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Parnell wants to abandon public-private partnership to let state build Knik Arm Crossing itself

Pat Forgey

JUNEAU -- Gov. Sean Parnell says the new plan to get the Knik Arm Bridge built is to remove the "private" from the public-private partnership concept that has until now been a key selling feature.

"It is a change from the road we were on, but it isn't a change in the project itself," said Michael Foster, chairman of the Knik Arm Bridge and Toll Authority.

A change to having the state, rather that a private developer, fund the project could save hundreds of millions of dollars, according to a new state analysis. But the lower costs may come with new challenges and may wind up pitting the controversial bridge against other Alaska transportation projects vying for fewer dollars in a state already facing a deficit of more than $1 billion.

The bridge has faced criticism ranging from neighbors who object to the state taking property to accommodate the roadway to legislative auditors who questioned its viability. This week U.S. Sen. Tom Coburn called it "another bridge to nowhere" and questioned whether it would ever be built.

Parnell's budget this year says the switch to what it calls a "public finance" model will cost $300 million in state and federal dollars over several years. This year's budget includes $55 million for KABATA, with $50 million of that coming from Alaska's federal highway funds and $5 million from the state. Additional funding beyond the $300 million to complete the project would be borrowed and repaid with tolls, but the proposal did not include a new estimate of the total cost. Previous estimates were about $1 billion for the bridge and associated infrastructure.

So far: $127 million in 10 years 

Earlier appropriations of $127 million have funded the project so far, paying for some design work, land acquisition, public outreach and other costs over the last 10 years.

That money came from federal earmarks, however, and political changes in Washington, D.C., mean that's no longer possible. Parnell's proposal would include the Knik bridge in the Statewide Transportation Improvement Program, which prioritizes state transportation projects.

"Right now we get a certain amount from the feds every year," said Jeff Ottesen, who plans highway projects for the Department of Transportation and Public Facilities. Some of that will now have to go to the Knik Arm Crossing. He acknowledged that could mean that the bridge will have to compete with other Alaska projects for scarce funds, whereas previously it would have been funded by investors looking for profit.

"It's a finite source of federal funds -- every dollar that goes to one project is a dollar that can't go to another," he said.

KABATA's Foster doubted that. "I'm sure you'll hear people saying 'you are competing with other projects,' but I don't think that's the case," he said.

Savings from the public finance model could also come from eliminating a $150 million fund designed to ensure private investors are repaid. That won't be needed any longer, he said.

The KABATA project has been controversial in Southcentral Alaska but has had minimal statewide opposition because much of the cost would be paid by private investors repaid by toll receipts after the bridge is up and running.

Private sector concerns about operational risks 

Until now, that's been used by project advocates as a key selling point. "This allows state money to be used for other infrastructure projects," KABATA's website said of the public-private partnership model.

What drove the change in policy from the Parnell administration is a Department of Revenue analysis that says that the public-private model is unlikely to work and attract private investors without very high costs or government guarantees that limit investors' risks.

That would include a $150 million state fund to guarantee bond payments and profits in the toll bridge's early years and then Alaska agreeing to take on the obligation of providing additional guarantees beyond that.

"Based on market realities at this time, the private sector isn’t willing to take on finance and operational risks related to existing traffic projects, let alone a new project like the bridge, without a firm commitment by the appropriate government," said Deven Mitchell with the Department of Revenue and executive director of the Alaska Municipal Bond Bank Authority.

Foster said he agreed with that analysis.

"It is definitely cheaper for the state to do a public finance model, and that is definitely the direction we're working with the governor's office," he said.

'KABATA has lost their credibility' 

Legislators last year began expressing skepticism about KABATA's management of the project when a legislative audit concluded that the authority's traffic projections were unreasonably high.

During that debate, questions about the need for a private investor arose as well, Foster said. "If the state is going to provide this moral obligation, this guarantee, why doesn't the state just do it instead?" Foster said he was asked.

Rep. Mia Costello, R-Anchorage, has been advocating for the project but has sought to shift management of the project from KABATA to the Alaska Housing Finance Corporation.

She said AHFC is better able to carry out the new plan as well. "I think AHFC has the credibility, and I think KABATA has lost their credibility," she said.

But Costello said she's not worried about increased competition for state highway funds. She said the case can be made for the bridge.

"I'm not afraid of competition. I think that when you start looking across projects, they should have to compete and we should not just fund every project," Costello said.

'All this stuff isn't free' 

Project skeptic Rep. Les Gara, D-Anchorage, said costs are still too high, and the risks to the state remain too great under either project version. "I agree with the governor that you should do the thing that saves the most money, but all of this stuff isn't free. I'm just not there with this proposal unless they know of some tree where money is growing that they haven't told me about," he said.

Longtime KABATA watcher Lois Epstein, former executive director of the Alaska Transportation Priorities Project, said the agency's years of trying to get outside investors has been a costly failure.

"The state's spent (wasted) many millions of dollars pursuing the (public-private partnership) approach, paying lawyers, bankers and consultants big bucks for the past seven years," she said.

Key area lawmakers, including Sen. President Charlie Huggins, R-Wasilla, and Rep. Mark Neuman, R-Big Lake, are scheduled to meet with Parnell to learn more about the new public-only project. Huggins had been a supporter of the private enterprise role in the project. 

Contact Pat Forgey at pat(at)alaskadispatch.com