DOT resists 2nd IFA ferry

State, port authority clash over ferry dollars

Posted: Sunday, August 19, 2001

The state Department of Transportation stands accused of breaking faith with a new ferry authority in the southern Panhandle.

The department's about-face allegedly could cost the fledgling group up to $2 million. That's the possible added cost for a second vessel that the Inter-island Ferry Authority wants to deploy to supplement service by the Alaska Marine Highway System.

The dispute, simmering for nearly a year, is starting to boil because of an Oct. 1 deadline for the IFA to exercise its contractual option to get the second vessel at a fixed price.

If direct congressional funding doesn't come through in time, DOT's opposition to the second vessel will delay the project indefinitely, despite consistent support for the IFA from lawmakers in Washington, D.C., and at the state Capitol. That's because DOT has wide discretion under the law in developing a priority list for state transportation projects funded by federal highway dollars.

IFA was established as a port authority in 1997 by the cities of Coffman Cove, Craig, Klawock, Petersburg, Thorne Bay and Wrangell, communities long frustrated by erratic and inconvenient ferry scheduling. To finance its first vessel, the authority has received direct congressional appropriations and some of the state's federal highway dollars, and has sold revenue bonds.

But just months before that service is to begin, questions are being raised about DOT's failure to honor all of a 1998 memorandum of understanding with IFA, which was later incorporated into the agency's Southeast Transportation Plan.

The memo seems to commit the state agency to support IFA plans, including the Hollis-Ketchikan shuttle now set to start in mid-December and the controversial "northern" route linking Coffman Cove on north Prince of Wales Island with Wrangell and Petersburg, the latter by way of South Mitkof Island, where there's a road connection. The second vessel would serve the northern route.

For Prince of Wales residents traveling north, the Coffman Cove-based ferry would drastically reduce road travel and also eliminate the 44-mile ferry crossing southeast to Ketchikan.

Signed by DOT Commissioner Joseph Perkins and IFA Chairman Harvey E. McDonald, the memo has the state agreeing "to cooperate with and to otherwise support the efforts of IFA to develop and operate future feeder ferry service between the northern end of Prince of Wales Island, Wrangell and Petersburg."

But that isn't happening now.


Last fall, the department delayed implementation of the northern route in its official transportation schedule, putting it out to 2006 or later, even though IFA wants to start service in 2003. In June, a consultant to DOT issued a report saying that ridership on the Coffman Cove-South Mitkof-Wrangell route was likely to be so low that the IFA might default on its revenue bonds. Unlike the Marine Highway System, IFA proposes to finance operations solely through fares, without government subsidies.

That report led to a contentious meeting in Craig last month attended by Gov. Tony Knowles and Bob Doll, Southeast regional director for DOT. IFA staff and board members presented state officials with an elaborate rebuttal to the DOT-sponsored study, alleging "incomplete information," "numerous factual errors and faulty assumptions" and "incorrect conclusions."

Next week, IFA representatives will meet with DOT to make more detailed comparisons between the differing sets of numbers and assumptions, according to Doll. Kent Miller of Ketchikan, project development coordinator for IFA, said Friday he wasn't yet aware of any such meeting.

IFA says the Coffman Cove-South Mitkof-Wrangell route likely would attract 22,000 passengers and 7,500 vehicles in 2003, yielding about $1 million in revenue against $900,000 in operating costs over five months. The report done for DOT says the operation could lose $200,000 or more a year.

The schism, following a couple of years of close cooperation, has alarmed the Southeast Conference, according to Executive Director Loren Gerhard. The conference is a nonprofit organization made up of businesses, municipalities, other nonprofit organizations and individual members throughout the region. Transportation is one of the group's key concerns.

Gerhard said DOT's reversal raises the question of "How are you supposed to do business with these people?" After making the decision to drop support for the second IFA vessel, the agency hired a consultant "with the clear intent of poking holes in their business plan," he said.

IFA isn't going to roll over on the issue, Gerhard predicted. "We think IFA is a very innovative, inspirational kind of event. This is a very heartfelt commitment on the part of those communities. There's a fire in these people's bellies."

Doll of DOT said the 1998 memo was not legally binding. "If we had wanted it to be a contract, we would have made it a contract."

DOT isn't getting adequate credit for helping IFA get going and set up the Hollis-Ketchikan route as its initial service, Doll said. The state has passed through some federal grants to the port authority and committed to pulling the state ferry Aurora off the Hollis-Ketchikan route once IFA service there is under way, as well as turning over the Hollis terminal. Modifications of the Ketchikan terminal are being made in cooperation with IFA.

"We're anxious that IFA succeed," Doll said. The IFA's Hollis-Ketchikan run takes some pressure off the Marine Highway System, but jeopardizing that service by adding a risky northern route doesn't make sense, he said. "We're apprehensive about anything which tends to undermine it."

Doll is concerned about the plans for initial seasonal service on the northern route, although Miller said the ultimate goal is year-round service.

Census figures don't support the IFA's projected ridership for the north-south route, Doll said. He also said it's inherently risky because "it's service which does not currently exist."

IFA officials counter that DOT doesn't grasp that new and better service means more ridership.

The argument has been played out in the report to DOT by Northern Economics Inc., of Anchorage, and the IFA's written rebuttal.

The most inflammatory sentence in the Northern Economics report was its conclusion about the financial prospects for the northern route: "Even if the losses were not severe enough to place the IFA into a negative financial position, the potential losses could jeopardize the debt service coverage required by the bond underwriters and place the IFA in technical default on the bonds."

"This is absolutely not true, as IFA's bond counsel will confirm," Miller wrote in a scathing critique of the state's report. "Remarkably, the (state's) consultant must have reached this conclusion without reading IFA bond issue documentation. ... The (consultant's report) has been referred to IFA's bond counsel for a legal response to this potentially damaging statement." Miller said, though, that he's not contemplating a lawsuit.

IFA has sold $1,865,000 in revenue bonds, secured by a guarantee from the Ketchikan Gateway Borough, Miller said. Along with $10,978,000 in federal funds and $193,000 approved by the Alaska Legislature this year, that's paying for the marine vessel Prince of Wales, now under construction in a shipyard in Anacortes, Wash.

The Prince of Wales, which will carry up to 150 passengers and 30 20-foot vehicles at 15 knots, will start year-round daily service from Hollis to Ketchikan in mid-December. The schedule could increase to two trips per day later on. Last December, the Marine Highway Service served Prince of Wales less than every other day, with about 40 percent of the voyages occurring at night, Miller said.

Doll said he'll be asking for a revised report that does not comment on IFA bonds.

But IFA's rebuttal doesn't allay concerns about the census statistics, he said. "They did not contradict the population figures. What it does is redirect attention to a set of data that appear to support them," such as per capita income in Ketchikan, Doll said. "They're going to go ahead no matter what happens. It's as if the economics of the northern ferry don't matter to them."

In any case, a South Mitkof terminal to be constructed by DOT won't be available before 2006, when it will come online to support a Marine Highway System fast ferry, Doll said. IFA would run the northern vessel to Petersburg in the meantime.

Miller acknowledges that the census data - which show Prince of Wales static over the past decade at about 5,100 people and the proposed IFA service area static at about 24,630 - aren't encouraging on their face.

But while the region hit bottom a few years ago with the collapse of the timber industry, including mill closures in Ketchikan and Wrangell, it's been on the rebound since, Miller said. Better ferry service would stimulate business, such as fish processing, value-added timber manufacturing and tourism, he said. He also points to upcoming road reconstruction projects on the island that will encourage non-essential travel.

Even if the northern route doesn't work out as planned, the vessel won't be chained and can be redeployed to suit the market, said Gerhard of the Southeast Conference. IFA can respond faster to market conditions than the state ferry system can, he said.

Given that preliminary population estimates were available before the census, Doll conceded that the information available now isn't much different than it was at the time of the 1998 memo. Possibly DOT moved too quickly to support the northern route, he said.

The route has congressional support, however.

Alaska Rep. Don Young, chairman of the House Transportation and Infrastructure Committee, included $10 million for the Coffman Cove-South Mitkof-Wrangell ferry in the transportation bill passed by the House. The appropriation wouldn't allow state discretion to assign the funds to a different project.

Doll says it would come out of Alaska's annual share of federal highway funds, although Miller said he's hopeful that a different fund will be tapped, with no reduction in money available for other Alaska projects.

The Senate bill has $3 million for the northern route. Miller said it's unclear whether that money would go toward the second vessel or the Coffman Cove terminal. A House-Senate conference committee must work out the details.

If the money isn't appropriated by Oct. 1, IFA could face higher costs eventually. The shipbuilder has agreed to construct the second vessel for $11.9 million if it's ordered by that date. Thereafter, a new bidding process almost inevitably would result in a higher cost. Given that the second lowest bid for the original contract was $2 million more, a cost escalation of that amount is possible, Miller said.

"I think an assertion of $2 million is no more than that: an assertion," Doll responded. "A dollar figure is just speculation."

DOT gets some support for its position from Joe Geldhof, a Juneau attorney and prominent ferry system advocate.

"Capt. Doll is right to be cautious about further extension of a great but unproven concept," Geldhof said. "It's not obvious that it's going to pencil out. ... At least Bob Doll has the courage to tell people what's on his mind."

Bill McAllister can be reached at

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