Compass: Don't buy KABATA's bridge

By JAMIE KENWORTHYMarch 25, 2013 

A bill guaranteeing all Knik Arm Bridge and Toll Authority (KABATA) expenses has passed the Transportation Committees in both houses of the legislature and now heads to the Finance Committees. So now may be the time to look at the real cost of the bridge and how a blank check can get written.

KABATA once said the private sector was sharing the risk of financing the bridge. Since the private sector does not want the risk of covering the toll shortfall to pay costs, KABATA Bills HB 23 and SB 13 now have the state guarantee payments to them for a 35-year contract whose amount the legislators have so far been too polite to discuss.

A novel feature of this year's bills is for KABATA to annually certify how much "of the authority's overhead and administrative and working capital" it needs and then the legislature would face a bad choice. Either replenish the bills' reserve fund to make those payments (my minimum estimate is $2.6 billion over 35 years) or default on a moral obligation of the state and let the resulting hit to the state's credit rating raise the cost of all state-financed projects.

No state agency has ever had this ability to dump unlimited expenses on the state's balance sheet as a contingent liability. The one project KABATA agency is no place to start.

To listen to the hours of KABATA testimony is to travel to a parallel financial universe. True, KABATA has been turned down five times for a $300-$500 million low interest federal loan but, with the passage of these bills, the sixth time will be the charm.

Most legislators have not yet shown much interest in looking at the exact costs of this deal. No one has yet explained why the state, which can borrow at less than 4 percent, should be guaranteeing a contract with a consortium who KABATA estimates will "finance" the project for 12% annual return for 35 years.

The difference between 4 percent and 12 percent over 35 years is over $600 million sent out of Alaska that buys nothing.

And what expertise has been bought by KABATA's $75 million spent to date? According to the federal Transportation Research Board, KABATA's traffic and toll consultant CDM Smith has a national track record of overestimating toll revenue by an average of 118 percent or more than a factor of two. KABATA counts on $4.2 billion of toll revenue over 35 years. When only half that amount shows up, $2.1 billion will be added to the cost of the state's guarantee.

KABATA's financial plan shows impossibly derived revenue from four lanes of full traffic from 2027-2051 while only paying for a 2 lane bridge.

KABATA claims that $1.1 billion is the state's maximum liability on the project. However, there is no current project budget and the 35-year contract will be signed after the guarantee passes. So if these bills pass, nothing should be believed except Alaska's signature on the check.

Bottom line, bridge deficits will be more than what Anchorage or the Mat Su annually receives from the state for roads, mass transit, and pedestrian improvements. Will the Legislature take the bridge deficits out of Southcentral's hide or just cumulatively add $3,500 per Alaskan to the state's annual debt service?

Jamie Kenworthy is a retired investor living in South Anchorage. He was executive director of the Alaska Science and Technology Foundation.

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