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Legislators hear new Knik bridge financing plan

Lisa Demer
Courtesy: Knik Arm Crossing

JUNEAU -- State officials promoting the Knik Arm bridge project say their latest financial scheme answers skeptics who doubt projected tolls would cover construction costs: Tolls don't need to pay the whole bill.

Critics, including residents of Government Hill who say their community would be mangled by bridge access roads, remain unimpressed.

Officials acknowledged Wednesday that traffic counts won't be high enough to generate enough toll revenue to build the bridge, something critics have been saying all along.

But that doesn't mean Alaska should abandon the controversial project, officials said Wednesday, drawing tough questions from some state senators and support for the new approach from others.

New legislation and a financial plan were rolled out Tuesday and presented in more detail Wednesday to the Senate Finance Committee by officials with the Departments of Revenue and Transportation and the Knik Arm Bridge and Toll Authority.

The financial plan puts the upper-end cost of constructing a two-lane, 1.7-mile bridge from Port MacKenzie to Anchorage at almost $895 million. Another $81 million has already been spent on staff, studies and right-of-way purchases.

Under the plan, tolls would eventually cover about a third of construction costs -- with state revenue bonds and federal highway dollars making up the difference.

The state could end up on the hook for as much as $450 million to repay the bonds, Deven Mitchell, state debt manager with the Department of Revenue, told senators Wednesday. Legislators could be asked to approve $20 million to $25 million a year for 20 or so years, he said.

Under earlier build-the-bridge legislation proposed by Rep. Mark Neuman, R-Big Lake, the state would have been facing bills for more than $1 billion in a worst-case scenario.

"You were taking the same risk but for a lot more money," Mitchell said Wednesday. "In this case, we've reduced our potential exposure by hundreds of millions of dollars."

To build the bridge, the state is counting on more than $340 million from a hard-to-get, low-interest, toll-backed federal loan. The plan also envisions up to $300 million in state revenue bonds, and about $295 million in federal highway dollars, including almost $19 million already in hand and $50 million the coming budget year.

The earlier proposal envisioned bridge tolls paying back all the bonds as well as any loan -- requiring high traffic counts that state auditors and others said were unrealistic.

"That's why it looked somewhat suspect, because traffic has to start and build," said Jeff Ottesen, DOT program development director.

The new plan commits toll revenue only to pay back the federal loan.

"You've already cut your expectation of revenue from traffic by two-thirds," Ottesen told senators. Just 10,000 trips a day will generate enough toll revenue to cover the loan, and that's only a few more than cross the Juneau-Douglas Bridge in Alaska's small capital, he said. That bridge is toll-free.

But some senators said the state still would be committing significant money at a time of budget shortfalls and big needs, including public employee pensions, squeezed public schools and a natural gas pipeline project.

Sen. Donny Olson, D-Golovin, said Mitchell, the debt expert, carried more credibility with him than those whose jobs depend on the possibility of a bridge -- whom he described as "people who are almost in the realm of having a conflict of interest."

With oil production declining, state revenue falling and savings going down, won't the state's bond rating be hurt if it turns to financial institutions to borrow for this project? Olson asked. He called it "another white elephant in the offing."

Mitchell said the new plan defines the state's buy-in "in a much more concise-fashion" but acknowledged the challenge of maintaining an excellent bond rating, which keeps interest rates low for all state borrowing.

Isn't $450 million the worst-case hit? Sen. Mike Dunleavy, R-Wasilla, asked.

Yes, Mitchell said. He said it accounted for $300 million in bond principal payments, plus interest, the maximum allowed in the new version of Neuman's House Bill 23.

"Almost half a billion dollars there that we are maximally exposed to," Olson said. What about cost overruns? he asked. He mentioned the Goose Creek Correctional Center, which he said cost millions more than expected.

"I'm hesitant to do another project that has questionable numbers to start with," Olson said.

The construction budget includes more than $100 million for overruns and contingencies, officials said.

Critics, including Anchorage engineers and economists who have studied the project, said the real cost to the state could be higher than $450 million.

"The state is being asked to write a blank check to fund this project based on data that was found wanting in a legislative audit a year ago," Scott Goldsmith, a semi-retired University of Alaska Anchorage economist, said in an email Wednesday afternoon.

The audit, released in April 2013, found that the Knik Arm Bridge and Toll Authority, the state agency known as KABATA that is overseeing the project, used "unreasonably" optimistic traffic and toll projections. The bridge authority contracted for a new analysis of the socioeconomic data underlying its projections that was expected to be complete last year.

That new information needs to be part of the evaluation of the bridge, Goldsmith said.

"When the state is facing a $2 billion shortfall in the budget this year (the drain rate is $7 million per day), it should not be taking on new obligations based on assurances and hopes rather than the best possible analyses," Goldsmith said.

The updated traffic study is taking longer than expected, said Shannon McCarthy, KABATA spokeswoman.

Toll revenues -- $5 a trip per car for starters -- would first pay for operations and maintenance, then the federal loan, officials said.

The project includes a tunnel through Government Hill, one of the oldest and most diverse neighborhoods in Anchorage. The community council there has been questioning the financing for years and isn't satisfied with the new plan.

"They are going to tear up our neighborhood and cause irrevocable damage for something that is completely, I keep going back to this word, ludicrous, and in the long term destructive to the state of Alaska's economic well-being," said Stephanie Kesler, president of Government Hill Community Council.

Bridge backers maintain the bridge will provide a needed second route north from Anchorage to fast-growing areas of the Mat-Su.

Sen. Kevin Meyer, R-Anchorage and the Finance Committee co-chairman, said the panel will resume its discussion of the project next week.

Reach Lisa Demer at ldemer@adn.com, 952-3965 or, on Twitter, @lisa_demer.

 


By LISA DEMER
ldemer@adn.com