the unrestricted general fund revenue equals
$160 million to $256 million. He remarked that the state's debt
service in FY 2010 was a little more than $200 million, which is
within the five to eight percent range. At those oil prices,
and not fully covering the budget, the state does not have the
ability to borrow money since Wall Street is no longer offering
sub-prime loans to states. However, with oil tax progressivity,
at $65 oil, five percent to eight percent equals $300 million to
$400 million, which allows the state room to issue GO bonds.
There is some risk in relying on future unrestricted revenues
because it is a bet on oil prices and with a GO bond the state
promises to pay it, which is not a subject for legislative
debate. The DOR is now saying in FY 2010, the average daily
TAPS production will be down to 642,000 barrels of oil per day,
which is a little lower than anticipated.
3:06:27 PM
MR. PERSILY explained unrestricted general fund dollars [slide
15]. The unrestricted general fund dollars at $58 per barrel
projects an anticipated $3.2 billion in revenue. However, once
the state begins to subtract its formula programs such as school
funding, pupil transportation, Medicaid, public assistance,
Municipal Revenue Sharing, special appropriations to retirement,
and Power Cost Equalization, Debt service, not much unrestricted
general fund dollars remains.
MR. PERSILY discussed what is good about bonds [slide 16]. He
explained that revenue bonds would not directly limit the
state's future general obligation bonding capacity. Revenue
bonds stand alone and do not draw directly from general fund,
although revenue bonds could divert funds that would otherwise
go into the general fund. Thus, unrestricted general fund
revenues might drop, for example, if motor fuel taxes were
removed from the equation. General obligation bonds do not
require new taxes or increased taxes. The state could raise a
substantial amount of funds with a general obligation bond
issue. Again, GO or revenue bonds probably would divert money
that would be available for appropriation each year.
MR. PERSILY reviewed problems with bonds [slide 17]. Revenue
bonds based on the public's acceptance of higher motor fuel
taxes is a problem. There is a cost to borrowing money which
has been a philosophical battle in the legislature for years;
the issue is whether to pay cash or pay the fees and interest
rate to have access to funds immediately, which also depends on
the needs and the finances. Debt service commits future state
revenues and if the state uses too much of the state's general
obligation debt capacity it could deny opportunities for other
needs in the years ahead.
MR. PERSILY highlighted GARVEE bonds [slide 18]. He remarked
that these bonds were popular several years ago. The state
would borrow against future federal transportation
appropriations. In 2002, the state issued $103 million GARVEE
bonds, but because the state does not allow dedicated funds the
effect was not a true GARVEE bond. Instead, the bond was a GO
bond that had to be approved by voters, with the intent of using
federal funds to repay the bonds. Since GO bonds count against
the state's debt capacity the state obtained limited benefits.
Additionally, he noted that borrowing against federal
appropriations means there will be less to spend in future
years.
3:09:22 PM
CHAIR WILSON asked what other states are doing with regard to
GARVEE bonds.
MR. PERSILY recalled about a dozen GARVEE bond issues in the
last ten or so years, and although states are still using them,
they have fallen out of favor.
MR. PERSILY outlined toll road options [slide 19]. He offered
that toll roads are good because users pay the costs, and
general fund monies are not used. However, the negative to toll
roads is whether Alaskans are willing to pay for a toll for its
highways. Additionally, Alaska lacks the high volumes of
traffic needed for a toll road. In order for tolls to work it
is necessary to have ample vehicles paying enough tolls to pay
off the debt. The Knik Arm Toll and Bridge Authority has
certainly been working on that issue as part of any financing
proposal. He recalled the NCSL previously discussed public
private partnerships. He remarked that the Indiana Toll Road
was one of the first ones to lease out their toll road to a
consortium of private operators, who were allowed to keep the
tolls for 75 years. Two years later the tolls increased from
$4.65 to $8 so a downside exists if the state were to lease a
toll road to private operators. However, in 2006, Indiana
received $3.6 billion for leasing out its toll road.
MR. PERSILY discussed several endowment options [slide 20]. The
state could establish an Alaska Transportation Fund by taking a
one-time lump sum from the Alaska Permanent Fund or the
Constitutional Budget Reserve Fund. For example, the state
could establish a $2 billion dedicated transportation fund,
which would take a constitutional amendment to create, and could
use the earnings from the fund to pay for its transportation
projects, or to underwrite revenue bonds. The state would also
likely need to pledge the fund itself to backstop earnings on
revenue bonds in the event that investment earnings are low due
to a downturn in the stock market. He remarked that currently
the CBRF has $8 billion.
MR. PERSILY discussed the pros and cons of the endowment option
[slide 21]. The pros for an endowment are that it would not
create new taxes and substantial funds could be made available.
The downside to an endowment approach is that it would require a
constitutional amendment to create a dedicated fund. Further,
any withdrawal from the Alaska Permanent Fund principal would
also require a constitutional amendment, and would reduce future
dividends since the earnings would grow at a slower rate. He
speculated that if the state withdrew $2 billion from the $8
billion currently in the CBR, the state would still have $6
billion, and the state would still be in "pretty good shape."
However, in the 1990s the state only needed oil prices in the
$20 per barrel range to balance the budget, but now needs it in
the $60 dollar range. Thus, if oil prices collapsed, the state
could have a $2 billion deficit and drain the CBR in a few
years. He remarked that the legislature would need to consider
a backstop plan.
MR. PERSILY, in response to Representative Johansen, recalled
that the state drew almost $5.5 billion from the CBR in the 90s.
He recalled 11 deficit years out of 14 years, with the worst
deficit in any given year at $1 billion. He recalled that at
one point the CBR balance was down to $2.5 billion, following
two huge deficit years. Certainly with the changes in
production taxes, the state receives substantially more in
revenue, but with declining production the state needs a much
higher oil price in order to balance the budget.
3:14:23 PM
MR. PERSILY, in response to Representative Gruenberg, stated he
was not covering the cruise ship head tax in this presentation.
REPRESENTATIVE GRUENBERG expressed interest in the amount of
revenue generated by the tax and any effect of repealing the
tax.
MR. PERSILY offered his belief that repealing the cruise ship
head tax would not have much of an effect because of the small
amount of revenue generated by the tax. If the state wins the
current lawsuit and is able to keep the $46 tax intact, only $46
million is collected from 1 million passengers, noting the
decline in the cruise industry in Alaska. The crux of the
state's claim is that the funds are to be spent on projects and
services to directly benefit cruise ship passengers, so it is
useful for street expansions in Ketchikan, Sitka, or Juneau with
a transportation connection. However, revenue from the tax
would apply more to docks, harbors, moorages, and services than
to transportation needs. The state would notice the revenue
loss in the event that the state loses the head tax as a source
of revenue and cruise ship related transportation projects need
to be funded from the general fund since the state already has
significant issues meeting its overall transportation needs.
3:16:33 PM
MR. PERSILY discussed other options for funding transportation
needs, including using oil royalties or the Alaska Permanent
Fund [slide 22]. As previously mentioned, the state could
propose a constitutional amendment to dedicate a transportation
fund and could use a portion of oil and gas royalties as a
revenue stream for the fund. In 1966, the state approved a
constitutional amendment that requires 25 percent of the state's
royalties must be deposited in the Alaska Permanent Fund, with
the remaining 75 percent deposited to the general fund. The
legislature could also propose a constitutional amendment to
dedicate a portion of the Alaska Permanent Fund earnings to
transportation needs. He illustrated this, noting that 2.5
percent of royalties would equal $55 million if oil prices were
at $65 per barrel. The state would not be directly taking the
funds from another program and would not need to raise taxes,
but this approach would reduce the unrestricted general fund by
that amount annually. Instead of creating an endowment, the
legislature and the public could also adopt a Percent of Market
Value Approach (POMV) to limit Alaska Permanent Fund
withdrawals. He stated that 0.5 percent dedicated to
transportation needs would equal $80 million a year in today's
market value. He recapped that these are some ways the
legislature could approach funding options.
MR. PERSILY discussed the pros and cons of using royalties and
the Alaska Permanent Fund [slide 23]. He restated that this
approach would not require new taxes, but an additional $55 -
$85 million per year would be a substantial amount of money for
transportation needs. However, the downside is that it would
divert oil and gas royalties from the general fund, could create
revenue shortfalls when oil prices are low, and would require a
constitutional amendment to create a dedicated fund.
Additionally, using the Alaska Permanent Fund earnings could
result in lower future dividends, and the legislature would be
involved in the public policy debate of whether to use the
Alaska Permanent Fund earnings for this purpose.
MR. PERSILY reviewed the option of selling future royalties
[slide 24]. He said, "If you really want to get creative you
could do what gold miners do; they often finance a project by
selling future production before they they've taken it out of
the ground." The state could raise money by selling off future
royalty oil production in actual barrels of oil, for example, if
the state produces 75,000 barrels of oil per day, the state
could sell 10,000 barrels per day for a certain amount of
revenue over a designated period of years. The investor would
take the price risk on future deliveries, which means state
would have to sell oil at a discount to compensate investors for
risk. This approach would divert future state revenues away
from the general fund and the annual appropriation process.
However, it would probably cost less to raise the same amount of
money by issuing general obligation or revenue bonds.
MR. PERSILY, in response to Representative Gruenberg, offered to
research selling revenues from potential litigation, similar to
the method used with the tobacco class action lawsuits, as well
as to obtain more information for the committee on selling
future oil revenues.
REPRESENTATIVE GRUENBERG clarified that the state did not sell
off future litigation, but created an income stream in order to
capitalize the fund.
MR. PERSILY agreed, noting the state was aware of the exact
amount of the revenue stream.
3:21:43 PM
MR. PERSILY discussed Build America Bonds [slide 25]. He
explained that the Build America Bonds is a program in the ARRA
to reduce the cost of borrowing to states and municipalities.
Normally a state or municipality would issue tax free bonds at a
lower interest rate to investors that do not want to pay income
tax on their earnings. In order to make the bonds more
attractive to pension funds, which do not pay income tax on
their investment earnings, the federal government allows
municipalities or states to issue debt at higher taxable-bonds.
According to the DOR, the federal subsidy would reduce the
actual cost by about a third of the interest to below interest
on tax-free bond debt - or about 25 to 100 basis points. There
is no dollar limit to this federal program.
MR. PERSILY discussed the pros and cons of the Build America
Bonds [slide 26]. The drawback is the tight deadline since the
state has until December 31, 2010 to participate in the program.
Additionally, the legislature would need to pass legislation
since the bond proposal would need to be on the November 2010
ballot for approval. The legislature could also amend the
statute to eliminate the requirement for competitive bond sales
in order to accelerate the process and meet the federal
deadline. He recalled informal discussions that this approach
seems plausible and the state could also save some interest. In
the event the legislature decided to issue GO bonds next year
for transportation needs, it would hold preliminary discussions
with the DOR to project savings. He stated that a GO bond
requires a geographic split in order to gain support in the
legislature and noted the Build America Bonds is a one-time
option.
CHAIR WILSON surmised that the state would still have to take on
debt.
MR. PERSILY concurred, but pointed out that if the state is
considering GO debt it might make sense to discuss this with the
DOT&PF and DOR to determine the state's potential savings and to
review the deadline for applicability.
REPRESENTATIVE GRUENBERG asked whether the Build America Bonds
could also be combined with the GARVEE Bonds.
MR. PERSILY surmised that it could be done, but cautioned the
true GARVEE bond is a dedicated federal fund and since Alaska
does not have any dedicated funds, the process is really in name
only. The legislature could ask for authorization for "x
million" in GO bonds, stating the legislative intent, subject to
the annual appropriation, to use future federal highway funds to
repay the debt.
3:25:46 PM
REPRESENTATIVE GRUENBERG asked what would be the additional
benefit to do so.
MR. PERSILY explained that the state would benefit if it makes
the decision to use unrestricted general fund revenue and also
use future federal transportation dollars. In other words, the
state would be saying it could afford "x amount" in GO debt, but
it will also take "x dollars" from future federal highway funds.
REPRESENTATIVE GRUENBERG said he was thinking of prioritization,
that the state would use Build America bond, with the payback of
a priority GARVEE funds and the second priority for GO bonds.
MR. PERSILY explained that the GO bonds would require voter
approval. He understood that the intent would be to use federal
dollars but it would depend on the size of the bond issue, so if
the amount was $500 million, the federal dollars would be
insufficient to cover the state debt service. In 2002, the
state had $103 million of GARVEE bonds. The legislature would
consult with the DOT&PF to see how much federal funding is
available to commit to debt service. In response to
Representative Gruenberg, he suggested that in instances in
which a state has a specific one-time project to complete, the
GARVEE Bonds might make sense. In Alaska's case, the
anticipated transportation needs will continue for many years so
borrowing against future federal highway dollars, which are not
even sufficient to meet the current state's needs would simply
shortchange the state, he stated. If the state's debt capacity
can afford $500 million, and the legislature believes that would
make a sufficient dent in backlog of projects, it might make
sense to limit it rather than to use future federal dollars.
REPRESENTATIVE GRUENBERG offered his belief the voters might be
inclined to support proposed bonds on a ballot if they were
informed that the GARVEE bonds would be paid for by the federal
highway dollars.
MR. PERSILY recalled in 2002, as Deputy Commissioner, he spoke
against GARVEE Bonds, but that he lost the argument.
CHAIR WILSON stated that one factor to consider is to remember
the ongoing level of federal highway funds is uncertain.
3:29:49 PM
REPRESENTATIVE MUNOZ recalled the $.08 motor fuel tax generates
$30 million in revenue. She asked for the amount of bonding
capacity the state could obtain under the Build America Bond
Program.
MR. PERSILY estimated that for $30 million in revenue, if the
state was required to pay $15 million, the state could probably
get a couple hundred million dollars under the program.
REPRESENTATIVE MUNOZ asked for the current allocation of the
$.08 per gallon motor fuel tax.
MR. PERSILY responded that the state's motor fuel tax revenue is
deposited into the general fund, although some communities
charge sales tax on motor fuel tax, and the sales tax is
retained by the communities.
3:31:12 PM
REPRESENTATIVE DOOGAN said he did not know of any instance in
which the state can magically make money appear and not incur
costs.
MR. PERSILY agreed. Either the state generates new dollars with
taxes or must borrow or divert the oil royalty stream or the
Alaska Permanent Fund earnings, which has the effect of shifting
existing money. Even though a constitutional amendment of 2.5
percent of royalties directed to transportation would be great,
the day will come when the state will wish that it had the 2.5
percent back, he said.
3:32:33 PM
The committee took at at-ease from 3:32 p.m. to 3:37 p.m.
3:38:12 PM
PETER MILLS, Dye Management, Inc., began his presentation with a
quote "Misery does love company." He related that he lives in a
country [Canada] that has a 48 percent personal income tax rate,
a 12 percent sales tax for goods and services, a $1 per gallon
motor fuel tax rate, an outstanding transport-related debt of
about 12 percent of general revenues, and has fully executed at
least seven public-private projects in the province of British
Columbia, with a huge revenue gap.
CHAIR WILSON remarked that Alaskans do not have a state income
tax or a state sales tax.
3:40:59 PM
MR. MILLS offered the three laws of project financing [slide 2].
First, every project needs revenue and debt is not revenue.
Second, there are only two sources of revenue prior to
financing, and two more after financing. The first two sources
are: you or someone else, and when you add financing, you add
two more revenue sources: your children or their children. The
third law of finance is that debt is expensive. He related a
scenario in which a person purchases a house for $150,000, but
finances it with a mortgage, that when the house is paid in full
the total cost of the house is $300,000, including the principal
and interest.
MR. MILLS skipped over several slides to discuss sources of cash
for highway programs [slide 8]. The choices for financing are
to finance in any form, and to pay-as-you-go. Since debt
financing or any type of financing is expensive, over 90 percent
of the highways built in the U.S. are built on a pay-as-you-go
basis. The remaining 10 percent is paid on a financing basis.
Once the state chooses to finance a highway project, the choice
is a choice between debt and equity. The only way to bring
equity to a project is through public-private partnerships.
Several forms of debt are available, including state
infrastructure banks, and municipal or federal bonds such as
GARVEE bonds or Build America Bonds.
3:43:58 PM
MR. MILLS defined the features of State Infrastructure Banks
(SIBs) [slide 9]. An SIB is a revolving fund, which is simply a
fund that repeatedly loans money. As the fund runs out of money
to lend, and more borrowers come to the bank, the SIB
replenishes the funds from another source. Thus, the SIB
continues to loan out funds and it replenishes the funds from
some other source.
3:44:40 PM
MR. MILLS, in response to Chair Wilson, explained that a
revolving fund can be replenished by the repayment of loans or
from some other source. Typically, student loans are revolving
funds, he said. If students repay their loans timely, the bank
is replenished, but if not, the tax base must replenish the
fund. When the revolving fund becomes a bank, two new
conditions apply, the bank is replenished from loan repayments,
and the earned income covers losses and other expenses. An SIB
is a bank owned by the state it lends money for the
infrastructure, but the principal stays in the bank and is the
source of funds that is repeatedly loaned out. The fundamental
difference between a bond and an infrastructure bank is that
with a bond the money is borrowed and the money is repaid over a
period of time. In an infrastructure bank, which is run in a
revolving door fashion, the seed money is not normally expected
to return and is loaned out repeatedly.
3:47:26 PM
MR. MILLS, in response to Chair Wilson, related that when
students default on student loans in a revolving loan student
loan program, the bank must cover the costs, including writing
off its losses. However, the interest received on successful
loans is used to replenish the loan that is written off.
MR. MILLS explained that the income earned covers losses and
other expenses. There are two conditions that drive the
behavior of a revolving fund as a bank. Banks tend be low-risk
lenders and leave high risk to other agents such as venture
capitalists, mutual funds, and equity investors. When banks get
involved in risky projects, they tend to do so as partners, he
stated. They tend to partner with other lenders of capital that
are more apt to take the risk.
MR. MILLS explained the SIBs in the U.S. [slide 10]. He said,
"Hence you see in the U.S., many infrastructure banks
participating as one of several parties to funding a major
transportation project and they will be in one of the less risky
positions on the project than some of the others."
3:50:26 PM
MR. MILLS, in response to Chair Wilson, offered to give an
example of how an infrastructure bank operates on a $50 million
state project. He described a scenario, in which an
infrastructure bank is set up by the state, and is run by one
person, who is the bank officer. The DOT&PF would apply for $50
million to fund its project. The bank would loan out the $50
million and would seek information on repayment plus interest.
Thus, the bank would seek information on how the project will
generate $100 million to repay the bank plus pay interest.
MR. MILLS offered that typically the types of projects using an
infrastructure bank are projects expected to provide some hard
financial return to the general fund. For example, if a bridge
is built to reduce maintenance costs over time, the DOT&PF would
repay the loan from money that was budgeted for maintenance
costs, or the bridge would charge users a toll to generate
income for repayment. Since the SIB is not trying to make a
profit, it can offer a cost-based interest rate and would
participate in funding the project. The test for any given
project is that the bank officer will identify the repayment
plus interest before it will make the loan.
CHAIR WILSON remarked that in some instances in Alaska only one
route exists but in a city the people can often find an
alternate route in order to avoid a toll.
3:54:13 PM
REPRESENTATIVE JOHANSEN described a scenario in which a ferry
charged a toll for each person.
MR. MILLS said Representative Johansen's example is a good one.
The banker would calculate the fare and anticipated ridership of
the ferry to arrive at its total revenue, and would deduct the
ferry's operating expenses to arrive at the profit. Thus, the
banker would determine whether the ferry could repay the loan.
He recalled the federal street sweeping and storm management
requirements discussed earlier. If the MOA could reduce its
sweeping costs by replacing the storm catchment drains with more
efficient drains, the MOA would approach the bank to fund the
replacement costs for the new technology. The MOA would propose
to repay the loan over the next 30 years from its cost savings.
3:56:42 PM
MR. MILLS, in response to Representative Johansen, agreed that
if a prospective borrower could provide a 30-year history to
demonstrate sufficient income after expenses to repay a
prospective loan, including interest, that any banker would be
interested in the proposition, but in the event that the entity
had a history of debt, any banker would not be interested in
financing any project.
3:57:59 PM
MR. MILLS continued with his presentation, explaining there are
federal and state infrastructure banks [slide 10]. The
advantage of a federal infrastructure bank is that it is
federally funded. However, the only projects that can be funded
from the initial capital are ones eligible for federal funding.
Any subsequent round of lending can be used to fund any projects
selected by the state, but the initial funding is restricted for
federally eligible projects. Thus, many states have declined to
use federal infrastructure banks since they must use the initial
capital for the projects subject to the more stringent federal
guidelines.
4:00:24 PM
MR. MILLS, in response to Chair Wilson, pointed out that Kansas
and Georgia have state-only capitalized infrastructure banks.
Florida and Ohio run parallel banks and use the federal bank as
part of the toll systems, but run parallel banks for municipal
and local projects. In further response to Chair Wilson, he
explained that Missouri is the only state to actively execute a
bank for economic development roads and to use state funds to
encourage counties and municipal governments to build more
projects.
4:02:13 PM
MR. MILLS described the three ways infrastructure banks are
initially capitalized [slide 11]. First, the government would
put in the cash as equity or would issue a GO bond, and deposits
the proceeds to the bank. The second method uses leverage, in
which the government puts in 25 percent of money required and
instructs the bank to issue its own bond, but not a GO bond, to
fund the additional 75 percent of the fund. The equity dollar
goes farther, but the bank must earn a sufficient return and not
default on its loans so the banks must be more commercial in
nature, he said.
4:03:45 PM
REPRESENTATIVE GRUENBERG asked if it is possible to use Build
America Bonds to capitalize the SIBs.
MR. MILLS answered yes.
REPRESENTATIVE GRUENBERG asked whether that would get the state
"off the hook" since the federal government would be required to
pay the interest.
MR. MILLS answered that the state is not "off the hook" since
the Build America Bonds would be issued by the state, but are
not issued as tax-exempt municipal bonds. Instead, the bonds
would be taxable bonds and the federal government would pay the
state a subsidy of 32 percent. However, these would still be
state bond and the state must still offer up some revenue as
obligations against the bonds.
MR. MILLS related that the third method to initially capitalize
an infrastructure bank is often used by the international
developing community, in which several nations will form a bank,
deposit some capital, and promise the rest on call. He related
a scenario in which a bank would initially fund the bank with
$10 million and would require the bank to issue its own bond for
$40 million, but would give a letter of guaranty or loan
guarantee, but would be on call, so if bank ends up "in the
soup" the nations or collective governments would pay the equity
required.
4:06:05 PM
MR. MILLS clarified that in his example, the infrastructure bank
is the borrower as the government puts money into the
infrastructure bank.
CHAIR WILSON related that if the SOA sets up an infrastructure
bank and the state DOT&PF borrows money for a project and cannot
repay it, the state would still be liable.
MR. MILLS agreed. He emphasized he is outlining ways to
structure financing including that the state could choose to
take on more risk and stretch its dollars, or it could take on
less risk and keep its dollars closer - leveraging versus risk.
4:08:01 PM
MR. MILLS, in response to Representative Doogan, answered that a
regular bank tends to place a different price on risk than
governments place on risk. He recalled Mr. Beedle's concern
with forward funding the AMHS since the risk exists that the
appropriation might not be made. Similarly, a banker would
review any proposed project to decide whether it is high risk
and if so, would demand a high rate of return. However, the
infrastructure bank, as the government-owned bank will put a
different price on the risk, realizing that while the AMHS funds
are subject to appropriation, the AMHS will not be dissolved,
that the appropriation will be made, and so the SIB will lend
them the money. Another reason to use an infrastructure bank
rather than to issue a municipal bond is that the infrastructure
bank can lend something other than cash. He recalled the
scenario for building a ferry in Southeast Alaska for $10
million. In that instance, the infrastructure bank could give
the AMHS a loan guarantee to stretch the AMHS's capital farther.
It would loan the AMHS $5 million in cash and another $5 million
in the form of a loan guarantee. Thus, the SIB has the ability
to stretch its funds by giving assurances that are not cash, he
said.
4:11:18 PM
REPRESENTATIVE DOOGAN inquired about the track record for the
SIBs.
MR. MILLS answered that typically, the SIB record has been good.
He suggested that the "jury is still out" on South Carolina,
which funded its entire transportation program through an SIB
for several billion dollars. He related that South Caroline
funded 27 years of programs in 7 years by using 27 years worth
of revenue. The question remains, given the tourism industry
collapse, whether South Carolina will be able to service the
loan. He stated that generally the record for SIBs has been
good, recalling Texas has used the SIBs extensively at the local
government level to lend support to the counties without
assuming full responsibility for its roads.
MR. MILLS, in response to Chair Wilson, agreed the state used
something similar to fund the Whittier Tunnel, that using
revolving loan funds is not a new financing method in Alaska.
He recalled that the state has about eight or nine revolving
funds, which are typically used in quasi-commercial
applications.
MR. MILLS referred to "SIBs, Build America Bonds, and State
Bonds in Relation to Other Debt Instruments [slide 18]."
4:14:59 PM
REPRESENTATIVE GRUENBERG asked Mr. Mills to focus on the State
Infrastructure Banks on slide 18 and to the arrow that also
points to traditional projects. He posed a scenario, in which
the state is not building an income-producing project such as
the Whittier Tunnel, but wants to widen a street near the
tunnel. He said he did not see an advantage to using the SIB
over GO bonds since income in not generated by the project.
MR.MILLS answered that in the event a street near the Whittier
Tunnel was widened, the state could make the argument to local
business owners the advantages of having improved traffic,
improved business revenues, and likely increased property taxes,
so the city should give the SIB some portion of the property
taxes to pay for the project. This is an example of how to use
an SIB to fund a project that does not have its own direct
income stream.
REPRESENTATIVE GRUENBERG related an example in which the state
owns the project but property tax is not being paid.
MR. MILLS responded that an argument could be made with the
increased vehicle volume of 5,000 vehicles per day, the state
would obtain $200 per day in increased motor fuel taxes, and
since the state DOT&PF would not need to build the project, the
department should contribute to the project. He agreed these
provide thin arguments.
REPRESENTATIVE GRUENBERG said any additional motor fuel tax
collected would be deposited to the general fund. He did not
think that the arguments would have "traction" in Alaska.
MR. MILLS offered another example. He described an instance in
which the City of Charleston refused to pay for bridge repairs.
The surrounding counties added a 5 percent hotel tax to provide
the revenue stream for the bridge.
REPRESENTATIVE GRUENBERG said he thought that using an
infrastructure bank, in which the federal government paid 35
percent of the interest, could be a useful to provide a revenue
stream for local governments to build projects.
MR. MILLS related that this method has been useful to other
states, including Texas, to obtain funds to local municipalities
for projects with an expectation for repayment.
CHAIR WILSON offered her belief that a limited number of towns
in Alaska would be able to take advantage of this.
REPRESENTATIVE GRUENBERG agreed, but related the distribution
could be set up as similar to school funding for rural areas of
the state.
4:21:49 PM
MR. MILLS, in response to Representative Munoz, related that
municipalities have the statutory ability to borrow cash and can
issue municipal bonds. He agreed that there would be an
advantage for a SIB to coalesce a lot of the borrowing
requirements, in order to bring some of the states borrowing
ability to it to and to reduce some of the risks. He reminded
members that a SIB can issue non-cash forms of credit, while a
municipality cannot. "While it sounds esoteric, never
underestimate the power of a good letter of guarantee," he said.
He illustrated that a municipality might have a project for
$100,000, and could secure $50,000, and obtain a $50,000 loan in
which the bank agrees to $25,000, with a letter of guarantee to
take to another lender, or a developer for the remainder. Thus,
the SIB can issue guarantees and forms of credit to avoid
lending out the entire $50,000 in cash.
REPRESENTATIVE GRUENBERG related that the state would likely be
able to obtain more credit than a small community.
CHAIR WILSON stated that communities also have the ability to
use the Build America Bonds, and many other entities could be
eligible for bonds.
MR. MILLS agreed. He stated these communities would do so at
their own risk and at their own credit rating. The state's
credit rating is very good, he said. He recalled that Missouri
attempted to use the state's borrowing ability to assist its
municipalities. The other key to using an SIB is that the bank
can also work in partnership with another bank, and the
packaging is when infrastructure banks make sense.
4:25:02 PM
REPRESENTATIVE DOOGAN stated that these options do not actually
solve the problem that the committee is trying to address, which
is to keep the transportation infrastructure from deteriorating
and to build new projects in Alaska.
MR. MILLS said [Alaska] is a "little different." He agreed that
the current national debate does not seem to apply to Alaska.
4:28:19 PM
REPRESENTATIVE DOOGAN related that the state has yet to find an
example of a successful development bank. He observed that the
money is loaned out but does not revolve back in because the
revolving loan becomes the lender of last resort. He asked for
ways to prevent SIBs from becoming the lender of last resort.
MR. MILLS answered that the state has to structure the bank so
the government is not the one "trying to pick the winners." He
related it is ultimately left to the owner government to hire
experts to "pick the winners."
4:29:44 PM
CHAIR WILSON asked whether provinces in Canada have anything
similar to the infrastructure banks.
MR. MILLS answered yes. However, he related that Canada does
not have dedicated funds, but also does not have the problem of
issuing bonds. "We just have the Crown, and the Crown collects
the revenue into a general fund and borrows money whenever it
wants, for whatever purpose it wants," he said. He related that
Canada has a constitutional monarchy form of government. In
Canada, much is done with tax credits to venture capitalists,
which is a form of a development bank and has had mixed reviews.
4:31:00 PM
REPRESENTATIVE GRUENBERG stated that some municipalities have
the ability to repay the SIB. He suggested that a SIB might
have difficulty in avoiding political pressures.
MR. MILLS agreed. The first golden rule of banking is, "never
lend money to anyone who really needs it," he said. He agreed
that separating out the high risk loans from the political
process is the governance question.
MR. MILLS, in response to Chair Wilson, speculated that the loan
portfolio of a commercial fishery bank would look just like a
venture capital firm and the good and bad loans would likely
average out and the bank would survive. An infrastructure bank
attempts to keep the costs low and tries to partner whenever
possible.
4:34:05 PM
REPRESENTATIVE DOOGAN hazarded a guess that it does not hurt the
process if the state has the resources to guarantee any loans.
He said he would like to see actual examples in the state since
the success really depends on the specifics. He was not certain
that a sufficient number of potential Alaska transportation
projects could be profitable enough to make this work.
CHAIR WILSON said part of the problem seems to be that Alaska is
still a young state. Most states the federal government helped
create the infrastructure. Alaska is receiving a lot less from
the federal government, yet the state still has tremendous
transportation needs.
MR. MILLS characterized Alaska as finally getting to the head of
the breadline only to find there is no bread left.
4:37:13 PM
CHAIR WILSON asked the committee to consider various scenarios
to fund transportation projects in Alaska. She stated her
desire to have a bill ready by the start of the legislative
session.
COMMISSIONER VON SCHEBEN offered that he takes the committee
member questions and comments very seriously.
4:41:34 PM
MR. OTTESEN related that approximately 5 billion miles of travel
occurs on the state road system each year. The American
Automobile Association's estimate from several years ago lists
$.50 per mile in costs to operate an automobile, and $.75 for a
pickup truck or sport utility vehicle (SUV). The public spends
about $3 billion per year to use Alaska's roads. The state
collects $30 million in gas tax, which is a small fraction of
the cost.
REPRESENTATIVE MUNOZ supported the idea for specific suggestions
on financing a program that would pay for some of the state's
needs. Some good ideas were brought up today include revenue
bonds, general obligation bonds, and perhaps an endowment.
REPRESENTATIVE GRUENBERG said he would like the committee to
draft a bill that would take advantage of the one-time only
"Build America." He was unsure of how much money the state
might receive, but extra funds would help.
COMMISISONER VON SCHEBEN concluded by stating the outlook for
the state's future is still positive and the DOT&PF just needs
to get through this dip in federal funding.
4:46:43 PM
REPRESENTATIVE JOHANSEN asked Commissioner von Scheben to let
him know whether the department will be applying for any ARRA
grants.
4:47:21 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 4:47
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Need and challenges AMHS 2009.10.01.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| NCSL presentation to Alaska 10-1-09.pptx |
HTRA 10/1/2009 9:30:00 AM |
|
| State Infrastructure Bank. Report.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| TRAN Agenda Sep 29-Oct 1.docx |
HTRA 10/1/2009 9:30:00 AM |
|
| STIP 2009.10.01.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| State Infrastructure Bank presentation.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| Needs and challenges Aviation 2009.10.01.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| Needs and Challenges surface transportation 2009.10.01 FINAL.pdf |
HTRA 10/1/2009 9:30:00 AM |
|
| Persily Options Power Point 10-1-09.pptx |
HTRA 10/1/2009 9:30:00 AM |