Legislature(2019 - 2020)BUTROVICH 205
03/07/2019 01:30 PM Senate TRANSPORTATION
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| Presentation: Alaska Marine Highway System | |
| Adjourn |
* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
March 7, 2019
1:31 p.m.
MEMBERS PRESENT
Senator Shelley Hughes, Chair
Senator Jesse Kiehl
Senator David Wilson
MEMBERS ABSENT
Senator Mike Shower, Vice Chair
Senator Peter Micciche
COMMITTEE CALENDAR
PRESENTATION: ALASKA MARINE HIGHWAY SYSTEM
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MATT MCLAREN, Manager
Business Enterprise and Development
Alaska Marine Highway System (AMHS)
Department of Transportation and Public Facilities (DOTPF)
Ketchikan, Alaska
POSITION STATEMENT: Participated in the presentation on the
administration's plans for the AMHS.
AMANDA HOLLAND, Management Director
Office of Management and Budget
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Participated in the presentation on the
administration's plans for the AMHS.
ROBERT VENABLES, Chair
Marine Transportation Advisory Board
Executive Director
Southeast Conference
Juneau, Alaska
POSITION STATEMENT: Spoke about the Marine Transportation
Advisory Board reform efforts.
MARY SIROKY, Deputy Commissioner
Department of Transportation and Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Participated in the presentation on the
administration's plans for the AMHS.
ACTION NARRATIVE
1:31:38 PM
CHAIR SHELLEY HUGHES called the Senate Transportation Standing
Committee meeting to order at 1:31 p.m. Present at the call to
order were Senators Kiehl, Wilson, and Chair Hughes.
^Presentation: Alaska Marine Highway System
Presentation: Alaska Marine Highway System
1:31:55 PM
CHAIR HUGHES announced the presentation the Alaska Marine
Highway System. She noted that the administration has made a
proposal that the current ferry service would cease October 1
this fall. She noticed that the RFP [request for proposals]
referenced finding cost savings in a way to continue to provide
transportation but also to allow economic growth in the regions.
She was curious about those two working together and what the
administration has to say about the different options it is
considering.
1:33:26 PM
MATT MCLAREN, Business Enterprise and Development Manager,
Alaska Marine Highway System (AMHS), Department of
Transportation and Public Facilities (DOTPF), Ketchikan, Alaska,
introduced himself.
AMANDA HOLLAND, Management Director, Office of Management and
Budget, Office of the Governor, Juneau, Alaska, introduced
herself.
1:34:01 PM
MS. HOLLAND said that slide 2 shows the difference between the
fiscal year (FY) 2020 budget and the FY 2019 management plan for
the Alaska Marine Highway System. In the AMHS transition, the
amended budget proposes a combined general fund reduction of
$97,988.8 million. That is broken out by $64,179.7 million
unrestricted general fund (UGF) and $44,809.1 million designated
general fund (DGF), which is the Marine Highway Fund. The budget
position comparison shows no change between the FY 2019
management plan and the governor's February 13 amended budget
for FY 2020. No positions are deleted in the amended FY 2020
budget.
SENATOR HUGHES mentioned that she attended the AMHS presentation
to the Finance subcommittee for transportation that morning. She
asked if the amount shown in the gold on the funding comparison
graph is the money collected at the fare box.
MS. HOLLAND answered yes.
1:35:31 PM
SENATOR KIEHL asked if that was the expected fare box revenue or
a drawdown on AMHS funds.
MS. HOLLAND responded that it was the projected revenue.
CHAIR HUGHES clarified that in FY 2020, the ferries would
operate from July 1 to October 1 and positions would be carried
through until October 1. After that, most people would not be
working.
MS. HOLLAND responded that that was correct.
CHAIR HUGHES asked how that would work.
MS. HOLLAND said all the positions are budgeted for a certain
number of months, depending on what the system would require for
FY 2020. If AMHS underwent a reduction of force in October every
year, those positions stay on the record. Employees can stay in
those positions, but there is no work for them to perform for a
certain period of time.
1:37:31 PM
MS. HOLLAND said that slide 3, Historical Revenue and Operating
Cost: Alaska Marine Highway System, is one of the metrics that
the Department of Transportation and Public Facilities (DOTPF)
relies on for trends in AMHS operations. This is an historical
revenue and operating cost metric. It looks at the fare box
recovery rate. They are looking at how much of the operating
cost of the department is funded through receipts and how much
is subsidized by the state general fund. The highest level of
fare box recovery was 61 percent in 1991 and 1992. Starting in
2005 and 2006, the cost recovery has been lower than 35 percent
with increased operating costs.
1:38:38 PM
CHAIR HUGHES asked why the operating costs increased. She also
mentioned that other committee members were absent because a
Finance Committee meeting had been scheduled.
MR. MCLAREN said there were several factors. In 2004-2005 three
new vessels, both fast ferries and the Lituya, went into
service. The plan was to retire at least one vessel. That did
not happen, so there were more vessels running. They started
going to smaller communities, which don't have as high a cost
recovery, and there were wage increases. The fundamentals of the
system changed.
CHAIR HUGHES asked why the vessel was not retired and why
additional service was added.
MR. MCLAREN said he was not sure. The general manager would
probably know.
CHAIR HUGHES asked if that was before his time.
MR. MCLAREN answered yes, but they could get the answer.
CHAIR HUGHES said the 61 percent recovery rate was good. She
asked if there was anything responsible for that in 1992.
MR. MCLAREN said he could get the traffic numbers. They were
running fewer ships at the time. Tariffs have not increased much
in the past 10 to 15 years. They could figure out whether
anything significant had happened.
CHAIR HUGHES said if something significant had been happening,
maybe they could repeat it.
MS. HOLLAND said slide 4 shows a 10-year look back of
unrestricted general fund in the AMHS operating budget. She
explained the dip in UGF in FY 2018 was because the legislature
in FY 17 put forward a supplemental appropriation of $30 million
to reduce FY 18 UGF spending in the AMHS. There was a fund
source swap from UGF to DGF, the Marine Highway Fund. In
addition, approximately $9.4 million UGF was appropriated from
the community quota revolving loan fund and deposited in the
DGF, the Marine Highway Fund. In FY 19, that fund source swap
was reversed, so that Marine Highway Fund authority was switched
back to UGF, which is why there is a dip in 2018 and an increase
in 2019.
1:43:27 PM
SENATOR KIEHL asked what the FY 18 number would look like if the
creative appropriation practices were undone.
MS. HOLLAND said the unrestricted general fund would have been
$40 million higher in FY 18, so it would have been between $79
and $82 million.
CHAIR HUGHES said the UGF for FY 20 is for three months of
service. The blue bar for FY 20 is a quarter of the UGF for FY
19, which was for 12 months. It looks proportional to her. She
added she was just thinking out loud.
MS. HOLLAND said slide 4 is an update on the governor's
directive issued on February 13 for DOTPF to enlist the aid of a
qualified, economic and marine consultant to review and
incorporate all the state's financial obligations and
liabilities related to the Alaska Marine Highway System with the
idea of identifying protentional reductions to that financial
liability and obligation. The consultant will be incorporating
previous studies' findings and providing an analysis of various
options for the AMHS that would result in those reductions to
the state's financial liabilities for the system.
March 1 Issued Informal Request for Proposal
March 11 Deadline for Receipt of Proposals
March 18 SOA Issues Notice to Award
March 19 SOA Issues Contract and Performance Begins
May 15 Consultant Preliminary Recommendations
June 7 Consultant Preliminary Draft Report
June 14 DOT&PF Comments Due to Consultant
July 5 Consultant Final Draft Due
July 12 DOT&PF Final Comments Due to Consultant
July 31 Consultant Final Report to DOT&PF
Contract Budget $60,000 - $90,000
CHAIR HUGHES commented that it was an aggressive timeline. It
had been discussed that morning, but she thought it should be
brought up again. She asked why there was such a tight timeline,
whether they were confident they would get proposals, and why
they were assured that the timeline would work.
MS. HOLLAND replied that Deputy Commissioner Siroky had spoken
to that this morning. The department recognizes that it is an
aggressive timeline. They did engage three potential sources or
consultants. They have have had inquiries about this, so they
felt the aggressive timeline could still result in a qualified
consultant bid. They would like to get moving on this project as
quickly as possible, so they have time to analyze options.
CHAIR HUGHES asked whether the numerous studies done over the
years and their solutions had been considered. She read the RFP,
which provides a link to the reform committee that was put
together by the Southeast Conference. She asked if there had
been a review of prior reports and studies and whether those
solutions were dismissed. She asked why they were doing another
study.
1:48:08 PM
MS. HOLLAND said quite a number of studies have been done over
the years. There was a systems analysis, a tariff analysis, an
economic impact analysis, the Marine Highway Reform Phase 1 and
Phase 2 Reports, annual traffic volume reports, vessel condition
reports, and annual financial reports. There is quite a bit of
information out there, she said. All those studies are specific
to one particular look, one particular scope. The idea behind
bringing a qualified consultant on board is that the consultant
would review all of that and bring in expertise about how to
maximize the marine highway system and provide the department
with options, including information from these reports. It is
bringing an expert to help them evaluate all this information
and make the best-informed decision possible.
SENATOR HUGHES said she appreciated the administration
recognizing that they can't keep doing what they've been doing.
They need to make changes. She is concerned about the timeline
and has many questions. One would be whether any federal dollars
would be lost, such as for the facilities and terminals. When
they move too quickly, there are unintended consequences.
Apparently, the administration is confident with this pace, but
this gives her pause. She used to live in Southeast and has
family here. The weather is often inclement and it's not always
safe to travel in small aircraft. She wants to make sure they do
this right and continue to provide transportation for people who
live in this region.
SENATOR KIEHL asked what the fund source was for the consultant.
MS. HOLLAND said the fund source was existing Marine Highway
Authority in the FY 2019 operating budget.
SENATOR KIEHL asked how much excess authority there was beyond
anticipated need.
MR. MCLAREN answered the budget is tight this year on authority.
He will need to investigate to find the exact amount. They feel
there is enough to recover this.
1:51:30 PM
SENATOR KIEHL said he appreciated her question about previous
studies. Many of them are thorough. The remarkable thing about
them is that the ones from 1969 read like the ones from 2010 in
terms of their recommendations. That was his editorial comment.
In terms of deliverables, the contract's scope of work, the
marine highway system has worked on efficiencies trying to
secure long-term contracts for supplies, for maintenance, and
things like that. He asked if the consultant would get to the
level of granularity to address the cost of terminating those
contracts.
MS. HOLLAND answered that they do anticipate that the consultant
report will address those issues. The consultant will work
closely with DOTPF. The Department of Revenue economic group
will also be working DOTPF to identify economic impacts of the
various options that the consultant identifies for
consideration.
CHAIR HUGHES said the RFP says that the AMHS will move toward
other service options to realize short- and long-term cost
savings for state government and to promote economic growth in
affected parts of the state. If that is part of it, they should
be looking at impacts on the economy.
SENATOR KIEHL asked what the scope of that analysis is on
community impacts, especially economic impacts.
MS. HOLLAND responded that they expect to see impacts for
opportunities for private operators and how that could change
the economic situation for communities that currently receive
marine highway services.
SENATOR KIEHL said that is a significant concern. He asked the
department to give him the estimated cost of state staff time
for this effort.
CHAIR HUGHES said the scope of work has ten options, although
the RFP is not limited to those. There is a lot about public-
private partnerships, public corporations, the state retaining
part but privatizing others. It doesn't appear to be only about
privatization, but she has been hearing more about privatizing.
She asked if the administration is open to the other nine
options.
1:55:30 PM
MS. HOLLAND said her understanding was that the administration
is looking for a variety of options. There is no single set
determined course.
CHAIR HUGHES said that was good to hear. She was hearing things
that made it sound like they were going down only one path.
Senator Stedman that morning had brought up that the AMHS
advisory board was supposed to be part of any long-term
planning. She asked if they have been involved and what the plan
was for that.
MS. HOLLAND replied that she would defer that to the department
leadership. She asked if they could respond in writing.
CHAIR HUGHES said that she saw that the chair of the Marine
Transportation Advisory Board (MTAB) was in the room. She asked
him to come up to speak about his interactions with the
department as the chair of the board.
1:56:55 PM
ROBERT VENABLES, Chair, Marine Transportation Advisory Board,
Executive Director, Southeast Conference, Juneau, Alaska, said
it was not clear yet how they will be involved. The commissioner
has reached out to the chairs of MTAB, the aviation board, and
the highways advisory board and asked them to be part of a new
ad hoc committee. They don't have clarity yet about how that
committee will be involved. The members of the ad hoc committee
have not been appointed. As far as MTAB, it does state that the
Marine Advisory Transportation Board shall, in cooperation with
the department, prepare and submit to the Department of
Transpiration and Public Facilities and the governor for review
a strategic plan. That is what the consultant will be getting
at. He was pleased to see the link [in the RFP] to the reform
effort that the MTAB and Southeast Conference have been part of.
He offered to provide more information about that if the
committee would like it.
CHAIR HUGHES said he was welcome to provide any information to
the committee. She asked him whether he had been involved in any
discussions regarding his role with the reform committee work.
MR. VENABLES said that MTAB and the steering committee, which
has a dozen members across the state, had a joint meeting in
December in Anchorage. The governor had staff there also. As
part of the reform effort, MTAB has been invited to each
meeting, so statutorily they are in compliance.
CHAIR HUGHES asked what the reform committee was recommending
and if that dovetails with the RFP.
1:59:55 PM
MR. VENABLES said there was a lot of opportunity for the
committee work to be adopted by the governor. Those ten tasks
[in the RFP scope of work] are so broad and so divergent in many
ways, that if one of those paths were chosen, very little could
be adapted. The crux of the reform effort was to empower
management to make the business decision of the day with an
executive board that is skilled in maritime expertise, finance,
marketing, and labor. There is a lot of cost and waste
associated with current operations because of the misalignment
between labor and management. There are opportunities there.
They will see how the governor and DOT utilizes MTAB and that
information. All of the reform efforts and product and process
were outside the Department of Transportation. He can understand
why DOT might want their own consultant, but this work was done
by Alaskans and consultants in a public manner. He can get
executive summaries to the committee.
CHAIR HUGHES clarified that it would allow public-private
partnerships where it would make sense. She asked if he could
give some examples. She noted that this morning Senator Bishop
had suggested the possibility of reopening bars.
MR. VENABLES said that was a poster child of allowing the space
to be used by the private sector. Whether state employees need
to be serving alcohol to the traveling public was a debatable
question that would leave the door open for an entrepreneur to
come in to provide that service and create some revenue. Four
years ago, he mentioned to Senate Finance that if they really
wanted to take the handcuffs off and let the enterprise system
create some revenue on board the boats, perhaps they could look
at gaming also. There are many opportunities that may not be
embraced by all, but they could be explored if empowered
management could look at those. If empowered management could do
that, there are things that haven't even been considered yet.
CHAIR HUGHES said gaming could increase ridership and bring
people up to Alaska who might not come otherwise. That ability
to work with the private sector sounds like a positive. She
likes the idea of having private sector expertise helping steer
the ship, pun intended. She asked if there is anything else
about solutions they have not discussed.
2:02:56 PM
MR. VENABLES said regarding the labor-management misalignment,
the marine highway doesn't even manage their own contracts with
their employees. As Senator Bishop mentioned this morning, they
don't talk as much as they should. An empowered board that has
some private sector expertise could look at ways to partner with
communities, businesses, and tribes. They have had some good
conversations about how some of those entities could come to the
table and create infrastructure that would provide efficiencies
for the system, as well as for terminals and other locations.
CHAIR HUGHES said this was not the Finance Committee, but it
begs the question. This was being discussed because of the
fiscal situation and what they have been doing in prior years
was not sustainable. She asked what level of state subsidy his
proposal would need as a public corporation. The Alaska railroad
is a public corporation that is not getting an annual subsidy,
but it has other resources and ways of getting revenue. She
asked for his best estimate and how involving private enterprise
might bring it down.
MR. VENABLES replied that he would surmise that it would bring
it down dramatically, but they do not have that number. They did
not get to that lower level of granularity in the planning of
different scenarios. They felt confident after looking at
operational models and governance models around the world that
what would work best for Alaska would be an empowered board that
could oversee an operation still owned by the state and
providing a public service mission but empowered to work with
the private sector to bring costs down. They don't have an exact
number, but they think it would be dramatic.
CHAIR HUGHES asked if they are at about $86 million in
unrestricted general fund, was it conceivable that they could do
it for about $50 million.
2:05:25 PM
MR. VENABLES replied that there are a number of scenarios where
that could happen, but they have an aging fleet. If looking for
an operator out west, they would not offer the Tustumena, which
is literally falling apart. They would need new boats. With new
boats they would have more flexibility for revenue, but the
capital costs of repairs becoming dramatic will sink the
enterprise.
CHAIR HUGHES said there are lots of puns today. She asked if his
model would consider the use of catamarans so that passenger
service could be more readily provided at a lower cost or if
they were only talking about larger vessels that can carry cars.
MR. VENABLES said they were looking at the ideal vessels for
mainline feeder vessels in the next phase of their work. They
haven't gotten to that element yet, but he imagines they would
contemplate many of those scenarios.
SENATOR KIEHL said the comparison to the railroad was an
interesting one. They receive federal transit authority
operating grants for passenger service, as well as capital. They
are not running the trains out of the fare box. He asked whether
Mr. Venables sees his work as an opportunity to stabilize some
of the vision of the marine highway system. In the last decade
or two, they have seen the idea of going to hub-and-spoke with a
bunch of fast ferries with little of the traditional model of a
lot of mainline service and a village run and more day boats
that may or may not be able to operate as day boats. He has a
concern about how those dollars, primarily federal but some
state, are being planned. He asked if there is anything in the
model they are working on to stabilize the plan or if that adds
to the long-term vision.
MR. VENABLES responded that was the next level of what they were
getting into. Along with having a fleet of viable vessels, there
needs to be deployment strategies to utilize them, much like
airlines do with their expensive 737s. Things to consider are
different types of marketing and the timing of basic services
vs. all services. The board would be empowered to make those
decisions because that would be their area of expertise. It
would bring a lot of stability to operations.
CHAIR HUGHES said that the Alaska Railroad is a public
corporation. It has given some policy makers heartburn over the
years that they as legislators don't have access to all the ins
and outs of their books. She asked if that would be the same
arrangement if something like this went forward.
2:09:24 PM
MR. VENABLES said his understanding was that when the railroad
was created, there were certain federal mandates and it was a
time that allowed for that structure. "The good news for the
senators here is that they'd have to require significant change
of law and so you would get to make sure that you had all the
access you needed into that. Last year HB 412 was introduced.
That kind of provided a framework. We're looking at seeing how
to make those kinds of changes that I think it's important to
have the clarity and oversight that would allow you to do that,"
he said.
CHAIR HUGHES asked if he had anything else to add.
MR. VENABLES said he would be happy to respond to any questions
that come up throughout the session.
CHAIR HUGHES thanked him for coming up and for his committee's
work to find a solution. She was pleased that it was one of the
considerations in the RFP.
SENATOR KIEHL said he had noticed that two amendments to the RFP
had been posted, mostly answering questions from potential
bidders. One was about access to information about what the
state would have to provide back to the federal government by
vessel, by terminal, or work done if they were no longer run as
public transit entities. He asked if DOTPF had a sense of what
those liabilities to the federal government would look like if
they went down that road.
2:11:33 PM
MARY SIROKY, Deputy Commissioner, Department of Transportation
and Public Facilities (DOTPF), Juneau, replied that they were
working closely with FHWA [Federal Highway Administration] on
that. She tried in an earlier hearing to articulate what little
she knows already and failed miserably. She proposed to respond
by early next week with a description of how that works and a
specific example of how that payback would work and how the
payback could be used.
CHAIR HUGHES commented that the RFP was quite the project with
quite the timeline. She asked who in the department was managing
this project.
MS. SIROKY answered that Reuben Yost was on contract to help
manage this contract, but she or the commissioner have direct
oversight over him and any decisions and recommendations he
makes. "Ultimately, we are the decision makers. He's a
recommender," she said.
CHAIR HUGHES asked who they should route questions through after
the committee hearing.
MS. SIROKY responded that questions should come through her.
2:13:17 PM
MR. MCLAREN said the next few slides are of historical data on
the operational side. Slide 6 shows the annual ridership for the
past ten years, including passenger and vehicle traffic. At the
top of each bar is total operating weeks for each fiscal year.
An operating week is a week that that vessels run. If five
vessels run in one week, that is five operating weeks during the
one calendar week. The passenger traffic flow correlates almost
directly to the number of operating weeks for the past ten
years. As the number of operating weeks decline, the passenger
traffic declines almost by the same percentage. The vehicle
traffic has remained consistent for the past ten years.
CHAIR HUGHES asked if he knew what had happened along the route
as far as population. The ridership goes with the fewer weeks
the ships are in service, but if they increased operating weeks,
if the population has gone down, the ridership wouldn't keep up
with that. She knows that budget concerns are part of the reason
for ramping down, but she wondered if part of that was due to
population.
MR. MCLAREN said the population along most of their routes has
remained consistent. What they see is that other modes of
transportation became available, especially in the passenger
realm. As airlines became more accessible, their passenger
traffic decreased. Back in the early 1990s and 2000s, they had
over 400,000 passengers [per year]. Now it is under 300,000, but
vehicle volume for the entire history of the marine highway
system has hovered around 100,000 [per year]. They think that
decline is due to other modes of transportation being available.
CHAIR HUGHES asked if he could verify that it was not the
population declining. She asked Senator Kiehl if he could verify
that the population has gone down a few percentage points.
SENATOR KIEHL replied a couple of percentage points. He thought
Mr. McLaren had the more likely explanation. He gave examples
showing the cost of flying has dropped. There are some
competitive elements unrelated to population and he added that
vehicles don't move so well on an airplane.
2:17:03 PM
CHAIR HUGHES recounted a story of not being able to fly from
Juneau to Hoonah in October last year because of the weather
when someone offered the services of a catamaran. Catamarans
could be a good option for moving passengers. Their focus should
be on making sure people can get to where they need to go in
Southeast. Out of curiosity, after the [governor's] budget came
out, she asked people from Southeast about whether the idea of a
catamaran offering more passenger service but less vehicle
service worked for them. No one has said that it wouldn't.
People in Southeast want to make sure they get to where they
want to go. That is one option.
CHAIR HUGHES said she has lived in Southeast and now lives in
Southcentral, where they are bursting at the seams and building
new roads. She also lived in Bethel and Fort Yukon, where they
were totally dependent on air travel. Moving a car is nice, and
easier to do on the waterways than on a plane, but the most
important thing to focus on is moving people. Alaska is a
lifestyle choice. People who move to a village understand that
they have to travel by air and that they might be weathered in.
It is the same in Southeast. People just can't get on a road and
go wherever they want to go. It is a lifestyle choice. There are
differences. It makes it unique, it makes it fun, but it also
makes it challenging. Whatever happens with the marine highway
system, it should focus on moving people to and from
destinations. It could mean less movement of fewer vehicles. As
someone who lived somewhere where she couldn't move her vehicle,
she wanted to tell her friends in Southeast that the sky didn't
fall. People get used to it and it works.
MR. MCLAREN said slide 7 shows how the average ridership
compares to operating week for the past ten years. Even though
the previous slide shows the passenger traffic declining overall
as the operating weeks are going down, passenger traffic per
week has remained consistent the past ten years and vehicle
traffic has increased somewhat.
SENATOR KIEHL asked if he knew whether he could break down the
vehicle traffic into commercial vehicles vs. personal vehicles.
MR. MCLAREN answered that they could get the information to him.
SENATOR KIEHL replied that would be useful. One of the
tremendous benefits of a marine highway system is the ability to
move commerce when those vehicles can be moved. When he looks at
some of the communities he represents, economies of scale come
from a population base and the infrastructure is the key. He has
communities with asphalt highways, but small populations, so
commerce comes from the regional hub. Where the private sector
can move freight, they are doing it, but if someone needs a
second freight run in Skagway in the summer to serve 15,000
cruise ship passengers a day, it can't be flown. It's not coming
over land from Chicago. It's coming from a supplier in a hub
community. That enables some of the smaller communities
throughout Southeast to have jobs and have vibrant economies
that are lacking in some places in the state. That commercial
traffic will be a key part of the analysis.
2:23:26 PM
MR. MCLAREN said slide 8 shows the operating weeks and the
revenue generated by the system for the past ten years. FY 12
and FY 15 had the highest total revenue. Those also happened to
be the years of highest systems cost. The last few years the
operating weeks have come down, but the revenue generated by
ticket sales has been consistent.
CHAIR HUGHES said she did calculations based on an average
ridership of 791 people per operating week in FY 18, with six
operating weeks within one actual calendar week. With estimating
six times 800 is 4,800 and dividing the UGF of $81 million for
the year by 52, it's taking about $1.6 million to move 4,800
people. That is about $340 to move a person, which seems high.
The state could be giving an airline ticket. To some of these
communities, a roundtrip airplane ticket might only be $80 or
$150. She's putting that out there, that's her rough math. She
asked if Mr. McLaren knows what it cost the state per person.
MR. MCLAREN said they could get the average cost per person to
her. The cost to the state depends on the route and the revenue
generated.
CHAIR HUGHES said she was pointing out that they are putting a
lot of money into moving people. If they had perfect weather,
they could just provide airline tickets to people. She is not
suggesting that they do that. She's just letting them know how
much they are paying per person, and that person also pays a
fare. The fare is DGF on top of the UGF, so an airline ticket
would be a lot cheaper. They have to figure out how to do this
in a more sustainable way.
MR. MCLAREN said that slide 9 shows the average revenue per
operating week. The revenue per operating week for the past ten
years has increased. FY 18 had the highest revenue per operating
week in the history of the system at $149,000 per operating
week. Other years had higher total revenue, but FY 18 had the
highest revenue per operating week.
2:27:54 PM
MR. MCLAREN said slide 10 shows the governor's February 13
budget. Possible scenarios are shown in the next few slides. The
governor's February 13 budget shows a schedule of 84.8 operating
weeks with a fare box recovery rate of 40 percent. He said it
can be misleading to just look at the fare box recovery rate.
Some routes during some seasons have a fare box recovery of rate
of 100 percent. If that was the goal for the system, those would
be the only routes they run, but that would be at the expense of
smaller communities that rely on the service. At the other end
of the spectrum, if they focus solely on service, the fare box
recovery rate is much lower. This schedule honors the published
schedule through the end of August with the following schedule
after that:
FY 2020 Governor's 2/13 Budget
Published summer schedule remains intact through the end of
August
September 1, 2019 through mid-September, operate:
• Matanuska and Malaspina on their Bellingham and SE
Alaska runs
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No service to Homer, Kodiak, Aleutian Chain, Whittier,
Cordova, Valdez, Chenega Bay, Tatitlek, Yakutat,
Prince Rupert, Angoon, Tenakee, Pelican, Hoonah, and
Gustavus
Mid-September through October 1, 2019, operate:
• Malaspina and Matanuska on their Bellingham and SE
Alaska runs
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No service to Homer, Kodiak, Aleutian Chain, Whittier,
Cordova, Valdez, Chenega Bay, Tatitlek, Yakutat,
Prince Rupert, Angoon, Tenakee, Pelican, Hoonah, and
Gustavus
October 1, 2019, through June 30, 2020:
• No Service
SENATOR KIEHL asked what his level of comfort was that the list
of vessels would be available.
2:30:02 PM
MR. MCLAREN replied that the Malaspina is currently running. The
Matanuska is in a shipyard in Portland. It is scheduled to come
out of there in August. The Colombia is on that route. If the
Matanuska is delayed, they will use the Colombia on that route.
They are almost ready to take delivery of the Tazlina. The plan
is begin operating that ship May 1, and the Lituya is continuing
to operate, so they are very confident that they can keep this
service level on this route.
MR. MCLAREN pointed out that the slide 10 shows the fund sources
for the governor's February 13 budget. The expenditure
authorization is $45 million with generated revenue of almost
$18 million, leaving a net deficit of $27 million.
MR. MCLAREN said they worked on different scenarios because they
were asked what it would look like to add service from October
through June. They looked at different fare box recovery rates
when creating different scenarios. He showed a schedule on slide
11 that would keep the Kennicott on the Bellingham-Whittier
cross-gulf route:
FY2020 AMHS Scenario 1
Add Oct-June Not Servicing All Ports
Published summer schedule remains intact through end of
August
September 1, 2019 through September 30, 2019, operate:
• Matanuska and Malaspina on their Bellingham and SE
Alaska runs
• Kennicott on the Bellingham Whittier cross-gulf run
• Tustumena on the Homer-Kodiak/Aleutian Chain run
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No service to Angoon, Tenakee, and Pelican
October 1, 2019 through March 30, 2020, operate:
• Matanuska on the Bellingham run
• Tustumena on the Homer Kodiak and Prince William
Sound (further vetting needed)
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No service to Prince Rupert, Angoon, Tenakee, and
Pelican
April 1, 2020, through June 30, 2020:
• Matanuska and Malaspina on the Bellingham run
• Kennicott on the Juneau Whittier cross-gulf run
• Tustumena on the Homer-Kodiak/Aleutian Chain run
• Hubbard in Prince William Sound
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No Service to Prince Rupert, Angoon, Tenakee, and
Pelican
Mr. McLaren said Angoon, Tenakee, and Pelican would not get
service because they can only be serviced by the Aurora, the
LeConte, the Tazlina, and Hubbard. The Aurora and LeConte will
not be available. The Tazlina would be running but because of
the distance between ports, it's difficult because of time
constraints. Next summer they would shift to more service for
higher revenue routes. Some ports would still be covered, maybe
once a month or once every two weeks, but those ports would not
be completely cut out of service.
Mr. McLaren said the Scenario 1 budget on slide 11 would provide
268.8 operating weeks of service with a potential fare box
recovery rate of 50 percent. It would require $40 million UGF
and generate $46.9 million in revenue with a total expenditure
of $93 million.
SENATOR KIEHL said he was still reeling from once a month
service in the summer and figuring out how to run a business in
a community with that kind of service. He asked about the
forecast of a roughly 3.5 percent reduction in revenue with that
kind of reduction in service.
MR. MCLAREN said the big reason for that is because they are
shifting routes to focus on routes that generate high revenues,
but still trying to provide service to some communities that
don't generate as much revenue. This would increase their
Bellingham runs in the summer from six runs from Bellingham to
Skagway to eight. They would also double the Juneau to Whittier
cross-gulf route. Those routes are the most demand, most high-
revenue routes in the summer. They would decrease costs by not
running some of the more costly ships in the winter, the
Kennicott, the Aurora, and the Malaspina.
2:35:56 PM
SENATOR KIEHL said he would want to see those projections. The
cost of operating the vessels isn't the revenue. He was doing
math on the fly, but they would cut about a sixth of the service
weeks and lose a thirtieth of the revenue. That is a remarkable
projection. He would like to see the numbers behind that.
MR. MCLAREN agreed to supply the numbers.
MR. MCLAREN said the next scenario may answer how the schedule
and vessels run affect UGF and revenue. Scenario 2 adds the
LeConte so they could service other ports. The rest of the
schedule is the same as in Scenario 1.
FY2020 AMHS Scenario 2
Add October-June Servicing All Alaska Ports
Published summer schedule remains intact through end of
August
September 1, 2019 through September 30, 2019, operate:
• Matanuska and Malaspina on their Bellingham and SE
Alaska runs
• Kennicott on the Bellingham Whittier cross-gulf run
• Tustumena on the Homer-Kodiak/Aleutian Chain run
• LeConte on the SE Alaska Panhandle run
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
October 1, 2019 through March 30, 2020, operate:
• Matanuska on the Bellingham run
• Tustumena on the Homer Kodiak and Prince William
Sound (further vetting needed)
• LeConte in Northern Lynn Canal and SE Panhandle
• Lituya from Ketchikan Annette Bay
• No service to Prince Rupert
April 1, 2020, through June 30, 2020:
• Matanuska and Malaspina on the Bellingham run
• Kennicott on the Juneau Whittier cross-gulf run
• Tustumena on the Homer-Kodiak/Aleutian Chain run
• LeConte on the SE Panhandle run
• Hubbard in Prince William Sound
• Tazlina in Northern Lynn Canal
• Lituya from Ketchikan Annette Bay
• No service to Prince Rupert
MR. MCLAREN said the total cost of Scenario 2 with service to
the smaller communities is $98 million in total costs compared
to $93 million in Scenario 1. The total cost goes up but the
revenue decreases in this schedule. The UGF need in this
schedule increases. He noted a typo on slide 12. It should say
281.8 operating weeks with a potential fare box recovery rate of
45 percent.
2:38:35 PM
MR. MCLAREN said that in Scenario 3 shown on slide 13, they
tried to look at what they could do for an entire fiscal year if
they set a goal to match the revenue generation with UGF, and
this schedule does this. In the summer they would be running
eight vessels, and they would be increasing the Bellingham-
Skagway and Juneau-Whitter cross-gulf routes.
FY 20XX AMHS Scenario 3
Full Year Servicing All Alaska Ports
UGF=DGF
July 1 through September 30, and April 1 through June 30,
operate:
• Matanuska and Malaspina on the Bellingham run
• Kennicott on the Juneau Whittier cross-gulf run
• Tustumena on the Homer-Kodiak/Aleutian Chain run
• LeConte on the SE Alaska Panhandle run
• Tazlina in Northern Lynn Canal
• Hubbard in Prince William Sound
• Lituya from Ketchikan Annette Bay
• No service to Prince Rupert
October 1 through March 30, operate:
• Matanuska on the Bellingham run
• Tustumena on the Homer Kodiak and Prince William
Sound (further vetting needed)
• LeConte in Northern Lynn Canal and SE Panhandle
• Lituya from Ketchikan Annette Bay
• No service to Prince Rupert
MR. MCLAREN said this provides more services and focuses on
revenues, but it provides more of a service level that
communities are used to. It decreases in the winter; they are
running four ships in the winter. In past, they have run five to
six vessels in the winter. There is not as much traffic in the
winter. They are trying to get the service communities need, but
get more revenue generated in the summer. It provides 286.6
weeks of service with a 47 percent fare box recovery. Revenue
would be $48.9 million along with $48.7 million of UGF.
2:40:44 PM
CHAIR HUGHES said these plans are based on current vessels and
do not incorporate the concept of using catamarans, possibly
partnering with the private sector. She knows that the Senate
Finance co-chair wants more information about what that cost
might be. Although this is not the Finance Committee, once they
have the cost, she would be curious about how these scenarios
would be impacted if that scenario were added. She is realizing
that there are lots of levers they can pull up and down to do
all sorts of things. On slide 10, shutting everything down on
October 1 takes almost $22 million of UGF for three months of
service. On slide 11, with all the towns in red not getting
service under Scenario 1, the UGF is about $41 million for 12
months of service, so for less than double the amount some
little communities are getting service, but not Angoon, Tenakee,
and Pelican. They can do many things regarding revenue and ports
and UGF. It is fascinating to her that it is $22 million for
three months of service with a bunch of communities not being
served and then there is another plan for 12 months for twice
UGF with some communities being added back in for service.
MS. SIROKY said that to get a better picture, they need to add
the revenue into that conversation. For the governor's budget,
that is $39 million. For Scenario 1 that is $87 million. Between
the governor's budget and Scenario 1, they are collecting almost
$36 million more in revenue.
CHAIR HUGHES said she is focused on the UGF because that is
where the gap is.
SENATOR KIEHL asked how they are modeling ridership changes with
the different scenarios.
2:43:59 PM
MR. MCLAREN responded that the reason revenue is increasing so
much is that they are focusing on keeping those steady and
regular routes to busy ports to maintain the ridership. Some
ports have gaps in service because they are shifting the focus
to routes and times of the year with the most ridership that
generate the most revenue. That comes at the expense of less
service to smaller communities. Scenario 2 shifts more in the
direction of providing more services to those smaller
communities. The costs of running the ships is generally the
same, except that adding the LeConte increases total costs, but
those ports don't generate as much traffic and as much revenue.
That changes how much revenue they generate and how much more
UGF they need. That is where the cost recovery makes the
difference. From a traffic standpoint, there will still be
demand in a lot of those communities, such as getting groceries
to them. They feel that even with running less frequently, a lot
of the ridership will be there on the days when they do get to
port. In FY 12 and 13, costs were really high. They were
providing more service to more communities, but the traffic
remained the same from the previous years when they weren't
providing as much service. In many of the ports, traffic has
remained consistent, even as operations have shifted, at least
for the higher traffic ports.
SENATOR KIEHL said the question runs in both directions for
those increases. He asked if there were reliable and predictable
service, where every Wednesday there would be a boat or was it
unpredictable. He is perplexed at the notion in the modeling
that with less reliable service they would see increased unit
demand.
MR. MCLAREN replied that having reliable service plays a big
part. One of the assumptions in each scenario is that the budget
would be in place and that service would be predictable and
reliable. They are basing it on the notion that they would have
a set schedule that the public would know and that they would be
there when they say they're going to be.
SENATOR KIEHL said he noticed in the previous slides that they
are cutting off Prince Rupert. He asked how far they are into
the lease and what it costs.
MR. MCLAREN said he thought they were five or six years into the
50-year lease. They had $3 million of federal funds that paid
that lease. That would also be something to consider.
MR. MCLAREN said that slide 14 shows a side-by-side comparison
of the scenarios. Going from Scenario 2 to Scenario 3 shows the
impact of increased Bellingham and cross-gulf routes. The UGF is
essentially the same. The total costs of operating the system go
up, but revenue generation also goes up by nearly the same
amount.
2:48:54 PM
MR. MCLAREN said slide 15 shows the history of tariff increases
in the system. Back in 2016, a tariff study recommended leveling
and formulizing tariffs through the system. Previously, they had
over 23,000 different tariffs. No one could make heads or tails
of it. They have implemented leveling those tariffs. Beginning
May 1, 2019, the whole system will be on a formula-based tariff
system. The same distance in whatever direction will have the
same tariff. The commissioner may look at demand-type pricing,
dynamic pricing, like airlines do.
SENATOR KIEHL there are a number of different models for that
type of pricing. The last seat tends to be expensive, but if the
boat is already going and seats or the car deck are not all
full, another model says to fill those. He asked if they are
looking at both pieces of that.
MR. MCLAREN said deferred to Ms. Siroky.
MS. SIROKY answered that they would be looking at all models to
see how that might work.
SENATOR KIEHL said the department is in a no-win scenario that
he wanted to acknowledge. In some of the possible scenarios,
they have carefully avoided saying that they are adding more
tourist services because they make more money, but the system
exists to serve the entire economy. That has to be a combination
of Alaskans and tourists. The same goes with the tariffs in that
some are more conducive to nonresidents and some are more
conducive to Alaskans. They are in a no-win scenario. As they
continue to talk about this, he hopes they will go ahead and say
it, "We're all grownups and we're all going to complain no
matter what you do, so it's worth having the conversation right
up front and talk about when we're maximizing revenue, when
we're maximizing service, and from whom."
MS. SIROKY replied, "Exactly. We have talked about that
internally. Are we a system that's designed to generate as much
revenue as possible or are we a system that's designed to
provide service? And that is the big policy question that is
going to be happening through this legislative session."
SENATOR KIEHL said, "You're the transportation infrastructure.
You must serve all the masters." Alaskans must get from place to
place, commerce must be able to move, and tourists need to stay
in bed and breakfasts and eat at restaurants. They are in a no-
win situation. They are asking them to do it all. "As we're
having these discussions, let's just put in on the table," he
said.
2:53:49 PM
CHAIR HUGHES said this has been an interesting topic. Gauging by
the number of people in the room and online, a lot of people are
interested. They have known it is a looming problem that they
need to address. She is glad the department is still committed
to the mission of getting people to and from destinations. As a
legislator, she is committed to that. Sometimes when they hit
tough situations it is time for change. She believes that making
those changes can bring improvement. She thinks the catamaran
model could increase the number of days in a month that people
can get to and from destinations. She is pleased that they are
doing out-of-the-box thinking. She is concerned about the
timeline, but there is a lot of work being done. She asked what
they can share after the March 11 deadline.
2:55:12 PM
MS. SIROKY said that on March 11, they will be able to tell her
how many bidders they have. Once they have made a decision, they
will share who all the bidders were.
CHAIR HUGHES clarified that in July they will have a better
sense of how things will be modeled.
MS. SIROKY answered that the RFP has an aggressive timeline.
They are hoping to have information in May that may provide some
insight into final conversations as the legislature is thinking
they may not be done by May 1.
2:56:07 PM
CHAIR HUGHES asked if it becomes clear that the October 1 date
is not workable whether the administration is open to more time
if there is a commitment to a more sustainable plan.
MS. SIROKY said she cannot speak for the governor's office.
CHAIR HUGHES said she thought that would be the answer.
2:56:37 PM
There being no further business to come before the committee,
Chair Hughes adjourned the Senate Transportation Standing
Committee at 2:56 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| STRA Agenda 3.7.19.pdf |
STRA 3/7/2019 1:30:00 PM |
|
| Alaska Marine Highway System presentation 3.7.19.pdf |
STRA 3/7/2019 1:30:00 PM |
|
| DOT&PF Follow Up AMHS 3.7.19.pdf |
STRA 3/7/2019 1:30:00 PM |
|
| Take Fed Share Calc DOT&PF Follow Up 3.7.19.pdf |
STRA 3/7/2019 1:30:00 PM |