SENATE BILL NO. 123 "An Act making supplemental appropriations and capital appropriations; amending appropriations; and providing for an effective date." 9:39:49 AM Co-Chair Stedman announced that public testimony would be taken at a later date. FRANK RICHARDS, DEPUTY COMMISSIONER, HIGHWAYS AND PUBLIC FACILITIES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, gave an overview of the legislation. He framed what the America Recovery and Re-investment Act (ARRA) is providing to Alaska for transportation. He emphasized the intent to create jobs and invest in assets so that citizens would benefit. The stimulus funds through the formula programs include approximately $175 million for highways projects, $42 million for transit projects, and $85 million for aviation projects. The department has been working diligently with federal funding partners to maximize the potential use of the funds for Alaskans. Mr. Richards explained that funding for highways and transit projects will be provided through regular formula programs, while aviation funding will go directly to the FAA for discretionary allocation. Expectations were high regarding easy access to and use of the transportation funds. However, the funds will flow through the regular federal formula programs, which means following mandatory rules and regulations. Mr. Richards listed requirements that apply to funding for roads and bridges: • To access the funds, the funds must have been developed under Title XXIII rules. • Funds will flow through state DOTs. • At least 50% of the funds must be obligated within 120 days (June 15, 2009 deadline). This leaves 104 days from the time of enactment to make sure the funds are obligated, or the funds will be lost to another state (use it or lose it provision). • Remaining 50% must be obligated by one year (February 17, 2010). • The funds specifically for the highway and transit program come with an allocation defined by the bill. Of those funds: o 3% goes to transportation enhancement projects, such as sidewalks, waysides, bike paths, etc.67% to be used on state highways and roads. o 19% must go to communities of less than 5,000. o 11% must go to communities with populations of greater than 200,000. o The remaining 67% will go to state roads, highways, and bridges. • All projects must be in a current State Transportation Improvement Plan (STIP); Amendment #18 is out for public comment. Mr. Richards stressed that the provisions will be challenging to accomplish within the short timeframe. The guidelines must be followed or Alaska will lose funds. Essentially, Congress has mandated that funds be spent on projects that have previously been developed following the federal rules. 9:44:39 AM Mr. Richards stated that SB 123 contains projects the department felt would meet the required rules. The bill represents about $330 million in highway projects. He stressed that the projects have already been before the legislature and received authority to proceed. Mr. Richards listed the criteria developed by the department to put together a priority list of projects. The criteria correspond to ARRA emphasis areas, projects that: • Address safety issues • Are located in economically distressed areas, where the unemployment rate is 1 percentage point higher than the national average • Provide gasline logistic benefits • Leverage other funds • Could be under construction by 2009 Mr. Richards referred to a letter sent the previous week identifying the projects. The letter also provided a spreadsheet listing the priorities for the recommended projects as well as contingency projects following the same criteria. Mr. Richards pointed out that SB 123 contains several appropriations with individual project allocations. The governor's priorities are included in the highway and bridge stimulus projects list. There is also a contingent list with eligible projects. Mr. Richards reported that one unfortunate consequence of the stimulus bill was the use of a 1991 formula for allocation of "local funding." Alaska has been exempt from the formula since 1991. Under the formula, funds are allocated to communities of greater than 200,000 and less than 5,000. Remaining funding could be spent in other communities with populations between 5,000 and 200,000, such as Fairbanks, Ketchikan, Juneau, Palmer, Wasilla, and Sitka, if the funding level met 110 percent of the 1991 allocation to those communities. 9:47:01 AM Mr. Richards stressed that Alaska is the only state without the ability to allocate projects under the category of funding to the mid-sized communities. Mr. Richards pointed out that not all the funding would flow through the state. Under transit, $42 million has been designated for Alaska; $32.5 million will go to the Anchorage Metropolitan Planning Organization (AMPO) and the Fairbanks Metropolitan Planning Organization (FMPO). Alaskans will probably receive $85 million for aviation, but FAA will determine where the money is spent. Portions of the aviation funds will be given to local sponsors, meaning non-state-owned airports, such as in Juneau Municipal Airport and Merrill Field Airport in Anchorage. Mr. Richards reminded listeners that the department still has STIP Amendment 18 out for comment and he urged committee and community members to participate. The department has been learning that communities have projects that some believe are eligible for the stimulus funds. He emphasized the importance of dialogue between the communities and the department to determine if projects will meet the requirements of Title XXIII. He warned that the department does not have authority to provide funding if the projects are not currently on the federal STIP. Co-Chair Stedman queried the communication process between the communities and DOT/PF. Mr. Richards reported that DOT/PF had recently been approached by communities with projects. Department staff would work with the communities to determine if procedure was followed regarding right-of- way certification and environmental and design documents. The process takes time. Communities should have communications with FHWA regarding project eligibility. The stimulus funds flow through DOT/PF, so projects must be part of the STIP. 9:50:36 AM Co-Chair Stedman underlined the need for communities to be proactive and get in contact with DOT/PF. Mr. Richards agreed; otherwise, the department has no way of knowing about potential projects. Co-Chair Stedman asked how the department would assist communities. Mr. Richards answered that the department has developed a matrix tree to provide to communities for determining the eligibility of a project. Co-Chair Stedman asked for a brief synopsis of amounts for projects, not including funds that could be obtained from other states. Mr. Richards summarized that the amount for highways and bridges is $175,461,000. Co-Chair Stedman emphasized the difference between federal receipt authority and cash in hand to move a project forward. The priority is to move projects forward. Mr. Richards added that there will be approximately $9.1 million for transit projects. 9:54:12 AM Co-Chair Stedman stated that he was interested in a broad overview of projects because of an administration news release regarding additional funds. Mr. Richards added that there would be approximately $75 million worth of aviation projects. Co-Chair Hoffman asked for a delineation of funds for transportation. Mr. Richards answered that a spreadsheet was attached to the February 20, 2009 letter ("Alaska Transit, Highway and Bridge Stimulus List, Based on ARRA 2009," Copy on File). The spreadsheet identifies projects that were stimulus (recommended), with transit, transportation, local, and state dollars identified. Each of the projects is then funded under one of the categories that is shown as 2009 stimulus funds needed. The specific transportation enhancement projects are on the bottom of page 1: • Valdez Areawide Bike and Ped Trail Pavement Refurbishment • Denali Highway Wayside Project Mr. Richards referred to page 2, the transit projects totaling approximately $9 million. 9:57:17 AM Co-Chair Stedman asked how long the five priority items on page 1 of the document had been on the STIP. Mr. Richards replied that the project descriptions in the bill would indicate when each project first showed up on the STIP. He said he could get the information. Co-Chair Stedman asked what the timeframe would be if the STIP were modified to deal with community projects. Mr. Richards replied that FHWA procedures require an entire STIP amendment for a new project funded with federal money. The amendment process includes a public comment period; from initiation of the STIP amendment to sign-off by FHWA and FTA is approximately 90 days, with very aggressive scheduling. The department believes it will be able to accomplish Amendment 18, which includes the funding cycle for the projects that have been identified in SB 123. New projects brought forward that meet the requirements for use of the stimulus funds would require a new STIP amendment. 10:00:29 AM Co-Chair Hoffman spoke to the 67 percent funds category that can be used in any area of the state and noted that appropriations are concentrated in area. He asked why there was not more equity in the location of projects. Mr. Richards answered that the department wanted equitable distribution across the state. The news that local funds could not be used for communities with populations between 5,000 and 200,000 upset plans for equitable distribution. The department had to act quickly to meet the new guidelines provided by Congress. He felt the project list in SB 123 meets the intent of Congress of providing for safety, jobs in economically distressed areas, and equitable distribution. 10:03:12 AM Co-Chair Stedman queried the process used to develop prioritization, as the fund amounts are lower than numbers mentioned in the administration's news release. He pointed out that federal receipt authority was a good way to get allocations but not to accomplish anything. He wanted cash in hand for projects around the state instead of federal receipt authority that may not materialize. Senator Thomas wondered if the prioritization criteria considered how close a project had to be to an area to be considered a stimulus for that area. 10:06:10 AM Mr. Richards stated that the department was willing to talk about prioritization factors used for individual projects. He added that the presentation letter included a list of projects previously identified as eligible when the timeline to obligate was thought to be 18 months. When Congress condensed the timeline to 12 months, some of the projects dropped off the list; the dropped projects can be found on page four of the spreadsheet. 10:08:08 AM Co-Chair Hoffman stated concerns that the administration limited flexibility by making early decisions regarding where the stimulus funds would be spent. Early decisions meant that the projects had to be funded out of the 67 percent discretionary funds. He emphasized that other conditions needed to be considered when making decisions, such as high unemployment and equity of distribution of projects. He did not feel those considerations were utilized when decisions were made about the discretionary funds. The early decisions tied the hands of the department as well as the legislature. He questioned if the bill treated all Alaskans fairly. 10:11:04 AM Mr. Richards replied that 60 percent of the funds will flow to areas in economic distress. Co-Chair Hoffman wanted to see a list of the projects that fit the criteria. Mr. Richards replied that the list is on the spreadsheet under the prioritization factor "serves economic distress" column. Mr. Richards addressed the question regarding whether the projects on the governor's recommended list provides for equitable distribution across the state. He stated that the question is multi-faceted. Because Alaska has the ability under the regular federal funding formula to use the funds on all roads within the state, the state has experienced a major reduction in its ability to use national highway system funds. National highways include the Parks and Dalton Highways, roadways that serve the vast majority of the state and not any particular community. Ten years ago, the state was able to do approximately 12 projects per year. Now, the normal program is underfunded at about $75 million per year, covering only two or three projects per year. The top priorities in the governor's recommended bill are the national highway system assets that have not been sufficiently funded to address needed safety and other related issues. The department felt that the projects put forward and recommended by the governor were some of the most needed. Mr. Richards stressed that if the projects are selected by the legislature to fund, other STIP projects will advance and be funded, greatly benefiting the state and addressing the needs of smaller communities. 10:14:29 AM Co-Chair Stedman observed that the administration seemed to have a high degree of assurance that the contingency projects will move ahead and be funded. He asked if the administration was saying that the legislature should not be concerned which group is the first group and which is contingent, because both would be funded. Mr. Richards answered that based on the current level of federal highway program funding in 2009 and the likely level in 2010, the administration feels that both recommended and contingent projects will be addressed in the near term because of the economic stimulus funds. Co-Chair Stedman asked why the administration is concerned about re-arranging the list if all the projects that will get done in the end. Mr. Richards replied that his goal is to present projects that would meet the eligibility requirements of the stimulus bill. Previously, the department was asked to provide prioritization of projects. Co-Chair Hoffman reiterated concerns that there would not be a stimulus package next year and that the administration would not utilize the same criteria on future projects as the stimulus bill utilizes. He questioned whether the administration could ensure that future funding would address the concerns of economically distressed areas. Mr. Richards replied that Congress placed emphasis on the creation of jobs. Most of the recommended projects are those that can be under construction in 2009. The focus has been to provide for jobs in 2009 and some in 2010. The regular STIP funds projects were already in line. 10:18:07 AM Co-Chair Hoffman referred to prior testimony by the department that projects in other areas of the state would be addressed "next year.He stated that by then the criteria could be different; there is no guarantee that projects in economically distressed areas would be funded. He asked if the administration would use similar criteria [to that used in the stimulus package] for the 2011 budget. Mr. Richards addressed the question regarding the use of funds in next year's STIP. Major projects will be taken out of the lineup because of economic stimulus funds, enabling funding of the vast majority of remaining projects. Concurrent with STIP amendment 18, the 2010 to 2013 STIP is out for public comment. The public and the legislature are being asked to look at existing criteria used to rank upcoming projects. He invited the legislature to identify different criteria. The STIP ranking for the 2010-2013 programs will occur soon after the legislative session ends in April. Co-Chair Hoffman wanted the stimulus package to stimulate jobs throughout the state. He stated concerns about equity of the projects throughout the state, particularly areas with the highest unemployment rates. He questioned what the committee could do to change that. He referred to the community of Emmonak. 10:22:28 AM Mr. Richards stated that Emmonak was part of the governor's recommended list. Co-Chair Hoffman pointed to other communities in Western Alaska that were not on the list. Senator Huggins referred to $130 million that DOT/PF requested during the summer 2008 special session. The co- chairs told the department to come back with the requests during the regular session. He asked if the same projects are now in the stimulus package. Mr. Richards answered that they were. Senator Huggins asked if the administration looked at the capital budget with an eye towards using state funds to stimulate the state economy, since there is flexibility with the capital budget. Mr. Richards believed that the amendments put forward for the capital budget would address the issue for transportation. Senator Huggins asked for examples that meet the criteria. He asked whether highway safety corridors projects meet criteria to get pushed forward. Mr. Richards answered in the affirmative. He referred to the Parks Highway, which has high traffic incidents and fatalities. Interim steps have been taken to address the issue. The challenge with projects like the Parks Highway from Wasilla to Big Lake is cost. A project that costs $125 million could consume nearly 75 percent of the stimulus funds. The project also did not meet the initial cut. 10:26:36 AM Senator Olson opined that there was an uneven distribution of the stimulus money, with $175 million going to highways and bridges and only $75 to aviation. He thought more money should go towards aviation projects in a region where aviation is so essential. Mr. Richards agreed. He stated that the compromise bill had a smaller amount for aviation than originally hoped for. He urged continuing communication with FAA regarding aviation needs in Western and Southwestern Alaska. Senator Olson asked for clarification of what aviation funds would be used for. 10:29:12 AM Senator Huggins asked about railroad funding. Mr. Richards replied that the railroad is eligible to receive funds under transit funding. Of the $42 million that the state will receive, more than $32 million will go to Anchorage and Fairbanks. Fairbanks will receive $760,000 for transit. The remainder to Anchorage will be distributed by formula, which favors the Alaska railroad because of its passenger load. The railroad will receive approximately 80 percent of Anchorage's funds. Railroads also have the opportunity to apply for discretionary funds that USDOT is writing the criteria for, related to projects of national significance. Once the criteria are developed, there may be other projects that would qualify. Senator Ellis asked where the Port of Anchorage ranks on the priority list. Mr. Richards responded that currently the Port of Anchorage is available for the discretionary money that will come in the future. There is no Port of Anchorage money within SB 123. Senator Ellis queried the rejection of the Port of Anchorage project. Mr. Richards answered that SB 123 identified highway, bridge, and transit projects that have been in the pipeline through DOT/PF. These are projects that have already received legislative authority and that have used federal dollars for design and permits. 10:32:58 AM Co-Chair Stedman requested information regarding non-state airports. CHRISTINE KLEIN, DEPUTY COMMISSIONER OF AVIATION, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, provided an overview of funds provided by the stimulus package for aviation. Alaska will receive 7.7 percent, or $85 million, of the $1.1 billion allocated to all states. Allocations are based on the number of airports. The funds will be distributed under the discretionary program according to FAA criteria, which focus on projects that contribute most to safety, security, aviation capacity, and efficiency of the state's airport system. The criteria also consider airport activity levels, whether for small, medium, and non-hub airports, or for commercial service. The largest airports in Alaska are medium hub. Also considered is the priority level of work, based on work already underway. Routine and preventative maintenance projects are discounted. Airports with compliance actions are ineligible. Ms. Klein stated that there is approximately $10 million for municipal airports, such as Merrill Field in Anchorage and the Kenai, Palmer, Wasilla, and Juneau airports; basically the airports that submit grant applications first will get the funding. The money has to be obligated within 120 days and the projects have to be completed within two years. 10:36:45 AM Co-Chair Stedman referred to the Port of Anchorage and railroad integration and the expansion of facilities. He hoped there would be a gasline in the next ten or fifteen years, but regardless of what happens with the gasline, the Port of Anchorage will be shipping in most of Alaska's goods. He emphasized the importance of projects that would benefit the state for some time to come. Senator Olson asked about the eligibility of deferred maintenance projects. Ms. Klein answered that maintenance and operation projects are not eligible under the discretionary formula; under federal law, those activities are the obligation of the state. Senator Thomas pointed to the $45.6 million in SB 123, approximately half of the total funds. He asked if more money was coming for aviation projects. Ms. Klein replied that there were $104 million in projects that could potentially be ready. The amount in SB 123 is the legislative authority needed in order to finish the projects. The projects have been approved by the legislature already for permitting, design, and planning. 10:39:40 AM Senator Thomas asked how much was coming to the state. Ms. Klein answered $88 million. Senator Thomas asked if the balance was coming soon. Ms. Klein listed the projects that would be recommended to move ahead: • Akiachak Airport Relocation • Allakaket Airport Improvements • Fairbanks International Airport Security Access Control Improvements • Fairbanks International Airport Taxiway and Apron Improvements • Fort Yukon Airport Improvements • Hoonah Airport Improvements • Kodiak Chemical Storage Building • Kotzebue Apron Expansion • Ouzinkie Airport Relocation • Cordova Apron Improvements • Anchorage International Airport North Terminal Gate Reconstruction • Lake Louise Runway Rehabilitation Ms. Klein said the project total on the list is approximately $104 million. Around $75 is available; if the legislature approves the projects, $45.6 million in legislative authorization would still be needed to bring the projects to completion. Co-Chair Stedman clarified that the white page in the aviation section of SB 123 is the list before the amendments; the yellow page has a different total. Ms. Klein explained that FAA is still developing criteria; on Friday [February 27], FAA asked the administration to put forward the Huslia and Lake Louise projects, which had previously been lower on the list. 10:42:25 AM Senator Olson asked the difference between a rehabilitation project and deferred maintenance. Ms. Klein answered that it usually depends on how much work has to be done and the cost. A project that will take a significant amount of time and material becomes a reconstruction project, which is what happened to the Lake Louise project. Co-Chair Hoffman asked if she meant a rehabilitation project. Ms. Klein answered in the affirmative. Co-Chair Hoffman asked if she meant King Salmon and Cordova. Ms. Klein replied that the King Salmon Apron and Taxiway Resurfacing project was added. The two amendments had been added because FAA wanted the projects to move forward. Co-Chair Stedman noted several appropriations with allocations. He reminded the public that the legislature appropriates funds and the department has flexibility with appropriations. He asked why the legislature should give broad appropriation and a lot of allocations versus smaller numbers of appropriations and have DOT/PF go to the legislature to move projects around. Mr. Richards explained that the appropriations in SB 123 were designated by airport stimulus projects, transit stimulus projects, and highway and bridge stimulus projects. The structure is similar to annual capital budget appropriations for the highway program. Funds within a program can be used within the projects. Individual appropriations by project would present challenges. For example, if a certain amount were appropriated and the department went out to bid and the bid came in high, DPT/PF would not have the ability to go forward with the project until coming back to the legislature in the next legislative cycle to ask for additional monies. The stringent timeline of the stimulus legislation requires the flexibility to use the funds for cost increases. 10:47:07 AM Co-Chair Stedman pointed out there were 21 projects costing approximately $139 million and queried whether the finance committee should give the department flexibility with the whole amount or break the number into compartments. Mr. Richards responded that there would not be complete flexibility, as the projects have been through the public and legislative process. The department was now asking for the authority to use the federal dollars from the stimulus package for the projects in SB 123. The legislature would determine the allocation within the appropriation. Co-Chair Stedman added that there were 18 non-contingent projects costing $148 million. The legislature would work the details out through time. Mr. Richards stressed that the important deadline is the 120-day obligation limit by June 15. He stated that he was available as much as necessary to work with the committee regarding project needs. He emphasized the need to work within the parameters placed by Congress, and the dynamic nature of the process. Much is still being learned. 10:50:38 AM Co-Chair Stedman drew attention to page 8, lines 8, 14, and 20, which address appropriation issues from 2001, 2002, and 2003. NANCY SLAGLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, explained that the stimulus bill requires tracking of activity. Therefore, a funding source has been established to identify any funds received and expended from the federal economic stimulus bill. Legislative authorization has already been provided for several of the recommended projects. Section 4 in SB 123 changes previous appropriations from the regular federal authorization or source codes to the new federal economic stimulus fund source codes. Co-Chair Stedman added that a different process may be used to clean up. Ms. Slagle agreed that there were other ways to deal with old appropriations; one option was reflected in the bill. Items could also be repealed and re- appropriated, or the full amount of the project costs could be provided with the new source codes. Co-Chair Stedman said the committee would work with OMB and DOT/PF to make the process more transparent. He stated an interest in housekeeping, which might be an interim project. Co-Chair Hoffman noted looking forward to continued collaboration with the department on the stimulus package. SB 123 was HEARD and HELD in Committee for further consideration. 10:55:27 AM