Legislature(2021 - 2022)SENATE FINANCE 532
03/16/2022 09:00 AM Senate FINANCE
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| Presentation: Alaska Marine Highway System by | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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SENATE FINANCE COMMITTEE
March 16, 2022
9:02 a.m.
9:02:11 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Ryan Anderson, Commissioner, Department of Transportation
and Public Facilities; Rob Carpenter, Deputy Commissioner,
Department of Transportation and Public Facilities; Dom
Pannone, Administrative Services Director, Department of
Transportation and Public Facilities, Office of Management
and Budget, Office of the Governor.
PRESENT VIA TELECONFERENCE
Matt McLaren, Alaska Marine Highway System Business
Development Manager, Department of Transportation and
Public Facilities.
SUMMARY
PRESENTATION: ALASKA MARINE HIGHWAY SYSTEM BY DEPARTMENT OF
TRANSPORTATION & PUBLIC FACILITIES
^PRESENTATION: ALASKA MARINE HIGHWAY SYSTEM BY
DEPARTMENT OF TRANSPORTATION & PUBLIC FACILITIES
9:02:37 AM
Co-Chair Stedman relayed that the committee would consider
a presentation on the Alaska Marine Highway System (AMHS).
He noted that there were significant changes coming up for
the calendar year 2023. He noted that the new commissioner
was present. He asked the commissioner to introduce himself
and discuss his background.
9:04:01 AM
RYAN ANDERSON, COMMISSIONER, DEPARTMENT OF TRANSPORTATION
AND PUBLIC FACILITIES, introduced himself and discussed his
background. He was a 1993 graduate in geological
engineering from the University of Alaska Fairbanks. He had
worked at the Greens Creek Mine for three years, and then
started with Department of Transportation and Public
Facilities (DOT) in Fairbanks in 2000. He had worked in
design and construction, and the previous five years he had
been director of the Northern Region. The work had included
maintenance and operations, design, construction, and
planning. He commented on the large size of the region,
which was north of the Alaska Range. He appreciated his
time travelling to rural communities to meet the people and
gain a greater understanding of the states unique
features. He hoped he could use the knowledge and still
learn more about the state.
Commissioner Anderson continued to give his opening
remarks. He had been appointed as commissioner-designee in
September. He recounted a trip to Ketchikan to meet AMHS
staff and learn about the system. He reported being on a
learning curve for the previous five months. He thought
there were good things that had happened. He mentioned the
saying "steering the course towards reliability." He
mentioned disruption in the system over the past winter,
and the realization was that people wanted reliability from
the system. He mentioned the advantage of forward-funding
schedules, which the legislature had approved the previous
year. He discussed the Alaska Marine Highway Operations
Board (AMHOB), which had been approved by the legislature
the previous year. He mentioned putting crew quarters on
the M/V Hubbard, which would provide greater flexibility.
Commissioner Anderson discussed challenges with service in
the winter of 2021-2022 and highlighted some supplemental
service contracts and getting the M/V Tazlina running. He
mentioned Prince Rupert. He explained the state was making
progress with the sale of the M/V Malaspina. He referenced
the Infrastructure Investment and Jobs Act (IIJA). He
mentioned soliciting a contractor for a replacement vessel
for the M/V Tustemena. He referenced an additional $15
million in federal ferry funds that would be well utilized.
He referenced a potential $200 million discretionary grant
for rural ferry programs and looked forward to more
information coming out on the topic. He mentioned the
desire to make good investments for the future.
9:08:36 AM
Commissioner Anderson mentioned SB 226 [a bill proposed by
the governor establishing the Alaska Marine Highway System
Fund and the Alaska Marine Highway System Vessel
Replacement Fund outside the general fund] and establishing
a way to put funds away to make AMHS more sustainable for
investments in the future. He highlighted that workforce
was the system's toughest challenge and asserted that the
department would keep working on the issue.
Co-Chair Stedman commented on the many years the members
had worked on the committee. He explained that the members
dealt with DOT every year in the operating and capital
budget. He discussed the DOT regions of the state, and
recognized that the Northern Region seemed to be the most
efficiently run region of DOT. He highlighted that the
region was very competitive in putting forth requests for
federal funds. He mentioned that some members had concerns
about other regions and about wanting the culture of the
Northern Region to spread to other regions. He thought it
was beneficial to DOT that the commissioner had come from
the Northern Region. He thought the subject had been worked
on by the commissioners predecessor. He welcomed the
commissioner and relayed that the committee looked forward
to working with him, particularly on the coming
infrastructure package, which would take a great deal of
effort from DOT.
9:11:39 AM
Senator Olson commented on the commissioner-designees
youthful vigor and asked about Commissioner Andersons a
vision for the department, particularly with regard to
AMHS.
Commissioner Anderson thought in the short term, it was
essential to shore up the system to ensure it could do its
job as-is. He continued that the department had discussed
future economic development in the area along the Western
coast of the state up through Barrow. He mentioned
America's Marine Highway Program, administered by the
United States Department of Transportation Maritime
Administration (MARAD). The MARAD routes currently went up
through the inside passage and out to the Aleutian chain.
He noted that DOT was currently in discussion with the City
of Nome and others to extend the route up past Barrow,
which would open up more grant opportunities for local
governments. He relayed that the current focus of AMHS was
on the communities it currently served.
Senator Olson asked if Commissioner Anderson was
considering running ferries towards the Bering Strait.
Commissioner Anderson stated, no, not at this time.
Co-Chair Bishop stated that Commissioner Anderson was
extremely qualified and welcomed him on board. He addressed
Senator Olson's question, and stated he had seven AMHS
studies in his office. He mentioned a two-ferry system in
the Yukon.
Senator Wilson noted that the administration had just
proposed a bill to restore some of the funds that were
swept from passenger fees. He asked Commissioner Anderson
what DOT was doing in the building to advocate for
restoration of the funds, as well as other swept funds.
Commissioner Anderson thought the administration was
looking for any opportunity to preserve funds to invest. He
commented on the importance of the sustainability of the
system. He spoke to the capital needs of the system and
aging ships. He mentioned challenges with Buy America and
looking at ways to leverage state funding.
Co-Chair Stedman explained that Senator Wilson's question
was part of the upcoming presentation, and the committee
would be discussing the matter when it considered the
operating budget.
9:16:06 AM
ROB CARPENTER, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES, introduced himself.
He thought the commissioner had touched on many of the
issues.
Co-Chair Stedman stated that the goal was to get the AMHS
out of Ketchikan and as far up the coast as possible.
9:17:10 AM
DOM PANNONE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION AND PUBLIC FACILITIES, OFFICE OF
MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, discussed
the presentation "Alaska Department of Transportation &
Public Facilities - Senate Finance Committee - Alaska
Marine Highway System - March 16, 2022" (copy on file). He
looked at slide 2, "Forward Funded Budget Structure," with
three tables entitled 'AMHS OPERATIONAL LAYERS,' 'Current
Budget,' and 'Governor's CY2023.'
Mr. Pannone spoke to slide 2. He reminded that the previous
year the legislature had forward funded the ferry system in
two ways. System funds had been removed from the current
budget to be replaced with Covid-19 relief funds, which
allowed monies to accumulate in the AMHS Fund in the
current year and allowed the system to operate without
revenue uncertainty. The second mechanism of forward
funding was to shift the budget to a calendar year by
adding an additional one-time six months funding
appropriations. The extra funding extended the budget
further into the future, allowing for future planning and
publishing of a full-year schedule shortly after the budget
was finalized. He asserted that the forward funding made
the system more reliable and increased overall revenues, as
well as removing the fiscal year budgetary break in the
middle of the ferry systems summer season.
Mr. Pannone continued that the forward funding provided
more time for the system to plan and respond to decisions
made in the budgetary process, unlike past years. He
contended that with continued annual 12-month
appropriations, AMHS would remain on the calendar year with
extended visibility into the future. He noted that the top
graphic on slide 2 showed the structure of the budget. The
first row showed the first release of the 12-month
schedule. Row 3 showed the initial 18 months of funding DOT
received, and there was a six-month bridge appropriation
and a 12-month calendar year appropriation. On row four,
the red marker showed the current period, and the yellow
bars denoted the budget being discussed during the
presentation, which would go into effect in a little over
nine months.
Mr. Pannone continued to address slide 2. He noted that the
tables at the bottom correlated with the bars above and
showed the current budget as highly dependent on
Unrestricted General Funds (UGF) and Covid-19 relief funds.
The governors proposed budget was shown to be heavily
reliant on federal funds, which would be discussed in the
following two slides.
9:19:49 AM
Mr. Carpenter spoke to slide 3, "CY2023 Governor's
Proposed," which showed a pie chart. He explained that
DOT's FY 23 budget request $141.7 million, of which $135.9
million was federal funding provided by IIJA, and a portion
of $5 million DGF AMHS funds to cover non-federally
eligible costs such as marketing. He explained that the
quote "All ships, all the time." was meant to signify that
the budget going forward, which reflected running all the
ships with no scheduled budgetary layups and including
overhaul time.
Mr. Carpenter referenced slide 4, "Infrastructure
Investment and Jobs Act (IIJA) SEC. 71103 - FERRY SERVICE
FOR RURAL COMMUNITIES":
$200M per annum, available nationwide, for five years.
Ensures basic essential ferry service is provided to
rural areas.
Operators must have operated a regular schedule during
the 5-year period ending March 1, 2020 and served at
least two communities with a population of 50,000 or
less, located more than 50 sailing miles apart.
Awaiting further criteria on program.
Mr. Carpenter relayed that the department was fairly
confident it would receive a substantial amount of the
rural ferry funding described on the slide. He thought
there was a notice of funding opportunity that would come
out in April and provide greater detail. He was not certain
if matching funds were required. There was a June
application date for funding awarded in August and
transmitted by December. The department had an additional
amount of ferry boat discretionary funding through the
infrastructure act, which was normally about $16 annually
and would provide roughly $25 million. He estimated that a
significant amount could be invested in infrastructure and
vessel needs after operating expenditures.
Senator von Imhof Infrastructure thought IIJA funds were a
significant windfall for AMHS. She thought the funding
would buy the system time but would not solve existing
problems of the high cost of running the system. She asked
about the department's plan after the IIJA funds ran out.
9:23:37 AM
Senator Olson considered the rural ferry system funds of
$200 million per year for five years, which he thought was
substantial. He considered ports and docks and thought
smaller towns might not have the infrastructure to receive
ferries.
Mr. Carpenter relayed that the language to provide
eligibility for the rural ferry funds stipulated that the
system must serve populations of 50,000 or less and were 50
miles apart. After establishing eligibility, the funds
could be used for any port in the system.
Senator Olson asked about the ability to put capital
projects in such as dredging and docks.
Mr. Carpenter stated that the funds were intended for rural
ferry systems and therefore AMHS facilities. He thought
building new docks in rural communities with an intent to
serve the communities could be an option.
Senator Wilson thought the Commissioner Anderson had
mentioned the part of the IIJA funds would be for
development of a new vessel. He asked about the development
of the new vessel and recalled that the previously built
vessels were not designed for the docking facilities in
Southeast. He asked how the proposed vessels would be
built.
Commissioner Anderson explained that the current Tustumena
Replacement Vessel (TRV) had been extensively designed
(including public comment) to serve every port currently
served by the M/V Tustumena. The vessel had the same
elevator design as the Tustumena. He believed the ship was
designed to service every port that was needed. The intent
was to build a ship to serve every part of the system. The
project was in the final design stage. He agreed that
ferries needed to be versatile.
9:27:22 AM
Senator Hoffman referenced the second line of slide 4,
"ensures basic essential ferry service is provided to rural
areas" and serving communities with populations of 50,000
or less. He addressed the topic of underserved areas, such
as Kodiak and the Aleutian Chain. He thought Western Alaska
was underserved and considered expanding service to the
area to four times per year. He asked why the state was not
looking at the underserved instead of considering
communities 50 miles apart. He thought the plan might be
short-sighted.
Co-Chair Stedman asked for an explanation of the
stipulation of serving communities 50 miles apart, and to
address what other states might qualify for the funding.
Mr. Carpenter noted that the point about communities 50
sailing miles apart was qualifying language from IIJA. He
relayed that the department was struggling to find any
other states that qualified for the funds. He was confident
that Alaska would get the majority of the funding. He
relayed that the department was open to discussion
regarding underserved parts of the state.
Senator Wielechowski thought the railroad was looking for
$60 million in bonding authority for some dredging and a
new dock and terminal in Seward. He wondered if DOT was
looking for opportunities in which to get involved in a
public-private partnership with the cruise ship industry or
the railroad. He thought some long-term returns could be
generated. He wondered if the IIJA funding could be used in
such a way.
Mr. Carpenter relayed that the department was considering
options but was focusing on getting reliable vessels and a
reliable system. He hoped the new AMHOB would be able to
look towards a longer-term vision and other investment
opportunities to expand or improve the system.
9:31:41 AM
Senator von Imhof thought Senator Wielechowski had relayed
some of the same things she was thinking. She pointed out
that looking north from Ketchikan there were communities
that were farther along in having shovel-ready projects.
She used the example of Cordova, which had significant
community involvement and was bonding itself for a new
port. She hoped DOT was cognizant that more communities
were more involved and would bring success quicker. She
contended that Cordova was ready to move forward and hoped
the department could work with the community and perhaps
provide an example.
Senator Hoffman wondered if the department felt that the
state needed to consider underserved areas and the
potential to use the opportunity of federal funds to
address the issue. He pondered that the state should use
state funds to get three to five ships per year to the
underserved areas, to stabilize the system. He thought at
the least the system could provide some stability and
expansion rather than expanding the system.
Co-Chair Stedman understood that the first ship that would
be replaced was the cross-gulf ferry.
Mr. Carpenter affirmed that the first ship to be replaced
was the M/V Tustumena, which would be able to go cross-
gulf.
Co-Chair Stedman thought Senator Hoffman's point was that
expanding the cross-gulf trips to Dutch Harbor for example.
He asked the department to get back to the committee with
information regarding the number of trips per year over
time in order to see how the service many have changed. He
was interested in background information on how to serve
communities. He thought there was interest in service to
Prince Rupert and cross-gulf. He thought there was also a
necessity for a conversation about the next ships that
would be replaced, and what areas would be served.
9:36:37 AM
Senator Olson considered the additional cross-gulf sailings
and asked if there was business in Dutch Harbor to offset
state costs.
Mr. Carpenter relayed that the department's perspective was
that the cross-gulf journey was from Skagway across to
Whittier. From Whittier the M/V Tustumena would usually go
to Kodiak and out the Aleutian Chain, as well as the M/V
Kennecott when it was in service. He acknowledged that the
run was not a money maker, and emphasized that DOT
believed the AMHS was an extension of the highway system.
He cited that challenge of the equipment to provide the
service to the whole system. With the M/V Tustumena in
layup, the M/V Kennecott was limited to how often it could
go to the Aleutians. He thought the M/V Kennecott was
scheduled to go to the chain four times per summer, and he
thought there was a desire to double the amount of service.
He was not opposed to additional service if there were
available ships. He recounted that AMHS was using
supplemental service utilizing catamarans locally in order
to improve service. The system was not opposed to providing
additional service.
9:38:50 AM
Mr. Pannone turned to slide 5, "CY2023 Governor's Proposed
Budget," which showed two tables. He thought the slide
provided context of the AMHS budgets over the previous four
years, including levels, planned service levels, and actual
service levels. The first table showed planned service
levels. The department planned on having a significant
increase in weeks of service for calendar year 2023, and
the number signified the upper ceiling of what AMHS could
deliver. The next row showed actual weeks of service by
year, which could be reduced by longer-than-planned
overhauls, mechanical failures, pandemics, crew shortages,
and acts of God or nature.
Mr. Pannone addressed the bottom table on slide 5, which
showed the fund makeup of the budgets by year, with the far
column showing comparison and hoped increases. He
summarized that the calendar year 2023 budget was an
increase of funding to AMHS of $23 million in operating
funds and a significant service level increase was planned.
Co-Chair Stedman asked for Mr. Pannone to walk through the
budgetary process before moving to the next slide. He asked
for explanation on the budget fund sources. He mentioned
considerations including different federal funding sources.
He asked Mr. Pannone to address the table on the bottom
section of the slide.
Mr. Pannone addressed the table on the bottom of the slide.
He pointed out that the funding for the calendar year 2022
budget showed $63 million in UGF, $5.4 million of
Designated General Funds (DGF) from motor fuels tax, and
$1.3 million in other funds. He noted that $112 million was
Covid-19 relief funds in the Coronavirus Response and
Relief Supplemental Appropriations Act (CRRSAA). In the
calendar year 2023 budget, the department was utilizing
farebox receipts from the AMHS Fund for items that were not
federally eligible.
Mr. Pannone continued discussing the budget items listed on
slide 5. There was $859,000 in capital improvement project
receipts to pay the engineers and project managers that
worked on overhauls and were doing designs for the TRV. He
cited that the $135 million was rural ferry service funds
from IIJA, which was from the $200 million available every
year. There was also language in the governors proposed
budget that would allow the department to access up to $20
million of its own revenue if the federal funds were
unrealizable for any reason.
9:42:48 AM
Co-Chair Stedman asked about the $135 million in rural
ferry funds. He referenced slide 4, which discussed grant
awards. He asked if the funds were more for capital
expenditures and asked if the funds would be available July
1.
Mr. Pannone explained that the funds were for operating
funds. The Federal Transit Administration (FTA) would put
out a notice in April, which DOT would apply for in June
and hopefully receive in August. The funds would be for
operating expenditures and would be $135 million.
Co-Chair Stedman asked Mr. Pannone to address the schedule,
and the cash flow for the system in the summer. He
referenced back-fill language in the budget, and how to
make the transition while having the ability to make
payroll for AMHS while waiting for the federal funds.
Mr. Pannone explained that as of now the department had
funding for the rest of 2022 as part of the initial forward
funding process. The system had received 18 months of
funding at the beginning of the current fiscal year. The
system was funded and had a budget until the beginning of
2023, shown in the yellow square on the slide. He cited
that the department would receive the funding before the
budget being discussed. If there was a delay in federal
funding, the system would have $25 million of its own
revenue until the funding was received.
Co-Chair Stedman asked if the $25 million would serve as
supplemental monies starting in January. He relayed that
there was concern about the transition in funding. He drew
attention to slide 5 and the $182 million in the bottom
column of 2022. He referenced transitioning to an 18-month
budget for one year in order to budget on a calendar year.
Senator Hoffman looked at the second line of the first
graph on side 5, showing actual weeks of service. He
relayed that Co-Chair Bishop pointed out that in the past
the system had more than 400 weeks of service, and in
calendar year 2022, there was a bit more than half of the
amount. He wondered how much service was planned for 2023.
He asked how much money was in the budget from the Marine
Fuels Tax. He asked for an estimate of actual weeks of
service for 2023.
Mr. Pannone stated that the department planned for 362
weeks of service for calendar year 2023. If there was an
unexpected mechanical failure or other unplanned event, the
number would go down. He noted that there was no Motor
Fuels Tax in the AMHS current budget, and the funds had
been moved to the Highways and Aviation component. The
calendar year budget had $5 million in DGF AMHS Funds.
9:47:54 AM
Co-Chair Bishop pondered that $135 million of the $200
million in IIJA funds would be spent in the proposed
budget. He asked about the remaining $65 million.
Mr. Pannone thought the department hoped to formulate a
plan to put the funds towards capital needs, assuming the
department received the full $200 million in funding.
Senator von Imhof expressed worry about reduced funding in
five years. She observed that there were 611 port calls
planned for 2023, which was higher than any other year. She
was concerned that the department would be building back an
efficient and robust system but hoped there was a plan for
the future.
Co-Chair Stedman thought the committee needed to discuss
Senator von Imhof's concern and what would happen in five
years if the federal funds were not extended. He wondered
about competitors for the $200 million. He asked Mr.
Pannone about the federal language changes and access to
other DOT capital improvement funds.
Mr. Pannone relayed that the department had looked at 197
other ferry systems, none of which had routes that would
meet the qualifying criteria for the funds. For the
purposes of the budget, the department had proposed a basis
of running all the ships with no budgetary layups. There
were other increases for discretionary ferry boat funds
that would go to AMHS capital program, and other capital
opportunities for funding coming through IIJA.
Co-Chair Stedman wanted to make all the funding and
structure clear to members, in order to see all the options
for DOT accessing funds.
9:51:25 AM
Mr. Pannone considered slide 6, "6AMHS Revenue & Weeks of
Service FY2014 CY2023," which showed a bar graph
depicting system revenue over the yearly quantity of weeks
of service. The bars showed a significant dip in revenue
and weeks of service during the "Covid years" in FY 20 and
FY 21, and calendar year 2022 was slowly coming back after
the pandemic. He thought the takeaway was to show AMHS
planned on bringing service levels back up significantly in
calendar year 2023, with a service level that looked closer
to 2015 and 2016.
Co-Chair Stedman referenced graphs from the Department of
Revenue and was glad to see the AMHS numbers were lower
than the star shown on the top of the graph, which would
have been a lofty goal. He thought there was concern about
how the ships would be staffed.
Mr. Carpenter displayed slide 7, "Historical Revenues and
Operating Costs," which showed a bar graph entitled 'AMHS
Fare Box Recovery Rate 1992-2023 Gov.' He thought the slide
provided historical reference to the revenue and operating
costs, as well as the farebox recovery rate. He noted that
the salmon-colored bar represented AMHS revenue generated
over time. He noted that the numbers were adjusted for
inflation and shown in 2021 dollars to reflect the
additional buying power of the earlier years. The upper
blue portion of the bar represented non-revenue funding
sources, which was historically composed of UGF and a few
other fund sources. He thought it was shown that the 2023
budget was reverting back to years prior to the significant
spike in the 2000s.
Mr. Carpenter indicated that the farebox recovery was shown
by the yellow line on the graph, with a percentage of the
total budget covered by revenue shown on the right axis. He
observed that in the early 1990s the percentage was upwards
of 60 percent, with a significant drop in the 2000s as the
budget went up and returned to a 35 percent to 38 cost
recovery ratio. The last two bars on the right side of the
graph showed the most recent years, with a budget that was
entirely funded with federal funds.
9:55:05 AM
Senator von Imhof asked if the department had considered
the fares in the current year in light of inflation and the
cost of fuel.
Mr. Carpenter stated that the department had not considered
fares in the current year. He described that fares were a
challenging topic. He recounted that in recent years, the
system did a levelizing of fares that were equated to
different routes, which had priorly been random. He
mentioned the concept of dynamic pricing, which was not
popular but generated more revenue for the system and would
be discussed further.
Senator von Imhof thought the fares had not been adjusted
to 2021 dollars, while costs had gone up. She acknowledged
people would complain about raised costs and highlighted
the cost of gas and labor.
Co-Chair Stedman thought many people served by the AMHS
were concerned about affordability, especially with regard
to vehicles. He agreed that cost was an area of concern. He
thought if the service was too expensive, it would not be
used. He asked Mr. Carpenter to speak to dynamic pricing.
Mr. Carpenter did not know details about dynamic pricing.
He explained that as the car deck filled, it would cost
more and more to book a vessel. Similarly, passenger
service would cost more as space was sold. He thought the
pricing was currently still implemented. He pondered that
the pricing was dependent upon the legislature and the
direction the new board would want to go. He would have
thought two years previously that the system was pushing
towards a 50 percent revenue recovery, but he was not sure
that was currently the case. He thought the direction of
AMHS needed to be identified.
Co-Chair Bishop asked if the generated revenue shown on
slide 7 was farebox revenue.
Mr. Carpenter answered affirmatively.
Co-Chair Bishop asked if the non-generated revenue fund
source was UGF.
Mr. Carpenter answered that the non-generated revenue was
primarily UGF.
9:59:04 AM
Senator Hoffman understood Co-Chair Stedman's comments
about moving vehicles to Bellingham, and the price being
too high. It had been brought to his attention moving a new
vehicle via the AMHS was about 20 percent of the cost of if
you moved it through Northland. He hypothesized about
moving a vehicle from Haines to Juneau and considered the
difference in price between a private business and the
AMHS. He thought no one would use the commercial service
because the ferry was super subsidized and would cost 20
cents on the dollar. He thought there was room to look at
the rate structure. He mentioned differentiating between a
person that was travelling with a vehicle versus not. He
thought there was room to look at the service, which could
represent lost revenue.
Mr. Pannone highlighted slide 8, "AMHS Funds and Sweeps":
Alaska Marine Highway System Fund (1076)
AS 19.65.060, AS 37.05.550
Sweepable: Yes
Swept Amount: $0
Capitalization Account (3225)
subaccount of AMHS Fund
Sweepable: Yes
Swept Amount: $2,629.4
AMHS Vessel Replacement Fund (1082)
AS 37.05.550
Sweepable: Yes
Swept Amount: $18,477.9
Balance: ~$28M
?$2.6M Ocean Going Vessel, Planning & Design
($10M -FY2014)
?$22M Ocean Going Vessel, Construction Match
($22M FY2018)
?$3.4M Title 23/Federal Share of Vessel Sales / Other
SB 226 - Relocates AMHS Fund outside of General Fund
Balances not subject to sweep or further appropriation
Mr. Pannone summarized that slide 8 covered the systems
sweepable funds and the accounts related to AMHS. Revenue
was automatically deposited into the AMHS fund. There was
nothing swept in the previous week because of obligations
for the capital of the fund. He noted that the $28 million
balance from the AMHS Vessel Replacement Fund was not swept
and was appropriated for the design and construction match
for the TRV. There were also receipts in the fund from the
sale of the fast ferries, which were federal funds and had
to remain in the fund to be spent on future vessel
replacement.
10:03:04 AM
Senator Wilson asked what the department was doing to
educate about the importance about having the funds
reestablished outside the General Fund. He thought the
state was technically breaking the regulations around the
use of the AMHS Vessel Replacement Fund.
Commissioner Anderson thought there was a broad awareness
that there was an opportunity over the following five years
to have the revenues accumulate in the funds to create an
opportunity for a longer-term strategy. He referenced
legislation that would protect the accounts from the sweep.
He discussed the governor's bill, which proposed to bank
the federal rural ferry funds for a future long-term plan.
Under the bill, the AMHS funds were no longer deposited
into the new account, but rather appropriated into the
account so that further spending would be allowable without
further appropriation. The proposed change would get the
fund around the requirements of the sweep, but the
legislature would control what went into the fund.
Senator Wilson had not seen any other information beyond
introduction of the bill and the presentation. He asked
what the department was doing to reach out to other
legislators.
Mr. Carpenter thought the department's legislative liaison
would be making the effort to provide details on the
benefits of the legislation, as the bill was a priority of
the governor.
Co-Chair Stedman thought there were a couple of different
concepts that the committee needed to work through to focus
on the goal. He thought there were some concepts that would
give the little more control over the funds also. He spoke
to the disagreement the legislature had with the
administration regarding the sweep. He relayed that the
legislature would be working on the matter with the
legislative auditor while doing residual cleanup of the
accounting actions that took place when some funds were
scooped before the sweep.
10:06:38 AM
Mr. Pannone looked at slide 9, "Fuel Calculations":
Fuel calculations based on Oil Price Information
Service (OPIS), Cost = OPIS Pricing + Delivery Charge
CY2023 budget built on $2.36/gal (8.4M/gal = $19.9M),
FY2021 Averages were $2.21/gal
7/1/2021 to 3/11/2022 average is at $2.90/gal
Fuel expenditures vary significantly by ship
Mr. Pannone explained that the actual cost of fuel could
often be varied because of the fuel expenditures varying by
ship.
Co-Chair Stedman thought the fuel estimate seemed a little
light. He asked if there would be a potential adjustment to
the numerics for a request in the budget. He thought it was
optimistic to be able to buy fuel in 2023 with the prices
shown on the slide, considering what was going on in the
world. He mentioned a fuel trigger, to insulate for the
potential impact of fuel cost.
Mr. Carpenter relayed that the department was open to
discussions and mentioned that fuel was a liability.
Co-Chair Stedman requested that the department review the
FY 23 price projection for fuel and come back to the
committee with what the department felt was a reasonable
target range. He thought there had been many dynamic
changes since the budget was together in October and
November.
Co-Chair Bishop asked for information about the fuel burned
per hour by ship.
Co-Chair Stedman requested the commissioner look at the
operating budget for the department and consider expected
fuel needs because of the large amount of equipment in DOT.
He commented on the significant change in the fuel market.
He wanted the information for the budget process. He
thought it would be malfeasance to use a price of $2.30 as
a fuel price when the price of oil had hovered from $80/bbl
to $90/bbl and a few days ago was at $100/bbl.
Commissioner Anderson agreed.
10:10:28 AM
Mr. Carpenter addressed slide 10, "Staying the Course,
Toward Reliability":
?Forward funded budget
?First full year advance schedule published
?Tustumena replacement vessel: CMGC
?Hubbard: crew quarters
?Prince Rupert:
?Working toward May 23rd
?June September schedule published
?Marine highway planner final candidate selection
underway
?Contingent private contract service
?Tazlina: crewed, sailing since February 4th
?Alaska Marine Highway Operations Board meeting every
two weeks
?New change management director
?Katherine Keith, Certified Project Management
Professional and Project Management Institute
Agile Certified Practitioner
Mr. Carpenter gave a high-level overview of events at AMHS.
He thought the published full-year advance schedule had
been successful in attracting bookings. He relayed that the
department had been meeting biweekly with the Canadian
government and the United States Customs and Border Patrol
regarding returning service to Prince Rupert. He commented
on the significant discussion about stabilizing and
modernizing the fleet during board meetings for AMHOB. He
discussed the new change management director and recounted
that the working group had recommended a three-person team
to handle change at AMHS. The department had hired one
person, who also served as a liaison for AMHOB and was
directly involved in all three unions.
Co-Chair Bishop asked if it was too early to tell if
forward funding and Prince Rupert advertisements had
resulted in a rise in bookings.
Mr. Carpenter did not have the information at hand, but
thought bookings were higher than average.
10:15:05 AM
MATT MCLAREN, ALASKA MARINE HIGHWAY SYSTEM (AMHS) BUSINESS
DEVELOPMENT MANAGER, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES (via teleconference), explained that AMHS
had seen bookings increase, and there were a lot of people
that were booked to Bellingham but were interested in
switching to Prince Rupert.
Co-Chair Stedman asked Mr. McLaren to get back to the
committee with more information on Prince Rupert. He
remarked that the port had been shut down for a couple of
years and many Alaskans preferred to sail to Prince Rupert
for economic reasons.
Co-Chair Stedman asked for information on potential
increased bookings further out in the calendar since the
system was forward funded by six months and the schedule
was published out further.
Mr. McLaren made note of an increase in bookings and a 3
percent to 4 percent increase in revenues. He mentioned
fewer bookings because of the Covid-19 and thought the
forward-funding was helping with the bump in revenues to
offset the losses due to Covid-19.
10:17:10 AM
Mr. Pannone advanced to slide 11, "State Funded Overhauls,"
which showed a bar graph and a table entitled 'Actuals by
Vessel.' He reminded that the department requested an
annual capital appropriation for overhauls and maintenance
for vessels. He noted the department had an increased
request for FY 23 the amount of $20 million. The five-year
average was about $18 million. The department had
identified about $2 million in deferred maintenance that it
wanted to accomplish in the following year, as well as an
increase in the need for overhauls as vessels continued to
age. He explained that the table at the bottom of the slide
showed the actuals by fiscal year and by vessel how the
overhaul capital appropriation was spent.
Co-Chair Stedman thought there had been concern for many
years that the state had scrimped too much on the
maintenance of the ships, which had led to questionable
reliability. He commented on maintenance levels remaining
flat.
Co-Chair Bishop asked about the deferred maintenance and
the replacement number to get current on deferred
maintenance.
Co-Chair Stedman asked for the deferred maintenance total
for existing ships, not counting the M/V Malaspina.
Mr. McLaren relayed that the current deferred maintenance
list was about $2.5 million, not including the M/V
Malaspina.
Co-Chair Stedman did not think one of the ships could be
fixed for $2.5 million. He asked about the deferred
maintenance total for all existing ships excepting the M/V
Malaspina.
Mr. McLaren stated that $2.5 million was the amount
identified for items that needed fixing or updates. He
stated that the larger items coming up in the next five
years included more than $200 million.
Co-Chair Stedman commented on the age of the ships.
10:20:47 AM
Mr. Carpenter looked at slide 12, "AMHS Staffing Needs (as
of 3/10/2022)," which showed a bar graph entitled 'Hired vs
Separated,' and a table. He referenced AMHS's staffing
issues and pointed out that there had been a national trend
in the maritime industry and other industries. He
highlighted the bar graph, showing that the net change in
hired and separated employees since FY 19. The system had
lost a net of 81 employees in 2019, 60 employees in 2020,
and 14 employees in 2021. The table to the right showed
vacancy by position, the largest being 274 entry-level
stewards. There was a total of 414 vacancies. He commented
on the significantly low numbers of crew, which was
creating a challenge. He stated that the reduction in crew
was affecting summer operations, which he would address in
the following slide.
Co-Chair Bishop asked Mr. Carpenter to give examples of
crewing. He mentioned the Alaska Maritime Workforce
Development Plan, which the department and AMHS were
signatory to.
Mr. Carpenter mentioned that the agency had started a
fairly aggressive recruitment campaign the previous fall.
The department was working with Department of Labor and
Workforce Development (DOLWD) and the unions. The
department was advertising everywhere and had a headhunter
looking for specific positions. He noted that AMHS was
often short on certain skilled positions. He expressed
concern about losing ground. He was unsure of the reason
for the recruitment challenges. He mentioned the rate of
pay and the remoteness of the work as challenges.
Co-Chair Bishop thought there would be a bigger discussion
on the topic of workforce development, as well as a more
focused discussion to help AMHS execute the plan. He hoped
there would be assistance in the form of more training
funds to actively recruit inside the state.
10:24:14 AM
Senator Hoffman asked where they system was in the cycle of
union contract negotiations.
Mr. Carpenter relayed that all three unions were presently
negotiating, and he was hopeful for a conclusion soon in
order to have a monetary agreement before the legislature
in the current session.
Senator Wielechowski asked about the cost of living
allowance (COLA) increase the state had proposed for the
unions over the years.
Mr. Carpenter could not speak to negotiation details, which
were not publicly available.
Co-Chair Stedman looked at the chart on slide 12, and
recommended the chart showed the numbers of vacancies in
the negative. He commented on the significant challenge of
the vacancy factor. He asked for an explanation of the 414
vacancies compared to the number of crew needed to run the
ships, considering turnover of crew and layup time. He
asked how the system planned on sailing the ships if the
recruitment was not as successful as hoped. He was
concerned that the goal of running all the ships would not
be achieved with the vacancy challenge.
10:27:08 AM
Mr. Carpenter showed slide 13, "AMHS Crewing Requirements":
Staffing goals for eight ferries over the summer of
2022 are:
IBU: 496 (current 305) / MMP: 112 (current 78) / MEBA:
80 (current 55).
Staffing goals for the summer season will not be met
at current recruitment rates.
250 Hires required for healthy staff levels.
M/V Columbia's operation depends on reaching staffing
targets.
IBU: Inlandboatmen's Union of the Pacific
MMP: International Organization of Masters, Mates, &
Pilots
MEBA: Marine Engineers' Beneficial Association
AUR: Aurora
MAT: Matanuska
LEC: Leconte
LIT: Lituya
COL: Columbia
KEN: Kennicott
TUS: Tustumena
TAZ: Tazlina
Mr. Carpenter spoke to the table including the minimum
number of crew needed in various vessel configurations. He
highlighted that operating the main fleet (AUR, MAT, LEC,
LIT, KEN, TUS) would require a hiring a minimum of 24 new
crew. He noted that the previous summer the system had
operated at minimum crew levels, which resulted in a lot of
overtime and was not healthy for the workers. In order to
add the M/V Tazlina to the main fleet, there would need to
be 25 more crew. To run the M/V Columbia, an additional 101
crew members would be needed above the 24 needed for the
main fleet. To run the main fleet with the addition of the
M/V Tazlina and M/V Columbia, an additional 142 crew
members were needed. He was hopeful that recruitment levels
would go up. He pointed out the bullet that indicated that
250 hires were needed for a healthy ship staffing level.
Co-Chair Stedman asked Mr. Carpenter to elaborate on the
M/V Columbia. He understood that there were some propellor
maintenance issues that would need to be addressed, without
which the ship could not sail. He asked Mr. Carpenter to
walk through the union groups shown on the slide.
Mr. Carpenter explained that there was a controllable pitch
propellor project scheduled for the following fall on the
M/V Columbia. The ship would come out of dry-dock in mid-
summer the following summer and crewing the ship would be
challenging. He reviewed the staffing goals and bargaining
units listed on the slide.
Co-Chair Stedman thought the staffing goal was lofty.
Senator Wilson thought the AMHS had a stellar safety record
and no major issues thus far. He asked, considering the
staffing needs and deferred maintenance, if the boats were
safe and if Mr. Carpenter would put his family on them.
Mr. Carpenter answered, absolutely.
10:32:31 AM
Senator Wielechowski asked if returning to a defined
benefit system would help in retaining employees.
Mr. Carpenter was not sure how the benefits worked for the
AMHS unions.
Co-Chair Stedman asked Mr. McLaren could discuss the
retirement structure for AMHS.
Mr. McLaren explained that both Masters, Mates, and Pilots
(MMP) and Inlandboatmans Union (IBU) unions were in the
Public Employees' Retirement System (PERS). He noted that
some things were dependent upon length of service.
Co-Chair Stedman thought Senator Wielechowski's question
needed to be directed at other people in the department.
Senator Hoffman asked for a comment on the level of service
between Ketchikan and Metlakatla. He asked for comments on
current service and what was planned.
Co-Chair Stedman asked for Mr. Carpenter to factor out the
weeks of service for the Ketchikan to Metlakatla run, which
was twice a day.
Mr. Carpenter noted there was daily service between
Metlakatla and Ketchikan that subtracted the 52 weeks from
the systems total for weeks of service.
Co-Chair Stedman asked Mr. McLaren to comment.
Mr. McLaren informed that there were two round trips a day
from Ketchikan to Metlakatla five days per week. There was
an average of about 50 service weeks per year due to
overhaul of about two weeks.
Co-Chair Stedman asked Mr. McLaren to get back to the
committee with information about weeks of service, with the
service to Metlakatla broken out.
10:36:00 AM
Co-Chair Bishop asked if Mr. Carpenter was in direct
consultation with the affected bargaining units to see if
the unions could help with recruitment.
Mr. Carpenter answered affirmatively. He relayed that the
department met with the unions biweekly and had other
discussions through steering committees and other groups.
He relayed that the unions were very aware of the situation
and were trying to work together on the issue.
Co-Chair Bishop appreciated Mr. Carpenter's response. He
thought in years past, the conversations had not taken
place.
Co-Chair Stedman asked for a decade of data on employee
headcount. He relayed concern about the ability to replace
personnel in a time frame for a weekly service plan to be
implemented. He thought it seemed like every employee group
in the country was having trouble with staffing. He
explained that the committee wanted to understand the risk
associated with lack of employees and what impact it would
have on AMHS. He thought the information would help with
the budget process.
Co-Chair Stedman asked Mr. Carpenter to get back to the
committee with information on the revenue potential
compared to the costs of the ship. He mentioned the
challenge of recent decreased ridership. He thought none of
the ships make money but the revenue per ship was not
equal.
Mr. Carpenter thanked the committee.
Co-Chair Stedman thanked the testifiers. He was glad to see
the AMHS evolving out of the financial abyss of the
previous two years. He discussed the agenda for the
afternoon meeting.
ADJOURNMENT
10:39:49 AM
The meeting was adjourned at 10:39 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 031622 DOT FINAL 2022.03.16 - SFIN Full - AMHS.pdf |
SFIN 3/16/2022 9:00:00 AM |