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Gov. Parnell wants to put public money into Knik Arm bridge

  • Author: Lisa Demer
  • Updated: May 31, 2016
  • Published December 20, 2013

The Parnell administration is proposing a dramatic shift in funding for the troubled Knik Arm toll bridge project that would make it entirely publicly funded and abandon prospects of a private partner.

Revenue Commissioner Angela Rodell said Friday that it will be far cheaper for the bridge to be publicly financed rather than rely on what had been envisioned as a public-private partnership, known as a P3. The state will take on the risks either way, and under a worst-case scenario, with no toll revenue, the state would be on the hook for $2.5 billion more with a private partner than it would if it handled the financing itself, she said.

Much of the fight over the bridge has concerned whether tolls will cover the costs of building and running it. A state audit released earlier this year found the authority's traffic and toll projections were overly optimistic, and critics have faulted the Knik Arm Bridge and Toll Authority for relentlessly pushing what seemed to them to be a fantasy.

But if the bridge is a good transportation project, that shouldn't be the primary focus, Rodell said. The state is in the infrastructure business, she said.

"My goal is to move the debate away from ... whether the bridge will pay for itself," said Rodell, who as revenue commissioner is on the board of KABATA, the state agency formed in 2003 to develop the bridge.

Under some scenarios, traffic across the short span would be significant enough to cover construction and operational costs. "Nobody knows" if those forecasts will prove true, Rodell said.

"For the state's core economy to continue to grow, we need access to land, and affordable housing, and affordable transportation networks," she said. "That's first and foremost why we need the bridge." It also could be an important leg for resource development, including a route for moving pipe if a natural gas pipeline from the North Slope is built, she said.

Gov. Sean Parnell backs the bridge, known as the Knik Arm Crossing, and is proposing $55 million for the project in next year's budget. He asked the Department of Revenue to evaluate its financing system.

The department contracted with First Southwest Co., which proposed a more traditional public financing model. Under this plan, $262 million of an estimated $838 million in construction and development costs would be raised through the sale of bonds to investors. The state has what First Southwest calls a "sterling credit rating," so would pay much lower interest on the debt than a private entity would, the New York-based consultant said in its Nov. 11 report.

KABATA wants to build a 1.7-mile-long bridge across Knik Arm connecting the fast-growing, land-rich Matanuska-Susitna Borough to Anchorage, where buildable land is at a premium and home prices are high. But its funding has never been assured, and after the audit, legislators began questioning whether KABATA can pull off the project. It has estimated construction costs alone at $710 million to $750 million for the first phase, a two-lane bridge that could expand to four lanes.

On Friday, Byron Mallott, a Democrat challenging Parnell for the governor's office next year, called for the bridge to be put on hold.

"There seems to be a fundamental disconnect between the governor's willingness to commit hundreds of millions of state dollars to this project even as the state had to dip into its savings by more than a half-billion dollars for this past fiscal year to balance the budget," Mallott said in a statement.

State Rep. Mia Costello, R-Anchorage, maneuvered an amendment through the House last session that would wipe KABATA out of existence and move control of the project to the Alaska Housing Finance Corp., a favored agency of the Legislature largely because of the skills of its former executive director, Dan Fauske, who now is heading up a state natural gas pipeline corporation.

"No matter what approach turns out to be the best, at some point the project will have to go before the market, and we'll need to have our most credible representatives in charge," Costello said Friday in an email. She said AHFC still has her confidence and offers the best team for going to the bond markets.

That measure, which also set up a state reserve fund to cover payments to the private developer if toll revenues fell short, is now in the Senate Finance Committee. A companion Senate bill creating the reserve fund also is awaiting action.

The legislation would need to be revised to reflect a public financing model, if lawmakers agree with that approach, said Shannon McCarthy, KABATA spokeswoman.

Sen. Kevin Meyer, R-Anchorage and co-chairman of the Senate Finance Committee, said the Legislature will have to consider what other road projects won't get done.

"We need to be smart about it and make sure there isn't some hidden cost here that we're not thinking of, and that we're not sucking all the money from other areas of the state just to fund this one big project," Meyer said.

The First Southwest report says besides $262 million in bonds, $300 million in federal and state transportation funds should be directed at bridge construction, including $112 million already appropriated for KABATA. About $50 million of that was still in hand as of last month. Much of the rest could be steered to the bridge from projects that aren't "shovel-ready," the report said. Another $276 million would come from a federal transportation loan backed by toll revenues.

Bob French, an engineer and bridge critic, said the consultant's new plan makes more sense than a public-private partnership but noted that it still relies heavily on those same overly optimistic toll projections. The state "is booting its private partners to the curb," said French, a resident of Government Hill, which would be disrupted by a proposed tunnel to the bridge.

The bridge authority would be lucky to get half the tolls projected by its traffic consultant, which means the new report is flawed too, French said. KABATA's traffic consultant, CDM Smith, is working on new projections but that report isn't yet complete, McCarthy said.

McCarthy said public financing offers a more straightforward approach and is welcomed.

KABATA had spent $2 million to develop a procurement process for a public-private partnership, and some of that work can be used for design-build, maintenance and operational contracts, McCarthy said. Before the nation's economy crashed in 2008, investors shouldered the risk in public-private partnerships but when that changed, the approach made less sense for Alaska, Rodell said.

Earlier this month, KABATA paid $1.2 million for 300 acres of right of way from the Matanuska-Susitna Borough. It now holds about two-thirds of the needed right of way for approaches, McCarthy said.

Reach Lisa Demer at or 257-4390. The executive director of the state agency trying to build a bridge across Knik Arm has stepped down after suffering serious injuries in a motorcycle crash that happened over the Thanksgiving holiday, according to a spokeswoman for the Knik Arm Bridge and Toll Authority.

Andrew Niemiec crashed the motorcycle while on vacation in California, spokeswoman Shannon McCarthy said. He is focusing on his recovery and told the KABATA board on Dec. 11 that he was resigning, effective Monday. She didn't have additional information about the crash or his injuries. He is still in California, McCarthy said.

Niemiec had been the top staff member of KABATA since May 2007 and before that worked for the Department of Transportation.

Board chairman Mike Foster appointed Judy Dougherty, an engineer who had been serving as the authority's deputy over project development, to serve as acting executive director. She began working for the authority in 2011 after 20 years with the DOT.

The KABATA board of directors will decide on a permanent replacement.

Niemiec's unexpected departure comes at a critical time for the agency. The legislative session begins next month and KABATA is trying to secure funding to build the bridge.


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