SENATE BILL NO. 13 "An Act relating to bonds of the Knik Arm Bridge and Toll Authority; relating to reserve funds 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." Vice-Chair Fairclough looked at slide 16 of the PowerPoint, "Knik Arm Crossing, Financial Briefing" (copy on file). She remarked that the Resource Committee had conversations with the Department of Revenue (DOR) regarding moral obligation of the state. She shared that she was led to believe that if the bonding agencies looked at Alaska and the moral obligation, it would be moved to a debt owed by the State of Alaska. She requested a comment regarding her understanding of "moral obligation." DAVID LIVINGSTONE, MANAGING DIRECTOR, CITI CORP, responded that her assumptions were correct. He furthered that a straight moral obligation, with no offsetting revenues, would be analogous as a debt to the state. He shared that Knik Arm Bridge and Toll Authority (KABATA) would use availability payments that were backed by the state's moral obligation. He furthered that the payments would be reduced by toll revenues, which would reduce how the rating agencies would view the moral obligation. The rating agencies would assume that the toll revenues would reduce the state's obligation to pay. He remarked that he had looked at the toll revenues in a variety of sensitivities, and felt that the rating agencies would impact the state's rating. Senator Olson looked at slide 9, and requested an explanation of the factor of 1.5 percent. Mr. Livingstone replied that CITI financed projects based on traffic and revenue studies. He remarked that he examined the studies to determine the accuracy of the projections. He stressed that predicting the future is never precise, but pointed out that he had analyzed approximately 10 studies for traffic and revenues. He explained that there was an equal number of traffic above and traffic below, and generally they were all within 10 or 15 percent of projections. He felt that the projections were fairly accurate. Senator Olson remarked that the Transportation Resource Board found that the estimates were too optimistic. Mr. Livingstone replied that he was unfamiliar with that analysis, and furthered that he financed projects based on studies prepared by CDM Smith. 2:15:01 PM Vice-Chair Fairclough wondered how the proposal would control cost. Mr. Livingstone responded that there were a number of reasons why the proposal provided a lower cost. He stated that the normal procurement would hire an engineering firm; bid to contractors; and there may be change orders. He stressed that the engineering firm would hire a contractor to both design and construct the project. This alleviates the potential for design and construction disagreements. He stressed that he the construction costs for similar projects that separated contracting and design firms were significantly greater than the owners' initial estimates. He felt that using one firm for both contracting and design would decrease cost. Vice-Chair Fairclough wondered what the bank's risk would be related to the Endangered Species Act. She stressed that Alaska was holding the risk under the payments. She wondered how the risk was weighted, when the federal listing was beyond control. She pointed out that there were daily risks related to earthquakes and other natural disasters, but remarked that the federal government used specific science to list specific species as "endangered." Mr. Livingstone responded that there were wildlife surveys that were completed in the Knik Arm, and along the right- of-way. He remarked that the beluga whale was an endangered species. He stressed that there were many conversations between KABATA and the federal government regarding how the bridge should be built to minimize the impact on the beluga whales. Senator Hoffman looked at slide 12, "Revenue Sensitivity Results from Monte Carlo Simulations." He wondered if the slide represented the total revenue for 45 years with a downside of $5 billion with an aggressive upside of $9 billion. Mr. Livingstone replied in the affirmative, and furthered that the results were formulated by an outside firm, CDM Smith. Senator Hoffman queried the numbers derivation of the represented scenarios. He wondered if the toll charges were constant or fixed under each scenario, and wondered if the set toll would be in place for 45 years. Mr. Livingstone replied that that the scenarios took into account both the traffic and the toll rate. He remarked that the same toll rate was assumed for each scenario. Senator Hoffman queried the toll rate. Mr. Livingstone replied that the toll rate started at $5 per passenger car, with a lower rate for motorcycles and a greater rate for trucks. This rate would start upon bridge opening in 2016. He pointed out that the rate would increase with inflation by approximately 2 percent. 2:21:07 PM Senator Hoffman wondered who would make the final determination of rate increase. Mr. Livingstone replied that the KABATA Board would make that final decision. He stressed that the projections were based on assumed inflation. He pointed out that it would be assumed that the rate would not be increased, if that particular year experienced no inflation. Senator Hoffman asked if the board had the authority to raise the rate higher than inflation, if there was a downside. Mr. Livingstone responded that the KABATA Board had the discretion to increase the toll rates at any time. Senator Hoffman looked at slide 14, "Sensitivity Results." He asked for further detail of the severe downside and aggressive upside under the five different scenarios. Mr. Livingstone replied that the state had the initial funding of $150 million in the reserve. He remarked that the state would be asked to appropriate $627 million over time in the aggressive upside. He stated that the $627 million would allow for no requests until 2025. The first request would be $8.9 million in 2025, and the largest request in any year would be $37.5 million in 2044. He furthered that, in the aggregate, the total appropriation requests, over time, would be $627 million. He explained that the total state liability would be $777 million. He stated that late in their analysis, the project would generate revenues in excess of the expenses at a total of $910 million that would be returned to the state to fund other transportation needs across the state. He stressed that the project would generate $133 million for the state. Senator Hoffman looked at slide 12, and surmised that it represented total revenues over 45 years of slightly under $5 billion. Mr. Livingstone agreed, and furthered that the projections assumed that KABATA and the state would expand the bridge as traffic warrants. He declared that the money for expansions was included in the scenarios. He remarked that the state had the option to defer the cost assumptions for expansion, but stressed that the downside would cause much more congested on the bridge. 2:25:55 PM Senator Olson looked at slide 4, and queried an example of the state's liability. Mr. Livingstone responded with slide 6, and pointed out the specific events. He stated that there was a contract between KABATA and the private partner that held 21 events. He explained that there were two types of "unforeseen surface conditions", but he only listed one on the list. He stressed that KABATA was not taking a "blind risk" with this project. He pointed out that there were various extensive studies that were used as information with the private partner. Senator Olson wondered if the state would be liable for the risk, if the project fails. Mr. Livingstone deferred to the Department of Law (DOL). PAT KEMP, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, introduced himself. Co-Chair Meyer wondered if Commissioner Kemp had any testimony that he would like to share. Commissioner Kemp explained that the Department of Transportation and Public Facilities (DOT/PF) was not privy to much of the shared information regarding KABATA. He explained that he was on the KABATA Board; DOT/PF had sub-recipient rights from the federal government; and worked with KABATA regarding right- of-way. He stressed that he was not an expert regarding the details with their reports. Co-Chair Meyer wondered if Alaska had ever had a Public/Private Partnership (PPP) Commissioner Kemp replied that DOT/PF had never done a PPP, but furthered that there may be PPP for the road to Ambler. He stressed that DOT/PF did not do the PPP financing, bit mostly focused on the engineering and environmental issues related to preparing a project. 2:32:34 PM Co-Chair Meyer wondered if there were any suggestions regarding the liability concerns. He wondered if the bridge belonged to the state or KABATA. Commissioner Kemp responded that sight conditions were the responsibility of KABATA, but deferred most of the liability concerns to DOL. He remarked that the contractor does the geotechnical work, so some liability may fall to the contractor. Senator Bishop asked for a restatement of DOT/PF's participation in the project. Commissioner Kemp replied that KABATA was the sub-recipient of federal highway funds, so DOT/PF had no oversight until the environment document was complete. He furthered that the federal highway program turned the project over to DOT/PF to monitor the expenditures. Senator Bishop wondered who would provide the snow removal for the bridge. Commissioner Kemp replied that KABATA would provide the snow removal. Co-Chair Meyer wondered if DOT/PF was responsible for the roads that were attached to the bridge. Commissioner Kemp responded that DOT/PF would be responsible for those roads. Senator Dunleavy understood that this project proposal was unique in Alaska, but pointed out that there were many toll roads and bridges in other parts of the United States. He felt that there could be insurance that might deal with liability concerns. Senator Olson stressed that the project may not yield enough revenue, because of the small population in Alaska. 2:37:36 PM Senator Olson noted that Commissioner Kemp's background was in surface transportation. He wondered if bedrock drilling was a concern. Commissioner Kemp responded that he hoped the geotechnical work would be done properly. He furthered that the requirements include an exploratory hole for every pier. Senator Olson wondered if earthquakes were a concern. Commissioner Kemp responded that there were methods that were used to design around the potential for an earthquake, but stressed that he was not familiar with the geology around the bridge. Senator Bishop shared that he felt that there was technology to ensure that bridges could withstand earthquakes. Vice-Chair Fairclough queried the estimated cost of the road from both sides of the bridge. Commissioner Kemp responded that the Mat-Su side was approximately $150 to $200 million, and the Anchorage side was approximately $250 million. Co-Chair Meyer wondered who would pay for the cost of those roads. Mr. Livingstone replied that the excess toll and federal aid would pay for those roads. Vice-Chair Fairclough understood that payments would not be due until 2025, and wondered if the completion date for traffic would be 2025. Commissioner Kemp did not know the answer. Vice-Chair Fairclough stressed that it was important to understand the payment plan for the project. Senator Olson remarked that he heard Mr. Livingstone state that the bridge would be open in 2016. The committee nodded in affirmation. 2:42:58 PM LARRY DEVILBISS, MAYOR, MATANUSKA-SUSITNA BOROUGH (via teleconference), testified in support of SB 13. He shared that every mayor in the Mat-Su borough supported the project. He remarked that the bridge would open a window to 40 percent of the Kenai borough. He shared that the impact of KABATA to the Mat-Su borough would be extremely positive. He stated that the fasted demographic in the Mat- Su borough was very near where the bridge would be built, and he stressed that the population growth was placing stress on that area. He remarked that the Mat-Su borough was anticipating the project by laying out two separate town sites near the landing of the bridge. He shared that there were already discussions regarding a new middle school and high school near the bridge. He felt that the consequences of not building a bridge would be "horrific." Senator Olson wondered if the Mat-Su was contributing any money for the project. Mayor Devilbiss replied that there were some corporations within the Mat-Su that were contributing. He furthered that there was some local money that would be used for road infrastructure on the Mat-Su side. He shared that the Mat-Su borough passed a $60 million road-bond package in the year prior, which the state matched. Senator Olson stressed that the legislature was trying to avoid the problems that were created from the Mat-Su Ferry, which was a previously proposed project. Mayor Devilbiss felt that the current project was much different than the ferry. 2:48:38 PM DAN SULLIVAN, MAYOR, ANCHORAGE (via teleconference), testified in support of SB 13. He announced that he had supported KABATA for many years. The bridge was first proposed in 1959. He remarked that there was currently only one route between the two most populated areas of the state. He felt that it was imperative to expand the access between Anchorage and the Mat-Su borough. He furthered that 18,000 to 20,000 daily commuters used the Glenn Highway. He stressed that there were multiple times in the winter months when that highway is closed, either due to a car accident or weather. He felt that limiting those commuters with only one access did not make logistical sense. He shared that the Port of Anchorage was a very important hub to the rest of Alaska. The bridge would allow for the container trucks to avoid downtown Anchorage, which would alleviate much of the congestion that already plagued Anchorage. He stressed that 1000 to 1500 jobs would be created with this project. Co-Chair Meyer wondered if there was a concern about property taxes being reduced if the bridge was built. Mayor Sullivan replied that the growth in the Mat-Su was already occurring. Vice-Chair Fairclough wondered if there were 18,000 to 20,000 daily commuters between the Mat-Su and Anchorage. Mayor Sullivan replied in the affirmative. Vice-Chair Fairclough wondered what percentage of those commuters were "hauling loads." Mayor Sullivan replied that most of the trucks were driving north and then returning to Anchorage empty. He agreed to provide further information. Vice-Chair Fairclough felt that the trucks would be more likely to use the bridge, depending on the toll rate. Mayor Sullivan agreed. 2:55:10 PM BERKLEY TILTON, PRESIDENT, KNIK-FAIRVIEW COMMUNITY COUNCIL, WASILLA (via teleconference), testified in support of SB 13. He shared that he had built roads in Alaska since 1965. He remarked that Alaska made a commitment to maintain its roads for its citizens. He felt that the project was a road project that would benefit the entire state. He likened the project to the Golden Gate Bridge, because the impact was extremely important. He understood that the project was expensive, but it would produce an extremely positive effect. He echoed Mayor Devilbiss and Mayor Sullivan's remarks. He reiterated that the project was the responsibility of the state. 2:59:28 PM DARCIE SALMON, ASSEMBLYMAN, MAT-SU (via teleconference), spoke in support of SB 13. He shared that he had been the mayor of the Mat-Su from 1997 to 2000, and was an original commissioner for KABATA from 2003 to 2009. He felt that the project included other economic interests including the port at Point Mackenzie, the rail spur from Point Mackenzie into the Interior, and the bridge from Anchorage to the Mat-Su. He felt that those three projects would result in a 360-degree intermodal transportation corridor. He felt that the bride was essential to the economic growth of the other two projects. 3:06:10 PM VERNE RUPRIGHT, MAYOR, CITY OF WASILLA, spoke in support of SB 13. He stressed that the bridge was not only strategic to the use and access to Alaska, but also a good investment for the federal government. He remarked that the federal government should express a greater participation in the project. He stressed that Wasilla was experiencing a population surge, and was the fastest population growing area in the state. He felt that the bridge would simply give people options, as the bridge would not shorten the distance that was already in place through the Glenn Highway. SB 13 was HEARD and HELD in committee for further consideration.