Senate Dept. of Transportation FSC, 4/8/26, 7:30am

Good morning, everybody. I'd like to go ahead and call the DOT Finance Subcommittee to order on the 8th of April. It's 7:30 a.m. With me today is Senator Dunbar, Senator Wolkowski, Senator Cronk, myself, Steadman, and Senator Bjorkman will be here in a few minutes. I just saw him downstairs. Craig Tonga is here. Dom Pannonne, he's program manager. And Dranga is Alaska Marine Highway Director. We've got a truncated meeting this morning. We only have about 25 minutes, so I've asked the department to tell the committee the most important stuff they want to tell us, so we might be jumping around their slide deck. It's up to them, and we want to hear about the money for the budget.

Thank you, Mr. Chairman. So the first slide we'll, we'll kind of just touch on is the current situation. AMHS, for the folks at home, is on a calendar year. Our current year budget has a federal revenue shortfall of $78 million. That's something we'll address when we talk about the federal rural ferry program in a couple slides. But, but that's a big issue we're going to address in a couple slides. Moving to slide 3 here, this is really one of the major components of the governor's proposed budget. This is a new budget structure for the system. Currently our calendar year appropriations are bookended January 1, December 31. This would realign the budget request with the fiscal year. It would be a 2-year appropriation. We would still receive a calendar year worth of funding. It would just have a padding of 6 months ahead and 6 months behind. Creates flexibility flexibility for the system. It reduces a lot of administrative burden. It allows us to request the CBA increases and salary adjustments that Ledge Finance has requested of us with the budget, and it will align with that appropriation as well. This model is also supported by the Alaska Marine Highway Operations Board. The only change is it creates some flexibility and better reporting for everybody involved. So brought a lot of broad support for this budget structure. On slide 4, this is an update for the committee on the Federal Rural Ferry Program. The Federal Transit Administration did issue a notice of funding opportunity on Monday. They have released the program outlines for the rural ferry program and an announcement that the $410 million that was available in advance appropriations will be available for competitive grants. The eligible projects under this program are operating assistance, planning projects, and capital projects. The stipulations on the operating is that the ferry system has to continue to provide 75% of the average of the state funding that was provided between 2017 and 2019. So pre-pandemic, that stipulation is still in there. Otherwise, there's no federal maximum share. So largely, this NOFO is as the department anticipated. If we follow the same timeline as the last NOFO, this would put us late July or late August, early September for getting a grant award. And FTA has committed to an expedited award. So on the next slide, we'll talk about how we would get there. Essentially, with that waterfall budget structure, that is being proposed that would allow us to swap some federal funds and AMHS revenue funds, approximately $20 million between the two appropriations. That will essentially float the system between the time the, the time our current funds run out given the federal shortfall and the time the other award would come online. And then we'd shift the excess federal funds to the following year. Making both years whole. So our plan is to apply for $161 million of operating assistance funds. That would be the calendar year '26 portion and the following year calendar year '27 funds. And that will leave approximately $250 million of the $410 million available. And we are working with the director here, Craig Toringa, and Department leadership to apply for other capital funds as well, given there will be $250 million still available in the program.

Can you touch just quickly on the immediate cost reduction, Director Grant?

Yes, thank you, Mr. Chairman. So the immediate cost reductions, we are also taking measures to make the current funds we have go further, given that we will have to bridge the gap. The cost reductions are to ensure we don't have to reduce our schedule or services given that we have to have a continuous funding. So the first measure there is disposing of the— that is another typo, we've not corrected. It's the Matanuska. The Malaspina is the sister ship. We've already disposed of that. So the Matanuska currently is a hotel ship. We use it to hold our crews in Ketchikan for a number of reasons. It is an operational efficiency. That does cost the system about $800,000 a month. Another cost-saving measure is moving the Taslina to the capital project. Once we do that, the crew and time on that gets charged to the capital project, shifted away from the operating budget. Those two will save us about $1.15 million a month, and we are working on that, and the director can update the Committee on any status. Moving to slide 6. This is just an update for, uh, the Committee on the Alaska Marine Highway System Fund. Our 2025 revenues for the fiscal year were $37.2 million. We had $16.2 million in, uh, operating uses and $22.2 million in overhaul On the capital side, that was a net change to the fund of negative $1.3 million. In, in the fiscal year 2025, also by using the Marine Highway funds and overhaul, we have a preliminary $23.4 million of earned toll credits, which allows us to apply for federal funds and use those credits in lieu of the match. And in the fiscal year 2027 governor's operating request. We continue to request $20.8 million of revenue in our operating, and we have an overall request of $27.5 million. We also have a tariff or, um, farebox, uh, rate adjustment starting May 1, 2026. That is a, a product of the, um, Alaska Marine Highway Operations Board recommendation in our long-range plan. We're aligning the Consumer Price Index for all urban area consumers and increasing our rates by, I believe it's 2.1% for the system. So that'll increase farebox recovery, or at least keep, keep up with inflation. Slide 7 is just a reminder that we do put out our annual financial report. We do provide it to the legislature and it's on our website, outlining our, our ticket sales are the largest revenue source at $31.1 million for the fiscal year 2025. Um, stateroom sales earned roughly $3.5 million, and passenger service sales, mostly food and other onboard services, was $2.5 million. This last financial slide shows back to a calendar year where our revenues and where our budget and expenditures have fallen.

We in 2023 had an initial budget of sailing all ships, and we've been slowly growing into the budget with our expenditures increasing and the budget increasing largely due to collective bargaining agreements. You will see between calendar year '24 and calendar year '25, we had a $4 million increase in revenues. That's attributed largely to the Columbia sailing the Bellingham route. The Columbia has two car decks and generates a lot of revenue specifically on that route.

And then help me with this slide here, the, the $170 million. What's that?

The $170 million, Mr. Chairman, on the blue line for calendar year '26, that's our current year's budget, and we don't we're— that's calendar year 2026's budget without the backfill language. So I believe we're requesting a largely flat budget for calendar year '27, which is not on this slide.

And then touch on the, on the Green Line, your revenues, and because it peaked at $50 million and we're at $39, could you help me with that. Is there less ships sailing or we have a decline in car deck and people?

Yeah, there's— Mr. Chairman, through— Mr. Chairman, we had the same amount of ships working. We didn't have the same number of days.

Go ahead and identify yourself so the transcriber knows who's talking.

Yeah, Craig Thoringa. For the record, Craig Tarninger with the Alaska Marine Highways. So we had same number of ships, we had fewer weeks of operation mainly due to the— in '25, the Kennecott was out the whole year for their capital project of changing out their generators. And then the Lakonti had extensive steel repairs in their deck and in their— ramp and they're still working on them this year, but it was out about 3 months longer than planned. And then we also had the Tustimena about 30 days longer too. So we had less sailing days between the 2 years, '24 to '25.

Okay. I was looking more like at '19, maybe you could get back to the committee. '19 we had $50 million in revenue and Now we're basically $40 million in revenue and that delta, and maybe you can get back to us on that, the comparison of ship sailings and load traffic.

We can. That's before my time, but I have all that history.

Yes. Okay, go ahead, continue.

So this slide here just represents our strategic focus areas. We are, we're stuck in each day with challenges of putting out fires, something breaking down, but we try to step back and stay strategic on our plan. This just shows that we're, and the first one is focusing on our safety and reliability. We got a lot of projects trying to modernize our systems, put management systems in play, and then also we've got the workforce. We've got a lot of positive that's been going that way as far as laying down plans and being able to fund those plans. They all will take a few years before we see the results of that, but you got to get started on that. Good, and then also our financial efficiency and everything we're doing on the modernizing the fleet and the systems all ties into that. So I'll just move through these fast. We always focus on our safety. Our goal is no harm to people, environment, and equipment. So for '25, we did have 9 lost time incidents. No spills to the water from the vessels or the terminals. We did have one from our warehouse that got into a storm drain, about a gallon. And we got lessons learned out of that as we now keep those drums in containment. And then we had the incident of the Latuya hitting a rock in Annette Bay 2 days before the end of the into the '25. On the reliability, this is our total downtime was less than 2%, so we had an uptime of 98.55. That's a respectable number, especially for the age of our fleet. The next slide— you can stop me at any time. I'm moving fast for the time here. So, okay, the next slide is just a snapshot of A system we put in place, it's a preventive maintenance system, and those bars would be just OEM-recommended items that need to be done. You change the oil in the steering pump, anything, they're all in there. And it just shows what's— if they click on— this is a dashboard each boat has for their vessel. If they click on one of those line items, it'll tell them what work orders are in there. Just keeps them organized, and then we have a record of what's done all for the OEM recommendations. And then we've got a lot of effort we're doing trying to improve our system. We've done upgrades on the— this is all in the area of our customer's experience. And we've done upgrades to our reservation system. We're also got scanners working now. If any of you are riding, you'll notice you have to scan your ticket on and off, and now we meet the the required regulations, that we always have a real manifest that we can produce when asked. And then I'll just slide on down. You know about the Wi-Fi work. The last item on there is really our initiative for this next year. We want to implement an app, and that app can also be your boarding pass, and the scanners can read that. So that'll, that'll be something we're working on in '26. It probably will roll into '27 as well. The next, this is the work that was done on the Kennecott. The Kennecott, you can see on the bottom picture on the left, that's taken out the 3516 that was— we were required to replace it. It was oversized. This vessel was designed to be a spill response vessel before it was a ferry, and so they overpowered And so we had to replace it just because it's always idling and polluting too much. So we went back in with the middle picture, a smaller 3512 series cat. And just on the right, you can see after we painted— this slide here will show you the pictures. The hull was in tough shape. This boat was— this ship was built in '98. It had never been blasted and painted, repainted. Since it was built. We had steel to replace. We had electrolysis issues. So we did blast it, take it down to steel. The top right picture, that's showing the primer on and then the stripe coats that you put on the welds. Once you put the primer on, you spray it on it, in the area of the welds, it tends, as it dries, it spreads out and That's an area then you stripe so you get a good coating in there because that'll be the first area that starts rusting on you. But you can see what the hull looks like now. We also had an electrolysis engineer come down and— because we had no anodes when it came out— and put a new electrolysis plant on there. And you can see the rudders in the right picture where we've got all the anodes.

You had no anodes because they corroded off or no anodes because they never put them on?

I asked questions. It was every year it came out, the anodes were gone. So we had an issue. So we had an electrolysis engineer come out and just lay out a whole new plant.

So how much damage do the engineers figure is done to the machinery with loss of anodes?

Yeah, well, we did have steel inserts that we had to cut out and replace because the scan was too thin when they did the audio gauging. And then there was some pitting that was smaller. We were able to clad weld because it was less than 25% wastage. But I don't know the exact cost of all that, but we spent a few hundred thousand on the steel. So this, when it's gone, I don't know if it was gone in 1 month or it was gone in 11 months, but when the— Kennecott, we've got a whole new plan on it now. When it comes back into the yard in June, we'll dive it and just make sure where these are at. And I like to put these on in such a way that divers can replace them. So most of them are bolt-ons.

Or at least check them.

Yeah, yeah, yeah. That's what we'll do. So we've got that as it goes in a work order. The next project is the Taslina crew quarters. This project is just about ready to get out. We're— we've got the package put together for all the FTA requirements. We've added in the overhaul into this. That's the last thing that

working on right now with engineering is getting all the overhaul plans in here for the bid, but hope to have that out this month and we'll see where it goes. The Columbia project, call it a modernization, we have a lot of areas on here, won't go through that list, but it's long, it's a lot of things. This boat has to keep us going for a while, it's the mainliner for us and We need to update quite a few things on there. We did replace in, in '24 the whole fire main system, over 750 feet of it that goes through bulkheads. And it was quite a project. And now we have a lot of systems where the firefighting has to be updated with that piping. And we— that'll be the biggest project in here. And plus, we want to upgrade some of the cabins that need it and then add some outlets for those who ride these ones that are built in the '60s and '70s. There's not many outlets on it. Everybody wants to plug in today, so we'll be adding that as well. So there's a lot to be done to keep this going.

I think that's the nicest ship of the line. Hopefully we repair it and keep it for a while.

It's a big difference between having this vessel and— it's not an efficient vessel in its consumption of fuel, but it's efficient in the car deck space we have. And even though we moved 1,000 less cars from '24 to '25, our revenue is higher just because Most of the cars were moved on the Columbia, which has a better return on the car deck. It's a higher rate. The Tussemena is out for bid. It went out the end of January. We have lost a couple bidders just due to the federal projects that are out there. The icebreakers, once that one was awarded, They have— they pulled out and then there's some Navy ships, landing craft, they're Ward-Finkentary and so they'll be busy with that. But we still have players in there. This is due in May. It may be extended. We're open to it if they have the request. We want to make sure we get good bids in. The diesel-electric ferry, this was an award that was actually applied for back in '22, and we put out an RFP in that for the design of this. Glauson's designing it. It's a small shuttle ferry that would operate between most likely Haines and Skagway or Ketchikan and Net Bay. Mainliner replacement. This is just a visual. This one's hasn't been designed yet, but we do have funding, $9 million for designing the main liner. We will put this out as soon as the Taslean is out for bid. I only have so many resources for doing these, and so once the engineer gets the Taslean out, we'll immediately get this one out. We've got it drafted.

And they'll probably change the Princess Sophia bow Yeah, well, we'll see.

It's an efficient bow. It really is. This one's been through tank modeling and that bow— this here is really just the Tustimena with an 80-foot section put forward.

We got about 5, 6 minutes left here, so.

Okay, we'll keep going. This here is our fleet configuration. You'll— that's in our long-range plan. Um, in here there's only 2 vessels that are here today, and that's the Hubbard, Teslina, that would still be there in '25. This is just 8 vessels. It's less than, you know, what was 12 for the peak. But when we model it out, we can get about the same amount of port calls. We paid attention to the standardization in this fleet. The mainline replacements are sister vessels that can interchange. They're both the Ocean class as well. So they can Either one can go cross-gulf.

And so let's go to the next one and then we got to get to slide 23.

Okay. And this is just also upgrades that we're doing at all the terminals. It's a long list on that one. Now, on the crewing for '25—

just a second on '22. Maybe you can get back to the committee on Prince Rupert. That's the port of interest.

Prince Rupert, the waiver still out there. We haven't gotten— at the same time, we've got the funding to look at Hyder, and so we're doing that. We should have that— the targeting— they have the study on the Hyder the end of the summer.

Just make sure you look at the economics beyond the Marine Highway, because Hyder doesn't bring much to the table relative to Prince Rupert.

Okay.

Okay. So let's go to Crew, I'm sorry.

So our crew status in '25, we hired 64 and 67 separated. That's an improvement when you look back at '23, '24 when we'd have about a 40% retention. And this slide here shows it by category. We did have a CPA adjustment or CBA adjustment on the wages. Helped us actually hire more third mates. If you look at the third mates there, we're short. And then the mates and the masters, we were able to hire more just because we're a little bit more competitive. But now we have to move them up. They need sea time and they need their pilotage. And we do, we were able to get a clause in the MMP collective bargaining agreement that incentivizes the mates to ride, and we've got a few in that program right now, so that's going well. All this will take time, but at least we have a program for it. We're short on the engineers and always have been. That's a, industry problem, and it's— there's the biggest, most pressure in that area than any other. This is the positive slide. We've worked, and I've— you may have seen in my previous presentations, we're trying to work on a hawse piper program and have the pathways and be able to support the mariners. We're focusing on Alaskans and then being able to help them get through the program. It's rather expensive to get all your licenses, so on the The second bullet point there, we do have funding for supporting scholarships for AB to third mate and then also from an oiler to a third assistant engineer. We've got 3 in the pipeline for both the, the mate program and also the assistant engineer program right now. And so that's really good. We also have a new one for this year, and that's the MITAGs. That's a program where you really, for 2 years, you're doing nothing but riding and working. And that's your life. But you come out of there with a third mate's license. And we support it through a cadet program where they can ride on our vessels, get their sea time, and then while they're going to school at MITAGS in Seattle. But they come out of there with a mate's license with that. And then as I mentioned on the bottom one there, that's the pilot incentive program where we pay them a wage while they ride on their time off to get their pilotage. We lost about 6 to the pilots last year out of our masters and mates. I don't think they have any openings this year, so that will help us maybe catch up without losing for a year anyway. And that's really it. And everything in here, like, it's focused on trying to make this fleet more efficient and affordable going forward. And we are tracking, you know, our farebox rate. There's a lot of variables when you dig into it. But for '25, our farebox recovery rate was 25% and— or '24, it was 25%, and then '26, it was 26%.

And then touch on the new, the new managers of the shipyard and their quality or their work and the relationship. How is that working with the new? And then we're going to be— it's— then we're going to run out the door.

Okay. It's going well. You know, it's, it's always a challenge. I've been used to a competitive market for shipyard and people chased your work and you made sure they were, they were hungry for it. Here we're married up and so we have to make sure we're getting it done. It's convenient for us. It's right there. JAG is doing well and we're thankful for that. They've always done well for us in Seward. And so glad to have that management there in Ketchikan as well.

Just for the committee, I think the shipyard— last I heard last week, they're up to 185 workers, up from about 50, and they got 2 to 2.5 years of work booked ahead of them. So it's a huge difference. So we should— and my understanding is the quality is still high on their work and their time

So yeah, and they've— when we've had issues, they take care of them. And that's always great to have a yard and you come in and you're seeing some quality issues, they change it right out and fix it. And that's been good.

Well, thanks for coming in this morning. Quick and easy. If there's committee members have questions, just don't come in and I'll volunteer Dom. He'll come in and give you all the information you need. And then we'll have any questions, let me know or let my staff know. Go ahead, Senator Dunbar.

Thank you, Mr. Chair. Can I ask a couple questions now and just have a— so they can send us written answers? On the shipyard, my understanding is there's a labor dispute, maybe a fairly significant one. Do you anticipate any, you know, disruptions in service going forward because of that? Don't answer now because we have to go. And then the second question is on Cascade Point. What are the plans going forward? I'd heard that there had been an issue with the Army Corps of Engineers and a delay, and are you still pretending, still pushing forward with that project? So I'm not asking for an answer now, Mr. Chair, but if you could get that to us in writing, I'd appreciate it.

Yeah, okay, great. Any other things? We are adjourned.