Despite a flurry of activity at the end of session which at one point promised to pass a bill that would launch the project and at another point threatened the existence of KABATA, the legislature adjourned without passing any legislation on the project.
Opponents of the project could take heart that without passage of HB 23 with its implicit state guarantee of an unlimited amount to make up for the toll shortfall and without the $10 million the Governor requested in the capital budget, the project lacks financing and so cannot move forward with an RFP or win a needed federal loan. Bridge supporters can be grateful that KABATA has a 27% increase in its operating budget that will allow more PR and outreach to sell the project in the coming year.
What is clear is that a majority of the legislature, at least rhetorically, supports building the Knik Arm Bridge but that same majority, at least in the House, is opposed to the extra expense of a public-private partnership versus direct state bonding. There appears to be a majority of legislators leery of KABATA continuing to manage the project, at least partly as a result of what the audit committee called KABATA’s “unreasonably optimistic” toll forecast.
A review of the legislative action in both houses reveals interesting fractures within and between both political parties.
The House: Push for State Guarantee Hits Audit
The drama of trying to get HB 23 through the House before the Legislative, Budget and Audit Committee (LB&A) released the audit came to a head on April 6.
HB 23 had eked through House Finance on April 3 with Co-chair Rep Bill Stoltze (a co-sponsor of the KABATA Bill) gaveling down questions from his fellow Republicans and at one point calling a recess when it appeared there were not the votes to pass the bill. HB 23 survived the committee with Republicans Neuman, Stoltze, and Tammie Wilson voting pass and six representatives voting to amend, Democrats Kawasaki, Gara, and Edgmon and Republicans Munoz, Holmes, and Costello, and Republican Steve Thompson with no recommendation.
The Committee was uneasy with HB 23 establishing a process for KABATA annually to certify how much working capital, overhead, administrative costs, and contractor payments they needed because then the legislature would face a tough dilemma. Either rubber stamp that amount or not appropriate the funds and trigger a likely downgrade of the state’s credit rating. For a discussion of the moral obligation language in the bill, click here for attorney Susanne DiPietro’s testimony.
On April 5 the LB&A meeting on the audit was moved from 9 AM to 5:30 PM while the House was scheduled to take up the bill at second reading at 11 am, both on Saturday April 6th. However, HB 23 was not taken up for a floor vote that morning, and the Rules Committee chaired by Craig Johnson (R-Anc) re-scheduled the bill on the House calendar for final vote on April 8.
The release of the audit that evening and the ensuing media coverage apparently moved enough votes, so rather than the House passing the bill as expected on April 8, the Republicans went into a 5 PM caucus that day and emerged to take the highly unusual step to send the bill back to the Rules Committee. There the Committee rewrote a longer bill by Representative Mia Costello (R-Anc) now called Amendment 1 to CS HB23 (Fin) v.0. The new bill moved the project from KABATA to Alaska Housing Finance Authority (AHFC) while in effect demoting the current KABATA Board to an advisory Board to AHFC for one year before going out of business. For Costello interview, click here.
Over the next two days the House Rules Committee took the unusual step of holding a limited hearing with only KABATA and AHFC testifying about the practical effects of the revised bill. While HB sponsor Mark Neuman (R-Big Lake) and KABATA Chair Michael Foster pleaded with the Committee not to approve CSHB 23 to gradually abolish KABATA, it was clear that the Republican leadership now backed Rep. Costello’s revised bill.
Testimony by AHFC Executive Director Dan Fauske indicated he would accept the project but would not commit to a schedule to undertake an independent review of the population and toll estimates the LB&A found “unreasonably optimistic.” As a multi-project agency that is currently the lead agency on the “bullet gas line” and public housing, AHFC interest in maintaining its A credit rating was clearly a key factor in the Committee’s willingness to transfer the Bridge from the one-project-KABATA agency to the multi-project AHFC. Click here for the Anchorage Daily News’ summary of the Rules Committees deliberations.
With leadership support and further clarifying Amendment 2 to Amendment 1 to CS HB 23 setting up a new Knik Arm Crossing Fund in AHFC, the legislation then easily passed the House 24-15. Presumably believing the bridge project should be killed now, almost all the Democrats and two Republicans Eric Feige (R-Chickaloon) and Transportation Chair Peggy Wilson (R-Wrangall) voted No. All other R’s plus D’s Kawasaki (Fairbanks), Foster (Nome) and Nageak (Barrow) approved the project’s transfer to AHFC. For media accounts of the House action:
Click here for the Mat-Su Frontiersman coverage.
Click here for the Fairbanks Daily News-Miner recap.
Click here to read the Alaska Budget Report’s account of the House actions. Copyright Alaska Budget Report. Reprinted by permission.
The Senate: Running Out the Clock
After revised CS HB 23 passed the House at 1 AM on Friday April 12, the Senate Finance Committee that afternoon began deliberations after several days of having the public hearing for SB13 being re-scheduled day after day. But Senate President Charlie Huggins slowed any momentum for the new CS HB 23 by supplying a pro-Bridge witness list to the Senate Finance Committee, and Finance Co-Chair Sen. Kevin Meyers (R-Anchorage), said that he wanted to give KABATA a chance to reply to the Audit findings. Click here to read the Daily News-Miner’s account of Senator Huggins’ reluctance to rush the bill.
Senate Transportation Chair Dennis Egan (D-Juneau) had earlier held a public hearing on the original HB 23/SB 13 but when the revised HB 23 got to Senate Finance Committee on April 12, Co-Chair Kevin Meyer (R-Anc) allowed only invited testimony from pro-Bridge advocates.
On April 2, 2013, the Senate Finance Committee had heard a long presentation by David Livingston of Citigroup on the virtues of public-private partnership structure (P3s ). Livingston cited five launched but not yet completed P3 projects, but only one used KABATA consultant CDM Smith for the traffic and toll forecast. Click here to download the presentation.
In reply, Government Hill Community Council President Bob French and financial analyst Jamie Kenworthy annotated the Citigroup presentation highlighting three CDM Smith toll projects that have gone bankrupt since completion. Click here to download the annotated document.
Click here for a full listing of documents available to the House for deliberations on HB 23.
Click here for the full listing of documents associated with the later Senate deliberations.
Despite calendaring public testimony on the revised HB 23, the Senate Finance Committee on April 12, took no public testimony, and ultimately took no action on either version of the bridge bill. The legislature session expired before midnight April 14.
Both houses did pass the capital budget SB 18 which contained the Governor’s requested $10 M for the project part of the 4 year $150 M “down payment” KABATA identified last year as necessary to fund the reserve fund for the project. However, section 54 of the capital bill had a contingency making that $10 million appropriation contingent on “enactment into law of a bill creating the Knik Arm Crossing Fund” which was contained in the never-passed CS HB 23.
Without the expanded state guarantee and the additional $100 million in private activity bonding authorized by HB 23, and without the $10 M from the capital budget, it is considered extremely unlikely that the project will win the $300-500 million in federal loans necessary to launch the project.
Further late session media comment on KABATA’s declining credibility see: This Alaska Dispatch report and this Frontiersman editorial, and this copyrighted Alaska Budget Report story listing high KABATA salaries, reprinted by permission.
4 Untold Stories
The frenetic deliberations on the KABATA bills in the last few days of the session left the media with little time or perhaps less interest in covering four curious developments during that period.
1) Bridge Cost: $1.1 Billion, $1.6 Billion, $2.6 Billion or Unknown?
Media accounts seem understandably confused about the cost of the project. During the session which started in January, 2012 KABATA representatives described the total cost of the project at $1.1 Billion, a number based on KABATA’s August, 2012 financial plan.
However, the LB&A audit contained a new financial plan submitted by KABATA and dated December, 2012 showing a higher project cost of $1.6 Billion. The new plan included the cost of building 4 lanes on the Bridge in 2026 since apparently the auditor convinced KABATA that it was unreasonable to include the revenue from four full lanes of traffic from 2026-2051 without including the cost of expanding the bridge to four lanes. During all the committee deliberations the legislature did not refer to the $500 million higher cost number. The 4 lanes of revenue, 2 lanes of cost problem was first noted by Jamie Kenworthy in an August, 2011 presentation (see 11/13/11 post below) to the Technical Advisory Committee of the Anchorage Metropolitan Area Transportation Planning Committee (AMATS) but until the LB&A audit was released on 4/6/13 no public entity had acknowledged the extra costs associated with building the additional two lanes.
KABATA’s new $1.6 Billion estimate is still based on land use assumptions the auditor found are inconsistent with Mat-Su Borough adopted plans and “unreasonably optimistic” traffic and toll projections. Bridge critics maintain the project cost will be $2.6 Billion (click here to see “Real Cost” paper) but no media stories cited the higher possible number for the project.
The auditor deliberately made no project cost figure arguing no estimate was possible until an independent traffic and toll study was done.
This summer the Federal Highway Administration (FHWA) is scheduled to redo the now five year old cost estimate.
2) Department of Transportation: Now Watching From the Sidelines
One sign of possibly declining administration support for the bridge project is the changing position of the Department of Transportation and Public Facilities (DOTPF).
In past years DOTPF officials have described the bridge as a “high priority” and testified to the legislature in support of the project. Last year DOTPF authored an artfully written fiscal note that said the project would cost $0 contingent upon the KABATA traffic and toll estimates being accurate.
The Commissioner of DOTPF did testify before the Senate Finance Hearing on April 2, 2013, but his testimony essentially distanced DOTPF from the work that KABATA was doing.
This year’s $0 cost fiscal note was signed by Michael Rovito, KABATA’s new legislative liaison and Andrew Niemiec KABATA’s Executive Director.
It might be argued that the legislative record that showing the fiscal note as coming from DOT was technically correct because KABATA is administratively attached to DOTPF. However, the legislative information system listing from the zero cost estimate from DOTPF was misleading because it did not include the $150 million of State Funding for KABATA’s “Reserve Fund”, and did not include the additional $41 million of State Funding that KABATA predicts will be necessary to replenish the “Reserve Fund”, starting in 2031, well after FY2019 which is the last year noted in the “zero fiscal note”. The Department of Revenue also signed a $0 cost fiscal note.
It is not clear what has led to DOTPF’s change of heart on the project. Bridge critics had briefed DOTPF on the 4 lanes of revenue and 2 lanes cost problem after 2026 so it may be that they decided they could not sign the $0 cost note even with the broad caveat that it was contingent on the accuracy of KABATA toll projections. Since the draft audit was circulating internally for comment in February, 2013 and the fiscal note appeared a month later, DOTPF probably had advance warning of the audit’s findings and sensed an impending shifting mood in the legislature.
In any case, when the LB&A audit was released and DOTPF had to provide a written comment, DOTPF Commissioner Pat Kemp had a one sentence response that could be construed as another sign that his department was distancing itself from the project: “The Department has no comments as the only finding is specific to the Knik Arm Bridge and Toll Authority.”
3) Department of Revenue: The Conveniently Canceled Financial Review
The Alaska Department of Revenue (ADOR) is the state’s chief guardian of Alaska’s high AAA/AA+ credit rating from the nation’s three largest ratings firms.
On January 7, 2013, just before legislative session started, ADOR released a Request For Proposals (RFP) to select a firm to assess the financial feasibility of the Knik Arm bridge project and asked for proposals in only 11 days. Two firms responded: the New York office of First Southwest Company and the New Jersey-based firm Acacia Financial Group. Both firms had a presence in Alaska.
The RFP # 2013-0400-1683 listed a schedule for the expected $25,000-$225,000 contract assumed an award on 2/4/13 for a 1 year contract with two one year possible extensions. The contractor was to “review the reasonableness of the assumptions” of KABATA’s traffic and revenue consultant Wilbur Smith and the Citigroup Financial Plan and “review, verify, and confirm recommended financing structures for the State’s participation in the Knik Bridge Crossing.” Any firm that had done work for KABATA in the last five years was considered a conflict and not allowed to bid on the project.
Clearly ADOR was interested at that time in a non-KABATA source assessing the project’s financial feasibility and seeking to independently determine the state’s liability in KABATA preferred P3 structure with the contractor and not the state issuing bonds. The RFP described how the chosen firm would work with KABATA and Deputy Revenue Commissioner Rodell and other state officials in assessing the project and recommending financing options.
In February, 2013, Government Hill Community Council President Bob French made a public records act request of ADOR seeking to discover the status of the project. On February 22, 2013 department procurement officer Dorie Choquette informed French that ADOR had “received a protest regarding the Alaska Bidders preference which needs to be researched further by the Department of Law” and so the department had cancelled the solicitation.
The response to French’s information request showed that two of three bid reviewers had voted to award the bid to the Acacia firm but it was subsequently learned that the Alaskan bidders protest had been made by competitor First Southwest.
Deputy Revenue Commissioner Angela Rodell is Revenue Commissioner Butcher’s designee to sit on the KABATA Board. She was the former Senior VP at the NY office of First Southwest before becoming Deputy Commissioner in September, 2011. She is considered the department’s leading authority on public finance markets.
With the protest of the potential award and subsequent late start it was doubtful that significant work could have been performed on the financial feasibility of the project and made public in the last six weeks of session. However, since the contract was for a minimum of a year and presumably the information was still sought by some members within the administration, it is not clear why this delay and protest led to the wholesale cancellation of the solicitation.
Deputy Commissioner Rodell did testify in the legislature in support of the project on April 2, 2013 before the House Finance Committee. But, as a result of the canceled procurement, the legislature in its deliberations did not have the benefit of ADOR’s planned independent review of the project’s financial feasibility.
4) KABATA’S Choice: Keep Control or Receive $10 Million and a Possible $300 Million Federal Loan?
When the House Rules Committee was debating moving the bridge project to AHFC, KABATA Chair Michael Foster argued that the transfer would dangerously slow the procurement of a contractor to build the project. However, that procurement depended on a state guarantee to cover the toll shortfall and $10 -$150 million in further state funds, as KABATA CFO Kevin Hemenway told his Board in February, to show the necessary state commitment to win a $300-$500 million federal TIFIA loan.
Last year KABATA estimated it needed only a $150 million state loan for a reserve fund to launch the project. The Governor’s December, 2012 capital budget request included $10 million for FY 14 as a “down payment” and then projected $35 M/year for 4 years to total the $150 Million.
Starting April 9 when KABATA was testifying against the AHFC transfer, the capital budget had not yet passed either House but the draft budget had been released April 6 with a contingency that made the $10 million available only if legislators established a new “Knik Arm Crossing Fund” that session. The only bill that could establish the necessary contingency was CSHB 23 – the same bill that would have transferred KABATA to AHFC. CS HB 23 would preserve the KABATA Board only for a year as an advisory Board to the AHFC Board and presumably KABATA employees could be rehired by AHFC or dismissed as AHFC redid the population, traffic, and financial projections.
As a result, Chairman Foster faced a tough tactical choice. Either he could go along with the AHFC transfer in CSHB 23, meet conditions for the $10 million, and increase the chances for a $300-$500 million federal loan that could launch the project. Or he could preserve his own role in the project, at the cost of turning down the $10 million appropriation and essentially ruining KABATA’s chances to get a federal loan (the fate of which he warned the Rules Committee in his argument against the AHFC transfer).
Chairman Foster chose the latter course, keeping project control and staff continuity within KABATA at the expense of the project’s financing. Furthermore, the Senate’s ultimate non-action on all bridge bills preserved the agency for at least another year.
However, that choice leaves KABATA in a tough place when the legislature reconvenes in January, 2014. While KABATA will still be in control of the project, without any state guarantee or federal loan the project will remain stalled. And KABATA will again have to explain why it has failed for now the ninth time to win a federal TIFIA or TIGER loan.