New plan aims to advance Knik bridge

March 27--The heart of Alaska's infrastructure is as close as it has ever been to adding a major artery. Who will cover the cost of the project is a decision now before the Legislature.

Knik Arm Bridge and Toll Authority, or KABATA, and Department of Transportation and Public Facilities officials fielded questions from the Senate Finance CommitteeMarch 19 about the latest plan to finance the Knik Arm Crossing.

Once viewed as an ideal project for a public-private partnership, commonly referred to as a P3 project, the 1.7-mile bridge would now rely on three public funding mechanisms as laid out by Gov. Sean Parnell's administration in December.

The plan -- in the Legislature as a modified version of House Bill 23 -- is for roughly a third of the cost to be paid for with direct federal Transportation Infrastructure Finance and Innovation Act loans, a third to be covered by federal transportation appropriations, and the last chunk to be absorbed by state bonds sold through the Department of Revenue.

KABATA Executive Director Judy Dougherty said the total cost of the bridge and connections to Anchorage and Point MacKenzie Road on the Matanuska-Susitna Borough side has been narrowed to $782 million. Contingencies in the governor's plan would allow for the project to move forward without issue at a price tag up to $894 million, she said.

"This is a much more compact funding structure," Dougherty said in an interview with the Journal.

Also, she said, it doesn't require any further state capital appropriations for construction outside of a roughly 10 percent state match for the State Transportation Improvement Program funds. Rather than appropriating any more direct general fund money to the project, Dougherty said the state could use bond dollars as the state match to federal funds.

Flexibility in the match requirements under the latest federal transportation legislation, known as MAP-21, depending on the type of project and where the match money comes from, allows states to put less money than the usual 20 percent up front.

Parnell's proposed 2015 fiscal year budget has $55 million set aside for KABATA. To date, the authority has spent roughly $80 million on planning, design, environmental work and right-of-way acquisition.

For $782 million, the state can expect to get an 800-foot tunnel underneath the North Anchorage Government Hill neighborhood; a 0.55-mile long causeway out from Anchorage; the 1.7-mile bridge proper; a 0.35-mile causeway to the Point MacKenzie shore; and a 3.5-mile connection to Point MacKenzie Road and all points north.

The Anchorage-to-Mat-Su link will be finished as a two-lane highway, with the corridor prepped for an expansion to four lanes when traffic demand requires, Dougherty said.

The idea of the Knik Arm Crossing being a toll bridge was first floated as a way to finance the project under the P3 model, where toll revenue would be returned to private investors for up to 50 years. Tolls are still a part of the current proposal, but this time they are thought best used to pay the bond debt -- capped at $300 million by HB 23 -- as well as the federal transportation loans.

According to KABATA, the federal loans can be secured with a toll revenue pledge and do not need a guarantee. Dougherty said the authority would be the borrower, "insulating" the state from the loans.

Further, the direct bond debt would be second in line for toll revenue, with paying off the loan debt being the highest priority. If the tolls didn't materialize as projected the initial federal loan term of 20 years could be refinanced up to 35 years, she said.

Alaska DOT Program Development Director Jeff Ottesen told the committee that tolls from about 10,000 cars per day would be needed to pay the loans. Comparably, about 9,500 cars travel the Juneau-Douglas bridge. Given the much larger populations in the Anchorage Bowl and the Mat-Su Borough, "it's not unreasonable to assume that the traffic will at least match that on the Juneau bridge," he said.

A 2011 traffic report commissioned by KABATA projected use by 16,300 drivers daily in 2020 at $5 per toll and generate $39 million per year. However, the study considered the bridge being open in 2016. An updated traffic projection study has been expected from KABATA since late last year, but has yet to be released.

During public testimony March 25 in the Finance Committee Sen. Donny Olson, D-Nome, questioned the comparison to the Juneau-Douglas bridge, referring to the fact that the Glenn Highway bridge over the Knik River is toll-free.

"What if you had two bridges, one had a toll one didn't have a toll, what percentage of those people would go over to Douglas using the toll bridge?" Olson asked.

Dougherty said in an interview the new financing plan means traffic and subsequent toll revenue projections are less important to the crossing's viability compared to the P3 model.

If the funding plan is approved this session, KABATA could start looking for a design-build contractor late this year and begin letting contracts in mid-2015, Dougherty told the Journal.

A four-year construction timeline once digging and filling and concrete pouring gets underway would put completion of the bridge sometime in 2020.

KABATA still has $18.9 million in previously appropriated federal funds, meaning the direct federal contribution would be $276 million as it stands, Ottesen said.

Tapping federal highway funds would require $50 million in fiscal 2015 and $45 million per year to completion, which would amount to 10.3 percent of the state's anticipated federal highway dollars in the next fiscal year and 9.3 percent for the following years.

Ottesen said this could be absorbed within existing funding without major problems because, first, the allocation would come from funds designated for the National Highway System and not impact funds for other state and community roads. Second, he said about 30 percent of major highway projects are delayed year-to-year for a variety of reasons, freeing up more money for a singular mega-project.

Federal receipts account for $793.8 million of state DOT's $977 million current capital budget, or about 81 percent.

Whale of a challenge

The four-year build plan is needed to work around the typical migration pattern of the endangered Cook Inlet Beluga whales, which spend much of the summer feeding in Knik Arm, KABATA spokeswoman Shannon McCarthy said.

Appointed to lead KABATA by former Gov. Frank Murkowski at its inception in 2003, former state engineer Henry Springer said from his home in Anchorage the construction schedule would shift most of the work to winter when costs go up and productivity naturally drops.

"If they want to mitigate (the impact of construction on Belugas) through revised construction methods that say when the Belugas are up there, you are going to drive the costs up double," Springer said. "Because, for example, if you are forced to work in the winter when they are absent from the area you double the labor cost right there."

The fact that the Belugas are classified as an endangered species and cannot by law be affected by development projects has Springer skeptical as to whether the National Oceanic and Atmospheric Administration will ever approve the project because of its potential impact on the whales, he said.

While development has worked around endangered species in other instances, Springer said the unknowns surrounding Cook Inlet Belugas are of great concern. The little white whales simply haven't been studied long enough to know their habits, much less how a theoretical bridge could affect their well-being, he said.

In November, then-KABATA Executive Director Andrew Niemiec said he was told that approval of the Clean Water Act Section 404 wetlands permit application by the Army Corps of Engineers was likely and that the Corps was waiting for the state to move forward with the project. It is unclear, however, if or when NOAA approval of the construction plan will come.

At 77, Springer said, "I am not holding my breath if I'm going to see that bridge."

McCarthy said the 2007 environmental impact statement under which KABATA is working now is valid through 2021, or 10 years after the federal funds for right-of-way acquisition became available.

P3 project history

The German-born Springer said he was one of the original proponents of the P3 funding model, used extensively in Europe. Using toll revenue as an investment lure was a viable model five to 10 years ago and still is today, he said.

The benefit of a P3 plan is that investment risk is shifted away from the state, according to Springer.

In late 2005 when federal appropriations were diverted to rebuild after Hurricane Katrina in the Gulf Coast states and the pending federal earmarks for the Knik crossing and the more infamous "Bridge to Nowhere" in Ketchikan came under national fire, Springer said he organized a three-day symposium that brought together investors, contractors and designers to evaluate the feasibility of the Knik Arm Crossing as a public-private project.

"What basically I said was, 'Here is what we have, what is your opinion? Is that a project that would attract any P3 interest?'" he said.

The response was positive, even without exact traffic projections at the time, he said.

Where the P3 model began to falter is when the issue of construction risk arose. If a major earthquake, for instance, virtually destroyed the project just before it was completed, who would pay for it was the question, Springer said. Several major investors could not get past that potential liability he said, even with purchasing unique insurance.

If that one sticking point could be resolved Springer said he would like to see the P3 model used because the state would essentially, "get the bridge for free" after a 30, 40, or 50-year payoff period, with little to no risk.

Nowhere to go

Government leaders in Southcentral seem to agree that the Knik Arm Crossing is an essential piece of infrastructure for more than just the region.

"The bridge is a statewide project," is a mantra recited by those in Anchorage and the Mat-Su Borough.

During testimony to the Finance Committee, Mat-Su Borough Mayor Larry DeVilbiss said the project was widely supported at the 2012 Alaska Conference of Mayors.

"The strategic value of this bridge to both the region's economic development and the statewide interest should not be ignored," DeVilbiss told the committee.

Anchorage Mayor Dan Sullivan said the bridge would relieve congestion in his city's downtown by shifting port-bound or originated truck traffic away from the area.

The other point used to support the bridge is that Anchorage has simply outgrown itself and its residents can see tens of thousands of buildable acres just across the water.

According to the Alaska Housing Finance Corp., Anchorage was the tightest residential rental market in the state with 3.3 percent average vacancy last year, up from 2.6 percent in 2012.

The average single-family home in the city sold for $346,000 in 2013.

"The ability of a young family to access available land to the north of us via the Knik Arm Bridge is something that would have tremendous economic growth potential and also just the social growth that allows families to live and prosper here in Southcentral Alaska," Sullivan said. "I can easily envision many folks living over there (on Point MacKenzie) and working here in the Anchorage Bowl."

When a full Anchorage is combined with nearly 5 percent annual growth in the Valley, the fastest growing region in the state, Point MacKenzie Community Council President Toby Riddell said most of the residents he represents have accepted the bridge as inevitable, whether they like the idea or not.

He noted that the Point MacKenzie Community Council, which represents roughly 300 year-round area residents, has not taken a formal stance on the Knik Arm Crossing.

"Personally, I think it's necessary for both Anchorage and the borough for economic growth," Riddell said. "But it would change our lifestyle drastically, just by the number of new people coming through here. Nothing stays the same."

Riddell said his father with the Anchorage Chamber of Commerce in the 1950s when bridges across Knik and Turnagain arms were studied.

Elwood Brehmer can be reached at [email protected].

Journal reporter Tim Bradner contributed to this story.

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