SB 291-MUNICIPAL HARBOR FACILITY GRANTS  CHAIR BERT STEDMAN announced SB 291 to be up for consideration. 1:51:48 PM SENATOR GARY STEVENS moved CS for SB 291 [\Y Version]. SENATOR JOHNNY ELLIS objected for explanation purposes. CHAIR STEDMAN stated that this was the first hearing and there was no intent to move the bill that day. The proposed CS changes the bill to align it with the House companion bill. He asked for latitude to present the bill. SENATOR ELLIS removed his objection. CHAIR STEDMAN passed the gavel to Vice-Chair Gary Stevens. SENATOR STEDMAN, Sponsor of SB 291, explained that the bill would create a municipal matching grant for harbors so it would affect all of coastal Alaska. Starting in the 1930s the state began to build harbors in coastal areas stretching from Ketchikan to Sand Point. The state's agreement with the municipalities was that they would do the major maintenance and the municipalities would run the harbors and do ongoing administration. For whatever reason, the maintenance wasn't done and the harbors fell into disrepair. When the state moved forward to divest itself of harbor ownership, it assigned applicable dollar values [for deferred maintenance] to the various harbors. The municipalities didn't feel that the financial consideration was near enough to deal with the deferred maintenance and that has been an unresolved issue. Over the last several years his office has been working on a solution to the under funded status. After meeting with the harbormasters association and the Department of Transportation and Public Facilities ("DOT"), the solution they decided on was to establish a 50/50 capital matching grant system. Harbors that had been transferred would receive priority, but it would also include new harbors and harbor maintenance issues. To apply to DOT for the match municipalities would have to have an enterprise fund established. They would establish and collect moorage fees that would be at a sufficient level to finance ongoing administration and major maintenance. Each harbor would be eligible for just one match grant. The amount to bring the old harbors up to standard is estimated to be about $100 million so the state match would be $50 million. The bill contains language to allow marine fuel tax and the state portion of the fisheries business tax to be used to fund the program. The Legislature would fund the program on an annual basis. Given the funds available, DOT would have the ability to rank the applicants. He reiterated that the harbors that were previously transferred would receive priority. He noted that pages 2 and 3 of the bill give the ranking process. He summarized the idea is to come up with a compromise between the state and coastal municipalities so that old state owned and operated harbors could be brought up to standard to help stimulate economic development. 2:00:37 PM SENATOR ALBERT KOOKESH asked if a harbor project, such as the one done in Juneau, could be done in phases. SENATOR STEDMAN explained that Juneau has seven different harbor entities in its system and the cost of the last project was in the neighborhood of $6 million. Acknowledging that the cap is an arbitrary number, he said if a municipality matched the cap for one harbor that would amount to $10 million. That is a large harbor when you consider that breakwaters and dredging aren't included because they can be built with federal help. This targets floats and electrical and water systems. SENATOR ELLIS asked where the bill talks about one-time eligibility and how phase funding squares with the sponsor statement that talks about one-time eligibility for a harbor. SENATOR STEDMAN replied the idea is that the granting mechanism isn't for municipalities to use for catch-up maintenance on harbors that previously received a capital improvement grant. This is designed to improve or replace an entire harbor. The cost of the Juneau Harris Harbor project was about $6 million, which is well under the $10 million amount allowed under the 50/50 match. As far as phasing is concerned, the bill doesn't address mega harbors. Most communities have six or fewer harbors and this bill would allow the upgrade of one or two harbors per year. It isn't designed to allow a municipal entity to split a single harbor upgrade into a two or more year project. 2:06:01 PM SENATOR ELLIS asked him to make the distinction between municipal ports and municipal harbors because the grant program is to benefit municipal harbors. He also asked if any harbors are an entity other than municipal harbors. 2:06:33 PM SENATOR STEDMAN responded to the second question and said yes there are. The goal is to move away from capital improvement projects and encourage municipalities to create enterprise funds. The bill doesn't apply to the various harbors the state still owns where the users don't pay moorage. At some point the state will face a policy call on how to deal with small docks that service a dozen or fewer people when no one wants to assume financial responsibility, but this bill doesn't address that issue. The hope is that when the proposed mechanism is established the boroughs will absorb those harbors. VICE-CHAIR GARY STEVENS called an at-ease from 2:10:02 PM to 2:10:37 PM to return the gavel to Senator Stedman. CHAIR STEDMAN asked Mr. MacKinnon to come forward and give the state perspective. 2:10:53 PM JOHN MACKINNON, Deputy Commissioner of Transportation for Highways and Public Facilities, explained that harbors have been transferred in batches. The most recent was the November 2002 bond issue that included 26 or 27 boat harbors in 10 communities. The figures DOT used to estimate deferred maintenance were based on a statewide Corps of Engineers study done in 1992 with adjustments for inflation and additional deferred maintenance. The rule was to bring the harbors up to "a Chevrolet standard" for a boat harbor. That standard is below what most communities want and doesn't include power, water sewage dump stations and harbor lighting. The department had a certain amount of money available and it had no choice but to make the transfers. With that in mind, Mr. MacKinnon said he views SB 291 as a carrot rather than a stick in terms of harbor transfer. Furthermore, the funding source makes sense because there's a connection to harbor users. SENATOR GARY STEVENS asked if the bill seeks to complete the transfer process or to upgrade harbors that had been transferred to the various communities. MR. MACKINNON responded this bill would deal with harbors that have been transferred. This year's capital budget has eight more transfers and last year had harbor transfers in two communities. Some harbors aren't associated with a municipality so there isn't an entity to transfer them to. SENATOR GARY STEVENS recapped saying the funds in SB 291 are for communities that already own their harbors and not for communities that have harbors that are still under state ownership. MR. MACKINNON clarified that his understanding is that the bill would apply to any harbor that has been transferred as well as future transfers for as long as the program is funded. SENATOR STEDMAN asked him to address the bond issue. MR. MACKINNON advised that was a November 2002 statewide G.O. [general obligation] bond issue for a variety of facility projects. A little over $100 million in G.O. bonds were issued and about $30 million went to harbor transfers. CHAIR STEDMAN opened teleconference testimony. 2:17:40 PM RAY MAJESKI, Harbormaster in Sitka, said he wanted to make sure that communities that had already accepted responsibility for the harbors would be at the head of the line to receive the funds. He expressed the concern that locals are being priced out of the harbor by out of state boaters who find Alaska harbor rates comparatively reasonable. CHAIR STEDMAN asked him to comment on the challenge of bringing harbors up to an appropriate standard in relation to the amount of money that the state allocated for the transfer. MR. MAJESKI responded Sitka is faced with borrowing $4.5 million for the $7 million Thompson Harbor project. The community is fortunate in that the assembly sends the lion's share of the fish tax to the harbors, but even so moorage rates are going up at an alarming rate. Add to that the fact that money must be set aside for future construction because everything currently in the water will need major maintenance or complete replacement in the next 40 to 50 years. Taking inflation into account, the current harbor system is valued at about $37 million and within 40 years that will be $121 million so it's imperative that money be set aside. SB 291 will help Sitka move in the right direction. 2:22:32 PM MARTY OLUM, Kodiak Harbormaster, reasoned that it's important to modernize and maintain harbors because they are the economic foundation upon which other businesses in town depend and grow. He observed that commercial fishermen upgraded their vessels to stay competitive in the global seafood market, but harbors haven't kept pace. Kodiak is creating an enterprise fund and the 50/50 matching program proposed in SB 291 will be of tremendous help. 2:26:36 PM ALLAN SORUM, Harbormaster for the City of Valdez, stated that when he was president of the Alaska Association of Harbormasters and Port Administrators he became very involved in the issue of deferred maintenance and harbor transfers. He expressed support for SB 291. 2:28:39 PM GARY HENNICK, City Manager of King Cove, testified in support of SB 291. He explained that the community has a modest economic base due to its location adjacent to the rich fishing grounds of the Gulf of Alaska and the Bering Sea. King Cove was the third local government to accept ownership of the state harbor in the early 1990s. At that time it seemed as though the $350,000 maintenance allocation was a reasonable sum. However, the current estimate for bringing the harbor up to standard is about $4.5 million and the changes in fisheries issues, taxation, and government revenue sharing in the last ten years have made it clear that even with an enterprise fund, the community needs help. He echoed the testimony from other harbormasters and encouraged the committee to pass SB 291. In closing he brought up two issues. First he questioned whether in-kind service might be allowed for part of the local contribution so that local labor could be used to every extent possible. Second he suggested that consideration be given to facility size and demand, the percentage of watercraft and raw fish taxes that are generated in a particular community, and the inequity in the amount that a community received when it assumed ownership of its harbors ten years ago. . CHAIR STEDMAN acknowledged that when the harbor transfers were analyzed, the King Cove discrepancy stuck out and that warrants consideration. With regard to in-kind contribution, he said it's important to avoid previous pitfalls. Experience indicates that when communities have a 50 percent equity position in a harbor, it receives better maintenance. MR. HENNICK responded the last ten years has shown the issue to be larger than anticipated. 2:35:56 PM CHAIR STEDMAN asked John Stone to come forward. JOHN STONE, President of the Alaska Association of Harbormasters and Port Administrators, stated that the association has worked on this issue for several years. It strongly supports a matching grant program and believes it is a good approach to address the current dilemma. Many harbors were at the end of their useful lives at the time that the time of state transfers and everyone has been scrambling to recapitalize the infrastructure. Through that process it's become clear that the funding that was provided is from one-third to one-fourth short of what is needed to replace the infrastructure. Communities have been working on ways to raise revenue on a local level and this has often meant large increases in fees. However, the general conclusion is that increased fees alone won't do the trick, which is why SB 193 is so welcome. He provided the committee with written comments and said it's encouraging that DOT is supportive of the bill. In conclusion he mentioned that the cap might become problematic if the program lasts a number of years. He described the Corps of Engineers breakwater program that has a $4 million cap. Although that amount was adequate when it was established, now when the Corps does a breakwater project a specific Congressional authorization must be made. He suggested that indexing to the Anchorage CPI might be preferable. CHAIR STEDMAN agreed that the last suggestion merits consideration. 2:40:53 PM WAYNE STEVENS, President of the Alaska State Chamber of Commerce, stated support for making funding available to repair and improve existing facilities to serviceable standards consistent with DOT regulations as a part of the mandated transfer of harbors to various communities. Noting that harbormasters have identified more than $100 million in needed repairs he said it's important to maintain this important infrastructure for the economies of these coastal communities. CHAIR STEDMAN closed public testimony and announced he would hold SB 291 in committee.