Recent events have increased the odds against the increasingly problematic Knik Arm Bridge project.

November 7th, 2012

Accuracy of $500 Million Federal Loan Application Challenged

On August, 24, 2012 KABATA has submitted its fifth “letter of interest” application for a low interest federal TIFIA loan from the US Department of Transportation asking for $500 million in this year’s round.

On September 11, 2012 financial analyst Jamie Kenworthy wrote to KABATA CEO Andrew Niemiec and CFO Kevin Hemenway listing the KABATA documents that apparently show that the Financial Plan submitted in the TIFIA loan application reaps the revenue of 4 lanes of traffic but only includes the cost of 2 lanes of Bridge and approach roads. The result, according to Kenworthy, is a misleading bond “cover ratio” of project revenue to projected cost which KABATA uses to portray the project as financially feasible and so able to repay the prospective federal loan. Click here to view the Kenworthy letter.

The Kenworthy letter also reiterated the overly optimistic population and traffic information provided and noted the bridge is now 9200’ long (just longer than San Francisco’s Golden Gate) while the cost estimates in the federal application were for a 8200’ Bridge. Kenworthy gave KABATA a chance to correct or comment on any of the cited information before it went public — however, KABATA officials chose not to respond. So 20 days later Kenworthy’s letter was forwarded to federal transportation officials.

The Knik Arm Bridge project competes with 18 other TIFIA loan projects totaling $26 Billion. Click here for a list of the projects competing for the TIFIA loans.. Because only $1 billion is expected to be available this year for TIFIA loans and many other projects address significant existing congestion and have a higher share of private sector support, it remains highly unlikely that the Knik Arm Bridge application project for a $500 million loan will qualify for federal funds. Hemenway describes a prospective TIFIA loan as “very valuable” for the project.

Million Dollars of Legal Work Still Leaves State with Full Financial Liability to Cover Toll Shortfall

In legislative testimony last March, KABATA made reference to a 500 page draft public private partnership agreement that would serve as the contract between KABATA and the developer if the legislature passed the state guarantee contained in HB 158. The draft agreement was produced by California-based law firm Nossaman LLP with input from the Department of Law, KABATA, and representatives of the Governor’s Office. That agreement was described as a work in progress and was not made public during the legislative session.

In August, 2012 a Public Records Act (PRA) request to KABATA for the latest draft agreement was submitted. KABATA CEO Andrew Niemiec denied the request citing the “deliberative process” exception to the PRA. However, the “deliberative process” exception does not apply if the information has already been made available to some members of the public. As a result, the PRA request was renewed. KABATA released the draft agreement on September 25, 2012. That draft was labeled “Industry Review Draft” and dated 12/8/11 or a month before the 2012 legislative session convened. The 12/8/11 “Industry Review Draft” draft which was labeled “Confidential-Not for Public Disclosure or Further Information” was apparently confidential to the legislature and the public as the legislature considered HB 158 but had been reviewed by the three bidding teams prior to the legislative session. The agreement would presumably be signed by KABATA and the developer if the legislature had passed the state guarantee in HB 158. That guarantee would require the state to make up an estimated $3 billion in availability payments paid over 35 years to the developer.

A critical issue in the House Finance Committee hearing on 3/23/12 was who held the financial risk of the project. While KABATA representatives talked of the project as a public-private partnership with the private partner taking the financing risk of the project, in response to questions Mr. Jeff Stark, assistant Attorney General for the State of Alaska made it clear that if there are not sufficient toll revenues, “the state is on the hook” to make up the additional funds necessary to pay the annual availability payments to KABATA’s contractor regardless of the amount of toll collected. HB 158 passed the Alaska House of Representatives last year but died in the Senate Finance Committee.

The release of the draft 12/8/11 public-private agreement (section p. 101) documents that KABATA would have the rights to all the tolls collected, but KABATA would be required to make the estimated $3 billion in cumulative availability payments regardless of whatever amount of tolls were collected. In hearings representatives of KABATA have referred to the entity that would build the Bridge as the private sector partner; the draft agreement refers to that party as the “developer.”

In the 14 months ending August 31, 2012 KABATA has paid the law firm of Nossaman LLP $1,400,420.24 to draft the proposed agreement (p. 488 ). Since Nossaman LLP also pays KABATA traffic consultant CDM Smith and Citi for providing the financial plan, it is not clear exactly what the cost to KABATA has been for the legal work done to date but it is likely it has exceeded a million in the past year alone.


At the October 11, 2012 KABATA Board meeting CFO Kevin Hemenway announced that as of September 30, 2012 KABATA has spent $71.9 million on the project with $29.1 million remaining of federal and state funds presently obligated to the project. Apparently some of the Government Hill property necessary for the East approach to the Bridge has now been acquired even though the project lacks any financing.

At its October Board meeting KABATA also announced plans to reintroduce HB 158 when the next legislature convenes in Juneau in January 2013. KABATA officials are planning slight revisions to HB 158 which passed the House but died in Senate Finance last year. It is expected that this will be the third year KABATA will ask the legislature for the unlimited state guarantee the project needs to move forward since the developers apparently do not believe KABATA’s estimate of $4.2 Billion in toll revenue over 35 years is accurate nor do they want to assume or share the risk of covering the expected toll shortfall.

At its October, 2012 Board meeting KABATA disclosed that Legislative Budget and Audit recently hired separate experts to review the draft public private agreement and the traffic and toll studies KABATA has relied upon for its Financial Plan. It is not clear yet whether the Audit will be complete before the new legislature convenes in January, 2013.