Draft AMHS Economic Reshaping Report Released to the Public
Edited By MARY KAUFFMAN
January 15, 2020
The 106 page draft report sought to identify potential reductions to the State of Alaska’s financial obligation and/or liability as related to the Alaska Marine Highway System. Findings from the report will be used to shape future AMHS conversations, starting with the FY2021 budget. The report will remain in draft status as these conversations continue.
The report was first delivered by Northern Economics to the Alaska Department of Transportation on Oct. 15, 2019. According to the Alaska Dept. of Transportation, due to the volume of data and complexity of the issues, the department and Northern Economics worked together to verify accuracy. A copy of the report was provided to the Marine Transportation Advisory Board (MTAB) for review and comment. The report was discussed by Marine Transportation Advisory Board its meeting held in Anchorage today.
The draft report released to the public today provides a detailed analysis of the financial impact of several options for reshaping the Alaska Marine Highway System (AMHS). This study was undertaken to support the Alaska Department of Transportation & Public Facilities in identifying potential reductions of the state’s financial obligation and liability as it pertains to AMHS.
In February 2019, Governor Dunleavy unveiled his proposed budget based on five tenets (Office of Governor Michael J. Dunleavy 2019b):
The Governor’s budget summary (Office of Governor Michael J. Dunleavy 2019a) highlighted AMHS’s position and the need for this study: The Department of Transportation & Public Facilities currently has 10 ferries serving 35 ports in Alaska, Prince Rupert, B.C., and Bellingham, WA. The AMHS is heavily subsidized by State of Alaska General Funds; its fare box recovery rate in FY2018 was 33.3%. Ridership is trending down; 2018 passenger capacity was 42.6% and vehicle capacity was 51.6%. The department will work with a marine consultant to investigate options available for moving the AMHS towards privatized service or service provided by public/private partnership, with the intent of reducing the State’s financial obligation and/or liability. For example, there may be routes where a smaller vessel could provide more reliable and less costly transportation services.
Though the budget statement that led to this study highlights a public/private partnership as one option for addressing AMHS’s financial challenges, the scope of the study is much broader. It provides an analysis of eleven options for changes to the system, relying on extensive data analysis, community and industry interviews, past studies, and quantitative modeling.
The scope of work for the study specified 11 options, as described below. This text for each option was derived from a combination of RFP and contract language early in the project.
01. Reshape the entire AMHS operation by selling or giving all vessels and terminals to a private entity to run whatever service they can justify economically.
02. Reshape parts of the AMHS by selling or giving some vessels and terminals for the specific purpose of providing service to certain communities, for example communities that are not on the National Highway System (NHS).
03. Transfer AMHS assets to a public corporation that would provide service based on a fixed or zero General Fund amount. The corporation board would set service levels, fares, and employee pay.
04. Lease vessels and terminals to a private entity, public corporation or non-profit entity to run as a for-profit business with the state responsible only for vessel and terminal overhaul and refurbishment.
05. Sell or lease vessels to a private entity, public corporation or non-profit entity while retaining the terminals as a state asset.
06. AMHS continues as a state entity but is directed by the Legislature3 to drop or reduce specific high cost, low volume runs on the assumption that these communities would be serviced by the private sector with its own equipment.
07. AMHS continues as a state entity but contracts out for service to lower volume, expensive routes on the basis that a private entity would use smaller vessels and less expensive crews. Vehicle and passenger service could be provided by different vessels.
08. Privatize all or some onboard passenger services: stateroom housekeeping, meal service, bars, gift shops, etc.
09. Implement further fare increases, including across the board increases, increases on more expensive runs, demand pricing for high demand periods or events, demand pricing based on percent of remaining vessel capacity, etc.
10. Legislature-directed renegotiation of marine union contracts to reduce vessel operation costs.
11. Evaluate any potential route changes that would reduce the operating cost, especially utilizing existing road links and potential future road links.
The study used a two-tiered evaluation for each of the 11 options. After an initial review of each option, they were pared down to a set of options that warranted further study. Through the course of the study, research and interviews with members of industry and the public informed that paring process. Ultimately, it was decided to address each of the 11 options, but with assumptions based on research and interviews to limit each option to the conditions that would make it most viable. Further, while this study addresses each option, less viable options and those without data to conduct a meaningful analysis will be given a less rigorous examination.
For an analysis of each of the 11 options, read the Executive Summary of the Draft Report: Reshaping the Alaska Marine Highway System (pdf)
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