Knik Arm Bridge Moves Forward With New Financing Plan

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LOS ANGELES - Alaska may finally get its bridge to somewhere.

It has taken a few decades, but now, with a new financing plan and greater political support, the 1.7-mile bridge over the Knik Arm of Cook Inlet, connecting Anchorage and the Matanuska-Sustina Borough, is one step closer to construction.

"It's at the point now where doing nothing is not an option anymore," said Kevin Hemenway, chief financial officer of the Knik Arm Bridge and Toll Authority. "The region has grown so much that it's just got to get built and the only question is how to pay for it."

The answer to that question is currently making its way through the legislature as a modified version of House Bill 23, which would authorize a revised public financing plan for construction of the bridge.

After the previous plan failed to make progress in the form of a public-private partnership for the past several years, Gov. Sean Parnell, a Republican, proposed a new publicly-funded plan at the end of last year.

Under the new plan, the state, instead of a private developer, would fund the nearly $900 million project. The new financing plan would include up to $300 million in bonds issued by Alaska's Department of Revenue, around $300 million of federal and state appropriations, and up to $350 million in federal low-interest loans under the Transportation Infrastructure Finance and Innovation Act.

"This project is far from a bridge to nowhere," Hemenway said, referring to the nickname critics have given the project in the past. "It connects 54% of the state's population within a 50 mile radius."

The name stuck back in 2008 when Alaska's previous governor, Sarah Palin, came under criticism for her support of the bridge while running for vice president. Opponents called the project, along with another proposed bridge in Ketchikan, examples of pork barrel spending.

Anchorage is bounded on the north by a military base, on the west and south by the Knik and Turnagain Arms of Cook Inlet, and on the east by the Chugach Mountains and state park. The bridge is needed because the region is out of economically developable commercial, industrial, and residential land, proponents say.

"Today, there is only a single highway between Anchorage and points north, so the project is needed for safety and redundancy," Hemenway said. "The Matanuska-Susitna Borough to the north of Anchorage is the fastest growing area of the state because of affordable housing and land for development."

The new plan was approved by the Senate earlier this month and returned to the House for a concurrence vote on changes made. The bill failed a House vote Wednesday night, but will now go to a conference committee to work out bill differences.

The House vote had 20 votes in favor and 18 in dissent. Measures need 21 votes to pass.

Following the failed vote, Reps. Alan Austerman, R-Kodiak, Bill Stolze, R-Chugiak, and Harriet Drummond, D-Anchorage, were appointed to the conference committee from the House. Senators Lesil McGuire, R-Anchorage, Peter Micciche, R-Soldotna, and Berta Gardner, D-Anchorage were appointed from the Senate.

If passed by the legislature and approved by Gov. Parnell, the next step would be to secure the TIFIA loan, which is a requirement before any bonds could be issued.

Hemenway, who expects the legislation to pass, said this is the closest the project has been to getting underway.

"It's a little bit of whiplash to change directions from the P3 to the public deal, but it has the support of the governor and the legislature," he said. "When you've got the political support, a lot of other things become easier."

The previous P3 financing plan failed to garner political support mainly because the legislature was uncomfortable with its 35-year contract the developer would get to operate and maintain the bridge.

While assuming somewhat higher risk, the cost of capital is much lower under the new plan and there is no long-term contractual commitment, Hemenway said.

The TIFIA loan would be made to the bridge and tunnel authority and would be secured by a senior lien on toll revenue from the new bridge.

Previous estimates from KABATA have set tolls at $5 each way for cars and $18 for commercial trucks. The authority's traffic and toll revenue consultant is currently updating an investment grade traffic and revenue study, expected to be complete by July.

The $300 million of toll bridge revenue bonds would be secured by a moral obligation of the state and a subordinated lien on toll revenue. The bonds would mature in 20 years, with an annual debt service estimated at $22 million.

If the plan is approved, Hemenway said the bonds probably would be issued during the first half of 2015.

Alaska's general obligation bonds currently carry triple-A ratings from all three credit rating agencies. Its moral obligation bonds are rated AA-plus from Standard & Poor's and Aa2 from Moody's Investors Service.

"Politically, this was an acceptable trade to the state legislature and they are more comfortable with the public finance approach," Hemenway said. "The best delivery method is the one that can be achieved."

HB 23, which had already passed in the House, was approved by a 16-4 vote in the Senate on April 12.

"Under this plan, the project debt is serviced more quickly, so the state benefits from excess tolls sooner," said Senator Anna Fairclough, R-East Anchorae/Eagle River. "When all is said and done, we will have saved hundreds of millions of dollars over the public-private financing plan and we will not be strapped to a long term contract with a private partner."

The four no votes in the Senate were all from Democrats. Two of those — Sens. Hollis French of Anchorage and Donny Olson of Golovin — said that a bridge would be needed eventually, but now is not the time.

The other two no votes were Sens. Johnny Ellis of the Government Hill area and Berta Gardner, whose district is the next one South. There has been strong opposition to the project from the Government Hill community, located in the northwest part of Anchorage, because of the disruption it would cause in that area.

The Senate adopted an amendment to HB 23 proposed by Ellis that would prevent the use of eminent domain to destroy properties in the residential neighborhoods of Government Hill until complete project financing is approved.

"Threatening businesses and homeowners before securing a complete finance plan is irresponsible," Ellis said.

Proponents of the bridge say it will bring jobs and economic benefits for the Anchorage and Mat-Su Valley regions, as well as increase safety by providing an alternative route during emergencies and evacuations and cut down on traffic congestion.

"By the time the bridge is built in approximately five years, there will already be an additional 10,000 vehicles using the Glenn Highway," said Fairclough. "As a commuter who uses that highway daily, and knows how much traffic is already clogging the lanes, we need a safe alternative which reduces congestion and provides room for emergency vehicles to respond."

Gaining the political support needed to construct the bridge is just one of the many hurdles this project has been faced with in the past few decades. The project has had to overcome environmental challenges, including mitigating concerns it could threaten a population of beluga whales, as well as a lawsuit filed by the city of Anchorage, which was dropped in 2011.

While KABATA, which was created by the state in 2003 to oversee plans for the Knik Arm bridge, has been working to get the project going for the past decade, the idea for the bridge has been around since as early as 1923 when railroad engineers were looking for a more direct route to the interior gold fields.

"The project has weathered three governors and seas of political change," said Hemenway, who has been involved in the project since 2006. "Looking forward, securing the TIFIA loan is crucial to the plan of finance."

KABATA is planning to file an amended TIFIA letter of interest in the next few days. Hemenway said the loan is likely to be conditionally secured in the third quarter of 2014, subject to financial close. The agency will also need to retender a design-build contract procurement.

Once underway, construction is estimated to take three to five years.

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Transportation industry Alaska
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