Gov. Mike Dunleavy’s proposed FY 2020 capital budget is drawing scrutiny for spending money on a new visitor center in Denali State Park while closing the Alaska Marine Highway System (AMHS).

The capital budget has tended to receive less attention in recent years than the operating budget because of limited State funding.

Former Gov. Bill Walker and the legislature looked first to the capital budget for reductions when oil prices plummeted in 2014 and 2015, bottoming out in January of 2016.

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Whereas the FY 2013 capital budget was over $2 billion in unrestricted general funds (UGF), it has been smaller than $150 million UGF since FY 2016.

Dunleavy’s capital budget (SSSB 19) is $96 million UGF, a $52 million cut from FY 2019.

Section 4 of the bill would reappropriate $37.5 million of AMHS funds for divestiture of ferries and terminals.

Cuts in the operating budget would not allow AMHS to operate beyond September 30. 

Under Dunleavy’s proposal, a marine consultant will provide a report in August that will recommend whether AMHS should continue, be privatized, or simply have its assets sold.

“There is a capital project utilizing the balances of the Marine Highway System Fund and the Marine Highway System Replacement Fund into a single project to allow for the Department of Transportation & Public Facilities to work through the process of divesting, if that is the direction that the marine consultant determines that the Marine Highway System is going to go,” Office of Management and Budget (OMB) Budget Director Lacey Sanders explained in a Senate Finance hearing Tuesday, March 12.

Sanders said the $37.5 million would be used to pay back federal funds used for AMHS projects and to maintain vessels so they can be sold.

The concept is not a popular one.

“We believe that divestiture is inconsistent with community needs and the responsibility of this State to ensure public welfare, and that public transportation provided to coastal residents cannot be considered simply within the budget.  This reappropriation is premature until a strategic plan is complete and a vision identified,” testified Nils Andreassen, executive director of the Alaska Municipal League.

Senate Finance Co-chair Bert Stedman (R-Sitka) is handling the operating budget, while Co-chair Natasha von Imhof (R-Anchorage) is chairing the capital budget.

“I would like to suggest that a slower approach, Madame Chairman, would be more beneficial to the citizens of the state.  In the event that there is a termination and liquidation of the Marine Highway, we disperse the funds at a future date in a future budget in a future year, preferably after I retire,” Stedman joked with von Imhof.

“I don’t want you to get the impression that we’ll be coming forward with the operating budget with no changes for the Marine Highway.  There will be changes,” Stedman told von Imhof, turning serious.  “But, Madame Chairman, I would suggest that you take a look at some of these with a jaundiced eye and move slow and we ensure that we have a transportation system not only in the Railbelt, but in coastal Alaska, also, as we go forward.”

“I think it is important to note that while the capital budget and the operating budget are two separate bills, they do work in harmony.  We need to consider them both simultaneously as we move forward,” von Imhof responded reassuringly.

Though Stedman suggested that more AMHS routes may be privatized, Dunleavy’s capital budget cuts the $250,000 subsidy for the Inter-Island Ferry Authority that already privately operates several routes in Southeast that caused AMHS heavy losses.

Budget Reappropriates Money for Replacement of “Trusty Tusty”

The capital budget also reappropriates $25 million set aside for replacement of the M/V Tustumena, which is at the end of its operating life.  Instead, the budget applies the money to highway funding.

Unalaska Mayor Frank Kelty told Senate Finance that Southwest Alaska only gets ten ferry trips per year, assuming the “Tusty” isn’t dealing with unscheduled maintenance.  Without September service, unfunded in the operating budget, teachers will struggle to move to Unalaska for the school year.

“I think we’re doing a real disservice to the people of Southwest Alaska by penciling this out,” Kelty said.  “I think it is way too early to dedicate those funds to road system maintenance or other projects that the governor might have in mind.  We don’t have a plan in place yet for the Marine Highway System.”

Kelty added that the Tusty is “being held together with very expensive baling wire.”

“He’s right.  It is held together by baling wire,” agreed Robb Arnold, chief purser on the M/V Malaspina.  “We need the Tustumena.” 

Arnold noted that seafood workers often fill flights to Dutch Harbor.  AMHS provides an alternative means to reach the fishing hub when flights are full and backed up.

“We transport those workers to their jobs,” he said.

“This is just devastating,” Inlandboatmen’s Union Regional Director Trina Arnold said of the cuts.  “There are people out there that depend on this ferry system.” 

The House Transportation Committee, chaired by House Majority Whip Louise Stutes (R-Kodiak), also took public testimony on AMHS Tuesday afternoon.  It will take further public testimony Thursday at 1:30pm.

James Brooks of the Anchorage Daily News tweeted that over 200 people signed up to testify in House Transportation Tuesday.

AMHS is not the only target in Southeast for budget reductions.  KCAW reports that the State is proposing to sell the Sheldon Jackson Museum in Sitka as part of Dunleavy’s plan to offload underutilized State property.

“This is crazy.  This is crazy stuff.  We can fix our budget problems with the marine highway and education and all this other stuff and still keep our society intact,” an incredulous Stedman told KCAW.

New South Denali Visitor Center Set to Receive $25 Million

While a replacement for the Tusty is set to lose $25 million, a new visitor center in Denali State Park is set to gain $25 million.

$14.8 million of the funds would come from Alaska Industrial Development and Export Authority (AIDEA) and Alaska Housing Finance Corporation (AHFC) dividends.  The remainder would come from AIDEA receipts.

The South Denali Visitor Center was part of the 2006 Denali State Park Management Plan.  It would be located at Mile 135 of the Parks Highway along the same access road as the new K’esugi Ken Campground.

There is construction across the highway from the access road, sparking rumors that the State is quietly diversifying its revenue stream.

“Are we getting in the hotel business?” asked Sen. Click Bishop (R-Fairbanks).

“No, it is not a hotel,” answered OMB Deputy Director Laura Cramer.

While a cruise line is building a new hotel nearby, Dunleavy is only proposing to build the visitor center.  Cramer said it is expected to bring in $1 million per year.

“The administration anticipates this to be a revenue generator going forward?” Bishop asked.

“Yes,” replied Cramer.

But the $25 million is money that Dunleavy’s predecessor did not propose to spend.

“Will the State be on the hook for more, and does AIDEA anticipate that down the road?” Sen. Mike Shower (R-Wasilla) asked.

Cramer told him that park facilities are generally self-sustaining, with excess revenue spread amongst other State park facilities.

“Has DNR [Department of Natural Resources] or has the administration taken a look at maybe doing a competitive lease, a long-term lease, putting it out to a private enterprise and then getting an overriding royalty?  That takes us off the hook for any deferred maintenance and having to maintain it,” Bishop suggested.

Cramer said that has been considered, as well as a potential State/federal partnership.  She said she would know more after a meeting later Tuesday.

von Imhof announced the topic will come back up during the next capital budget hearing.

“We need more information,” she said.

Alaskans Testify Against Cuts to Census Funding, Public Transportation, Housing

Smaller line items also drew attention Tuesday.

Wording in Dunleavy’s capital budget concerned legislators and citizens alike.  It allocates $1 million in initial funding for the “2020 census-based redistricting process,” while removing $250,000 from the Department of Commerce, Community, & Economic Development that would “maximize future federal funding via the 2020 census.”

Andreassen argued that census funding should not just be for redistricting.

Bishop pointed out the Senate Community & Regional Affairs Committee recently held a hearing documenting how much federal funding the State lost as a result of the 2010 census.

“We were undercounted, and we lost over $3 billion in that ten-year period.  I want to make sure we don’t lose any funding,” Bishop said.

Sanders said that despite the wording, the capital budget money is for both the census and redistricting.  But von Imhof wanted more information.

“The census is important,” von Imhof told her.  “There is just merely a concern among many, many groups in the state that we accurately count our population statewide, knowing that we have remote locations.”

Glenn Miller, transportation director for the Fairbanks North Star Borough (FNSB), was one of three people who testified against the elimination of the $1 million Public and Community Transportation State Match.  FNSB’s portion of that money paid for 12,000 rides for seniors and low-income residents this year, he said.

“Greater than half of all of our riders surveyed used public transportation to get to places of employment, followed by education, medical appointments, food shopping, and other critical needs,” Miller noted.

Dunleavy’s budget also cuts $4.3 million from housing grants that go to non-profits.

John Rizzo, chair of the Mat-Su Coalition on Housing and Homelessness, told Senate Finance that it is cheaper to provide assistance before someone has lost housing.

“We have helped an average of about 1,800 to 2,000 people every year,” he said.  “We have also, over the course of the last seven years, helped over 10,000 people with various types of services, which include utilities, rent, and anything that would help somebody pay their rent so they can stay in their housing.”

Rizzo warned that the cut would eventually mean more people on State public assistance.

“Anything short of what we’ve had for funding in the past is going to drastically increase costs to public assistance,” he told the committee.  “So rather than it be a cost savings, you’re going to be increasing costs immensely, and not just financially, but also socially, in all of our communities.”

Sue Steinacher of Nome had a similar message.

The lack of housing in rural Alaska has led to overcrowding in homes with black mold and without sewer or water, she said.  These conditions generate Adverse Childhood Experiences (ACEs) that will result in homelessness in urban Alaska, as well as higher, expensive incarceration rates.

The capital budget does include $65 million for village safe water and wastewater infrastructure projects, including $12 million UGF.

Steinacher testified that a cut to the Permanent Fund dividend (PFD) would disproportionately impact rural Alaska.

“When the PFD gets cut, it cuts the same amount of money from the poorest child in Savoonga as it does from the wealthiest person in Juneau,” she said.  “If you cut anything from the PFD, it must be balanced with an income tax, so that on one hand everybody pays the same, balanced by the fact that those who have greater income pay the greater amount.  This is the only fair, American way.”

Alaska Independence Party Chair Lynette Clark also urged protection of the PFD, but for different reasons.

“Keep your hands off the Permanent Fund dividends,” Clark told committee members.  “Our governor’s superpower is the veto pen, and I am confident he knows how to use it.”

Of the 11 people to offer public testimony Tuesday, Clark was the only one to testify in support of Dunleavy’s budget.

The capital budget does not receive the subcommittee treatment and is usually drafted behind closed doors, but von Imhof urged committee members to consider options before its next hearing.

“The capital budget is very, very important.  More than the operating budget,” she added with a smirk at Stedman.

This article brought to you by Hal Blaine’s performances on “Wouldn’t It Be Nice,”  “Go Where You Wanna Go,” and “Only Living Boy in New York” 

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