JOINT SENATE/HOUSE TRANSPORTATION STANDING COMMITTEES March 14, 1996 1:40 p.m. SENATE MEMBERS PRESENT Senator Steve Rieger, Chairman Senator Robin Taylor, Vice Chair Senator Lyda Green SENATE MEMBERS ABSENT Senator Georgianna Lincoln Senator Albert Adams HOUSE MEMBERS PRESENT Representative Gary Davis, Chairman MEMBERS ABSENT Representative Beverly Masek, Vice Chair Representative Jeannette James Representative Tom Brice Representative Jerry Sanders Representative Bill Williams Representative Don Long OTHER HOUSE MEMBERS PRESENT Representative Kim Elton COMMITTEE CALENDAR OVERVIEW OF SEVERAL FERRY PROPOSALS: LYNN CANAL FERRY PROJECT - GOLDBELT, INC. PRINCE OF WALES ISL. FERRY PROJECT - CITY OF CRAIG AK MARINE HIGHWAY SYSTEM - GARY HAYDEN, DIR. WITNESS REGISTER BOB MARTIN, Chairman Board of Directors Goldbelt, Incorporated 9097 Glacier Highway, Suite 200 Juneau, Alaska 99801 Telephone: (907) 790-4990 POSITION STATEMENT: Overview of Lynn Canal Ferry Project JOE BEEDLE, President, Chief Executive Officer Goldbelt, Incorporated Board of Directors 9097 Glacier Highway, Suite 200 Juneau, Alaska 99801 Telephone: (907) 790-4990 POSITION STATEMENT: Overview of Lynn Canal Ferry Project IAN BINER, Development Manager Holyman Limited 181 Miller Street, Level 13, Oracle Plaza North Sydney, N.S.W. 2060 Australia Telephone: 61 2 719 1130 POSITION STATEMENT: Overview of Lynn Canal Ferry Project TOM BRIGGS, City Administrator City of Craig P.O. Box 725 Craig, Alaska 99921 Telephone: (907) 826-3275 POSITION STATEMENT: Overview of Prince of Wales Ferry Project KENT MILLER, Businessman City of Craig P.O. Box 6276 Ketchikan, Alaska 99901 Telephone: (907) 225-3992 POSITION STATEMENT: Overview of Prince of Wales Ferry Project JOHN PEARSON, Community Development Specialist Metlakatla Indian Community Metlakatla, Alaska 99926 Telephone: (907) 789-1402 POSITION STATEMENT: Overview of Walden Point Transportation Corridor GARY HAYDEN, System Director Marine Highway System Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-8827 POSITION STATEMENT: Overview of the Alaska Marine Highway System ACTION NARRATIVE TAPE 96-10, SIDE A Number 001 The Joint Senate/House Transportation Standing Committee was called to order by Chairman Rieger at 1:40 p.m. Senator Rieger and Representative Gary Davis were present at the call to order. CHAIRMAN STEVE RIEGER announced that the agenda was an overview of the various Southeast Alaska ferry proposals including the Lynn Canal ferry project, the Prince of Wales Island ferry project and the Metlakatla ferry project. Senator Lyda Green joined the committee meeting at 1:41 p.m. BOB MARTIN, Chairman, Board of Directors, Goldbelt, Incorporated, said he was here today to discuss how the state can benefit from the private sector participation in the Lynn Canal ferry service. Senator Robin Taylor joined the committee meeting at 1:43 p.m. MR. MARTIN said Goldbelt, Incorporated is a Native corporation that was created in 1973 pursuant to the Alaska Native Settlement Claims Act (ANSCA). He said the shareholders come from all of the tribes, both Eskimo and Indian in Alaska, but predominantly from the Tlingit culture in northern Southeast Alaska. He said Tlingit is a word which means in Tsimshian, people of the tides. He said the Tlingit culture has a strong connection with the coast and with the waters. He said the ferry project both fits the corporation's personalities as well as being a long range business plan. Number 152 MR. MARTIN said until recently, all of Goldbelt's assets were invested in Wall Street, part of the net operating loss (NOL) settlement trust. He said that when the Internal Revenue Service settled with Goldbelt of the NOL trust, Goldbelt pledged they would return those dollars back to Alaska for use by the shareholders, community and by the region. They also wanted to maximize the leverage of those dollars and maximize the use of the land. He said their mining interest in Echo Cove led to discussions of transportation of miners, tourists and people. MR. MARTIN said in the area of tourists, Goldbelt wanted to make sure they were vertically integrated rather than just building facilities. To accomplish this, Goldbelt has invested in all aspects of the tourist industry from transportation, entertainment, housing, restaurants and souvenir shops. To date, Goldbelt has invested well over $30 million directly into the tourism industry. He said the full value of some of those investments would be well over $50 million. MR. MARTIN said in the past he had been the deputy director for design and construction of the Southeast region of Department of Transportation and Public Facilities (DOT/PF). The responsibilities of DOT/PF included highways, airports, public buildings, harbors, ferry terminals and the ferries. Due to his experience, the original mission of the ferry system was to provide basic transportation services into Southeast and Southcentral Alaska. He commented these ferry routes were considered alternative to hard link highways between the communities. He said in order to provide that service, it required 24-hour a day operation and the vessels that were used could be characterized as being slow, but safe and sure. Number 180 MR. MARTIN said the original projection was that the ferry system would break even and become self supporting after only four years of operation, he added that we have yet to reach that point. The ferries were designed to operate in all weather with services for passengers, vehicles and freight. One of the disadvantages to the current ferry system is that first and foremost they are a floating hotel for their own employees, two crew of employees on all voyages. He said the ferry is subsidized by $30 million or 40 percent, but added that most of the transportation links in Alaska are subsidized in one way or another. MR. MARTIN said building highways incorporates state and federal participation with ever decreasing funding. Goldbelt would like to consider that their private participation be seen by the state as another viable solution to deal with the ever increasing problems of the Alaska Marine Highway such as an aging fleet with high operating costs. The demand for ferry services continues to increase but there has been no increase in capacity since the Aurora was put into service in 1977. He said state revenues are declining and because the ferry system must respond to the demands of the public including political pressure and special requests for services, many of the decisions to operate the services are inherently inefficient and within the government system there is no motive for profit. In addition to this, the state, federal and international regulations continue to increase and become more stringent and the requirements to meet those have become more expensive. Number 242 JOE BEEDLE, President, Chief Executive Officer, was next to testify. He said the key to Goldbelt's interest in Lynn Canal ferries is their land ownership. The corporation owns approximately 1,400 acres at the end of the existing road. Goldbelt is seeking approval to build a road three miles north to Cascade Point in Echo Cove where they would build a terminal accommodating traffic including ferry traffic. MR. BEEDLE said the concepts of that ferry terminal would be roll- on and roll-off for fast turn arounds for ferries. Goldbelt would be willing to provide their own reservation service for the ferry because of the travel agency operations in Seattle and Juneau or collaborate with the new state reservation system. Goldbelt would operate the terminal in Echo Cove and also, if the state so chose, in Haines and Skagway. They would also handle the maintenance for this ferry if Goldbelt receives encouragement to enter this market. Number 267 MR. BEEDLE said the Echo Cove location saves approximately 30 miles and would be located 45 miles north of Juneau, approximately 30 miles north of the existing ferry terminal. He referred to a slide and pointed out where the existing road ends and where the ferry terminal would be located. He said the Echo Cove shortens the ferry route and saving in distance increases the ability to do more frequent trips and retain operations within a 12-hour marine law workday. The shorter distance allows for day boat use whether it's for conventional hull or fast hull as two ferry runs can occur. MR. BEEDLE said fast ferries are 50 percent more expensive to build initially, but because of their speed the ferries can accomplish as much as 100 percent increase in capacity. The Goldbelt concept is to do day service so that employees can go home at night. He commented that greater frequency eliminates the 24-hour cost of labor and is attractive to the rider. He noted the private sector could eliminate the operational subsidy that is currently costing the state money in providing the service and in maintenance and added that Goldbelt would take over the capital costs of all of these improvements that Goldbelt is projecting. The Lynn Canal project builds in flexibility and increases the level of service to the public. Number 298 MR. BEEDLE said that Lynn Canal currently has a bottleneck at demand peak in the summer. Goldbelt would increase throughput for other destinations and added that if people take the ferry to Juneau, they are more likely to take the ferry to other locations including to the south rather than driving down on the Alaskan- Canadian Highway. He said increased service level in Lynn Canal certainly is an opportunity for Juneau and increasing the load factor for the marine highway system elsewhere should also be attractive. MR. BEEDLE said the displaced Alaska Marine Highway vessels could then be used to serve other high demand areas. Goldbelt has conducted studies and analyzed studies conducted by the state and has determined that the state's long range plan for ferries asked that a new mainline ferry be built and the construction for that has been authorized. The state also recommended that two feeder ferries be constructed and Goldbelt is offering the opportunity for one of those feeder ferries, specifically a high speed day boat in Lynn Canal to be done from the private sector without requiring any state funds to do so. Number 312 MR. BEEDLE said the state ferry studies show that load growth is the most important factor and includes the percentage occupancy and what can you do on those ferries and if you increase them then the ferry situation improves. He said Lynn Canal currently provides 40 percent of system traffic, some of which is through put, and added that Goldbelt believes that it is one of the few areas of the state that private sector can accept the financial scenario and do it without state assistance. MR. BEEDLE pointed out that Lynn Canal has high unaccommodated demand in the summertime and if service levels are improved, studies show that traffic demand would increase by as much as 100 percent. Conventional hulls operating out of Echo Cove, operating as day boats, could make two round trips. Number 329 MR. BEEDLE said fast ferry day boats can make two trips per day to both Haines and Skagway during the peak season. The existing fleet requires extensive capital improvements which would require dedicated funds to maintain operations rather than providing new boats. Goldbelt believes the private sector can supplement the existing state service and be profitable. Number 336 MR. BEEDLE said public ferry transportation service, originally necessary because of market failures, provided for economic growth in the region. Today, demand exceeds capacity and the private sector can now enter this market. He said that public private partnerships have worked elsewhere. Growth in Lynn Canal capacity will feed more traffic into the system, which will increase those load factors. He concluded that the socio-economic growth will be stimulated throughout the region. Number 350 MR. BEEDLE said Goldbelt has been successful to date in a lot of its expansion because they have chosen partners that tend to be experts and employ best industry practices in their field. He commented that Goldbelt would do a worldwide search to try to attract so that Goldbelt's capital, shareholder base, land base and current experience can be best utilized. Goldbelt currently owns $14 million worth of vessels which will be employed this summer in Glacier Bay and a day boat ferry passenger to Gustavus and other tour boats. Goldbelt has partnerships with Allen Marine out of Sitka and his corporation would hope that with bringing in international talent with local construction talent, such as the Allens, and local operational talent they could prove the viability of operating privately in Lynn Canal. MR. BEEDLE said that Ian Biner would speak next and tell about his company's experience in the fast ferry market. Number 362 IAN BINER, Development Manager, Holyman Limited, was next to testify. He said an Australian company is involved in this project because his company perceives the Southeast region to be ideal fast ferry country. It is sheltered water and the distances between cities are about the right length for high speed ferries. His company sees opportunities here that mirror other projects that his company has done elsewhere. MR. BINER stated the same type of ferry system present in Alaska also models other systems in other parts of the world. The Alaska Marine Highway System is an efficient, reliable, government operated ferry service but one that is collecting a fairly hefty subsidy from the state. In Denmark, Canada, Australia and New Zealand as well as many other parts of the world, the level of subsidy is around the same as it is in Alaska with the same level of efficiency and it is vulnerable to the introduction of private participation on some of the routes. Number 399 MR. BINER explained that his company just recently set up an operation in Denmark, operating between Jutland and Sjaelland, an island where the city of Copenhagen is based. They operate from the second largest city, Arhus, which has a population of 150,000 to a city of Kalunborg which has a population of 15,000. He said a thousand cars are moved on this route in a ship that holds 150 cars and 600 passengers. A second vessel was recently deployed on this route. This service was in direct competition with the state owned Danish State Railway Ferry (DSRF) that was operating in an absolutely parallel route. His company went in with prices that were 10 percent higher than the national ferry, but the national ferry took three and a half hours and his company takes one and a half hours. Number 420 MR. BINER said his company was concerned that the national ferry system would take a hostile approach, so they met with the DSRF and put together a cooperative agreement whereby the DSRF operates the terminal on one end of the service; his company operates the terminal on the other end; each of the organizations sell tickets on the service; the revenue is pooled and except for the fact that his company owns the boats, it is a cooperative service and has worked very well. He commented it is the model for services that his company will be starting over the next couple of years. Number 432 MR. BINER said his company's experience of working with high speed ferries and working alongside government organizations is the reason why Goldbelt contacted them in the first place. High speed ferries are as different to conventional ferries as buses are from airplanes. Anyone who thinks that you can take a crew off of a conventional ferry that is running across Alaska and put that crew on a high speed ferry is fooling themselves. High speed ferries are a different operation and everyone who has gone into the high speed ferry business has made the same expensive mistakes that his company made early on in their operations. He said the boats require a bit of mothering and his company has learned how to handle the boats. Last year, his company did not lose one day to breakdown which is quite remarkable. If high speed ferry systems are going to be implemented, he suggested talking with people who are currently operating high speed ferries to avoid making the same mistakes. Number 450 MR. BINER shared a story regarding turnaround time in his company's experience in Denmark. He said the Danish told his company they would turn around the 150-car boat in 18 minutes; that is unload 150 cars and reload 150 cars which included tying up, untying and getting in and out of the port. His company told the Danes there was no way that type of schedule could be maintained. Three weeks after service started, they established a record 13 minutes, 18 seconds for a 150-car turnaround and they are currently doing that 16 times a day every single day of the week. Number 461 MR. BEEDLE said Goldbelt believes that the capacity needs to increase in Lynn Canal to match demand. Goldbelt believes the increased capacity will have positive impacts on the entire ferry system and not detract from the current ferry system. Goldbelt also believes that private sector participation is the most effective cost alternative and that applying best industry practice is the way to make it work. It is their belief that we can all learn from other similar situations around the world and that if his corporation can get a positive indication from the Administration and the legislature, they are committed to making this project work. Number 474 SENATOR TAYLOR asked for information regarding the winter schedule. Number 475 MR. BEEDLE said originally the ferry proposal was only for the summer but upon discussions with the state, Goldbelt recognized they need to provide year round service. He said the winter schedule does not demand more than one trip per day. Goldbelt believes that demand will increase once a vessel is placed in this route and this increase will mandate service once daily. Number 485 SENATOR TAYLOR asked the length of this vessel. Number 486 MR. BEEDLE responded it is a 52-passenger vessel. Number 490 MR. BINER referred to a slide of a vessel which depicted the wheel house area as being separated from the passenger and said the reason for that is there are high speed ferry regulations which require that people sitting in the command position have a 360 degree vision. He noted the passenger accommodation area was arranged in rows aircraft style, but his company is inclined to move away from that arrangement to allow people the option of moving around and a table style arrangement is much more comfortable and friendly. He pointed out that the car deck area where cars load in the stern and unload off in the front, makes for a very fast turnaround. The configuration of the boat illustrated allows for a small shop in the middle and a cafeteria. It's a very efficient, small catamaran. SENATOR TAYLOR asked what the vessel capacity was for vehicles and for vans. Number 505 MR. BEEDLE said it is a 52-passenger car vessel and added that if you carry many vans, it doesn't work for this high speed catamaran. Goldbelt would work jointly with Alaska Marine Lines, who have indicated that in summertime they would cover service five times a week to provide the service for vans. Goldbelt also proposes that if there is a situation where the state has a problem maintaining the Malaspina, it could be placed on a day boat run for heavy van traffic. High speed catamaran ferries do not mix with heavy loads. Number 513 SENATOR TAYLOR commented that he needed a year round transportation system which could carry school buses and vans. Number 525 MR. BEEDLE said the state ferry system has excessive capacity in the winter, but in the summer it is mostly 20-foot vehicles and a need to provide those people transportation. The state ferry system was built to handle the heavy traffic and does not need to withdraw entirely from the Lynn Canal market. The long haul and main haul vessels could continue to make that run. He said where the masses are getting frustrated is by not being able to roll on their smaller vehicle. Number 534 CHAIRMAN RIEGER inquired as to the Malaspina capacity. MR. BEEDLE replied 100 vehicles, but added that a better example would be the Aurora and LeConte capacity which is 40 vehicles. He said the Goldbelt ferry would be roughly the same in terms of vehicle capacity minus the heavy traffic. CHAIRMAN RIEGER asked if the Alaska Marine Highway schedule was once a day to the Lynn Canal area. MR. BEEDLE said on the twice a day schedule, there is no question that Goldbelt could take care of the vehicle traffic. The high speed vessel could do as many as three or four runs as traffic increased and eventually increase to two vessels that could do a complimentary run. Number 541 SENATOR TAYLOR said he did not question that it could be done, and added he felt the state needed to move into shuttle ferries. His concern is providing this type of service in the wintertime given the conditions in the Lynn Canal. Number 546 MR. BEEDLE said the vessel will go 25 to 35 knots, 40 knots was an example of what the equipment can do. If the state encourages a mono-hall, conventional hull, Goldbelt would consider that type of vessel. He noted evidence of the studies have shown 14 to 15 foot maximum recorded waves in Lynn Canal. Number 555 SENATOR TAYLOR asked what the state was going to do when the revenues from the Lynn Canal are lost. If the state could lease land from Goldbelt they could accomplish the same service without losing the revenues for the rest of the system. MR. BEEDLE said the ferry studies of the revenue, excluding the capital expenditure, show that the state loses $500,000 on operations. He said, "Six million dollars worth of inflow, $6 million worth of outflow, there are other numbers in there, $2 million worth of overhead, zero capital. So, you are going to lose $6 million and you're not going to spend $6 million. Yes, you could redeploy to other locations. The argument that the state will make is that you aren't going to pick up that kind of revenue. We believe that you put that revenue in high demand routes, like main hulls, you can pick it up for a portion of the year, the same portion of the year that you call creaming the crop." Goldbelt believes the state will save some money, not a lot, because it is the closest to break even that this ferry system has - the Lynn Canal - and that's the only reason why it is attractive to the private sector. Number 575 SENATOR TAYLOR asked why there is not a high speed ferry operating in Puget Sound. Number 577 MR. BEEDLE said this idea is being studied. Currently, Washington State does not allow private parties to operate ferry service and build the terminal within ten miles of the state ferry terminals. The state of Washington has chosen their own equipment and added that high speed ferries have just been proven within the last five years. He said because of the time response of governmental bodies, the state of Washington is now just getting into the involvement with the high speed ferries. Number 584 MR. BINER said the total number of high speed car carrying vessels in the world is less than 16. The first of these ferries was built in Australia about seven years ago, and Australia currently builds more than 60 percent of the world's high speed car carrying vessels. There are only five shipyards capable of building these vessels. Number 592 MR. BINER said the Washington State ferry system is looking quite aggressively at the high speed ferry solution and said they have gone through the same capital assessment program that the people at the British Columbia (B.C.) ferry system went through before B.C. decided to build their new ships. He stated that British Columbia is faced with a growth of demand of about 7 percent a year and realized that to embark on a capital equipment expansion program that would meet that demand using conventional ferries, they would need to spend, over the life of the vessel, a 15 year period, 20 percent more on conventional tonnage because they don't get the capacity and utilization. He commented that high speed ferries make a great deal of economic sense and that is why they are beginning to be utilized in all parts of the world. Number 623 TOM BRIGGS, City Administrator, City of Craig, showed a slide of the Prince of Wales Island. He said the distance between Ketchikan and Hollis is 36 miles by ferry with an 8 mile stretch of treacherous water in the Clarence Straits. Prince of Wales Island is the largest in Southeast and this ferry project is essential to the island community. He said on this island there are about 10 communities, 6 of which are either first or second class cities and several community associations and a significant road system. MR. BRIGGS said Craig is the largest community, with a population of 2,000, and the fastest growing community with a population over 1,000 in Alaska. There are 6,000 people on the island which increases in the summer with logging, fishing and tourism. MR. BRIGGS said the current ferry service is provided usually, by the Aurora from Hollis to Ketchikan which is a 2 hour, 45 minute run. Service in the summer is provided six days a week, the service in the winter is provided two days a week. In the winter, because of the poor flying conditions, the residents of the island rely on the ferry service Number 664 MR. BRIGGS said the island has hundreds of miles of roads that were built by forest highway funds to provide access for timber harvesting. The residents must go to Ketchikan to receive medical services, expanded financial services and wholesale and retail trade. The marine highway brings goods as well as people to the Prince of Wales community. Because of the decline in marine ferry services, the island has lobbied for ferry services on a daily, year round basis for day-to-day services. He noted the ferry route between Prince of Wales Island and Ketchikan is their highway. TAPE 96-10, SIDE B Number 001 MR. BRIGGS said those communities cannot function without those transportation connections and added that his community cannot function unless they can get to and from Ketchikan. In recent years, it has become apparent their community is having no affect when pleading their case to the legislature because of the increasing demand for state funds. He added that his community understands this situation, but the service to his community is declining. This year's Alaska Marine Highway System proposed budget is reduced by $1.5 million from the current budget. Every reduction in the budget translates into a reduction of services to Prince of Wales Island; the first reduction in services is to outports including his island. Number 099 MR. BRIGGS said he is not appearing before the committee to plead for more money for the Alaska Marine Highway System, but to propose a solution to the problem. The Prince of Wales Island has found a way to provide year round daily ferry service from Prince of Wales Island to Ketchikan at virtually no cost to the state of Alaska. He would ask Kent Miller to explain to the committee why it was important enough for them to take on such a task. Number 110 KENT MILLER, Businessman, City of Craig, reiterated that Prince of Wales Island is one of the largest, isolated population centers. By isolated, he means that it has no instrumented airport with all weather jet service, no mainline ferry, no road connection to the neighboring communities and no direct container barge service to the Pacific Northwest. Many of these things have not developed because of the lack of public sector participation. MR. MILLER said the Prince of Wales Island is heavily dependent on a shuttle ferry link to Ketchikan which is being reduced year by year. This ferry service is a lifeline for the tourist economy and to receive health care. Prince of Wales Island is one of the few communities any where in the United States with a population of 5,000 that has no all weather access to a hospital. Number 120 MR. MILLER said Prince of Wales Island is striving to maintain an economy since the decline in the timber industry in 1990. The wage and salary economy has lost 760 timber jobs; a $20 million dollar decline in payroll. Although many of these jobs were reported in Ketchikan, a very large percentage of the total were Prince of Wales jobs. The island's population and personal income have continued to slowly grow because of diversification of trade and services on the island and because of increased value added in fishing, fish processing, and lumber and milling. Lack of transportation is now frustrating the island's capability to grow and will end this economic growth. Number 128 MR. MILLER noted that in 1993, the Department of Transportation and Public Facilities (DOT/PF) proposed an alternative fast ferry service for Prince of Wales Island, a $30 million, 30 knot fast ferry which would require a $5 million operating subsidy. After that proposal, the city of Craig proposed an alternative ferry which has just come out of the design process and it is a 149- passenger, 28-car ferry, with side and stern loading similar to the Alaskan Marine Highway System vessels and is able to use existing ferry terminals. The ferry is a 14-knot boat which can make the trip from Hollis to Ketchikan in about three hours. Two ferries were proposed; one for the Hollis to Ketchikan to replace the existing service or augment the service and the other ferry to develop a new link from Coffman Cove to Petersburg and Wrangell which would run twice a day enabling Prince of Wales residents to each day go to Ketchikan in the morning and return at night with a net savings in transportation cost. MR. MILLER said the northern route would initially be a five month summer, one day a week service which would develop the Prince of Wales highway system as a link to the north and supplement the existing Alaska Marine Highway System. The idea behind this service was to propose the most economical boats, using existing technology which has been widely applied in the states already. The vessel would operate out of its own fare box and make a contribution to its debt service. The city of Craig is proposing establishment of an island-wide port authority which would sell a municipal bond to pay about one-third of the total capital cost of the development of the Hollis to Ketchikan route. He said this is a unique and unprecedented step for a municipality to take in Southeast Alaska and represents the earnest intention of the island to improve the service, to pay a fair price for it and an indication of the desperation they feel. MR. MILLER said this system would not work under a private contract because, as Mr. Beedle said, the Lynn Canal service is the only route in the state that lends itself to that service. Ferry services nationwide are financed with a hefty contribution of federal and state funds. The island ferry proposal would have a larger local match than virtually any other ferry service that he knew of. He said the public sector development is necessary in this case. Number 161 MR. BRIGGS continued that one ferry vessel will cost $10 million and the city of Craig is proposing that this be paid in two phases. He said, "Port Authority under Title 29, fund the vessel by a combination of three sources of funds: $7.1 million federal highway monies which includes a 10 percent state match so it's somewhat less than $7.1 million; $3.6 million of bonds issued either through the municipal bond bank or AIDEA; and the state's match involvement is included in the...that's the third source of funds." The bonding payback will be funded from the fare box. Also, the city of Craig is asking the Federal Highway Administration for $700,000 to upgrade the terminal in Hollis which is now just a trailer. With these funds the ferry will run from Hollis to Ketchikan twice a day, seven days a week. Number 171 MR. BRIGGS said that once the port authority has this vessel on line and has taken time to study and develop operating recommendations, they then will seek funding for the northern run. The northern run will use the same type of vessel to run from Coffman Cove which is on the road system, to Wrangell to Blind Slough in Petersburg and back again. This second service would occur a couple of years down the road depending on whether the Hollis to Ketchikan run proves to be feasible. Number 193 MR. BRIGGS said to go to the next stage which is the construction documents is a $400,000 pass through grant from the Federal Highway Administration, which has indicated the project is eligible for, to get the construction documents ready for bid. He said, "During the 14 to 16 weeks of construction documents, we will have hopefully formed the port authority and have found the other funds and be ready to go to construction as soon as the funds and the documents are ready." Number 195 CHAIRMAN RIEGER asked the vessel capacity. MR. BRIGGS replied the vessel would hold 149 people and 28 long vehicles. He said if the vehicles are less than 15 feet, like a Ford Ranger, the car capacity would be 32 to 35 vehicles. He reiterated it would have a 14.5 knot cruising speed. Number 196 JOHN PEARSON, Community Development Specialist, Metlakatla Indian Community, said he would be discussing two projects, Walden Point Road and the ferry service associated with that road. Metlakatla is in the Ketchikan/Annette Island corridor for transportation with the community lying 16 miles south of Ketchikan and Walden Point. Annette Bay is the closest point to the Ketchikan, Saxman road system at a distance of .7 mile. Number 213 MR. PEARSON said in 1956, the Alaska Road Commission engineered, approved and submitted to the federal government a request for $3 million to build the Walden Point Road. During this time, the city of Ketchikan was going to purchase and operate a ferry between Ketchikan and Walden Point to provide access to Annette Field. He said that proposal was denied because of efforts to upgrade the Alaska Highway. As a result, the city of Ketchikan built the International Airport and Annette Field sits idle. Number 223 MR. PEARSON said the council has placed the Walden Point Road project at the top of their priority list. The project is divided into three parts, the first is construction of 14 miles of road between Metlakatla and Walden Point, the second is development of a small shuttle ferry link between Walden Point and the Ketchikan, Saxman road system and the third is participation into the regional intertie. Number 238 MR. PEARSON said this proposal would have benefits for the community, for the region and for the development of cost effective transportation linkages within the state of Alaska. Construction of the 14 miles of road and operation of a small 110-foot feeder ferry similar to that used in Ketchikan would replace the use of the Aurora ferry which, in 1994, was operating at a daily cost of $20,400. He explained the cost of the small feeder ferry based on service of 365 days a year is $1,600. A detailed analysis of those using the ferry service would be people having difficulty getting in and out of small planes, like senior citizens, and sports teams who operate on a smaller budget. The ferry system and the road would be cost effective. Number 253 MR. PEARSON pointed out the Walden Point road and the ferry shuttle will provide the Ketchikan area with thousands of acres of flat land ready to be developed. Walden Point road will open up educational opportunities, easy access to jobs for all three partnership communities, basic services including hospital and day- to-day services. In addition, the relationship between the people of Metlakatla to people in Saxman and Ketchikan would benefit. Number 274 MR. PEARSON referred to the power intertie portion and said it is a project that was addressed by the Alaska Power Authority a few years ago. This study concluded that within four to five years, the community will have a need for additional power and facilities are available at Mountain Point to "plug into that power source." Also, Three Lakes in Metlakatla and Annette Island could produce power for the intertie. Last year, the Southeast Region of the Department of Transportation & Public Facilities, the Division of Energy in the Department of Community and Regional Affairs and the Metlakatla Indian Community joined in the joint funding of a cost benefit study of the project. Number 283 MR. PEARSON said that on an economic standpoint, all three projects are viable as separate, stand alone, projects. The study clearly points out that major benefits will come to the Alaska Marine Highway System by being able to redeploy the Aurora vessel to other areas at greater profits. The total capital costs of the project, as developed in the cost benefit study, is high but no consideration was given as to what the community of Metlakatla could provide such as rock, land, existing engineering that has been completed and portions of the road that are already in place. He noted that a map of Annette Island would show that many of the 14.5 miles are already in place in the form of usable logging roads. He added there is a 20 percent contingency factor in the study. The study gives a place for the project to start, to approach various funding sources and to look at the community's contribution. Number 313 MR. PEARSON said the Metlakatla community is looking into the tourism industry and said the road will become part of that tourism opportunity. The project has received widespread support in the region, Southeast Conference, as well as in the communities of Saxman, Ketchikan and Metlakatla. There is almost zero opposition to the project. Number 326 MR. PEARSON stated last July, a meeting was held with the leaders of Ketchikan, Saxman and Metlakatla and Senator Stevens. At this time, Senator Stevens said he would do whatever he could to make this project move ahead and has worked with the Department of Defense to secure funding to be used for the military to do construction of a pioneer road to assist the island. He pointed out this is possible because of the land status and added that somewhere in the area of $10 million is being considered for this project. Number 339 MR. PEARSON referred to a handout entitled Metlakatla, Alaska Community Priority, Walden Point and said this is some basic information. He asked the committee to consider the implementation of a feeder ferry system which could be used in Metlakatla as well as other places. Unlike other road construction projects, the Walden Point Road has no maintenance costs involved because the land status makes it the responsibility of the Bureau of Indian Affairs (BIA) office. He commented the community would welcome any advice of assistance from the state and is looking to form a partnership in any way possible because they view this ferry and road as being critical to the community. The Alaska Marine Highway System has provided some good service, but it is expensive service. He noted he would make the cost benefit study available to the committee. Number 375 CHAIRMAN RIEGER asked what the ferry capacity was. Number 375 MR. PEARSON said the configuration for the ferry is 110 feet long, 90 tons, carry 11 vehicles, carry two 40 foot containers, carry one 20 foot vehicle and 35 passengers. The service would make one round trip every hour and the operation of the ferry would be covered by the fares. The cost of the ferry was estimated at $3.1 million for the construction and then the development of the terminal facilities. After looking at several examples in the state of Washington, this system made the most sense for Metlakatla and other communities such as Pennock Island. Number 398 CHAIRMAN RIEGER asked Mr. Hayden what the state's reaction was to the proposals and the status of the proposals. GARY HAYDEN, System Director, Marine Highway System, Department of Transportation and Public Facilities, said the state views these three projects as opportunities for the state of Alaska, for the region and for the Alaska Marine Highway System. The opportunities include travel, to provide more transportation, to move more people within and around Southeast Alaska and when this is accomplished, the state will support lifestyles, develop economically and promote net growth. He said the challenge is how to make the transition of the proposals into existing services and how to fund them. Number 420 MR. HAYDEN presented a slide titled, "Operations Triangle," and said there are three variables that seem to come into play with most of their decisions. Those variables include service, cost and revenue and in the center of this triangle is people's opinions, attitudes, satisfactions and responses to the services provided by the Alaska Marine Highway System. Number 438 MR. HAYDEN presented a slide titled, "Transportation Service," and said most people's perceptions of service range from being satisfied or dissatisfied and that individuals' perception of service varies. Service might be perceived as the weeks of operation that a vessel is running throughout the year, the number of port calls, and how many times a town receives ferry service within a seven day period, the time of the day the ferry arrives and departs from a town, the consistency in the schedule, the capacity of the ferry system and the vessels that are deployed in a particular link to meet the traffic demand within that link. He said service depends on the hours of operation; whether it is a 24- hour operation or a 12-hour. Currently, the Alaska Marine Highway system runs seven days a week, 24 hours a day and provides service 365 days out of the year. Service is also defined in terms of how long it takes to transit between two ports of call, how long and when the system has vessels to run each year. He noted that vessels come off line for overhaul, for a refurbishment program and are out of service which affects the service to people. MR. HAYDEN stated that service, options and people's opinions vary depending on their travel opportunities and what modes of transportation are available to them. One of the challenges during a transition when discussing these options is how to maintain service and optimize service to the rest of the region within Southeast Alaska. Number 470 MR. HAYDEN showed a slide titled, "Economics," which he said was an important issue in these proposals in terms of economics to the Alaska Marine Highway System, the economics of the port authority of the Prince of Wales Island, the economics of Goldbelt and the regional economics. In all three of the proposals, and also with the Alaska Marine Highway System, these three points are key when making a decision of how to provide these services and said they include the manning levels, the operating hours and the cost to the traveler. The manning levels are different depending on what type of classification the vessel receives by the Coast Guard. Number 487 MR. HAYDEN presented a slide titled, "Revenue," and said the Alaska Marine Highway runs, system-wide, 40 percent of the funds are derived from general funds and the other 60 percent from ticket sales. Revenues could be analyzed on the basis of city pairs and different numbers will be achieved because of the different number of people and vehicles that use the route. The Hollis to Ketchikan route operates 70 percent general fund and 30 percent revenues, whereas the north Lynn Canal service is a break even operation; no general fund money is used. MR. HAYDEN said another factor to consider is price elasticity. Within the Alaska Marine Highway System rate structure, the system has been fairly cautious that when raising the rates the increased tariffs do not decrease the ridership. Number 510 MR. HAYDEN referred to a slide title, "Hollis Vehicle Traffic," and said in 1994 the state provided a higher frequency in service but traffic did not follow increased frequency. He noted that 1992 marked the peak in traffic and it has been declining since then. Number 519 MR. HAYDEN showed a slide titled, "Hollis Passenger Traffic," which demonstrated the same trend as the previous slide. Number 524 MR. HAYDEN presented another slide titled, "Average Passengers Per Trip to Hollis," and said there appears to be a variation in the number of passengers per month, but in 1994 the average ridership was down. The Alaska Marine Highway has funded two studies with the city of Craig concerning their proposal. In 1994, there was a $50,000 grant to the city to do a preliminary report and in 1995 another $160,000 analysis was done. A month or so ago, the state received the results of the analysis which projected a $350,000 net revenue without any debt service on sales of approximately $3 million. The operating costs for the first full year of service would be around $2.7 million or $2.5 million. MR. HAYDEN said the traffic consumptions is very critical to the analysis and the economic viability to the port authority being able to operate out of the fare box. The study used the Alaska Marine Highway System traffic numbers of 1992 to set their base year, which was 48,600 passengers and 15,000 vehicles. Those numbers were used to make projections that increased demand for traffic up to 52 percent, and in the most recent studies that figure was increased to 69 percent. The assumption of the study is that if better service is provided, then there will be initial induced demand on their ferry system. He noted the other factor that is important is the assumed annual growth in traffic over time and this impacts what the revenues will be. That number has changed from $1.7 million to $2.1 million. The city assumed in their economic analysis, the same tariff structure that the state has. Number 568 MR. HAYDEN referred to a slide titled, "Break Even, Chart 2," and said this graph looks at an induced demand of 30 percent to 45 percent which is lower than the city of Craig's projections. The graph starts out with assumed growth of 1.5 percent to 2.7 percent, with the conclusion being that it would be a break even point at 35 percent of induced demand as long as there was an annual growth of 2.1 percent. He said in the opinion of the state, those numbers are aggressive and to break even the ferry will have to increase their rates some percentage to generate revenue if they do not have the projected traffic. The proposed fare was 10 percent to 15 percent increase over the state ferry rates. Number 587 MR. HAYDEN showed a slide titled, "AMHS Response Options," which discussed the options if the Prince of Wales Island ferry went into service. He said the first option would be to divest the M/V Aurora which would reduce costs and lower revenue with a net decrease in general fund subsidy coming into the Alaska Marine Highway System. He believed the preferred option would be to increase service somewhere else where the AMHS is running either in Southeast, run the vessels longer in the shorter seasons of fall, spring or winter, or the vessel could be redeployed in one of several locations around Prince William Sound around the time that the Whittier Tunnel comes into line. He suggested the Aurora could be put into Lynn Canal to provide capacity, or more people could be brought in from Prince Rupert to Ketchikan, or it could become a dedicated boat between Juneau and Sitka. He said other options could be discussed in a public forum to determine the best way to improve service. Number 614 MR. HAYDEN presented a slide titled, "North Lynn Canal," and said the state has not analyzed Goldbelt's proposal in detail because the same type of information has not been received as was sent regarding the Prince of Wales proposal. Number 633 MR. HAYDEN referred to a slide titled, "Parsons Brinckerhoff Survey," and said he recently contracted out with Parsons Brinckerhoff, in conjunction with the Juneau access environmental statement, to study what it would mean if there was a road to Juneau and what it would mean to the marine highway services that are currently being provided in the north Lynn Canal. The study found that the ferry currently provides 4,256 hours of operation in north Lynn Canal carrying 39,000 vehicles, 140,000 passengers with a cost and a revenue at a break even point. Overall, it generates 15 percent of Alaska Marine Highway System revenues for all of Southeast and carries 30 percent of both passengers and vehicles. MR. HAYDEN said the study looked at the possibility of vacating north Lynn Canal and how to utilize the 4,256 hours the ferry would have. He said one option was to drop the service hours, another was to decommission a vessel and then reschedule its service hours into the other vessels and provide off season passage. The third option was how to reallocate the service hours to the rest of Southeast. Number 646 MR. HAYDEN referred to a slide titled, "Findings," and said the study concluded that if north Lynn Canal service was eliminated with no other service changes, the general fund would remain the same and that decommissioning a vessel would reduce the service opportunities for the rest of Southeast. The AMHS currently has three boats that run out of Prince Rupert, making two trips through Southeast and one vessel out of Bellingham, making one trip. If a vessel was decommissioned, the AMHS would only be providing two- thirds of capacity out of Prince Rupert so less traffic would be moving up to Juneau. MR. HAYDEN said the study looked at several different ways to how redeploy the vessels and concluded that there were no other links that would generate the equivalent amount of... TAPE 96-11, SIDE A Number 001 MR. HAYDEN presented a slide titled, "Public Decisions," and said there are regional decisions that need to be made as well as more discussion on the technical aspects on all three of these projects and the AMHS is interested in maintaining dialogues with all three of the parties. Discussions need to occur with the communities concerning redeployment, working with the Southeast Conference, the transportation committees and the communities. Also, as the commissioner had testified previously, the department is in the process of starting and developing a Southeast transportation plan that will look at what these opportunities are and what they can mean to the rest of Southeast. Concurrent with that, in the near future the environmental impact statement for Juneau access will create another opportunity for public discussion and input into these decisions. The fourth item occurring is that Goldbelt will perform an environmental analysis, whether it is an environmental analysis or an environmental impact statement, on their development at the end of the road and will provide public input. MR. HAYDEN said the need and establishment of a port authority on Prince of Wales Island needs to be voted on by the people and eventually, the port authority would have to do a bond issue. Number 033 MR. HAYDEN reiterated the opportunities are to increase service, but the challenge is how to manage that transition to get increased service and don't decrease service by affecting both cost and revenue. Number 044 CHAIRMAN RIEGER said it seems there would be plenty of places to redeploy a vessel in the summertime and not lose revenue. He asked if the real problem is working out the ferry service in the winter. Number 052 MR. HAYDEN didn't believe so and said the Parsons Brinckerhoff study looked at where to put those 4,200 hours, those could be summer 4,200 hours, and generate a revenue to cover the cost of that time and the study concluded that it wasn't possible. He said revenues can be generated, but not enough to offset what it costs to provide those services. Southeast is not "bottlenecked," all the time. There are sailings that are full, but a significant amount of sailings are under capacity coming out of Prince Rupert. During the summer, the Bellingham vessel is running full all summer long. Number 069 CHAIRMAN RIEGER asked if the Lynn Canal run was "bottlenecked" in the summer. Number 072 MR. HAYDEN replied last summer and the years that the AMHS has provided double shuffles in north Lynn Canal, there has been capacity that has not been used. A person might not be able to get on the morning ferry, but is able to get on the afternoon ferry. The projections do show a traffic increase and so at some point it will become "bottlenecked" again. Number 083 SENATOR TAYLOR said the DOT/PF has an extensive study which was completed two years ago by Rodger Allington and concluded that this entire system would be gridlocked by the year 2006. He noted a tide book generates the scheduling for the entire ferry system in Southeast because the route covers two narrow passes including Wrangell Narrows and Sturgis Narrows which the ferries need to navigate at full tide. As a consequence there is nor regularity in scheduling. He added that convenience to certain ports to allow for crew changes and other factors also influences scheduling. He referred to the ferry schedule which often tends to leave Wrangell at 3 a.m. during the winter. There did not appear to be systemic changes within this operation to make some sense relative to service. Number 115 SENATOR TAYLOR said he thought it was phenomenal that the British Columbia ferries are telling Mr. Biner that they are projecting an increase of 7 percent and consider that figure reasonable, and are making capital and scheduling decisions based upon that figure. He commented the people of Prince of Wales Island are being dramatic to think they might have an increase of 2 percent to 3 percent in traffic. He questioned the lack of transportation improvements that have been made in the Southeast corridor over the past 19 years. He asked to compare other parts of the state and their transportation improvements to what has occurred in Southeast. SENATOR TAYLOR said he could not believe that the DOT/PF would allow a group to come in and "cherry pick" the best route and then say that the best scenario would be to decommission the existing vessel. MR. HAYDEN said that was not the only possibility, but that these were opportunities and that the challenge was how to figure out how to make the transition to not lose service and more service can be provided. Number 152 CHAIRMAN RIEGER said the perception is that the AMHS is capacity constrained, especially in the summer. MR. HAYDEN said if the definition of service includes a particular time of the day or a particular day of the week, then there are constraints on the system. Number 159 CHAIRMAN RIEGER asked if the ferry system was willing to make way for these private proposals and redeploy the vessels elsewhere or are the proposals viewed as competition with the AMHS. Also, he asked if the DOT/PF regarded a private supplement to what you are doing as an opportunity to take a vessel out so that something can be done somewhere else. Number 168 MR. HAYDEN said yes, those are opportunities and the challenge is how to figure out how to make that work to prevent an impact on the rest of the system. He said, "You cannot treat just two city pairs in isolation of the rest of the fleet because those vessels are running the whole system, not just that link. CHAIRMAN RIEGER said when looking at those runs, it appears that those runs could be redeployed to some other route, or additional frequency on another run. Number 180 MR. HAYDEN said the Aurora runs Ketchikan to Hollis to Ketchikan to Metlakatla and back to Ketchikan. Every other week, the Aurora goes to Hyder during the summertime. In the wintertime that same vessel, when the LeConte is out of service, serves not only the southern panhandle but goes up to north Lynn Canal and provides service for north Lynn Canal and when the Aurora is out of service, the LeConte services both those places. Number 190 CHAIRMAN RIEGER commented that if the Ketchikan to Hollis run were taken out, an extra run could be made to Wrangell or somewhere else. Number 193 MR. HAYDEN said although he has not looked at the other city pairs, he is confident that other places can be found to redeploy the vessel and generate more revenue than the 70/30 percent that is currently be used to operate. Number 197 SENATOR TAYLOR showed a map of Southeast Alaska depicting U.S. Forest Service roads that are currently in existence. He said the map contained highlights of all the proposed ferry runs which would be considered shuttle ferries or alternate ferries including the one that Goldbelt has suggested. He showed a ferry run from Sitka to Kake, another one from Juneau to Hoonah. He noted the U.S. Forest Service has been spending up to $200 million to build roads and have built 200 miles of road per year for several years. All of that was disregarded by the AMHS in the manner in which we interconnect between these communities. As a consequence, the entire fleet has to run all the way from Skagway to Ketchikan and work its way through these various passes, which means the schedule changes almost every day. There is no continuity. SENATOR TAYLOR said in the state of Washington ferry system provides regular scheduling and as a result transportation flows. On the other hand, what frequently happens with the AMHS is that decisions are made in the fall and the public has to continually check the schedule to see what ship is going to be laid up when, for how long, and when it will come back into service. Also, if the ferry that normally services the Prince of Wales route is pulled off to provide service to the Hoonah/Angoon area for example, individuals on Prince of Wales Island lose ferry service for most of the week. He pointed out the small amount of additional road would be necessary to connect Ketchikan to other communities if the existing road system was utilized. He noted that two years ago, the state spent $16 million to pave the road to the hatchery in Petersburg. Between Kake and Petersburg, the existing logging roads are about 7.5 miles apart, but the Administration has not told the Forest Service to build the 7.5 miles so that people from Kake could drive to Petersburg. As a consequence, the people of Kake have to wait for a ferry to come through in order to get to Petersburg. While the state is talking about spending over $30 million of state money per year, a logging road could be built for $200,000 per mile. He noted the quality of a logging road is better than the Egan Expressway with respect to how long it would hold up under heavy loads. The road system he was discussing would cost less than $15 million. He said there were a lot of benefits to be derived and the existing mainliners could still be used to make the long runs. As an example of the kind of transportation system people in Southeast are dependent upon, he commented that his secretary was told it would be five days before a ferry would leave from Ketchikan going to Wrangell. People are frustrated with the system and the ridership is going down. He noted that ferry employees who live in a community that is serviced by the ferry, but change ports in another community, would rather pay for a plane ticket than ride their own ferry system at no cost because it would take them one or two days to get to work due to the inefficient scheduling. He thought it was time for systematic changes. He said the ferry boat that runs between the Ketchikan Airport and the city of Ketchikan carries more vehicles and passengers than the AMHS Southeast fleet carries in a year and they do it with two employees. That's how this system could work with inexpensive T-boats such as those suggested by Goldbelt. The budget being submitted reduces the funding for the ferry system by $1.5 million which will tie up more boats longer and increase the frustration of the public. CHAIRMAN RIEGER commented that it makes intuitive sense that the shuttle-feeder system as proposed today and as Senator Taylor had discussed has a lot of potential and seems like the way to go. ADJOURNMENT There being no further business to come before the House Transportation Standing Committee, Chairman Rieger adjourned the meeting at 3:36 p.m.