Sewer, water financing problem for Alaska prison

Posted: Sunday, April 18, 2010

ANCHORAGE - The cost of water and sewer systems could delay construction at the new $240 million Goose Creek prison.

The Alaska state prison project already faced one funding shortfall when officials tried to sell tax-exempt bonds for construction just as the markets were collapsing in 2008.

The bonds were sold but so much interest had to be paid that prison construction required a special legislative appropriation in 2009.

The Anchorage Daily News reports costs went up after the Matanuska-Susitna Borough decided to build the prison miles from existing utilities - meaning the remote Point MacKenzie site would have to be served by a new water and sewer plant.

But the newspaper said the borough hired a private company to build and operate the plant instead of building and running the systems itself as a municipal utility.

The borough chose Valley Utilities LLC, a Wasilla company set up specifically for the project by several well-connected Valley developers.

The borough rejected a bid by a much larger Anchorage team that included two regional Native corporations and developer JL Properties. Five months after their bid was rejected, the losers have yet to receive an explanation of why from the borough.

While the borough is the official owner of the prison in a lease-back deal with the state, its manager blamed state government for the delays.

"Yes, we're concerned, but the state's got to figure out what they want to do," said Mat-Su Borough Manager John Duffy. "It's the state's operation."

Officials say the delay in starting construction of the $28 million water-sewer utility is fast approaching the point where it could spell trouble for the much larger, $240 million prison project.

"Everything is good today, but we're burning up some critical schedule," said Ted Trueblood, an engineer and one of four owners of Valley Utilities. "The clock is ticking."

Between profit, debt service and construction costs, the Wasilla company is proposing to charge the state more than 10 times what it pays for water and sewer at its Hiland Mountain prison near Eagle River, according to borough officials.

One of the owners of the winning Wasilla company was president of the engineering firm that helped the borough prepare its water and sewer bid package. But he told the newspaper he was not privy to inside information.

A plan by the borough and the company to finance utility construction through tax-exempt bonds was halted last month when state revenue department officials raised concerns about the risk to the state's credit rating.

When the borough administration asked the Mat-Su Assembly last month to ratify its choice of Valley Utilities, two assembly members complained the matter was being rushed. But their calls to slow down the process were silenced by the vote of five other assembly members in favor of the deal.

The prison, being built to contain more than 1,500 felons, is now more than a third complete, with construction set to finish by the end of 2011.

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