Are GARVEE bonds the answer? Yes! …

Spectrum by DOT Commisioner Joseph Perkins

Sen. Lyda Green [R-Mat-Su] expressed concern about a proposal before the Legislature to accelerate the construction of much needed transportation projects.

The proposal called "GARVEE Bonds" would allow the state to finance the construction of approximately $379 million worth of projects to be paid off over approximately 15 years with a small portion of our future federal dollars. In Mat-Su, the projects include Glenn Highway State Fairgrounds access improvements; Palmer-Wasilla Highway expansion; Old Glenn Highway rehabilitation; Petersville Road Mile 3 to 14; Seward Meridian Road-Parks Highway to Seldon; Trunk Road reconstruction; Glenn Highway Mile 34 to 42 reconstruct - Parks to Old Glenn Highway; Palmer: East Eagle Avenue and Gulkana Street upgrade; Wasilla: roads and trails; and Fairview Loop Path.

I'd like to thank Sen. Green for asking good questions about GARVEE bonds. These same questions were addressed by the House of Representatives before they passed the GARVEE proposal 37-1. We hope to have Senate action on the bill this session.

First, Sen. Green would like to know if the administration's proposal requires a vote of the people and if the proposed financing structure is legal. The State Attorney General has said certificates of participation are a legal financing method that do not require a vote of the people. The state has used this method of financing many times.

The House agreed with our legal analysis because it adopted the same financing structure in its bill. Similar financing methods have been used to construct new schools and other projects without requiring a vote of the people. A vote is not needed because the state's good faith and credit is not pledged to repay the certificates. The state general fund is not at risk.

Second, Sen. Green is worried that the federal dollars needed to pay for the GARVEE bonds will dry up. Currently, the state of Alaska receives more than $400 million a year in Federal Transportation funds. These funds are ultimately the result of drivers, all over the nation, who pay federal gas or diesel taxes each time they fill up at the pump.

All of the tax money collected goes into a national fund called the Highway Trust Fund, which has existed for many years. Each year, the amount collected is redistributed to the states according to a formula adopted by Congress.

We have experienced a growth in federal funds for the past several years and believe that growth will continue into the future as people continue to purchase fuel. The House Finance Committee bill (HB191) will also allow us to reduce the need for state general funds by using the investment earnings on the bonds proceeds to pay the state's match.

We will spend the money over a 4- to 5-year period and will draw interest each year on that portion that has not been spent. This interest will total more than $40 million, which is a direct savings to the state.

The normal "pay as you go" method for constructing the projects on the GARVEE list would require the state to come up with more than $40 million in general funds to pay the required match.

The GARVEE approach would require no state general funds. A pretty good deal, I think.

Finally, Sen. Green points out that projects occasionally don't get built in the year they are programmed and that money is left unspent. Projects do occasionally get delayed for several reasons -- difficult right-of-way acquisitions, permitting or environmental problems, and cost increases, to name a few.

However, Alaska has spent every penny of federal transportation money that has been allocated to us each and every year. If a scheduled project is delayed, we reprioritize and spend the money on a project that can be constructed that year. In fact, we always receive additional federal funds at the end of the year that are redistributed from those states that do not spend theirs in a timely manner.

Sen. Green and I agree that GARVEEs are an appealing package. Many states are using this method to rebuild their transportation infrastructure. Pay-as-you-go financing of big, costly projects can leave few additional revenues for other projects.

GARVEE financing allows a project to be built sooner and it is more cost-effective by avoiding cost increases resulting from inflation.

By delivering a project earlier than would otherwise be possible, GARVEE financing also provides greater benefit to the public (for example, increased safety, less traffic congestion and delays, and increased economic output).

Perhaps the biggest possible benefit is the general fund savings created by using investment earnings on bond proceeds to meet federal match requirements. If the project is needed now, such as the Old Glenn Highway rehabilitation, and we can build it now using federal funds, what are we waiting for?

Are GARVEE bonds the answer? I believe they are and 37 members of the House, including the entire Mat-Su delegation, agreed that the answer is YES!

Joseph Perkins is the commissioner of the Alaska Department of Transportation and Public Facilities.