HOUSE BILL NO. 319 An Act providing for and relating to the issuance of state guaranteed transportation revenue anticipation bonds for the purpose of paying the cost of transportation projects that qualify for federal highway aid and the allocation of those bond proceeds; and providing for an effective date. JOSEPH PERKINS, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC UTILITIES, stated the State's ability to expand, diversify and strengthen our economy through improved transportation could be enhanced through the mechanism provided in the proposed legislation. This year, we have an opportunity to expedite construction of some large and much needed highway projects through a relatively new federally approved funding mechanism. The mechanism allows states to acquire full bond funding for projects ahead of the usual schedule of annual federal allocations. The National Highway System (NHS) Act of 1995 revised Title 23 and lifted limitations on the use of federal highway funds for bond issuance and debt service by making the costs eligible for federal-aid reimbursement. Essentially, the State would be borrowing to build projects now and paying back with future federal money. Commissioner Perkins commented that HB 319 is a $350 million accelerated transportation bond initiative that would allow the State to take advantage of the new federally authorized flexibility like other states have done. Alaska will be about to enjoy the economic and safety benefits of projects now, by selling bonds funded by the flow of future federal dollars. Commissioner Perkins stated that it is anticipated that debt service payments on the bonds will amount to approximately 10% of our annual highway program, which will be between $35-$37 million dollars per year. HB 319 calls for the issuance of general obligation bonds because our State Constitution requires a vote of the people for the State to incur long term debt. The bonds will be paid with future federal funds but will be backed by the full faith and credit of the State's general fund. The backing will give the State an excellent bond rating which translates into good interest rates. He noted that the bond market has embraced these bonds in other states. It is anticipated that within the first three years, there will be enough investment earnings to cover the full State general fund match requirement. It is expected to save approximately $48 million dollars in general funds, which will still satisfy the arbitrage restrictions of the Internal Revenue Service (IRS). Commissioner Perkins enumerated that in addition to the substantial savings in general fund there are many benefits to the bond initiative: ? First: Money is saved because we avoid the cost of construction inflation by building projects now instead of years into the future. This helps offset the interest paid on bonds. ? Second: The money will fund large, capital intensive projects without affecting smaller projects. Level debt service evens the flow of federal funds for projects throughout the State by avoiding the peaks and valleys in funding large projects most recently experienced with the building of the $80 million dollar Kennicott ferry. The impact on projects for rest of the State was substantial when that vessel was funded. ? Third: It will allow the Department to do critical projects that are needed now to address safety, congestion and economic output rather than wait years for the projects to be funded. ? Fifth: It would increase the percentage of work being contracted to the private sector for design. ? Sixth: It does not negatively impact the current Statewide Transportation Improvement Program (STIP). Debt service payments would not start until September 2003. In fact, it could allow some projects further out in the STIP to be advanced. Commissioner Perkins continued, the accelerated transportation bond package includes 11 specific projects in different regions of the State. He noted that congestion is a major problem in Anchorage. It will be reduced with two major construction projects utilizing this financing. (TAPE CHANGE, HFC 00 - 96, Side 2). Commissioner Perkins noted that the first project would be Glenn Highway near Merrill Field. The bottleneck there is due to the fact that we have six lanes narrowing to four lanes and then widening to six lanes again. We will be spending $65 million to reconstruct the Glenn Highway from Gambell Street to McCarrey, as recommended in the Anchorage Metropolitan Area Transportation Study (AMATS) 1991 long range transportation plan. The project will consist of adding capacity and new interchanges to improve the flow of traffic into and out of downtown Anchorage. The construction should begin in summer of 2003. Commissioner Perkins continued, the second Anchorage project is the upgrade of C-Street. The first phase of that project has already been completed, which was the portion from Tudor Road to Potter Drive. Phase II of the C-Street reconstruction will add 2 new lanes from Potter Drive to Dimond Blvd., including lighting and pedestrian facilities. The Department will construct a new road link south of Dimond to Minnesota Drive. Construction of this phase will begin in 2001. The final phase of the C-street reconstruction is the extension from Dimond to Minnesota. The Department will be constructing four lanes from Dimond to Minnesota, including a separated railroad crossing on C Street. We will also be constructing interchanges at C Street and Minnesota, and O'Malley and Old Seward. Construction of this phase will begin in 2002. The second and third phases will cost a total of $70 million. Commissioner Perkins noted that a major project in the Mat- Su area will consist of constructing an interchange at the intersection of the Glenn Highway and the Parks Highway, which will tie in with the construction now underway from the Parks/Glenn Intersection to Wasilla. Additionally, the Department will be adding four lanes and upgrading the Glenn Highway from the interchange all the way into Palmer. Construction of this phase will begin in 2002 and the project will cost $60 million dollars. Co-Chair Mulder agreed that the Gamble Street to McGeary projects needs to happen. He asked how long would it take to address the widening without the legislation. Commissioner Perkins stated that it would take ten years. Co-Chair Mulder did not believe that funding the problem would make it go away. He asked if the property would be purchased. Commissioner Perkins stated that it would, and that they would be able to buy it all at once. He conceded that there are ways of procuring properties. Commissioner Perkins stated that the right of way is a very expensive item. Vice Chair Bunde asked if the decline in the State's population growth had been considered. Commissioner Perkins replied that had been taken into account, however, to accommodate the current crisis, it should have been addressed a couple of years ago. He stressed that more cars are being purchased even though there is a reduction in population. Additionally, the Department must move the commercial traffic from outside of Anchorage. Vice Chair Bunde recommended that more change need to be made than just adding more lanes. Commissioner Perkins proposed that the State takes a good look at "commuter rail" systems to implement a good, high-speed service. Alternative methods need to be investigated and constructed. Vice Chair Bunde pointed out that the proposed idea uses money that the State does not have. He asked if the Commissioner foresaw the State needing to back the bonds at some point in time. Commissioner Perkins did not foresee that occurring as long as there is a federal gas tax. The bonds could not be issued for any other kind of federal receipts because we do not have trust funds. The reason that these funds became available was because U.S.Congress passed a law stating that the trust fund had to be spent down. He emphasized that Senator Stevens cannot under appropriated. This is what interests the bond people. There is a guaranteed level of appropriation which brought Wall Street into the program. Commissioner Perkins advised that the worst thing that could happen would be less gasoline use in the United States. That revenue will come into the trust fund. Commissioner Perkins added that our share could come down with less driving in the U.S. or Congress repealing the gas tax. Vice Chair Bunde clarified that the intent was to take ten years of construction and fold it down into a three to four year project. Commissioner Perkins referenced the handout distributed to Committee members. [Copy on File]. He stated that the amount of money being requested for this project is not that much. The Corp of Engineers has no problem with the proposal, nor does the engineering community. It will not supercede any other projects. There are many different kinds of contractors. He did not see a major impact. Representative J. Davies commented on the different types of contractors. He added that by putting out the bond provides a certainty for our contractors planning. He believed that the bonding approach would help. Representative J. Davies pointed out that if the State waits for 10 years, there would be more encroachments and ultimately it will be more expensive to build. Commissioner Perkins noted that the Department was working on three projects in the Fairbanks area. The first is University Avenue. This $20 million project will consist of widening University Avenue to 5 lanes, intersection improvements at University and Geist Road, a separated railroad crossing, and the widening of the Chena River Bridge. The second Fairbanks project is the reconstruction of Illinois and Barnette streets. This $25 million project will improve traffic flow to Downtown Fairbanks and will include sidewalks and landscaping and a new bridge across the Chena River. The final Fairbanks project is a reconstruction of downtown Fairbanks streets. Downtown Fairbanks is experiencing major infrastructure investments, including a new courthouse and a new hotel. This $10 million project will complement that investment and will include major improvements to streets, sidewalks, lighting, and landscaping in downtown Fairbanks. Representative J. Davies reinforced that cleaning up the University Avenue Bridge area is an important safety issue. He noted that area is the main bicycle connector and is a major safety concern at this time. Representative G. Davis inquired about the money going to the downtown streets in Fairbanks. He asked who maintained that work. Commissioner Perkins replied that project was like the one on 5th and 6th Streets in Anchorage. The Department does maintain them. Representative Phillips pointed out that the Legislature is receiving "mixed messages" from the Mat-Su area. Those residents want to "cut government to the bone" while at the same time, demand that these types of projects be funded in their area. Commissioner Perkins noted that the Alaska Marine Highway System is undergoing major changes as the Department implements the Southeast Alaska Transportation Plan, bringing that system to a new level of service and efficiency with the addition of new shuttle ferries that will travel faster and more often. He noted that a new shuttle ferry to service Sitka would be ordered this fall. Two more are included in this bond package to accelerate the implementation of the plan. Commissioner Perkins pointed out that one of the new ferries would serve in the north Lynn Canal, in and out of Juneau. The other ferry will serve travelers between Ketchikan and Wrangell. These ferries will follow the initial shuttle design so that they can be easily redeployed where needed. The long-term viability of the Marine Highway System is dependent on the use of these smaller more efficient shuttle vessels. Commissioner Perkins stated that the Department also has a few important rural projects in the bond package. ? In Kotzebue, reconstructing Shore Avenue and upgrading Ted Stevens Way. Shore Avenue. The project provides beach protection and enhancements such as bicycle/pedestrian accommodations and viewing platforms. Ted Stevens Way, approximately 2 miles of upgrade including grade raining, widening, drainage and surfacing, with minor erosion protection in the tidal area and accommodation of bicycle/pedestrian traffic. ? In Nome, rehabilitating Bering, Seppala, and Front Streets which includes minor drainage improvements and enhancements along Front St. such as sidewalk widening, lighting and scenic overlook with historical and interpretive signs. ? In Bethel, releveling and paving Chief Eddie Hoffman Highway. ? In Dillingham, paving 15 miles of the Dillingham to Aleknagik Road, and includes Aleknagik Lake Wayside and trailhead parking lot. Commissioner Perkins commented, why did the Department choose these projects, because they are needed. These projects are ones that can be built within 5-6 years and most are large dollar projects. They represent the diverse transportation needs of this State. Commissioner Perkins advised that the Department hopes to make more investment earnings than needed for the match, so the additional amount can be used to pay debt service, thereby, reducing the impact on future STIPS. Commissioner Perkins noted that the State could handle this much engineering and construction in a short period of time. He stated that to ask the contractors, labor leaders, and consulting firms, the State typically receives 3-5 bids on each of our construction projects. He concluded that there is sufficient competition. Co-Chair Mulder asked if all the projects included in the list had been included in the STIP. Commissioner Perkins replied that they were not all included. Co-Chair Mulder inquired which projects were not included. Commissioner Perkins replied the intersection in Palmer, Wasilla, the C Street interchange, the Fairbanks Downtown project, and the two shuttle ferries. Co-Chair Mulder asked if these projects were "on line" and ready to go. Commissioner Perkins replied that they are not all ready to go, but there has been sufficient work done on each of them and that they could come up quickly. Co-Chair Mulder asked if they had local support. Commissioner Perkins replied that they are mostly supported but noted that it is impossible to get total support on any project. Co-Chair Mulder grilled Commissioner Perkins on the support for the fast ferries. Commissioner Perkins replied that they were recommended and included in the Southeast Plan. They were "bought into" by all the communities in Southeast Alaska. Nothing proposed was not included in that plan. He reiterated that there is a lot of support for the fast ferries in Southeast. Commissioner Perkins noted that there was a letter included in the member's file from Mayor Egan, Juneau, indicating Juneau's support for the ferries. Co-Chair Mulder asked if there was a preference for the ferries over a road. Commissioner Perkins remarked that concern has become confused with the fast ferries. He stressed that the Department does not have the money to do the road. The Department has indicated that the road is the preferable way to go, but the Department elects not to fund the road right now. Regardless, a road would not be completed for ten years. The option before the Committee is to take the shuttle ferry and put it on the route, with the Malaspina. That fast vessel could ultimately be used in other places in the State. Currently, the Department is working on a Prince Williams Sound Plan, which would include a fast ferry and get rid of some of the older vessels. (TAPE CHANGE HFC 00 - 97, Side 1). Co-Chair Mulder voiced concern that the "road of fast ferries" would end up costing the State the same amount as a road. Commissioner Perkins spoke to the routes which the fast ferries would navigate. When the Prince William Sound Plan is complete, there will be a recommendation for doing things differently. The oldest boat on that run is the Bartlett and it is the most expensive boat to run. Co-Chair Mulder suggested that it would be more cost efficient to try one fast ferry first before buying two. Commissioner Perkins responded that if these were new state of the art boats, that would be a major consideration, however, they are not. He enumerated the design and the efficiency of these boats and the places that they are currently being successfully used. ROBERT J. DOLL, GENERAL MANAGER, FERRY OPERATIONS, SOUTHEAST REGION, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, stated that the value to high speed is a long distance. The shorter the distances become, the less the value. He pointed out the large distance between the communities in Southeast Alaska. He reiterated that the only way to handle that concern is with speed. Co-Chair Mulder concurred with Senator Torgerson, who has stated that there must be improved service at less cost. Mr. Doll noted that there has been a comparison in the cost of operating the high-speed ferry and the Malaspina in Lynn Canal. On that route, the high-speed ferry burned fuel at $2500 dollars; the Malaspina used $2000 dollars worth. However, in that same period of time, crew costs were much less on the high-speed ferry. The technology of the high- speed ferry not only allows the system to get the passengers where they want to go quickly, but it also reduces the cost of operating the Alaska Marine Highway System. Co-Chair Mulder asked which ferries would be taken off line. Captain Doll responded that the most likely one would be the Bartlett in the summer of 2002; the Aurora would be substituted for that ferry. The other ships have been projected out for a ten-year period. If the fast ferry was operating year round, the mainliners would be operating only in the summertime. Co-Chair Mulder asked if the Department could guarantee that the operating costs for the Marine Highway would go down from where they are currently at. Captain Doll stated that he could not guarantee it for the first year of operation, but that he could for subsequent years. Representative Grussendorf interjected that the Southeast communities do support the fast ferry. He noted that the fast ferry system would not be just for Juneau, as it services most of the other communities. The Alaska Marine Highway System is an entire ferry road system. Vice Chair Bunde inquired the size of the fast ferry crews. Captain Doll replied that there must be a competent ship operator, which presents a "challenge". The State needs to hold on to that personnel during the wintertime while they are "laying over". Discussion has been started with the Unions, and they have expressed their support to this effort. Co-Chair Mulder questioned the financing element and paying off the bonds. He asked the amount of "lost opportunity" resulting from the years of paying off these bonds. Commissioner Perkins replied that the match is paid with the payment. The match each year would be part of the $35 million dollars. He added that $3.5 million dollars would be saved each year through a reduction in the match requirement. He pointed out that this is State money. FRANK DILLON, (TESTIFIED VIA TELECONFERENCE), ALASKA TRUCKING ASSOCIATION, ANCHORAGE, testified in support of the legislation. He maintained that the legislation is a good deal and acknowledged that there would be minimal risk for a large payoff. He noted that there are a lot of projects with strong social value which would receive wide support. He interjected that traffic problems could be solved by adding lanes. Mr. Dillion pointed out that the match is almost the same as that collected through fuel taxes. BLAKE JOHNSON, (TESTIFIED VIA TELECONFERENCE), LABOR UNION, ANCHORAGE, spoke in support of the legislation. He stressed that the legislation would provide a prudent way of letting voters decide to fund the roads. DICK CATTANACH, (TESTIFIED VIA TELECONFERENCE), ASSOCIATED GENERAL CONTRACTORS, ANCHORAGE, testified in support of the proposed legislation. He maintained that the legislation provides a good solution at almost no cost. In response to a question by Co-Chair Therriault, Mr. Cattanach commented that there is possibility that the economy could become "overheated". He stressed that the general contracting members have the capability to do the projects. Co-Chair Therriault asked if the fast ferries could be removed from the package, while still addressing the regional concerns. Commissioner Perkins responded that there is not that much left to accomplish in Southeast Alaska for the three year STIP. Co-Chair Mulder questioned the North Douglas access project. Commissioner Perkins observed that there is money available for the North Douglas access. That money has been made available to the City and Borough of Juneau. He emphasized that the State does not have anything to do with the project. That is a City project, other than passing to them, the earmarked funds. JOHN WHITLEY, (TESTIFIED VIA TELECONFERENCE), LEGISLATIVE CHAIR, ASSOCIATED GENERAL CONTRACTORS (AGC), ANCHORAGE, testified in support of the legislation. In response to a question by Co-Chair Mulder, Captain Doll noted that current contracts do not specifically address the kinds of operative concepts that are in place. He stated that he would want a commitment from the ferry out of Sitka, to live in Sitka and not to bid out of that assignment as other crews have done. Those kinds of work rules have not yet been put in place. He added that they are also considering a 40-hour workweek. Concerns such as these will be embodied in a contract. Co-Chair Mulder asked if it would be dangerous to appropriate the contracts at this time. Captain Doll replied that it could be written as a new contract or it could be supplemental to the current contracts. Co-Chair Mulder requested a ten-year cost projection from the Department of how the additional ferry would result in reduced costs. Captain Doll stressed that it would be difficult to match revenues to the costs of operating the old ships. He stressed that the State of Alaska needs to get away from labor intensive ships. Representative Grussendorf interjected that the cost for a single lane highway mile amounts to approximately $4,000 dollars in maintenance costs. Commissioner Perkins stressed that the Southeast Plan has been under consideration for four years. The high-speed ferries are part of the implementation of that plan. He stressed that the quicker the plan is implemented, the faster the benefits would be available. Co-Chair Therriault expressed concern that maintenance is being deferred by new projects. Commissioner Perkins explained that there are $30 million dollars in maintenance costs and that "patching and paving" can reduce maintenance costs which are being prioritized. HB 319 was HELD in Committee for further consideration.