Legislature’s failure to pass Seward cruise dock bond bill by May 15 adjournment adds $15 million in costs

The Alaska Railroad Corp. has developed a work-around solution to the failure of a bill passed by the Legislature authorizing railroad corporation bonds for a new cruise passenger dock planned for Seward.

But it adds $15 million in financing costs for the project, railroad officials say.

Gov. Mike Dunleavy vetoed the bill authorizing the bonds, House Bill 122, along with four others passed by the House of Representatives after the legal deadline for legislative action on midnight, May 15.

The railroad had entered into an agreement with Royal Caribbean, a major cruise line, to finance a $137 million new cruise passenger dock at Seward. Under the plan much of the project would be funded by revenue bonds issued by the railroad, which are tax-exempt under federal law.

However, that needed approval by state legislators. There was little objection by lawmakers because HB 122 presented no financial risk for the state and little for the railroad because of Royal Caribbean’s commitment to use the new dock under a 30-year contract.

However, the bill was slowed and ultimately bogged down as a logjam of legislation developed in mid-May and the Legislature’s adjournment deadline neared.

On May 15 it appeared the bill might make it under the wire by the midnight deadline but last minute glitches unrelated to the bond bill delayed action. The clock ticked down and midnight passed but members of the House stayed on to vote anyway on HB 122 and four other bills.

The governor, however, decided the post-midnight vote wasn’t legal under the state Constitution, which requires the Legislature to adjourn by midnight. He vetoed HB 122 and a handful of other post-midnight bills Aug. 1.

Even before the governor’s veto, however, the state railroad corporation realized the bill was in legal jeopardy and had developed a fallback plan, according to Meghan Clemens, the Alaska Railroad’s external affairs manager.

A revised financing plan, now approved by the railroad’s board, would rely on commercial financing by banks to fill the gap left by the railroad corporation’s inability to its revenue bonds to fill a funding gap, she said.

Under the new plan the railroad will about $30 million from fees paid for use of the existing Seward cruise ship dock along with $60 million in revenue bonds that were approved previously the Legislature.

The remaining $47 million needed to finance the $137 million project would be borrowed from banks instead of from additional bonds issued by the railroad.

The private financing is more expensive by about $15 million than would have been the case had the railroad been able to issue its own bonds to cover the gap.

Commercial financing is more expensive because interest rates will be higher than for railroad bonds, which are tax exempt and the terms of the financing, 20 years for bank financing compared with 30 year for the bonds, impose higher costs. Still, new plan will allow the project to begin construction this fall and meet a target for completion in 2026.

The new terminal is being developed by local developers led by the Seward Company. Once completed, the railroad will purchase the facility, under the plan.

The 30-year commitment from Royal Caribbean provides the financial backstop and security for the lenders.

Royal Caribbean wants the new terminal so it can bring larger cruise ships to Seward. The company will have preferential but not exclusive rights to the terminal.