Governor apparently manages Department of Transportation and not Vice Versa; Bridge Project on the Ropes

January 26th, 2015

The flurry of activity around the Knik Bridge project in the last two months has made two things clear: First, the Governor Walker appears serious about taking the Bridge out of his capital budget request; he ordered the Department of Transportation and Public Facilities (DOT) stop spending funds on the project. Second, despite attempted resistance from the Department, Walker remains in charge.

With oil below $50 a barrel, the Governor’s first step to getting control of an approximate $3.5-4 billion state annual deficit came on December 26, 2014 when the new Governor issued Administrative Order 271 to stop spending non-obligated and unencumbered funds on six megaprojects. Besides the Knik Arm Crossing, the other projects were the Ambler Road, the Juneau Access Road, the Susitna-Watana Dam, the Kodiak Launch Complex and the Alaska Stand Alone Pipeline project. See here for Governor Walker’s press release.

The DOT Push Back that Failed

A January 5, 2015 memo from holdover DOT Commissioner Kemp to Governor Walker’s new Office of Management and Budget Director, Pat Pitney with a copy to the Governor’s Chief of Staff, Jim Whitaker boldly defended his department’s projects. Kemp argued that both the Juneau Road and Knik Bridge were “long-standing goals of the state” that represented a “cost-effective opportunity.” He also said canceling both projects would “likely trigger” the requirement to repay the estimated $73 million in federal funds spent on the Knik Bridge and the $25 million in federal funds spent on the Juneau Access project. By arguing that the Knik Bridge could be funded by state and federal bonds and user fees, Commissioner Kemp was, in effect, backing up the controversially optimistic toll revenue forecast and implying the Bridge would have no impact on the state’s budget.

The resistance of DOT bureaucracy to the apparent cancellation of the two projects stood out among the other state departments and agencies reacting to the suspended six megaprojects.

Critics of Commissioner Kemp’s reasoning were not long in coming out. With DOT’s estimated cost of the Bridge at $1 Billion (critics say around $2 Billion), bridge critic Jamie Kenworthy said the mathematical logic of Kemp’s reasoning was that if you had put five cents into a project that did not make sense, should the other 95 cents follow? Others pointed out when costs ballooned on Anchorage’s Highway to Highway and the Knowles Coastal Trail extension projects, both were canceled by the state and FHWA without the state having to repay the federal funds expended. Faced with these past examples, DOT Transportation spokesperson Jeremy Woodrow backed off his earlier claim that refunding would be required, and instead admitted that past repayment issues had been settled on a case by case basis.

On January 12 the Governor fired Commissioner Kemp. The Juneau Empire and later the Alaska Dispatch and the Fairbanks Daily News Miner quoted the Governor’s spokesperson Grace Jong who made clear that both the Knik Bridge and Juneau Access projects were “on the block.”

The Subway Eminent Domain Fiasco: A DOT Left Hand/Right Hand Problem or an Out of Control Bureaucracy?

On January 8, 2015, DOT contractor HDR notified the owners of the Subway business on Government Hill threatening that if ”there is not some form of mutual agreement reached between the parties within 14 days” regarding acquiring of their property lease for Bridge right of way, the case would be referred to the Attorney General for instigation of eminent domain proceeding to acquire Subway’s interests in the property. The HDR letter copied Knik Bridge Director Judy Dougherty and the Attorney General’s Office.

The willingness of DOT to incur further legal and right of way costs appeared to contradict both the Governor’s December Administrative Order 271 to halt further un-obligated spending and the Knik Arm Crossing and Toll Authority’s (KABATA’s) November 14, 2013 Board resolution to let existing businesses operate until the project’s plans were nailed down.

It’s not clear whether DOT leadership, including Central Region Director Rob Campbell, knew that Knik Arm Crossing Director Judy Dougherty was continuing steps to take to acquire property. But the Governor reacted by canceling any further efforts to acquire more right of way, remarking “let’s not go and start tearing down buildings and closing businesses” for the hypothetical project. It is not known if the Tesoro Station on Government Hill received a similar eminent domain letter from DOT, as their property is also slated for demolition, should the Knik Bridge pass their financial and permitting hurdles.

Government Hill Community Council President Stephanie Kesler applauded the Governor’s decision to cancel the eminent domain proceedings while pointing out that DOT had still not canceled the contract to demolish two private homes and the Sourdough Motel. She asked that the DOT employees who ignored the Governor’s administrative order be held accountable. Senator Ellis (D-Anc) described the attempted taking of two operating business as a continuation of the Department’s “pattern of intimidation” of the neighborhood and Bridge opponents.

Summary: New Sheriff in Town and New Commissioner, but old legislature?

On January 23 the Governor announced that he had appointed former DOT Commissioner Marc Luiken to his former post. A former Elmendorf Vice Commander, Luiken reportedly had been fired by Governor Parnell after he had quantified the budget needed just to maintain DOT’s transportation infrastructure and argued for the priority of maintenance over new construction. While he had never publicly aired his differences with the Governor and his transportation aide Randy Ruaro, reports had circulated from aides that the Governor asked for Luiken’s resignation when it became clear that Commissioner Luiken did not share the Governor’s support for the megaprojects that had drawn such enthusiasm from the Associated General Contractors and local politicians, and particularly from the Mat-Su Borough.

On January 9, 2015, DOT proposed Amendment 13 to the Statewide Transportation Plan (STIP) that would drop the Knik Arm Crossing from the STIP, and transfer those funds to other projects, taking the necessary bureaucratic step of asking for public comment by February 13 on the proposed amendment.

With these actions by the Governor and the Department of Transportation, it has become clear that the Governor is focused on cutting the capital budget and a Commissioner is now in place who shares the new Governor’s priorities. But it is not clear whether the legislature will go along with the Governor’s priorities.

On January 22, 2015 the joint Senate and House Transportation Committees met to hear testimony and discuss the fate of the megaprojects. The legislators’ general discussion neither endorsed nor suggested trying to overturn the Governor’s decisions. Testimony from the Acting DOT Commissioner included the information that $84.8 million has been spent to date on the Knik Arm Crossing including $72.9 million in federal funds.

Also on January 22, 2015, the AP’s Becky Bohrer reported that the Senate Finance Committee had hired former Parnell Revenue Commissioner and KABATA Board member Angela Rodell on a 4 month, up to $100,000 contract, to provide advice on the retirement system, the gas line, and the state’s bond rating. A year ago Rodell had instigated the latest finance plan for the Bridge that proposed the state directly finance the project and testified in favor of legislation that passed committing state bonds to the project (contingent upon receipt of a federal loan that KABATA had been turned down for six times). Without the authority to incur further consultant costs, it appears that the administration cannot now pursue the letter of interest loan application.

But with the legislature now in session, the final story of the Knik Bridge project may not be over yet.