PALMER -- The Matanuska-Susitna Borough owes the Federal Transit Administration more than $12 million for the ill-fated ferry Susitna that's never even seen the waters of Cook Inlet.
At least, that's the eyebrow-raising request from the agency demanding the money back within 30 days, according to two letters sent to the borough on Tuesday.
Borough officials said at a press conference Thursday that they plan to contest the payment and still hope to sell the ferry to a private buyer.
Built at the Ketchikan shipyard, the 195-foot M/V Susitna was designed as a half-size prototype of a U.S. Navy double-hulled beach landing craft that can run through ice. It holds up to 129 passengers and 20 vehicles.
But without another $40 million officials say they needed to build landings on either side, the ferry never made the 2-mile run between Anchorage and Port MacKenzie.
The borough spent $6 million refurbishing the prototype for passenger service, $3.6 million on a passenger terminal at Port MacKenzie and $2 million to design landings at Anchorage and the Mat-Su port -- all of it Transit Administration grant money.
That money came out of a total of $21 million the FTA awarded the Mat-Su in three grants between 2002 and 2009 to develop ferry service between Point MacKenzie and Anchorage, according to two letters FTA administrators sent the borough on Tuesday.
Now the feds want their ferry money back.
"At this point FTA has no legal authority to unilaterally waive the debt and is required to begin the collection process," wrote Therese McMillan, FTA's acting administrator. "Therefore, FTA must make a demand for the $12 million in federal transit funds that were expended without the public benefit."
She expressed her "regret" that the borough hasn't been able to use the ferry or find a public agency that needs it.
The Susitna sits idle at the dock in Ward Cove, as it has since April 2012, costing the borough more than $1.2 million in storage costs as of October and less than $29,000 every month since then -- a rough total of $1.4 million.
The passenger terminal is occupied only by the port director and four tenants, three of them temporary.
Mat-Su officials met with the FTA several times over the last 2 ½ years without success, Borough Manager John Moosey said Thursday. But agency representatives told him the "demand letter" opens the door for the Mat-Su to officially work with FTA on a solution through a review process.
He said the borough is looking into alternatives. The Alaska delegation is also involved.
"I don't think it will end in 30 days," Moosey said, of the review. "I think it will take longer."
The Mat-Su Assembly will discuss the ferry situation at a special meeting Tuesday. Moosey said he didn't expect the Assembly would direct him to cut a $12 million check.
Asked if the borough is considering legal action, he said he would also discuss that with the Assembly, though most likely in a closed-door session.
A debt collection letter sent with the notice lays out the process from here: The borough has 30 days before the debt becomes delinquent when interest could kick in, according to Katherine A. Mattice, deputy associate administrator of FTA's Office of Budget and Policy.
The Mat-Su can request a review of the validity or amount of the FTA claim prior to the debt becoming delinquent, Mattice says in the letter. If the borough only disputes part of the debt, it needs to pay the rest within 30 days. The borough can propose a repayment plan.
The U.S. Navy paid most of the ferry's roughly $78 million original cost, according to a fact sheet distributed by borough spokeswoman Patty Sullivan. The money was secured by the late U.S. Sen. Ted Stevens, tucked into a larger spending package.
The borough started last year trying to find a buyer for the ferry to help pay off the grant funds. Officials also sought an eligible government to put the Susitna into service as a ferry, in hopes of seeking grant forgiveness that way.
According to Sullivan, interested buyers over the months included "L.A. County firefighters; the Commonwealth of the Northern Marianas Islands; Whatcom County, Wash.; a Dutch marine company; and a Hawaiian corporation."
The borough also approached different entities to offer free transfer of the vessel including: the Alaska Marine Highway System, the U.S. Coast Guard, the Naval Undersea Warfare Center, and the National Oceanic and Atmospheric Administration. Officials solicited the help of 17 brokers worldwide, the borough says.
Last August, the Mat-Su Assembly deliberated but eventually quashed a proposal from Dave Cruz, at the time a port commissioner, to bring the Susitna to the mud flats of Cook Inlet, where it would rest in a trench in hopes of attracting a ferry operator.
Fed up with $70,000 monthly payments to park the Susitna at Ward Cove, the Assembly in October approved a plan to put the ferry in storage with drastically reduced maintenance and no monthly sea-runs to save money. Its captain now says the vessel needs the marine life scraped off its hulls and other repairs.
That as-yet undetermined funding request goes before the Assembly later this month.
Officials say interest continues.
Van Dongen has said the Philippine navy, in cooperation with the U.S. Navy, was expected to inspect the Susitna at the end of the month. A Washington state oil field service company may also be interested in a visit at that time, according to the borough.
An offshore wind turbine service company from the United Kingdom came to Ward Cove for three days in mid-July to inspect the ferry and put it through sea trials.
During the press conference, Alaska Public Media reporter Ellen Lockyer asked Moosey why the Navy doesn't just take back the ferry.
"We have asked," he said. The Navy even hoped to use the ferry to launch unmanned submarines in the Persian Gulf, the manager continued, but that failed without funding.
"There are tremendous options," Moosey said. "It's just we need tremendous options and money to back it."