After two days of testimony last week from only those state officials who support the Knik Arm Bridge, the Senate Finance Committee will resume deliberations this week on a new one page financing plan. Click here to view the plan. KABATA’s new estimated cost for Phase I of the Bridge is now at $894 million.
The new bill CSHB 23, authorizes $300 M in state bonds for the Bridge, counts on a $341 M low cost fed TIFIA loan that KABATA has been turned down for six times as well as $226 million in new federal funds above currently anticipated future federal transportation funds.
The Senate Finance Committee’s two rural Democrats that caucus with the majority, Senator Donny Olson (D-Golovin) and Senator Lyman Hoffman(D-Bethel) expressed great skepticism about the new plan. Senator Olson labeled it “a white elephant in the offing.”
But, the remaining Senate Finance Committee members, Chairman Kevin Myer(R-Anch), Co-Chairman Pete Kelly (R-Fairbanks), Anna Fairclough (R-Eagle River), Click Bishop (R-Fairbanks), and Mike Dunleavy (R-Wasilla) seemed broadly supportive of the new measure because it throws out the whole Public Private Partnership (P3) structure and instead has the state finance the bridge directly at a lower interest cost. (However, the extra cost of presumably state employees as toll collectors and the state contracting for O&M will lower those savings since the P3 structure had the contractor operate and maintain the bridge.)
For press accounts of the committee’s deliberations see Lisa Demer’s two articles in the Anchorage Daily News: New Funding Plan for the Knik Arm Bridge and Legislators Hear New Knik Bridge Financing Plan. Also see Pat Forgey’s article in the Alaska Dispatch, Legislature Considers Restructured Knik Arm Bridge Plan, Minus ‘the Middleman’.
Five Unanswered Questions
The Finance Committee listened closely to Municipal Bond Bank director Deven Mitchell as he estimated the state’s maximum liability for the project to be $450 million for the $251 million state revenue bond issue and $200 million of interest payments. Mitchell is well respected and considered a credible defender of the state’s AAA credit rating.
When the Senate Finance Committee resumes hearings on the bill, critics are expected to focus on five unanswered questions that may affect the Committee’s faith in that $450 million maximum cost estimate:
- Does section 37.15.255 (g) of CS HB 23 threaten the state’s credit rating?
- Where are the New Numbers KABATA promised?
- Will 36,000 vehicles a day cross the Bridge in 2035 or just 9,400?
- Will the Bridge Cost $894 million, $1.6 Billion or More?
- What are the legislators’ real priorities?
This section of the proposed bill states that the Commissioner of Revenue (currently a KABATA Board member) will annually estimate the amount of money necessary to replenish the bond reserve fund to meet debt obligations. Then the legislature “may” appropriate the necessary funds. The section also states that “nothing in this section creates a debt or liability of the state.”
However, the language of this section is considered by bond attorneys to be standard “moral obligation” language that commits the state. If, because of insufficient toll revenue, the legislature refused to appropriate the necessary funds for the federal TIFIA loan payments, the first ever default by a state agency would result and the state’s credit rating could then fall below investment grade.
As described by Deven Mitchell, any toll revenue would be allocated in the following order: (1) Operations and Maintenance of the bridge (2) Pay off the hoped for $341 million federal TIFIA loan (3) Pay off the up to $300 million state revenue bond.
The state’s moral obligation has never been tested. In the past, if AIDEA or AHFC projects failed, those state agencies had sufficient profits and reserves to make the payments on agency paper.
KABATA is a one project state agency and “if” (more likely “when” project critics say) the toll revenues are insufficient to pay off the federal loan, then the legislature would have the tough choice of either reneging on an agency obligation or coming with whatever amount is requested by the administration for the bond reserve fund. If the state reneges, the state’s credit rating would be lowered which would raise the cost of financing for the remainder of the state and local units of government.
The standard term sheet for federal TIFIA loans requires an investment grade rating from at least two national rating firms for any funded project. How can this project earn an investment grade without directly pledging the state’s credit?
The predictable dynamics of Section g of CS HB 23 threatens the state’s credit rating and puts in place an unlimited obligation for the legislature to perpetually replenish the bond reserve fund.
The LB&A audit released in April, 2013 found that KABATA’s financial plan was based on traffic and toll numbers that were “undocumented” and “unreasonably optimistic.” KABATA responded by promising to redo the socio-economic projections. The new projections were to be complete by September 30, 2013. (Click here for additional reading.)
KABATA used transportation dollars to buy statewide media promising a “fresh start” for the project and promising that the new data that would be “peer reviewed.” The KABATA Executive Director on August 27, 2013 also signed an agreement with the Anchorage Metropolitan Area Transportation Solutions (AMATS, the state/Muni Anchorage regional planning organization ) agency to share projected population, household, and job forecasts and coordinate this demographic data to aid regional planning.
To date, no new population and employment forecasts, nor the Toll and Revenue forecasts based on that population and employment data have been released to AMATS, the legislature, or the public. After the skeptical LB&A audit, will the Senate Finance Committee approve a project guarantee and $300 M revenue bond authorization without seeing the promised new demographic and financial information?
By approving CS HB 23 the legislature would in effect warrant the accuracy of the KABATA’s current traffic and toll revenue forecast which the legislature’s LB&A Committee has severely criticized.
A $250,000 a day/$90 million a year difference in toll revenue.
KABATA has not completed the Toll and Revenue forecasts they promised. However, last year the consulting firm HDR as part of the Wasilla bypass project for the Mat Su Borough and the state DOT&PF, updated Mat-Su population and employment numbers and projected 2035 traffic on Mat-Su roads using data from the 2010 Census. A Public Records Act request to the Alaska Department of Transportation and Public Facilities uncovered HDR’s estimate of 9,400 vehicles a day crossing the Bridge in 2035; KABATA’s last prediction for 2035 was 36,000 vehicles a day. The Highway to Highway project in 2009 projected half that or 17,700 trips. Click here to view the HDR distribution map of the 9,400 daily trips.
HDR also projected there would be only 1249 jobs at Point MacKenzie in 2035, the northern terminus of the proposed bridge. KABATA’s last estimate for Point MacKenzie jobs was 10,455 or more than 8 times as many. That high number drove a extremely high toll revenue estimates that would be used pay off the bonds. Based on KABATA’s estimate of a one way $7.80 car toll and a $28 truck toll in 2035, the 26,600 difference in vehicle trips (36,000-9400) amounts to a difference of over $250,000 a day or $90 million a year in 2035.
At the March 13, 2014 AMATS Technical Advisory Committee meeting Jamie Kenworthy distributed maps comparing KABATA, AMATS and HDR Numbers showing the large difference between population and employment numbers from the 2011 AMATS and 2013 HDR reports on the one hand and KABATA’s much higher numbers generated in 2011. A representative of the state Department of Transportation found the HDR-KABATA comparison misleading since the HDR numbers were just done for the Wasilla bypass and are not a regional forecast.
However, Kenworthy believes the forecast is the best bridge forecast yet since HDR’s was the only traffic projection to use 2010 Census numbers and recent Alaska Department of Labor data to update neighborhood population and job data and then correlate the new data with existing traffic counts before making the updated traffic projections.
The new HDR forecast is awkward for the state both because of the large difference in numbers between the new lower HDR numbers and the old higher KABATA numbers and because HDR is also a current KABATA contractor.
In considering the reliance on toll revenue to repay the proposed KABATA bonds, will anyone in the legislature notice the large discrepancy of traffic numbers?
The new 1 page public finance plan handed out to the Senate Finance Committee estimates the cost of a 2 lane Bridge and 2 lane northern approach roads at $894 million.
The last Bridge cost number from KABATA was $1.6 Billion for a 4 lane Bridge. KABATA needed to show the higher $1.6 billion number in their December, 2012 submission to the LB&A audit since the KABATA plan showed the revenue from 4 full lanes of traffic in their financial plan.
KABATA had earlier shown a $400-500 million additional cost for Phase II which includes a 4 lane Bridge and approach roads.
The new finance plan for the Department of Revenue from consultant 1st Southwest counted on only 3/4 of the revenue projected from KABATA’s traffic and toll consultant CDM Smith. But those plans still only showed the cost of a 2 lane Bridge and the revenue from up to 40,000 vehicles a day. However, 20,000 to 22,000 vehicles a day are considered the maximum capacity on a 2 lane restricted highway.
The Department of Revenue refused a January, 2014 request for 1st Southwest to release to the department and the public the backup spreadsheet behind the $50,000 4 page report that identified the new public finance option. The one page funding sheet handed out to members of the Senate Finance Committee had no backup spreadsheet showing the amount and timing of toll revenue and bond payments so the Committee had no feasible way to determine if the numbers add up.
Will any legislators note that the new plan probably continues to rely on 4 lanes of tolled traffic crossing a 2 lane Bridge and then request a backup spreadsheet showing the timing of toll revenue and state bond and federal TIFIA repayments?
With an up to $2 Billion shortfall in revenue next year and a proposed equity stake in the proposed gas line, the end of session will reveal the state’s true priorities.
While there are no recently released polls on the Bridge, a January, 2014 survey of Anchorage business leaders done by the McDowell Group for the Anchorage Economic Development Corporation put the Knik Arm Bridge near the bottom of the list of important projects. Ahead of the Bridge was the state budget, Cook Inlet resource development, the gasline, neighborhood safety, affordable housing, workforce training, Port expansion, Pebble Mine, and the Susitna-Watana Dam.
It is clear that the state cannot finance all the major projects under consideration. A new report totaled the costs of the Knik Bridge, the Juneau Road, the road to Tanana, the road to Ambler mining district, and the Susitna-Watana Dam and concluded that the state has in hand only about 8% of expected funds to build all projects. If all projects were approved the state’s debt service would quadruple.
It is also not clear if the House and Senate priorities will differ and whether those differences will be resolved prior to the session’s scheduled April 20 adjournment.
The media has yet to notice a key difference between the KABATA bill which passed the House last April and the substitute for that bill heard in Senate Finance last week. After the audit the House Republican leadership had such little faith in KABATA leadership that the HB 23 they passed took the project from KABATA and move the project to AHFC where then AHFC Executive Director Dan Fauske pledged to redo the numbers on his own schedule.
The Senate Finance substitute bill prohibits termination of KABATA and would keep KABATA in charge of the project until all project bonds had been paid off which presumably would be 25-30 years at a minimum even if the state and not toll revenue were used to make the payments.
Will KABATA remain in charge of the project and where will the Bridge fit in overall legislative priorities?
Note: The link for all documents related to HB23 are found on the Legislature’s “Bill Action Status Inquiry System”, or BASIS at this link: http://www.legis.state.ak.us/basis/get_documents.asp?session=28&bill=HB23