Number 581 SB 59-FEDERAL FUNDS TO MUNICIPALITIES FOR ROADS  MS. MARY JACKSON, staff to Senator John Torgerson, said the Transportation Equity Act for the 21st Century (TEA-21) is the federal program that provides transportation funds to states. Alaska receives a great deal of this money and has never given any of it as a direct pass-through to municipalities. SB 59 would directly award municipalities, with $20 million being the initial amount. MS. JACKSON said SB 59 establishes a new Municipal Road Project Program (MRPP). The bill authorizes the Department of Transportation and Public Facilities (DOTPF) to develop a project application for municipalities. Municipalities would be required to come up with a match for the federal funds. DOTPF is to develop priorities on how the funds would be dispersed, with the exception that a higher priority would be assigned if a municipality comes forward with an application to take over the maintenance of a state road, reducing maintenance costs for the state. MS. JACKSON noted that boroughs and municipalities have many roads under their jurisdiction, and SB 59 proposes that federal funds be provided to the municipalities. Ms. Jackson commented that DOTPF is concerned that municipalities would not be able to administer the program appropriately. CHAIRMAN COWDERY asked what the administration fees might be. Number 767 MS. JACKSON replied DOTPF would take a percentage for administration costs but she does not know the amount. SENATOR WILKEN asked if money from the federal government comes tagged for certain communities. MS. JACKSON said DOTPF would have to amend the Statewide Transportation Improvement Program (STIP) and put into it the $20 million that would go to the local municipalities. Municipalities would know the money is there and apply for it. If municipalities are able to match the funds and comply with the federal reporting requirements, they will receive the funds. SENATOR WILKEN asked who will decide where the money goes. MS. JACKSON said DOTPF would establish a process for prioritization. If a municipality is willing to take over a state road and maintain it, that municipality would have top priority. Number 949 SENATOR ELTON asked where the $20 million comes from. MS. JACKSON replied that the money comes from the TEA-21 program. SENATOR ELTON asked if the money comes from a component of TEA-21, such as community transportation, or would it be up to DOTPF to make that determination. MS. JACKSON said it would come from DOTPF. SENATOR ELTON asked who would have liability - the state or the municipality. MS. JACKSON said the local municipality would but this has not been tested. The local government would have to ascribe to the regulations DOTPF develops. The caveat is that if DOTPF develops regulations saying it would do the paperwork and certification, then it would be responsible. SENATOR ELTON gave an example of a Community Transportation Program (CTP) and wondered why this project, in the STIP, would be different from a TEA-21 project. MS. JACKSON said a TEA-21 project gives funds to municipalities for building roads. CTP projects are rated and DOTPF would build the road. SENATOR ELTON asked if the priorities created in SB 59 would affect the existing STIP. MS. JACKSON said she did not think it would affect the STIP because the STIP is not in statute. The STIP is an internal mechanism that DOTPF uses to rate communities depending on whether or not a community would take over maintenance of a road. SB 59 just puts in a new program for municipalities. Number 1140 SENATOR TAYLOR said he would like to give municipalities control over the money they receive. Number 1240 MS. JACKSON said writing this type of priority into statute is difficult - regulations will administer the program. SENATOR TAYLOR asked if it would be possible, within the federal funding mechanism, to establish an entity other than DOTPF to prioritize projects. MS. JACKSON said her sense is there is a lot of discretion with the funds. SENATOR TAYLOR said it is important to him that the communities themselves build the projects. Number 1337 MR. THOMAS BRIGHAM, Director for the Division of Statewide Planning, DOTPF, said DOTPF's concern with SB 59 is of a practical nature based on its experience with locally administered federal projects. MR. BRIGHAM addressed earlier concerns that DOTPF is only funding state or federal projects. According to Mr. Brigham, this is not the case. In 1999 the department funded $49.5 million on roads owned by local governments. DOTPF also funded $45 million in the year 2000 and about the same amount for 2001. DOTPF also has an Improve and Transfer Program whereby if local governments are willing to take over a local road owned by the state, that road is then owned and operated by the local government. This program averages $2.5 to $4.0 million per year. MR. BRIGHAM said DOTPF is working on regulations for STIP. The final draft should be available in early March. MR. BRIGHAM noted in the past DOTPF has passed-through federal funds to boroughs and cities giving them the responsibility to do the project. DOTPF does not have a philosophical problem with local governments doing their own projects, but DOTPF's experience is that the strings attached to the federal funds cause problems for local governments. A Code of Federal Regulations, which governs how highway projects are to be done, comes with the federal money - it is complicated and hard to administer. Because of this, most local governments, especially the small ones, will have a hard time administering federal projects. Overhead would also be substantially greater because there would be overhead for both local and state government. Even the projects earmarked by the federal government have to go through DOTPF. Number 1776 CHAIRMAN COWDERY asked how DOTPF determines the administrative charges. MR. BRIGHAM replied that direct, onsite administration is called construction engineering and is capped at 15 percent. As a percentage of the project, big jobs are less and small jobs are more. Number 1810 SENATOR WARD asked if DOTPF took a percentage of the pass-through money for the port project in Wasilla. MR. BRIGHAM said he did not know but he assumed DOTPF had because one of its employees works full time on the project. SENATOR WARD asked if the percentage is taken at the beginning of a project and if it is always 15 percent. MR. BRIGHAM said if it is a local project, DOTPF does not charge 15 percent. If it is DOTPF's project, 15 percent is the limit for construction engineering. MR. POSHARD said what is possibly being referred to is the Indirect Cost Allocation Program (ICAP). ICAP is an arrangement with the Federal Highway Administration (FHA). There is a two percent cost on every project that DOTPF takes for ICAP, rather than charging for specific projects. The two percent pays for DOTPF's participation and administration of a project. Even though local governments do the actual work, DOTPF does all of the paperwork, reimbursements, and things of this nature. MR. POSHARD said he would provide the committee with a memorandum from the FHA, which outlines the ICAP program. Number 1953 SENATOR ELTON said that under the program envisioned by SB 59, several things happen: 1) municipalities will have to assume liability either for project failure or regulation violation; 2) municipalities will have to pay a match; 3) in some cases, municipalities would have to take over maintenance; and 4) municipalities would have to deal with the Code of Regulations. Given this, Senator Elton asked if DOTPF anticipated municipalities taking advantage of this type of program. MR. BRIGHAM said there might be a rush in the beginning, but then it would be a case of "once bitten, twice shy." Dealing with the Code of Federal Regulations has not been a pleasant experience for local governments. A state grant is a much different process and much less burdensome, which local governments can handle without much trouble. MR. POSHARD added that it is difficult to determine what difficulties municipalities would be willing to take on. Municipalities that already have projects in the CTP, in this or the next fiscal year, would likely not take advantage of the program because their project is already scheduled for funding. Municipalities that have projects further down the list might want to participate, trying to move their project up. In addition, there are only a handful of municipalities that have the financial ability to match federal funds. SENATOR ELTON asked if the $20 million would be coming from the Community Transportation Program (CTP). Number 2070 MR. BRIGHAM replied yes, this type of project is in community transportation or Trails and Recreational Access for Alaskans (TRAAK) program. SENATOR ELTON asked how large the CTP program is now. MR. BRIGHAM said it is about $120 million. SENATOR ELTON asked what SB 59 does that DOTPF does not now have the capability of doing, or is it just the magnitude of money. MR. POSHARD said that now under the CTP program, if a municipality puts up a local match, additional points are added for a project in the scoring and ranking system, allowing the project to move up higher in the funding process. SB 59 requires a local match to participate. SENATOR ELTON said SB 59 creates a program that only a few municipalities could take advantage of, allowing them to move up the STIP, causing other municipalities to drop down in the STIP. MR. BRIGHAM said this is accurate. SB 59 also takes a piece of the community transportation program and says a certain amount of money has to go to local government for administration of their own project. SENATOR ELTON said before moving SB 59 he would like to know if Juneau has the ability to move up the STIP process thereby forcing other communities down. He sees this as a real problem - giving large communities the ability to push smaller communities down. Number 2182 SENATOR WARD asked if DOTPF's new regulations would accomplish what the sponsor of SB 59 is trying to accomplish. MR. BRIGHAM said the new regulations would not accomplish the same thing. The regulations would take the existing system and put it into regulation. This is something a number of legislators have wanted. SENATOR WARD said the sponsor is also concerned with how municipalities would get on the list and stay on without being passed over. MR. BRIGHAM said projects that score with middle or low scores do not move up very fast or they stay where they are. Higher scoring projects are built. New projects that score well go in line ahead of other projects. SENATOR WARD asked if there had ever been a discussion about creating a road commission that would be independent of DOTPF. MR. BRIGHAM said a bill was introduced three or four years ago but it did not move forward because it created more problems than it would have solved. Number 2289 MR. POSHARD said there are states that use commissions to run their programs and this works fine. A commissioner, director, or CEO runs other state programs and this also works well. Number 2340 SENATOR TAYLOR asked if DOTPF had a position on SB 59. MR. BRIGHAM said DOTPF is concerned about how it would function. SENATOR TAYLOR asked who does the ranking in the STIP process. MR. BRIGHAM replied there are three regional directors - Southeast, Southcentral and Northern, Mr. Boyd Brownfield, Deputy Commissioner, DOTPF, Mr. Brigham, Director, Division of Statewide Planning, DOTPF and Mr. Michael Downing, Director, Division of Statewide Design and Engineering Services, DOTPF. SIDE B SENATOR TAYLOR asked what is done with excess funds and who makes the decision where a project is placed on the STIP. Number 2288 MR. BRIGHAM noted the gross amount of money, over the course of a year that is created by projects coming in under bid is "deobligated" from one project to another. The number is exceeded by the total amount of projects that come in over-bid and projects whose estimates change in the STIP. Mr. Brigham said DOTPF's "overages consistently exceed our underages." MR. POSHARD said DOTPF has a problem with underestimations, not over-estimations. When bids come in higher than projects were estimated DOTPF has to ask for additional legislative authority, or the project has to be put further down the STIP. DOTPF cannot spend money on anything it does not have legislative authority on. Number 2090 SENATOR ELTON asked if DOTPF had a fiscal note for SB 59. MR. POSHARD noted that DOTPF is in the process of developing a fiscal note. SENATOR WILKEN referred back to a statement that Mr. Poshard made in reference to SB 79 concerning cuts in DOTPF's maintenance budget over the last seven years. He referred to a chart that showed DOTPF's maintenance budget had not been cut as much as Mr. Poshard had indicated. He asked Mr. Poshard to look at that and get back to the committee on the discrepancy. SENATOR WARD said he does not believe that "maintenance hasn't been cut to the bone, it's not being done properly." SENATOR TAYLOR asked what the design problem was on the Third Avenue bypass in Ketchikan. MR. BRIGHAN said a portion of the Third Avenue route was in very steep terrain. This area was intended to be bulwarked with an earth retaining wall but it was determined that this would not be successful, from an engineering standpoint, and that a bridge was needed. Number 1877 SENATOR WARD said it was amazing that a designer would be instructed to design a structure for an airport in Alaska without taking into consideration that there might be an earthquake someday. MR. BRIGHAM said the bypass retaining wall design was a professional embarrassment but in the case of the airport, the contract engineer did take into account seismic concerns. The issue was simply an argument between the municipalities as to whether the extent to which those concerns were taken into account was adequate. Number 1815 SENATOR WARD said the municipality felt the state was incompetent. He asked Mr. Brigham to speak with the municipality on this issue and get back to the committee. CHAIRMAN COWDERY said it was his understanding the municipality felt it was getting closer to a solution. MR. POSHARD agreed. CHAIRMAN COWDERY said SB 59 would be held in committee until a fiscal note was furnished.