The Alaska Marine Highway System will apply for $161 million in federal operating assistance under a rural ferry program the Federal Transit Administration opened this week, officials told a Senate finance subcommittee Tuesday.

The funding would cover calendar years 2026 and 2027 from a $410 million competitive grant pool the FTA made available Monday. The application would leave roughly $250 million available for capital projects the department also plans to pursue.

The FTA released its notice of funding opportunity Monday after Congress appropriated advance funding for the rural ferry program. Eligible projects include operating assistance, planning, and capital work. If the timeline follows the previous funding cycle, the department expects a grant award in late July or early September, with FTA officials committing to an expedited review.

The ferry system faces a $78 million federal revenue shortfall in its current calendar year budget. Officials plan to bridge the gap by swapping roughly $20 million between operating and capital appropriations under a proposed two-year budget structure that would align ferry funding with the state fiscal year rather than the calendar year.

"This would realign the budget request with the fiscal year. It would be a two-year appropriation. We would still receive a calendar year worth of funding. It would just have a padding of six months ahead and six months behind," an administration official said. The Alaska Marine Highway Operations Board supports the restructured budget.

The federal operating assistance comes with a maintenance-of-effort requirement. The ferry system must continue providing 75 percent of the average state funding from 2017 through 2019, the pre-pandemic baseline. Beyond that threshold, the program sets no federal maximum share.

Ferry revenues dropped from $50 million in calendar year 2019 to $39 million in 2025, largely because extended vessel repairs reduced sailing days. The Kennecott was out the entire year for generator replacement. The LeConte spent three months longer than planned on steel repairs. The Tustumena overhaul ran 30 days over schedule.

"We had the same amount of ships working. We did not have the same number of days," Alaska Marine Highway Director Craig Toringa said.

Revenues did climb $4 million between 2024 and 2025 when the Columbia returned to the Bellingham route. The vessel's two car decks generate higher per-trip revenue than smaller ships.

The system posted 98.55 percent uptime in 2025 despite the aging fleet. Officials reported nine lost-time worker injuries, no vessel or terminal spills to water, and one minor warehouse spill contained to a storm drain.

The department is taking immediate cost-reduction measures to stretch current funds until the federal award arrives. Officials plan to dispose of the Matanuska, currently used as a crew hotel ship in Ketchikan at $800,000 per month. Moving the Tazlina to capital project status will shift crew costs off the operating budget. Combined, the moves would save $1.15 million monthly.

The ferry system collected $37.2 million in revenues during fiscal year 2025. Operating expenses totaled $16.2 million and overhaul work cost $22.2 million, leaving a net fund balance change of negative $1.3 million. The overhaul spending generated $23.4 million in preliminary toll credits the system can use as federal match on future grant applications.

A 2.1 percent fare increase takes effect May 1 under a tariff adjustment the operations board recommended to track the Consumer Price Index for urban consumers. Ticket sales remain the largest revenue source at $31.1 million in fiscal year 2025, followed by stateroom sales at $3.5 million and passenger services at $2.5 million.

The subcommittee meeting lasted 25 minutes Tuesday morning. Members asked for written follow-up on a labor dispute at the Ketchikan shipyard and the status of the Cascade Point terminal project, which has faced delays related to Army Corps of Engineers permitting.