HOUSE BILL NO. 158 "An Act relating to the authority and obligations of the Knik Arm Bridge and Toll Authority, to bonds of the authority, and to reserve funds of the authority; authorizing the state to provide support for certain obligations of the authority; relating to taxes and assessments on a person that is a party to an agreement with the authority; and establishing the Knik Arm Crossing fund." 1:39:07 PM Vice-chair Fairclough MOVED to ADOPT proposed committee substitute for HB 158, Work Draft 27-LS0431\T (Martin, 3/22/12) as a working document. Co-Chair Stoltze OBJECTED for purpose of discussion. JOE MICHEL, STAFF, CO-CHAIR STOLTZE, relayed that the committee substitute (CS) included two changes. The following language was deleted from the original bill (Section 1 part of AS 19.75.111(a)): Monetary obligations incurred by the authority under the partnership or contract are obligations of the state and satisfactions of those obligations from funds other than authority funds is subject to appropriation. Mr. Michel shared that the additional bill sections had been renumbered. The second change was on page 4, line 25 where the words "ad valorem taxes on real or personal property and special property tax assessments" were inserted following the words "shall be exempt from all." Co-Chair Stoltze WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. 1:41:26 PM REPRESENTATIVE MARK NEUMAN, SPONSOR, presented the bill relating to bonds and the authority of the Knik Arm Bridge and Toll Authority (KABATA). He relayed that he had been a non-voting member on the KABATA board for five years. He believed the state had opportunities moving forward with the bridge and that it was part of the critical infrastructure development. The bridge would cross the Knik Arm and would provide access to the potential gas pipeline terminus, opportunities to move into western Alaska, gas or coal reserves, and a potential gas pipeline from Cook Inlet into the Interior. He stated that the bridge connected many of the different infrastructure projects together. The bridge would also link the Port of Anchorage (that received the majority of freight imported into the state) and Port MacKenzie (an industrial port with 14 square miles of land designated for industry). He stressed that the industry utilizing Port MacKenzie could help support an instate gas pipeline, oil and gas storage facilities, a gas to liquids facility, and other. He communicated that there were experts available to discuss the issue in depth. He communicated the intent to address the state's obligation in relation to the project; the section had been removed from the legislation. Representative Neuman discussed that a portion of the bill proposed an increase in the bonding authority from $500 million to $600 million. He furthered that the bill would create a reserve fund, but funds were not being requested currently; work continued to determine how to progress. He emphasized that the project represented an opportunity to provide income to the state; within the first ten years the bridge was expected to bring in over $1 billion for instate transportation projects (e.g. ferry, airport, road, or port projects). He opined that with a drop in throughput in the Trans-Alaska Pipeline System (TAPS) it was important to diversify the economy and locate new revenue streams for the future. He accentuated that the bridge "literally is free to the state government" and would be funded by toll revenues that would cover maintenance for the first 35 years. Additionally, within the first 35 years over $10 billion in revenue projects were estimated for the state; the excess revenue would go through the general fund for designation by the legislature for transportation projects. He stressed that the bridge would not cost the state government money. He introduced individuals involved in the project development. Co-Chair Stoltze asked several mayors to provide brief statements regarding their position on the legislation. LARRY DEVILBISS, MAYOR, MAT-SU BOROUGH, supported the bridge. He pointed to road and traffic problems in Palmer and Wasilla that would need to be addressed by a bridge or significant improvements to the Glenn Highway; if the industrial traffic going north could bypass the areas it would be a huge relief. He emphasized that the economic element in Mat-Su was significant; Port MacKenzie was an industrial port and a direct connection to Anchorage provided great potential for economic expansion. He relayed that the economic development would eventually occur without the bridge; however, the project would accelerate the development, jobs, and revenue. He reiterated the borough's support for the project. DELENA JOHNSON, MAYOR, CITY OF PALMER, spoke in support of the bridge. She explained that all residents from the Mat- Su Valley drove the road frequently to reach the major facilities in Anchorage. She opined that it was important to have an alternate route to Anchorage for safety and population expansion reasons. She was concerned that currently there was only one way to reach the valley by road for emergency response vehicles. She encouraged the committee to help "make something happen." 1:51:06 PM Mr. DeVilbiss communicated that Wasilla Mayor Verne Rupright and the Mayor of Houston were also very supportive of the project. Co-Chair Stoltze believed the two mayors had litigated against some "forces" in the City of Anchorage on behalf of the project in the past. Representative Gara noted that approach roads, a tunnel, and possibly a second bridge were also included in the project. He wondered what necessary improvements would be made on the Wasilla side of the bridge to get drivers from the bridge to Wasilla and Willow. He asked about a cost estimate related to the items. Mr. DeVilbiss answered that the legislature had set aside $250,000 for the items the prior year. The "Port to Parks" project was of "imminent" importance and the goal was to bypass the traffic heading north around the west side of Big Lake. Currently the project terminated where the Knik Goose Bay road turned towards Wasilla. He stated that the project was not a road to nowhere. Representative Gara asked about the required length of the road to Willow from the bridge drop-off and its estimated cost. Mr. DeVilbiss replied that he did not have a cost estimate. Co-Chair Stoltze remarked that the Department of Transportation and Public Facilities (DOT) would be better equipped to answer the question. Mr. DeVilbiss continued that the road would be less than 30 miles; the rail extension was 32 miles and went to the port. The bridge included a road component of approximately 11 miles that went considerably away from the port. Representative Gara wondered whether any improvements would be required on Knik Goose Bay Road in order to accommodate the bridge. Mr. DeVilbiss replied that "that's already scheduled and in the in design process." He added that DOT could speak better to the question. Co-Chair Stoltze commented that the projects were a highway safety corridor and were irrespective of the Knik bridge project. He relayed that Representative Neuman had put the $250,000 through for an impact study and to help local communities plan and be involved in the process. 1:54:52 PM Representative Neuman addressed what would happen after the bridge was built. He explained that if a new road followed, (such as the railroad corridor) it could help reduce traffic by 25,000 to 30,000 vehicles per day on the Glenn Highway. He furthered that the state spent $40 million to $50 million every five years on highway rehabilitation, which could be extended out further if traffic was funneled onto a new road that continued north off of the bridge. He surmised that the cost of the road would be substantially less than the maintenance that would be required on existing roads. He discussed increasing safety and reducing traffic congestion. DAN SULLIVAN, MAYOR, ANCHORAGE, vocalized support for the legislation. He had been a proponent of the bridge for decades and believed it was timely for the state to complete the project. He discussed that the Port of Anchorage brought in approximately 240,000 containers per year and that a significant number were sent up the highway to Palmer, Wasilla, Fairbanks, and other; unfortunately, each of the shipments had to travel through downtown Anchorage; therefore, reducing the number of trucks traveling through downtown would increase the quality of life in the city. He opined that a secondary access route through the two most populated areas of the state made sense; he pointed to Glenn Highway road closures (due to accidents or other) that resulted in 18,000 to 20,000 people being stranded for up to many hours; time is money and when people were stranded economic loss resulted. He furthered that there were significant resources north of Anchorage and access by road, rail, and port provided the critical infrastructure needed to get the items to market. Mr. Sullivan expounded that Anchorage was running out of developable land. He stated that there were large numbers of people moving to the Mat-Su Valley and access to more available land for residential and industrial use made sense from an economic standpoint. He was a "100 percent supporter" of the project. He would prefer that the bridge was not a toll bridge and believed the state was responsible for building critical infrastructure that were essential to the developmental needs of its regions; however, he was confident that after a number of years there would be an economic benefit to the state from the tolls that would then help fund projects statewide. Co-Chair Stoltze asked Mr. DeVilbiss to confirm that there was no plan to annex any part of Anchorage. Mr. DeVilbiss affirmed. 2:00:05 PM MICHAEL FOSTER, CHAIRMAN, KNICK ARM BRIDGE and TOLL AUTHORITY, appreciated the opportunity to testify. He discussed that KABATA had been established by legislation in 2003 with a mission to connect the east and west sides of the inlet. The property boundary was a bridge structure of approximately 14,000 feet and 18 miles of connecting road. He relayed that there had been some changes from the previous bill version offered the prior year and that he had worked diligently with the governor's office on the legislation. He relayed that the bill had three parts. The first part was the increase of the private activity bond from $500 million up to $600 million. The bond would allow a private equity and partner to be a conduit for the bond; the entity would be able to access the bond through the federal government. The limit was currently $600 million and the legislation allowed the limit to be available to a private partner. Mr. Foster relayed that KABATA was pursuing a public (the state) and private (private investor) partnership. He reiterated that the project was a conduit and that the state had no obligation or risk associated with the project; the bill provided a conduit for a private partner to access cheaper money; if the money was cheaper the state's payments would be less. The second part of the legislation clarified that the bridge would be part of the state's transportation system and was therefore not subject to property tax. The language was to ensure that a private developer would not apply a risk factor that would cost the state more money. The third part of the bill established a reserve fund. Excess revenue generated by the bridge would go into the fund. He relayed that according to the project model the reserve fund needed to have approximately $150 million by the time the bridge opened; it was the equivalent to a secured line of credit that showed the developer the state could make its payments if toll revenue was not sufficient. He relayed that a secured a line of credit would lead to cheaper money and a lower cost proposal to the state. Mr. Foster informed the committee that the project had been approved by the Federal Highway Administration; it had also received a no-jeopardy determination related to the endangered Beluga whale species. The entity was currently working to obtain core and coast guard permits and a letter of authorization from the National Marine Fisheries Service. The project was in the right-of-way acquisition phase; phase 1 on the east side had two residential properties, a strip-mall, and two business properties; one of the properties had been acquired and KABATA was in negotiations to purchase the remaining four. He noted that some relocation had been done as part of the right-of-way acquisition. He relayed that the project was in line with the federal highway's right of way process. He noted that his colleague would talk more extensively about the issue. Mr. Foster explained that KABATA was currently in a solicitation process. The solicitation had received a substantial response from six highly qualified firms (designers, financers, operators, and builders) and the list had been reduced to three. The entity and the governor's office were working on the draft Request for Proposal (RFP) process; he provided detail on the process. He expressed that population was the key word. He explained that the bridge was built for the future and not for the current population. He stated that population models by the University of Alaska Anchorage Institute of Social and Economic Research (ISER), Department of Labor and Workforce Development, Woods & Poole, and Wilbur Smith all showed the same data for the Mat-Su Borough. He referenced the Anchorage Metro Area Transportation Solution (AMATS) Metropolitan Transportation Plan, which showed that the Mat-Su Borough had approximately 90,000 residents in 2010; models showed that the borough would increase by 118 percent to 190,000 by 2035. He relayed that all of the population models were very similar. The same models showed that the Eagle River to Eklutna would grow by 74 percent (from 39,000 to 68,000). He stated that the models indicated that the Anchorage area was running out of room (the models showed 15 percent growth in the Anchorage "bowl" area). He stressed that the models showed the population growth would occur with or without a bridge. 2:10:20 PM Mr. Foster highlighted what things would look like in 25 years related to population and traffic growth with no bridge. Currently at the Eklutna Bridge the average daily traffic count was 30,000; the daily average had been 15,000 25 years earlier (the Mat-Su Borough population had been almost half of the current population). He discussed what a population growth of 119 percent would mean for traffic at the Eklutna Bridge; the KABATA model showed that in 25 years the average daily traffic would be 65,000 vehicles. For context he explained that in 2010 the average daily traffic was 52,000 by the weigh station at the Highland Bridge in Eagle River; 25 years earlier it had been 39,000; projections showed that without a bridge the number would go to 110,000. According to a 2008 DOT study, improvements to the Glenn Highway would cost $3 billion and would include 8 traffic lanes to handle the traffic if a bridge was not built. He stated that the Glenn Highway would slow down without a bridge to handle the population growth. He did not know whether federal highway money would be available to fund the Glenn Highway improvements; the state's match would be at least $300 million if the federal money was available. Mr. Foster addressed what no bridge would mean for traffic, safety, and corridors. The $3 billion in improvements did not include impacts to Eagle River, Chugiak, Peters Creek, or Eklutna. He pointed to the argument that the bridge would require significant work on the west side of the inlet and stressed that the state would have to spend more money on infrastructure if a bridge was not built. He emphasized that the commute would be closer from Point MacKenzie than it was from Eagle River. He reiterated that there was available commercial, industrial, and residential land in the west. He accentuated that the bridge would be utilized by traffic in both directions; trucks moving containers from the Port of Anchorage would utilize the bridge instead of driving through the city to the Glenn Highway. He observed that the cost to the state without a bridge was "pretty phenomenal." The bridge is "private equity" and it "cost the state nothing." He stated that there was risk and the state did have "skin in the game," but risk represented reward. The project was a public- private partnership. The state's risk was related to whether there would be sufficient traffic to generate enough revenue to make the annual payments; the KABATA model showed that there was. He relayed that there was a choice; without a bridge there was a definite cost and with a bridge using private equity there was infrastructure that paid a return back to the state. He expounded that a bridge would create economy. Mr. Foster continued to discuss the project. He referenced a conversation with a Kenai assembly member who had relayed that 47 percent of the Kenai Borough land was located on the west side of the inlet and the bridge represented the first connection to the west side. He detailed that 28 miles from the bridge on the west side was a connection to existing roads. He had met with the governor and had communicated that the road would be the first true road to resources. 2:18:04 PM JEFF OTTESON, DIRECTOR, PROGRAM DEVELOPMENT, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOT), addressed the concept of a public-private partnership (P3s), which was new to the state. He explained that P3s were used globally in many jurisdictions (e.g. Korea, Australia, New Zealand, South America, Europe, British Columbia, and other). He had visited an office called Partnership B.C. in British Columbia (B.C.); the purpose of the office was to determine whether an infrastructure project should be done by P3 (the default choice was P3). The province used P3 for infrastructure, utility projects, hospitals, and all types of government built construction. He referred to the availability model approach, which meant the owner (the state) was responsible for making the annual bond payment if the revenue was not there; B.C. also used the approach as a default and preferred method in conjunction with a P3. He explained that the approach lowered financial risk and in turn provided a better financing rate. He addressed why a P3 would be used if the revenue risk was taken off of the builder and placed on the owner. He detailed that Partnership B.C. liked the idea of giving a single entity responsibility for all parts of a project (i.e. design, financing, construction, and long-term maintenance); the risk involved was placed on the P3. He elaborated that the "best and brightest" were brought in from around the globe; he stated that the listed teams represented a "who's who" of infrastructure. The partnerships were widely used; Canada had approximately one-tenth of the U.S. population, but its dollar volume of P3s was 10 times greater (per capita Canada was using P3s 100 times the U.S. rate). Mr. Otteson pointed to the availability payment issue that required some amount of state money backing the bonds to cover the difference between earnings and the bond payments in the early years of the bridge. He relayed that the concept was not unusual and that it was used in B.C. He referred to the Red Dog Mine as an example of an infrastructure project where the state made payments to a private investor; state funds to supplement the mine revenue after 19 years (it took 19 years for the project to break even). He believed the project had been very good for the state and Nenana region. Mr. Otteson discussed that the project was the only surface transportation project in the state that was proposing to pay for its operating, maintenance, and capital. He stressed that all other projects that came before the committee required the entire capital cost to be funded by the state. He expounded that the bridge was the only project that would provide a dividend to the state when revenues exceeded the payments in the future; he believed there was approximately $9 billion in excess revenue expected that would begin in about 20 years; the funds would then be available to fund any other surface transportation projects (ferries, roads, bridge, and transit). He referenced an earlier question about how the road to Willow/Houston would be funded. He explained that if the bridge was not built other roads would need to be built in the Mat-Su area to deal with the population. He relayed that the road cost would be determined by population and not the project. He stressed that population led to traffic and traffic led to investment needs. He emphasized that rebuilding costs would be higher to go around the Parks/Glenn Interchange because the distance was longer. 2:24:29 PM Representative Doogan asked whether Mr. Otteson currently worked for the state. Mr. Otteson replied in the affirmative. Representative Doogan asked whether the governor supported the legislation. Mr. Otteson answered that the governor supported the project and intended to make a decision on the financing model once permits had been obtained. Representative Doogan asked for verification that the governor supported the project but did not want to fund it with state dollars at present. Mr. Otteson responded that the governor had not proposed any state funding in the FY 13 capital budget. Co-Chair Stoltze asked whether the project was currently waiting on some federal processes. Mr. Otteson responded that the project was awaiting permits from the Corps [Army Corps of Engineers] and the Coast Guard, which could change the overall cost due to mitigation or changes in structural design. 2:25:37 PM Representative Gara noted that the committee had only heard from supporters of the project and requested that Bob French be allowed to present his side of the story. He relayed that Mr. French had worked on the project for many years and was the president of the Government Hill Community Council. Co-Chair Stoltze agreed. Representative Gara expressed frustration that although the project had not gone forward, KABATA had engaged in imminent domain and had purchased and made property offers to residents in Government Hill; the gas station, mall, hotel, and two homes were being purchased so KABATA could build a tunnel through the area. He asked Mr. Foster whether it was premature to spend the money before the project had been secured. Mr. Foster responded in the negative. He elaborated that DOT was currently working on the right-of-way acquisition for the state, which had begun after the state had federal authorization. The process entailed that the right-of-way acquisition was to occur during the project design phase. Typically under a P3 model the right-of-way was acquired and established prior to the contract. He corrected that the infrastructure would be a cut-and-cover tunnel with a greenbelt on top. He noted that Mr. Otteson could expound on the federal highway process. 2:28:25 PM Mr. Otteson explained that the right-of-way stage occurred after the environmental documents and record of decision had been received. He detailed that the record of decision had a three-year shelf life; the environmental document may need to be redone if a project did not go forward during the three-year period, which could be time consuming and expensive. He stressed that once a record of decision had been issued those involved were "under the gun" to execute the next steps of the project. The right-of-way had been authorized by the Federal Highway Administration. He emphasized the importance of moving forward and noted that there were many items that tended to act as roadblocks to major infrastructure projects. Vice-chair Fairclough inquired whether the right-of-way was similar to the one at Lake Otis and Tudor when a motel and gas station had been removed prior to the road work. Mr. Otteson replied in the affirmative. He relayed that the properties had been bought by the Municipality [of Anchorage] several years in advance of the project. Representative Gara asked how much time remained to purchase the Government Hill property under federal rules. Mr. Otteson answered that work would need to begin within approximately 21 months. He reiterated that if the work had not begun there was risk that the environmental document would go stale. Representative Gara believed KABATA should have waited for the legislation to pass prior to "condemning people's property and businesses in the city's oldest neighborhood." He pointed to a $600 million bonding allowance in the legislation and wondered who was responsible for the money if the private party defaulted. Mr. Foster replied that the state had no fiscal responsibility for the bond; if the private developer defaulted the issue was between the private party and the federal government. He reiterated that the state was only a conduit and had no fiscal responsibility for the bond. Representative Gara asked for verification that if the private developer defaulted the state would not be held liable for the money under any circumstance. Mr. Foster responded in the affirmative. Representative Gara asked for verification that (according to the original KABATA studies) the time travel estimate would be longer to Palmer and Wasilla if the bridge and road upgrades were completed than it would be on the Glenn Highway. Mr. Foster believed so. He thought there was a point in Wasilla where there would be a 7 minute savings if the bridge were constructed. He referenced his earlier testimony that the bridge would provide a time savings for future populations. He did not expect people in Eagle River or Wasilla to quit using the Glenn Highway unless there was a road closure. Representative Gara pointed to use estimates that were relevant to determine whether the private party would make sufficient money on toll revenue. He surmised that for many years to come with a limited population in the Knik area nobody would want to spend money on a toll bridge if they could drive a highway for free and could get home at a similar time in the Palmer and Wasilla areas. 2:32:48 PM Mr. Foster believed the statement was fair; however, he opined that businesses would build in the area near the bridge site if the project went forward. He remarked that a bridge was not needed if a person did not believe in Alaska or that its population would grow. Representative Gara hoped that Mr. Foster did not mean that people who disagreed with the plan did not believe in Alaska. Mr. Foster replied in the negative. He believed the population growth would occur and that new infrastructure was needed. Representative Gara wondered whether it would be the state's responsibility to pay for the approach and departure roads on both sides of the bridge. He pointed to a previous proposal that would have privately financed the roads in addition to the bridge. He listed the tunnel from Government Hill, a bridge from Ingra and Gamble Streets, roads to Wasilla and Willow. He wondered what the private contractor would pay for. Mr. Foster responded that the cut-and-cover bridge and the approach roads were covered under phase one of the project. The Ingra/Gamble connection under phase two was not included in the existing P3; it may be added at a later time. He furthered that the Ingra/Gamble connection would not be built until user revenue had been created. Phases one and two were through KABATA; phase one was through a contract with KABATA and a private partner; phase two would be paid for with project user fees. Representative Gara took Mr. Foster's testimony to be up to date, but noted that written plans showed that the Ingra/Gamble connection would be built ten years after the bridge. He asked for the total cost to public entities for roads to Wasilla and Willow, Knik Goose Bay Road upgrades, and roads on the Anchorage side. Mr. Otteson addressed each road individually. He explained that the Knik Goose Bay Road needed to be widened due to current traffic. He noted that environmental documents for the work were underway. Co-Chair Stoltze asked for discussion to focus on projects that were currently in the Statewide Transportation Improvement Program (STIP) to accurately reflect costs. Mr. Otteson did not have an exact cost estimate. He discussed that there were a couple of possibilities for the alignment of the connection to the Big Lake and Houston areas. There was a right-of-way along the new rail alignment that had been made available by the borough; he noted it would be a huge cost savings to have the right-of- way already available. Projects would be driven based on how soon they were needed. He relayed that initially Vine Street would be used, which bypassed congested areas of Wasilla and the Knik Goose Bay Road. 2:38:11 PM Mr. Otteson furthered that as the bridge generated traffic it would generate enough revenue to begin to pay for the additional improvements. He detailed that the timing of the Ingra/Gamble connection would be determined by the pace of traffic growth; it could be in 8 years, 12 years, or other. Representative Gara noted that he had not received an answer related to the cost estimate. Co-Chair Stoltze explained that the projects were all ongoing and he believed that the answer would only be a speculation. He asked Mr. Otteson if the assessment was fair. Mr. Otteson agreed. He added that many of the roads would be needed regardless of the bridge. Representative Gara doubted a highway was needed from Willow to Knik in the absence of a bridge. Co-Chair Stoltze remarked that there was a rail spur and encouraged committee members to drive out to look at it. 2:39:50 PM Representative Costello asked how important it was for the bridge to self-finance its operations, maintenance, and capital costs. Mr. Otteson replied that the project would bring its own money to the table, would solve a transportation need between Mat-Su and Anchorage, and would be funded by a non- state or non-federal source. He expounded that the bridge would allow money to be spent elsewhere in the state. He added that the project would self-fund operating costs for the life of the P3, which always constrained projects. Representative Costello asked whether there were examples of the state backing bonds on private investors in relation to transportation in Alaska. Mr. Otteson was not aware of any apart from the Red Dog Mine. He believed that the fact that Red Dog had required state support of the bonds for close to 20 years was a good example. Representative Costello asked which other projects the state would look at and how they would be financed if KABATA did not go forward. Mr. Otteson responded that it would be necessary to widen the Glenn and Parks Highways sooner. He believed that the widening would occur with or without the bridge due to population growth in Mat-Su. He furthered that even postponing the widening would allow other projects to go forward across the state. He believed that the ability to postpone the widening for 5 or 10 years would be a "powerful benefit" for Alaskans. Representative Costello enquired whether assumptions had been built into the projections that related to pipeline throughput. She pointed to ISER's research on the Alaska economy and that one out of three jobs was related to one industry. Mr. Otteson did not have the information. 2:42:40 PM Representative Guttenberg asked about the foundation for the legal justification that the state would not be responsible for debt if the private entity defaulted. Mr. Foster answered that the private activity bonds were a conduit. The private partner would apply for the bonds from the federal government and the activity did not fall under the state's books. He furthered that in the event of a private partner default, the state (as the owner) would have a commitment to make payments, but the liabilities of the private partner would not come back to the state. JEFF STARK, CHIEF ASSISTANT ATTORNEY GENERAL, TRANSPORTATION SECTION, DEPARTMENT OF LAW, elaborated that the protection was in the type of bond sold; private activity bonds were a relatively common form of financing and the protection was in the documentation included in the bond sale. He discussed 2003 legislation that had given KABATA the authority to sell up to $500 million in bonds; the current bill increased the authority by 20 percent to $600 million. The legislation did not limit the type of bonds that would be sold; theoretically if the P3 structure fell apart, KABATA would have the legal authority to sell bonds that it would be responsible for; however, KABATA's current focus was on requiring a private developer to raise all of the financing. The entity would have the ability to secure the financing of its choice (i.e. through a bank or other) and the state would have no involvement. He detailed that private activity bonds issued by a state entity were free from federal income taxes; therefore, the rate and deal for the state were much better. The state would issue the bonds, but under the terms of the bonds it would have no obligation to pay them; the sole obligation would fall to the private developer. He furthered that the state's only obligation would be the availability payments to the developer. He detailed that if the developer defaulted on the bonds, the bond investors would have a claim against the developer, but not the state. He explained that if the state defaulted on its payments to the developer, the bond holders would have no right against the state; the developers would have the right to pursue the state. He reiterated that the financing technique was common and was not unique to Alaska. Representative Guttenberg communicated that he was always concerned when states were compared because each state has different laws. 2:48:22 PM Representative Doogan asked whether the information provided by Mr. Stark represented a settled matter of law. Mr. Stark responded in the affirmative. He detailed that the types of bonds were issued on a regular basis and the public entity did not have a liability if they were sold as private activity bonds. Representative Doogan queried whether the issue had been litigated and that courts had agreed with the assessment provided. Mr. Stark replied that he did not know the answer. He stressed that it was his firm understanding from talking to innumerable lawyers and financial experts that the technique was common and that there was no liability [to the public entity]. Representative Doogan requested any information on whether or not the issue had been litigated. He wanted to know whether the issue was a settled matter of law, an economic assumption, or other. Mr. Stark would follow up with the information. Representative Gara queried earlier testimony that the state would be liable for obligation payments. Mr. Stark answered that KABATA would enter into a contract with a private developer under a public-private agreement (PPA); the agreement would require KABATA to make quarterly or monthly availability payments to the private developer once the bridge was in use. He clarified his earlier testimony that the payments would be KABATA's (and not the state's) only obligation. He explained that if the private developer chose to issue public activity bonds, the bonds would be issued by KABATA, but only the private developer would have an obligation to pay the bonds. The bond holders would have no claim or lawsuit against KABATA if the private entity defaulted on payments. He added that if KABATA failed to pay the developer [the availability payments] the private developer could sue KABATA. He summarized that there was one contractual relationship between KABATA and the developer and a separate contractual relationship between the developer and the bond holders. 2:51:54 PM BOB FRENCH, CHAIRMAN, GOVERNMENT HILL COMMUNITY COUNCIL, clarified that his testimony was on behalf of himself. He stated that although the removal of language that would have made any obligations of KABATA into obligations of the state may have made the bill more palatable, it was important look at what KABATA had promised the federal government and the prospective P3 partners. He read from KABATA's pro forma that had been included in its TIGER [Transportation Investment Generating Economic Recovery] grant application (page 8) related to the $150 million reserve fund proposed under the legislation: "If the ending balance falls below $50 million the state will replenish the account back to $50 million." He encouraged the committee to look at the entity's next loan application to determine whether the information was still included. He believed that KABATA would probably give assurance of the state guarantee even if language making KABATA's obligations into obligations of the state was removed. Mr. French stated that it was clear that the full faith and credit of the state was still being pledged if the bonds were issued through a state agency. He communicated that the obligation of the state was to make availability payments to the developer. He continued that KABATA's pro formas showed that the availability payments totaled $2.98 billion over the life of the project; the payments were intended to be paid for with tolls; however, they would be paid by the state if tolls were not sufficient. He stated that data disputed the accuracy of future traffic estimates. Two separate traffic projections done for DOT showed traffic counts of approximately half of those predicted by KABATA; the forecasts had been conducted for the most recent Anchorage MTP [Metropolitan Transportation Plan] and Mat-Su LRTP [Long Range Transportation Plan]. He noted that DOT had not released the Mat-Su information despite multiple requests; the council had filed a public records act in an effort to obtain the information. He stated that having half of the traffic prediction come to fruition would be more accurate than 12 other nationwide toll project projections that KABATA's traffic consultants Wilbur Smith Associates had made. He referred to an exposé that had been released in January 2012 showing that Wilbur Smith's projections were 2.27 times greater than the actual traffic in the first five years of operation. Mr. French related that two toll roads Wilbur Smith had provided projections for (one in South Carolina and one in California) had gone bankrupt; two others had been forced into changes in ownership and/or debt restructuring. He referred to a KABATA graph (copy on file); the green line showed a projection that toll revenues would significantly exceed cost. He explained that if only half of the traffic showed up, the cost (red line) would be below the revenue line for the entire life of the project. He discussed that in a 2011 traffic and revenue forecast for a traffic zone on the Mat-Su side of the bridge, Wilbur Smith predicted 13,828 new jobs for 2035, which was 1,000 jobs less than the entire employment in the Mat-Su Borough in 2009. The number was also 673 jobs more than there were in the Kenai Peninsula and 3,000 jobs more than there were in Juneau. He noted that in 2007 Wilbur Smith had predicted 6,740 jobs for the same areas for the same time period. He addressed what had changed between 2007 and 2011. He explained that in 2007 KABATA had a population estimate for Mat-Su of approximately 250,000 and in 2011 the estimate had gone down to 200,000. He believed the entity had to boost its traffic projections somehow and that it looked like KABATA was trying to show that there were additional jobs in Point Mackenzie that would create traffic going both directions on the bridge. He stated that the numbers were not compatible with the 14 square mile industrial zone that Representative Neuman had discussed. He stressed that the industrial zone would not support the high job number. Mr. French referred to a real cost paper that showed an average annual shortfall of $55 million. He emphasized that it was important to note that the $55 million would come from the state in order to make the availability payments. He surmised that there would be a number of necessary statewide projects that would not have funding if the state had to fund the availability payments. He referenced a Legislative Budget and Audit Committee (LB&A) audit that was underway and opined that it was worthwhile to wait for its completion. He thought it was a good idea to review the accuracy of the population and toll numbers that KABATA used for its financial plan. He also believed LB&A should conduct an audit of past spending and predicted future spending to determine whether KABATA's projected rate of return made sense. He opined that LB&A should make a recommendation on whether further state investment was justified. He noted that in KABATA's absence, there were currently approximately $58 million in transportation funds that could be used for other federally eligible transportation projects throughout the state; he pointed to alternatives (e.g. bridge upgrades over Eagle River estimated at $60 million). 3:00:58 PM Representative Neuman asked whether Mr. French had any credentials or background in traffic studies or if he was an engineer. Mr. French answered that he is a professional engineer, but not a traffic engineer. Vice-chair Fairclough thanked Mr. French for his testimony and participation in community council. She was curious about the $55 million shortfall that would occur if the traffic did not show up. She asked about the formula that had been used to determine the number. Mr. French replied that the formula was fairly complicated and had been developed by Jamie Kenworthy. He deferred the question to Mr. Kenworthy. Vice-chair Fairclough asked for detail regarding the number just under $3 billion if no tolls were collected. Mr. French answered that KABATA's 2011 pro forma showed that the availability payments would be $2.98 billion over the life of the P3 process. Representative Gara asked how the state would be on the hook for availability payments if the tolls did not match the cost to the contractor. Mr. French believed that the availability payments were the obligation that the state said would happen. He equated the payments to having a guaranteed income when applying for a home loan. He detailed that payments would be made to the developer and the developer would acquire the private activity bonds for financing. Representative Gara queried where the state's legal obligation to make the availability payments was located in the legislation. Mr. French deferred the question to Mr. Stark. 3:04:38 PM LYN CARDEN, WASILLA, EXECUTIVE DIRECTOR, WASILLA CHAMBER OF COMMERCE (via teleconference), spoke in support of the bill. She stated that the project would support Wasilla's expanding population and economy and would provide jobs, housing, and reliable transportation across the state. She relayed that Port MacKenzie was a strategic port designed to export bulk commodities (e.g. base and rare earth mineral ores, coal, wood chips, and gravel); the port was also utilized to import materials (e.g. cement and steel pipe). The project would support freight handling capacity, mobility, and improved regional operations; thereby supporting airport, military, and consumer needs while improving safety for Southcentral residents through an alternate north-south emergency response and disaster evacuation route. She furthered that the project would support a transportation infrastructure for existing and projected population and economic growth statewide. She believed that the bridge would foster economic development at Port MacKenzie on the west side of Cook Inlet. She explained that port's industrial district had over 8,000 available acres for future economic development expansion. Ms. Carden relayed that additional projects (including the Port MacKenzie rail extension) were currently underway to take advantage of the port's "strategic" location. She opined that the bridge would provide a unique opportunity for Alaska to expand its economy. She urged the committee to pass the legislation. PETE MULCAHY, PRESIDENT, CHUGIAK AND EAGLE RIVER CHAMBER OF COMMERCE (via teleconference), voiced support of the bill on behalf of the chamber. He discussed that the chamber was focused on projects that would increase the economic health and vitality of the local community and Alaska. He addressed the importance of appropriate infrastructure that would support the development of resources. He relayed that the board had not made a final approval of the KABATA project; its last resolution had been in 2001 that supported the project's fact finding phase. The chamber understood that there were some fiscal concerns, but noted that it had consensus on several of the aspects related to KABATA. He relayed that the chamber had always agreed that the creation of a beltway road system would ease pressure on the Glenn Highway and would provide a second access in and out of Anchorage. He stated that transportation infrastructure needed to move forward with large resource development projects was not in place. He stressed that the projects would demand much greater capacity than what currently existed. The chamber believed that the bridge would solve multiple problems that would benefit the Chugiak/Eagle River area including increased economic activity and solving the congestion issues on the Glenn Highway. Mr. Mulcahy understood and liked that the bill provided a funding framework and state oversight of the project. The chamber liked that the bill clarified the process of the public-private partnership. He relayed that the issue was on the March 2012 board meeting agenda; the board would discuss a resolution at that time. 3:11:02 PM AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING ASSOCIATION (ATA) (via teleconference), vocalized support for the bill. The ATA saw the Knik Arm crossing as a vital link in the state's future transportation network that would provide an alternative route to and from the Port of Anchorage for northbound freight and would improve the ability to safely and efficiently move freight on the road system. He believed the project represented a once in a generation opportunity to build on the state's transportation system. He urged the passage of the legislation. DARCIE SALMON, ASSEMBLY MEMBER, MAT-SU BOROUGH (via teleconference), voiced support for the bill on behalf of himself. He relayed that when Port MacKenzie had been built there had been discussion that it would increase economic activity to justify the Knik Arm Bridge. He stated that he had been working on the issue for over 25 years. He likened Point Mackenzie to the fulcrum of a teeter-totter with Fairbanks, the Interior, and resources on one end and Anchorage and the workforce on the other end; he pointed to the "natural ebb and flow of economic activity" that the analogy depicted. He communicated that the project had been titled a "360 degree economic transportation corridor" to create a cyclical flow. He pointed to the new prison in the area that would create jobs. He believed a new city would be created in the future in Point MacKenzie; he discussed that the combination of the Point MacKenzie Port, Anchorage Port, rail spur, Knik Arm Bridge, labor force, and natural resources would result in progress, opportunity, and prosperity. Additionally, he believed there would be a pipeline to Point MacKenzie in the future. He opined that the benefits outweighed the negatives. He stressed that the bridge, rail, and port brought together 500,000 Alaskans economically. He reiterated his "ardent" support for the project. 3:17:22 PM JAMES KENWORTHY, SELF, ANCHORAGE (via teleconference), relayed that his total bridge deficit estimate was $2.5 billion or $55 million per year until 2035. He had determined the number based on three calculations. First, he pointed to the 2011 KABATA pro forma done by Citigroup (page 7) that showed $4.5 billion in cumulative toll revenue to 2050; he estimated that the number would be half of the $4.5 billion. He elaborated that when CH2M Hill had modeled the ISER demographic data it included 17,700 trips crossing the bridge in 2035 as opposed to KABATA's 36,000 trips (the KABATA figure was 103 percent higher). Second, he shared that the former CIA economist who tracked Wilbur Smith's national projects reported that the company had a 118 percent over-estimation error rate. Third, he addressed a land conflict issue at Point MacKenzie, which he believed was appropriately zoned for industrial and manufacturing; however, the KABATA data showed $1.7 million square feet of retail at Point MacKenzie, which he thought conflicted with the industrial plan. He opined that the degree of retail would not work next to coal processing and Liquid to Natural Gas (LNG) plants. Mr. Kenworthy summarized that his toll revenue estimate was $2.3 billion; he believed that KABATA would not receive a $308 million federal TIFIA [Transportation Infrastructure Finance and Innovation Act] loan it had been turned down for in 2007, 2010, and 2011 (the loan was included on page 1 of KABATA's financial plan); and that he had reduced KABATA's estimate of the return on investment the developer would receive from 12 percent to 10 percent, which would add $150 million back in. He pointed to page 1 of the pro forma and noted that KABATA was counting on $79 million of equity going in, but the developer was projected to get a net cash flow (page 5) of $920 million going out. He wondered why the state with a AA credit rating (that could borrow long at less than 4 percent) would pay a developer 10 or 12 percent to finance the project. He referred to the committee's questions related to what would occur if the developer defaulted and advised that a better focus would be on the state's ability to make the annual availability payments, which totaled $3 billion (page 4). He believed that the focus should be on the toll shortfall and opined that it would suck money out of the transportation budget. Co-Chair Thomas asked whether Mr. Kenworthy was representing himself. Mr. Kenworthy responded in the affirmative. He provided his credentials. He was the former director of the Alaska Science and Technology Foundation, had read business plans for a living for 30 years, and was a private investor. Representative Gara asked how the state would become liable for the availability payments. He wondered whether the state had signed a contract related to the payments. Mr. Kenworthy responded that the contract would presumably be signed after KABATA conducted a request for proposal (RFP). The contract would not pledge a direct state credit. Like a Alaska Industrial Development and Export Authority (AIDEA) or a Alaska Housing Finance Corporation (AHFC) bond, KABATA would be on the hook to make the annual availability payment that was estimated at $3 billion. He noted that the appropriate question was what would happen if the toll revenue shortfall occurred and the state had to appropriate $55 million per year to make up the money. He likened the situation to what would occur if AIDEA or AHFC did not make payments on their bonds. He noted that the agency bonds clearly indicated that the purchase of the bonds was not a direct obligation to the state; however, he believed there was a moral obligation to the state as it would impact the state's credit rating. 3:23:48 PM BEN NORTHEY, PRESIDENT, COLASKA INC., spoke in support of the bill. He stressed that it was time to build the bridge. He had worked in the infrastructure industry for 30 years and wanted to be able to travel safely to the Mat-Su Valley. He quoted a slogan that "Anchorage is only 15 minutes from the true Alaska." ROBERT DUN, ENGINEER, COLASKA INC., urged support for the bill. He stated that there would be a population increase in the Anchorage and Mat-Su areas. He opined that it made sense to have the population growth as close to the center of Anchorage as possible and believed the closest area was directly across the Knik Arm. He discussed that alternative areas for development were to increase population in Eagle River and in Wasilla. He emphasized that there was no zero cost alternative to the bridge. He stated that the failure to perform long-term planning could be painful (as experienced in the effort to connect the Glenn and Seward Highways); the project was stuck because there was no right-of-way in the area. He believed that the problems would only be exacerbated by time and further development in the Government Hill area. He encouraged the committee to view the bridge as an investment for the future and in the short-term health of the state. He related that the project construction timeline was parallel to the time that there would be a decrease in federal highway funding. He surmised that from a jobs perspective that the future looked bleak without the bridge. He stressed that the benefits that the bridge would bring to the state would be provided by funding from private investment. Representative Gara asked whether the state or KABATA's obligation to make the availability payments in the event of toll revenue deficits would be included in contract. Mr. Dun replied that Colaska Inc. was on the technical side and could not answer the question. 3:28:50 PM Kirk Zerkel, Project Manager, Alaska Interstate Construction, voiced his support for the project. He stated that the bridge would provide thousands of valuable construction jobs and would be funded by the user. He believed that the project would eventually create a surplus, which could fund other statewide projects thereby providing for ongoing jobs. He stressed that the project would provide invaluable training and expertise needed for Alaska's future. He communicated that the bridge would free up quality land for residential, commercial, and recreational purposes in Mat-Su; he opined that the items would increase the quality of life and decrease the cost of living in Anchorage. He expounded that the bridge would ease congestion of large truck traffic through downtown Anchorage and would decrease traffic along the Glenn Highway, thereby decreasing the safety hazards in the areas. The project would decrease the burden of record gas prices facing Alaskans. He emphasized that the project was for future Alaskans and urged the legislature to help continue to grow and develop the state to provide for future jobs and commerce. 3:31:33 PM DOUG SMITH, PRESIDENT and CEO, LITTLE RED SERVICES, spoke in support of the bill on behalf of the Alliance [Alaska Support Industry Alliance]. He noted that there were several gates left in the process and that the passage of the bill did not mean the state was committed to build the bridge or to make up the difference in tolls before the commercial terms were known. The Alliance felt that the bridge was so important to the state that it would warrant building it without a toll. He relayed that the Alliance did not see the risk as a reason not to go forward with the project; if the state had to make up a slight difference in availability payments the investment level was lower than would be required without private participation. He discussed Alaska's bright future. He believed that Outer Continental Shelf resource development would happen in the future. He had participated in construction in Alaska for years, some of which would not have been possible without AIDEA investment. He believed that the types of projects brought opportunities but the overall value was significant. The industrial zone that would be created by the bridge would help support fabrication and large module development to support offshore drilling. He pointed to landlocked areas that had no way to expand in Anchorage and opined that a better footprint was needed to participate fully in development for Alaska's future. Co-Chair Thomas CLOSED public testimony. 3:35:08 PM Representative Gara asked for KABATA to confirm where the potential state liability came from. Mr. Foster clarified that the availability payment was not on top of a return on investment. He explained that the availability payment was like a lease payment; a return on investment was not guaranteed. Under the PPA the private partner was responsible for financing, designing, building, operating, and collecting tolls for 35 years; in turn the state paid the developer an availability payment (also known as a lease payment). He elaborated that the state's obligation was to make the payment to a private developer. From the time the developer began spending the $700 million to $800 million it was approximately four or five years before the developer would receive the first payment; availability payments would not be made until the bridge opened for use. He relayed that the total payment would be approximately $3 billion; he equated it to a house payment - payments needed to be made or the owner would default. The state would be in default if payments to the developer were not made. He reiterated that the model was not tied to return on investment or toll shortfall; the state would still be required to make the payment in the absence of traffic. He furthered that KABATA's model showed that there would be enough toll in the long-term to make the payments; however, in the beginning there would be a shortfall. Representative Gara queried whether the state's liability would be $1.5 billion if tolls fell short of construction by that amount. Mr. Foster answered that the state would make up the difference if the tolls fell short. The state would have to invest approximately $100 million in capital if it chose to build the bridge itself using the federal highway model that provided matching funds; the state would also be responsible for the ongoing maintenance and operation of the facility, including the toll collection if applicable. When comparing a state built project with a P3 model it was necessary to look at apples to apples; if the traffic was short and a deficit resulted the state would be required to pay; if the state built the bridge itself it would be responsible for a portion of the project. He had trouble understanding how people could expect the developer to invest over $1 billion, but did not want the state to be obligated to make payments. One could argue whether there would be enough toll revenue to make the payments, but the obligation of the state was to pay the developer for its investment in the project. 3:40:50 PM Vice-chair Fairclough asked whether there was an estimate for the annual payment. Mr. Foster referred to a KABATA graph and answered that the payment cost built over time. He relayed that the graph showed a shortfall for the first seven years of operation; the proposed reserve fund would make up the initial shortfall. The total availability payment equaled approximately $3 billion over 35 years. He pointed out that the contract would contain a termination for convenience clause, which would allow the state to terminate at any point; if the state decided it wanted to own the project the total exposure was roughly $1 billion. He likened the purchase to a home purchase and explained that the principle would go down annually after the initial $1 billion payment. Vice-chair Fairclough asked for verification that the terms to be negotiated would fall under a 30 year contract. Mr. Foster answered that the contract would be 35 years. Vice-chair Fairclough asked for a copy of the KABATA pro forma that had been generated by Citigroup. Mr. Foster replied that it could be provided to committee members. Vice-chair Fairclough asked for an explanation on the loan that KABATA had applied for. Mr. Foster responded that TIFIA [Transportation Infrastructure Finance and Innovation Act] was part of the federal highway program and provided low cost financing for infrastructure projects. In reference to earlier testimony he explained that a TIGER grant was another part of the major projects or TIFIA program for federal highways. The TIFIA was funded through Congress and was a leveraging of money at a 10-to-1 ratio. He believed Alaska received up to two TIGER grant applications in the prior DOT submittal. He elaborated that the grants were a process; his team had met with the administrators of the program in December 2011. He explained that every time KABATA had applied for the loan in the past it had expected to be turned down because the project had not been ready (right-of-way and procurement had not been achieved and permits were still needed). He expounded that as the project matured it got "closer and closer to that TIFIA gate"; the process was competitive. He relayed that KABATA felt positive about its current TIFIA application and that the legislation helped it get closer to obtaining the loan. He relayed that in terms of low cost financing, TIFIA was worth approximately $300 million to private partners; if the loan was obtained it would lower the cost of the availability payments and the obligation of the state. Vice-chair Fairclough asked whether KABATA had been provided feedback when its grant applications had been rejected. She wondered whether feedback had given the entity a better outlook on the possibility of acquiring the financing. Mr. Foster responded in the affirmative. He relayed that KABATA always asked to know what it was missing from the application. He added that a current U.S. Senate transportation bill included approximately $1 billion for TIFIA, which would increase the available pool of money. He had met with U.S. Department of Transportation Secretary LaHood twice on TIFIA; at the prior meeting KABATA had been told that the project was mature and was the type of project the administration looked for (i.e. toll type and private investment projects). He felt confident about the KABATA team and that the project would be at the top of the list if the TIFIA money was be available. Vice-chair Fairclough discussed the need to manage mega projects carefully due to their susceptibility to exceed their original cost. She asked whether KABATA was looking at the lowest cost bid or whether it had a way to ensure that quality individuals were managing the project. Mr. Foster answered that the issue had been included in KABATA's statement of qualifications. He expounded that six firms had submitted applications and through a rigorous review process, three had been selected. He furthered that all three were quality firms made up of local, national, and international firms (including engineering, construction, and operation firms). He reiterated earlier testimony that responsibility of the private partner was to finance, design, build, and operate the bridge; project cost overruns would not be the state's liability. The state's commitment to the developer would be the availability payments. He detailed that the expansive contract included penalties for items such as clearing snow too slowly, lane closures, failure to collect tolls, and other, all of which were the responsibility of the private partner. Through DOL the state had been diligent in making sure its liabilities were protected; therefore, it did not have liability for construction, operations, and maintenance overruns. He hoped the developer and the state would both make money. He opined that a good partnership was one in which both parties did well; both parties would have their own risk and returns. 3:50:14 PM Co-Chair Thomas asked whether there was someone from Legislative Legal present. Representative Doogan pointed to page 2, line 29 of the legislation that read "deposits made into the reserve fund established under this section must include" and provided a list of sources; one source was money that the legislature had appropriated for "that purpose." He had never seen the language "must include" and asked for an explanation. Mr. Stark explained that the intent was to create security for the developer. He furthered that the developer would enter into the agreement with KABATA, which would describe the developer's responsibility in great detail (the agreement was approximately 1,000 pages). The developer would be responsible for building and financing the project and would have to put 10 percent of its own money in; it would be on the hook for over $700 million and would be required to operate and maintain the bridge for 35 years. He related that KABATA's only responsibility was to make the availability payments. The legislation was intended to create a level of certainty for the developer that the money would be there. The legislation and the PPA both included an obligation for KABATA to place the toll revenue into a reserve account to be held as security for the payments owed to the developer. In the event of a revenue shortfall, KABATA would need to request funds from the legislature to fund the reserve account. He reiterated that the design was intended to lower the risk to the developer and investors and to reduce the cost of the developer, which would reduce the cost to KABATA. Representative Doogan was concerned about the bill's prescriptive language that required the state to pay money that the legislature would appropriate for the purpose. Mr. Stark clarified that the purpose was for the money to go into the reserve account. Representative Doogan understood what the language was for; however, he believed it read that the state would be required to put money in the reserve account. He opined that the wording should be revised if it was not the intent. Mr. Stark replied that he did not believe the language meant that the legislature must appropriate money. Section 5(l) included language that the KABATA chair would come to the legislature or governor in the event of a shortfall in revenue. The section provided that the legislature "may appropriate to the authority the amount certified by the chair of the board that is needed to restore a reserve fund to the reserve fund requirement." He expounded that the obligation of the legislature was a "may"; there was no legal obligation to appropriate the funds. He clarified that the funds must go into the reserve account if the funds were appropriated. Representative Doogan wondered why the language did not read "may." Mr. Stark answered that the funds must go into the reserve fund if the funds were appropriated; if the funds were not appropriated they would not. Representative Doogan surmised that the language should read "may include" rather than "must include" as it related to the establishment of a reserve fund. Mr. Stark clarified that the intent was to provide certainty to assure the developer that the money would be available; the stronger the language, the more assurance was provided to the developer, which meant cost would be lower to KABATA. Representative Doogan believed Mr. Stark's explanation conflicted itself. He thought Mr. Stark had said that the language required the legislature to appropriate money into the reserve fund and that he had previously indicated that it "may" put the money in the reserve fund. Mr. Stark responded in the negative. Vice-chair Fairclough clarified that the state may choose to appropriate the money; however, once KABATA received the money could not put it into any account but the reserve fund. Representative Neuman MOVED to report CSHB 158(FIN) out of committee with individual recommendations and the accompanying fiscal note. Representative Gara OBJECTED for discussion. He had been surprised that language naming the state liable for a shortfall if toll revenue did not cover the cost of operation and construction; however, he had learned that the requirement would be included in the contract. He appreciated Mr. French's explanation of the state's liability related to the availability payment. He discussed that in a free enterprise system companies were free to take risk, but he opined that it was no longer free enterprise when the government guaranteed that a company would not lose any money. He had initially thought the bill had been substantially changed from the prior version, but he believed that was not the case; the state's obligation to pay for shortfalls that could be $1.5 billion was included in the contract. He was unhappy that a straight forward answer had not been provided by KABATA. He relayed that he would vote against the bill on the House floor. Representative Gara WITHDREW his OBJECTION. Representative Doogan OBJECTED for discussion. He did not believe in the concept that putting more money into a project would guarantee success; he pointed to a fish plant in his district that had failed despite a $50 million investment by the state. He listed additional items the state had invested in that had failed including, a Point MacKenzie milk facility, grain terminals, and other. He stressed that he could not vote for something of that nature. He referenced a saying "fool me once, shame on me. Fool me twice, shame on you"; he had been fooled before and did not believe that the current argument was either the "best job that's been done or the most compelling job that's been done." Representative Doogan WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. CSHB 158(FIN) was REPORTED out of committee with a "do pass" recommendation and with one new zero fiscal note from the Department of Transportation and Public Facilities. 4:04:46 PM RECESSED 5:12:33 PM RECONVENED