House panel votes to turn Knik Arm bridge over to AHFC

Richard Mauer

JUNEAU -- The head of the Alaska Housing Finance Corp. told legislators on Thursday that if they wanted to rush the Knik Arm bridge into construction, they should look for another agency to run the project.

But the House Rules Committee decided it trusted the AHFC to fix the problems that have surfaced in the management of the mega-project, and on Thursday evening passed a bill that turned over the project to the state's housing agency.

The bill was scheduled for a vote in the House after 9 p.m. Thursday.

Earlier, Dan Fauske, the state-owned corporation's chief executive, said the proposal to give his agency the troubled mega-project should not be accompanied by a timetable. He wouldn't accept it, he said, and a hurried schedule would likely doom the project to failure anyway.

Instead, Fauske told the House Rules Committee, the issues raised in a critical legislative audit of the Knik Arm Bridge and Toll Authority need to be resolved before the project can go forward. He said his agency was capable of taking the project, but only if it could fully vet the problems.

High among them: the audit's finding that the authority used unjustifiably rosy estimates of traffic and toll revenues in its plan to finance and build the state-owned bridge between Anchorage and Point Mackenzie. The state would be on the hook if tolls don't pay the cost of financing and operating the billion-dollar-plus bridge.

It's rare for the Rules Committee, normally a legislation traffic cop, to conduct testimony on a bill. But in this case, it's an effort to fix House Bill 23, which had been poised for a House vote this week until the release of the audit Saturday.

The bill was the last hurdle for KABATA to seek bids for a contractor next summer. It would have granted KABATA the authority to obtain bonds and a federal loan and would have put the state on the hook for up to $1.1 billion as a "moral obligation" in case the project failed. A moral obligation is something less than an absolute commitment to pay, but if the state failed to make good, its credit rating would tumble and the interest it pays on bonds would sharply rise.

Only a week ago, it looked like KABATA was on the verge of landing its big plum. Now it's near to being voted out of existence, with the project transferred into a new state corporation within Fauske's AHFC, the Knik Crossing Development Corp.

Since Tuesday, the Rules Committee has been crafting an amendment to House Bill 23 that would allow the project to be absorbed by AHFC, an agency highly valued by the bond market and the Legislature. The task is complicated by of the different functions of the two agencies and the concern that the bridge not damage AHFC's core mission, providing affordable housing to Alaskans, or its legacy as a self-sustaining agency.

The tone of the committee shifted sharply between morning and afternoon sessions. Time seemed to be of the essence Thursday morning, with a federal transportation official telling the committee that a loan from a federal transportation program known as TIFIA loan could be lost if there was a delay. The current interest rate on TIFIA loans is 2.9 percent, but the money is limited.

"If somebody from a different state precedes either applicant (KABATA or AHFC), they may get the last dime in the bucket," said Alex Viteri of the Juneau office of the Federal Highway Administration. "Haste is important."

Jeff Stark, an assistant attorney general and for the past 5 years the legal advisor to KABATA, said the authority had already identified three qualified bidders and was preparing to seek bids by summer. The project was to be "public-private partnership" in which a contractor borrows the money, builds the bridge and operates it under a long-term contract. The state would own the bridge and be obligated to make monthly payments.

"They have been working with those groups for last two years, trying to put together the form of the agreement that would govern the relationship -- it's about a 40-year relationship that these people would bid on," Stark said. "The piece they are missing in order to develop the project is the legislation contained in House Bill 23 as it exists prior to this amendment."

The Rules Committee chairman, Rep. Craig Johnson, R-Anchorage, asked Stark what effect the amendment would have on the project.

"I think it's inherent in transferring this project to AHFC that the project will be slowed down," Stark replied. "KABATA is in the midst of procurement at this particular time. If it is transferred to AHFC, that procurement will effectively end. I actually did suggest to AHFC language (in the amendment) that would transfer that procurement to AHFC and AHFC expressed extreme concern about that and I don't think they're interested in taking on a project under those terms."

Rep. Bob Herron, D-Bethel, said that with or without the amendment, the bridge was in trouble.

"It looks there's a great potential for 23 to falter if we don't amend it," he said.

After the morning session, with the concerns in the audit hardly discussed, Fauske said in an interview that he wouldn't allow his agency to be directed to assume the KABATA operation without a thorough reexamination of the project.

The audit "is being treated like some kind of minor inconvenience. I'm sorry, it's a little bit more than that," he said. "No one's trying to slow anything down, but you're the guys with the audit," he said, referring to the Legislature. "We're an open and receptive group, we're there to help, but you can't just rubber stamp everything that comes in the door. ... If they need someone to just turn and look the other way, it won't be me."

By the afternoon session of the Rules Committee, the tone had shifted. Rep. Mike Hawker, R-Anchorage, said the audit issues had to be fully vetted. With the bridge being a billion-dollar mega-project, it was far more important to be cautious and deliberate than speedy, he said.

Johnson called another recess of the committee so the amendment could be rewritten. That rewrite was completed by evening. The committee moved the bill to the full House a little after 8 p.m.

Reach Richard Mauer at or in Juneau at (907) 500-7388.



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