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Audit: Knik Arm bridge revenue forecast 'unreasonably optimistic'

The Knik Arm Crossing, a bridge once deemed the “road to nowhere,” has hit another bump in the road just days before the House is set to vote on advancing the project. A legislative audit released Saturday warns that an “unreasonably optimistic” forecast for toll revenue from the Knik Arm bridge may put the state at risk for taking on the costs of the project forecast at $1.4 billion.

Building a bridge that connects Anchorage to the land across Cook Inlet has been a pipedream of developers for more than 50 years. But plans to construct the bridge have done little else than trudge forward in recent years. At stake are homes on Government Hill and another potential boondoggle for the state.  

In 2003, the Legislature created the Knik Arm Bridge and Toll Authority (KABATA) to pursue the project. Billed as a public-private partnership, the project was seeded with $110 million from federal and state governments. The agency claims that tolls from the bridge will eventually pay for the project.

During Alaska's 2011 legislative session, a bill to provide the agency with an additional $150 million for a reserve fund for the development phase didn't pass out of committee.

In 2012, the status of the project remained unchanged from the previous year, sitting in apparent financial limbo.

That wasn’t the case during this year’s session. In early March, both the Senate and House Transportation Committees heard testimony on two bills related to the project, House Bill 23 and Senate Bill 13. The bills would increase the agency’s bonds from $500 million to $600 million. This would reduce the cost of the project as well as the cost to end users, according to the bills’ sponsors. Whether the audit released Saturday will affect legislators’ votes on the project will be seen as the vote on HB23 comes to the House floor.

The Knik Arm Bridge is envisioned as a 9,200 foot, two-lane toll bridge reaching across Knik Arm in Anchorage’s Government Hill neighborhood to the Matansuka-Susitna Valley. The project would also include an 800-foot tunnel through Government Hill.

The audit estimates that the project is expected to cost $1.6 billion total, including the money already spent since KABATA was created in 2003. The projected costs include a four-lane expansion around 2030.

During a closed session on Saturday, the Legislative Budget and Audit Committee reviewed the performance audit on KABATA, and the findings of the Legislative Audit Division were released Saturday evening.

The audit concludes that the project’s revenue projections are “unreasonably optimistic, and the projected cash flows to the State are likely overstated as a result.”

To predict future toll revenue, KABATA analyzed traffic volume, based on factors such as employment levels and the number of households in the Mat-Su Borough that the bridge would serve. The audit states that KABATA’s estimations for these factors are more optimistic than projections forecast by the University of Alaska’s Institute for Social and Economic Research, the State of Alaska’s estimations, and with the Matanuska-Susitna Borough’s planning studies.

“Accuracy of the traffic and toll revenue projections is paramount to the success of the KAC project,” the audit states.

KABATA must pay $3.3 billion through 2051 under the not-yet-finalized private-public agreement “regardless of the level of collected toll revenues,” the audit states.

KABATA shot back at the audit in a statement released Saturday. “The audit failed to complete its stated purpose,” in providing legislators with sufficient knowledge to make informed decisions on the project, the statement says.

“The bridge’s traffic, revenue, and financial models are the most comprehensive ever completed for a transportation project in Alaska,” it states. Auditors failed to review key components of the project, including a financial risk analysis for the state, and the costs of having no bridge constructed, or the “costs of doing nothing,” KABATA says.

Contact Laurel Andrews at laurel(at)alaskadispatch.com