Coastal legislators dislike governor’s spending plan for ferries

Stutes: federal dollars were meant to augment state money, not replace it

The Ferry M/V Aurora arrives in Cordova for the first time since 2019. (April 21, 2021) Photo by David Little/for The Cordova Times

Though they say the level of funding for the state ferry system in Gov. Mike Dunleavy’s budget for the fiscal year that begins July 1 is adequate, coastal legislators don’t like that the governor wants to use one-time federal money to pay the bills, eliminating almost 95% of state funding.

Their fear is that when the federal dollars from last year’s $1.2 trillion infrastructure spending plan run out, so too will adequate ferry service.

“Those federal dollars were meant to augment state money, not replace it,” House Speaker Louise Stutes, of Kodiak, said Monday. “This doesn’t work for me.”

The federal aid will run out in no more than five years. And when it does, “I’m concerned the fiscal cliff will arrive,” said Ketchikan Rep. Dan Ortiz. When that happens, convincing a majority of legislators to restore state funding for the Alaska Marine Highway System will be a challenge, he said.

Ortiz, who also represents Wrangell, said he would prefer to use much of the federal money to refurbish the fleet’s older vessels and build new ones. Stutes, who represents, Kodiak, Cordova, Yakutat and several small coastal communities, has the same opinion: Spend most of the money to update the aging fleet.

The governor’s proposed budget, which lawmakers are just starting to review in their annual appropriations process, would provide several million dollars more to cover the cost of vessel operations than last year’s spending plan, but would reduce state funding to 10% of the vessels budget, about one-tenth of last year’s level. The one-time federal aid would cover the difference.

The proposal puts next year’s overall ferry system budget at $141 million, with $5 million from the state treasury and $136 million in federal dollars.

There is nothing in the infrastructure funding law that explicitly requires Alaska to use the new federal aid to improve service, rather than simply replacing state dollars.

The infrastructure act did expand federal law, however, allowing the Alaska Marine Highway System to spend federal highway dollars on vessel operations and repairs, in addition to new construction. Most of the fleet is decades old, with the state short of its own money to build new ships.

“This is one chance in a generation to do vessel replacement,” said Juneau Sen. Jesse Kiehl, who serves on the Senate Transportation Committee.

The 59-year-old Malaspina “probably is going to the scrapyard,” and the equally old Matanuska was pulled from service with mechanical problems in 2020 and 2021, even after a $47 million engine rebuild was completed in 2019, Kiehl said. The 49-year-old Columbia, which was taken out of service in 2019 to save money, is a fuel guzzler, he added.

The federal windfall should go mostly to rebuilding the fleet and adding to the minimal winter service left after the governor’s budget cuts of past years, the senator said.

“We need a sustainable funding source for the ferry system,” and reliance on one-time federal aid isn’t it, Kiehl said.

In past years, state general fund dollars covered more than half of the ferry system’s annual operating services budget, with most of the rest of the money coming from ticket revenues. The overall budget is down about 25% from three years ago.

Expiration of the federal aid in a few years “will pretty much blow a hole in the budget,” said Sitka Sen. Bert Stedman, co-chair of the Senate Finance Committee and one of the ferry system’s staunchest defenders in the Capitol.

By using hundreds of millions of dollars of federal infrastructure funding to replace state dollars in the budget — not only for the ferry system — and relying on higher oil prices to boost state revenues, the governor was able to put together a spending plan for next year that he said would avoid any taxes, cover necessary state services, and pay out Permanent Fund dividends more than double the size of last year.

Stedman said he will hold hearings in the Finance Committee to “peel back the layers” of the governor’s budget onion, looking at where Dunleavy proposes to spread the federal money. “I think it’s going to be more of a salt-shaker approach,” he said of the governor’s plan to sprinkle federal cash across multiple categories to reduce state funding, the senator said.