The House Finance Committee held its first hearing on the capital budget Tuesday, April 2, paying particular attention to the administration’s plan to shut down ferries and build a new Denali visitor center.

Gov. Mike Dunleavy’s proposed capital budget (SSHB 38) is only $96 million in unrestricted general funds (UGF), a $52 million reduction from FY 2019.

Despite its small size, the capital budget contains several controversial features, including the use of $37.5 million in Alaska Marine Highway Service (AMHS) funds to divest ferries and terminals. 

The budget also reappropriates $25 million set aside for replacement of the M/V Tustumena, redirecting that money to terrestrial highways to match federal funds.

Both moves are consistent with Dunleavy’s plan to end ferry service after September 30.  The administration is hiring a marine consultant to study whether AMHS should continue through privatization, if at all.

Reappropriating the $25 million from the “Trusty Tusty” strands $220 million in federal funds that Office of Management and Budget (OMB) Deputy Director Laura Cramer testified Tuesday was sufficient to complete the vessel replacement when combined with State dollars.

“Given the administration’s belief that the State shouldn’t have a direct role, or at least a purely government-backed role, in the ferry system, what is the intent of the administration with those monies, ultimately?” Rep. Andy Josephson (D-Anchorage) asked during the hearing.

“Until we have a report or a study completed by this marine consultant, that project [Tustumena replacement] is not moving forward at this time,” OMB Budget Director Lacey Sanders replied.

Shifting funds from AMHS to highways seems part of an overall vision.

To that end, another large chunk of the capital budget allocates $25 million for a new visitor center at the south end of Denali State Park.

“Who wants this?” asked House Finance Co-chair Tammie Wilson (R-North Pole).  “So far, the Denali Borough doesn’t want it.  The Mat-Su Borough doesn’t want it, so who exactly wants this project?” 

Cramer replied that the visitor center has been a priority of the State for years.

It was part of the Denali State Park Management Plan in 2006.  The first phase of the project was construction of roads and the K’esugi Ken Campground.  The visitor center would be Phase II.

Cramer noted that Denali National Park is seeing increasing traffic every year.

“This would be able to divert some of that traffic and save on the wear and tear on the roads within Denali National Park,” she said.

“I’m certainly supportive of projects that enhance and assist our tourist industry statewide,” Rep. Dan Ortiz (I-Ketchikan) prefaced.  But Ortiz worried about the costs of ongoing maintenance.

Cramer said that the campground has exceeded revenue expectations, and the visitor center is projected to bring in $1 million per year to cover its costs.  Additionally, the National Park Service may run some operations at no cost to the State.

The fund sources for the visitor center caught the collective eye of committee members.

$14.8 million comes from dividends of the Alaska Housing Finance Corporation (AHFC) and the Alaska Industrial Development and Export Authority (AIDEA).  That money is UGF.

However, another $10.2 million comes from AIDEA receipts, which the corporation traditionally uses to provide capital to private businesses.

“The AIDEA receipts have typically been used in the operations of the AIDEA corporation,” Sanders acknowledged.  “It is my understanding that there was excess receipts available in the AIDEA corporation that were available for appropriation.” 

Dunleavy also proposed using $254 million of AIDEA receipts to pay for oil tax credits.  House Finance stripped out that language when the committee introduced its own version of the budget.

“This would be a reasonable use of AIDEA earnings,” Rep. Bart LeBon (R-Fairbanks) said of the visitor center.

But committee members hinted at using the remaining $14.8 million in dividends to pay for deferred maintenance.  

OMB Capital Coordinator Shelly Willhoite testified the State has $9 billion of deferred maintenance projects.

That is double the amount of UGF in the entire operating budget, excluding Permanent Fund dividends (PFDs).

LeBon noted that the standard amount of budgeted reserves for maintenance is 3-5 percent in the business world, while Rep. Ben Carpenter (R-Nikiski) described the $9 billion as an “unfunded liability.”

“Is it true that if these deferred maintenance issues don’t begin to get addressed in a more full manner that those costs are only going to significantly increase?” Ortiz asked.

“That is correct,” replied Sanders.

She noted that Dunleavy included requests for deferred maintenance in FY 2019 and FY 2020.

Yet those appropriations only total $55 million in general funds, or 0.6 percent of the deferred maintenance backlog, giving lawmakers ample excuse to redirect South Denali Visitor Center funds if they choose.

House Finance will begin consideration of operating budget amendments on Wednesday.

“Tomorrow’s the day you’ve all been waiting on,” Wilson told committee members.

The committee has morning and afternoon meetings on the operating budget scheduled each day for the rest of the week, with a Saturday morning meeting scheduled if necessary.

The operating budget should be on the House floor next week.

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