With nine days to go in the legislative session, CS HB 23 has moved to the Alaska Senate Floor. If CS HB 23 passes the Senate, it will next go to the House where the bill must pass if it is to become law before the legislature adjourns on April 20.
CS HB 23 earlier passed the Senate Finance Committee with 5 approvals (Senators Meyer, Bishop, Fairclough, Kelly, and Hoffman) to 1 do not pass (Senator Olson). The only financial information provided the committee for what KABATA estimates as a $894 million dollar project, was a 1 page listing of funding sources which included a $251 million state revenue bond, existing and anticipated state and federal transportation funds of $226 million, $55 million from next year’s capital budget, and a $341 million federal TIFIA loan which must be obtained to trigger the state funding. The Bond Committee would have to approve the package.
Reverse Engineering the Missing Spreadsheet
While traffic counts and expected toll revenue were discussed in two days of hearings at the Senate Finance Committee, at no point did KABATA or the State Department of Transportation produce any information on estimated toll revenues or any schedule of projected bond payments. As a result, there was no way for committee members to determine if the numbers added up. Although there were verbal references in testimony to less than 10,000 cars a day being needed to make the bond payments in the early years, no information was provided showing the traffic numbers necessary to produce the revenue to pay off the hoped for federal loan and the state revenue bonds.
Using that one page plan from KABATA-DOT&PF and numbers from recent presentation of KABATA Chairman Mike Foster to the Alaska Industry Support Alliance, retired emeritus Professor Scott Goldsmith produced a spreadsheet (click here for Goldsmith spreadsheet and commentary by Jamie Kenworthy) showing that the Bridge would have a cumulative deficit by $242 million by 2034. The point of the Goldsmith exercise was not to define a cost for the project but rather to show that, even by KABATA numbers, the legislature would have to annually pay for the toll shortfall for the next 18 years.
The Senate Finance Commission had much discussion about increasing traffic on the Glenn and that the Bridge could forestall the full cost of necessary Glenn improvements. Goldsmith’s spreadsheet included information from the latest Department of Transportation traffic counts showing that for the last three years traffic between the Mat-Su Valley and Anchorage has not increased.
As 5 people who testified to the Committee pointed out, KABATA has not produced the new demographic data, traffic and toll projections and financial information promised by KABATA after last April’s highly critical Legislative audit. The audit stated that KABATA’s predictions were “unreasonably optimistic.” Further confirming that KABATA’s projections were “unrealistically optimistic,” two more recent projections performed for the Department of Transportation for tolled traffic, resulted in numbers that are 50% and 74% lower than KABATA’s old unrevised numbers.
If (When?) Tolls Fall Short Will KABATA Default or Will the Legislature Make Up The Toll Shortfall?
Questions from Senator Ellis (D-Anchorage) to the Department of Revenue and the Attorney General’s office asked what would happen if toll revenues proved insufficient to repay the proposed TIFIA loan.
Assistant AG Jeff Stark denied that one particular section of the bill constituted a moral obligation of the state. But the confusing cross references of “toll bridge reserve fund” “bond redemption fund” and “bond reserve fund” appears to extend the clear responsibility the State would have for the $300 M fund to also include any bond or loan KABATA might approve. By their nature, so called “moral obligations” are a guarantee not written in the statute but CS HB 23 contains the customary language citing “reserve funds” and obligations to report any shortage of necessary funds to the legislature which are the customary tools of establishing a moral obligation for the state to have to back up the debt issued by its own agencies.
Bob French marked up CS HB 23 showing a number of questions about how the reserve funds would actually work. Click here to view the marked up version.
Assistant AG Stark also answered a question directed to the Department of Revenue by stating, “Since KABATA will not be relying upon State backing to obtain the TIFIA loan, a default by KABATA will not impact the State’s credit rating.”
No Alaska state agency has ever defaulted on its obligations, whether to investors or the federal government. But most bond professionals are quite skeptical of Stark’s assurance that there would be no impact on the state’s credit rating from a KABATA default on the proposed $341 million loan. What is a more likely scenario say bond authorities, is that when toll revenue proves insufficient, the legislature will annually make up the shortfall rather than risk a credit downgrade and higher interest rates having to being paid by the state and local units of government.
That expected scenario of the “blank checks” embedded in CS HB 23 was the topic of Scott Goldsmith’s testimony to the Senate Finance Committee.
There was little discussion by the Senate Finance Committee that under the new public finance structure of CS HB 23, as opposed to the old public-private partnership model KABATA pushed last year, the state will now be responsible for all cost overruns.
So what projects will be crowded out by the Knik Arm Bridge?
Department of Transportation Program Development Director Jeff Ottesen reassured the Senate Finance Committee that in making room for the Bridge in the state’s adopted transportation plan would bring at most delay of 6-12 months of some projects and the only canceled projects were ones that will no longer be necessary, such as those improving the ALCAN highway bridges, since all gasline discussions now focus on an in-state line to Valdez or Cook Inlet.
However, the Department of Transportation now has out for public comment, the amendments necessary to accommodate adding the Knik Arm Bridge to the transportation plan. That information makes it possible to identify the canceled or postponed projects that will be immediately affected if CS HB 23 passes and those projects are spread across the state. Click here for a list of the canceled and postponed projects.