Bridge Project Lacks Current Financial Plan and Adds New Geotechnical Risk: New Citizen Estimate $2.6 Billion + $X Factor.

January 28th, 2013

Financial analyst Jamie Kenworthy and Government Hill Community Council President and engineer Bob French have developed a revised cost estimate of the Knik Arm Bridge project. The revised estimate is $2.6 Billion “Plus $X” to recognize the new geotechnical risk added to the project based on the draft CH2MHill report on the engineering firm PND’s design and construction problems during the Port of Anchorage expansion. PND also did the 2007 35% design for the Knik Arm Bridge. Click here for the extensively documented Real Cost paper containing the revised cost estimate.

A December 2012 exchange of letters between Alaska State Senator Johnny Ellis and Knik Arm Bridge and Toll Authority (KABATA) Executive Director Andrew Niemiec clarifies that the geotechnical risk of not defining the limits of the Bootlegger Cove Formation Clay in Knik Arm – an issue that has bedeviled the Port of Anchorage project – is now to be borne by the bridge developer and not the state. Click here to see Senator Ellis’ letter requesting an updated financial estimate. Click here to see Andrew Niemiec’s response.

These developments compound the absurd situation of KABATA having no current financial plan for the project. In September 2012, KABATA’s $500 MM TIFIA low cost loan application was denied by the US Department of Transportation leaving the latest project finance plan of August 2012 missing half of the initial construction funds. This was the FIFTH time that KABATA has been turned down for a TIFIA loan. Other possible sources of revenue, like “Private Activity Bonds” have an average loan rate of 8% versus the low 3% rates from a TIFIA loan. For an annotated version of KABATA’s most recent Financial Plan, click here.

If the Legislature gives KABATA a “Blank Check” via the two recently filed identical bills in the new legislative session, predictions of the Bridge’s actual cost and the amount of the toll shortfall that the state will need to cover, may be irrelevant. Those bills (HB 23, SB 13) use the identical complicated language of last year’s HB 158 to seek to commit the State to fully fund any size 35 year contract KABATA could sign with the developer through an endlessly “replenished” (and thus unlimited), reserve fund. Last year HB 158 passed the House but was halted in the Senate Finance Committee because of questions about KABATA’s financial plans. When asked last session if there was money in the Capital Budget for the Knik Arm Bridge, Senate Finance Chair Bert Stedman stated, “It ain’t in there. I don’t think it’s ready for financing. The presentation that was made to the Senate Finance Committee [by the Knik Arm Bridge and Toll Authority] was frankly one of the worst presentations my committee members said they’ve ever seen in here.”

The new KABATA bills have been referred to the Transportation and Finance Committees of both houses but hearings have not yet been scheduled. Also still pending is the completion of a legislative audit of the reasonableness of the traffic and toll projections underlying KABATA’s financial plan. The Legislative, Budget, and Audit Committee authorized that audit a year ago.