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Lots of funding options for NPR-A road Possibilities include federal money, state bonds approved by voters and tolls Larry Persily Petroleum News Juneau Correspondent
There are a lot of funding possibilities for the all-season gravel road reaching to the border of the National Petroleum Reserve-Alaska, with the decision as to which option(s) to choose in part dependent on who will pay the bill. (See related story on page A1 of this issue.)
The list includes federal grant funds, state general obligation bonds approved by voters, state revenue bonds covered by future oil and gas tax and royalty revenues, state bonds covered by future federal highway aid, and direct tolls or new user fees paid by the oil and gas industry.
In addition to deciding how to pay for the estimated $350 million to $400 million construction budget, the state also needs to figure out how it will cover annual maintenance costs estimated at about $3.3 million.
A key determination in deciding a financing plan is the project’s potential to raise new state revenues, said Tom Boutin, deputy commissioner at the Alaska Department of Revenue. “The purpose of the road is revenue,” he said.
Alaska Gov. Frank Murkowski strongly supports the road for the year-round access it would provide to undeveloped oil and gas leases on the North Slope. State bonds a likely option Unless the state is able to secure federal grant funds to cover all of the project, or unless the Legislature decides to pay cash for the entire construction budget or the oil and gas industry agrees to pay a 100 percent toll or user fee, the state could be looking at borrowing at least some of the money.
For example, at full bond funding, Boutin said a $350 million tax-exempt bond issue, at 6 percent interest over 20 years, would cost the state about $38.5 million a year in debt service payments.
As much as the state would prefer to spend federal funds instead of borrowing the money, it might run into some troubles with federal funding if it wants to close off the road to the public, said Mike McKinnon, Alaska Department of Transportation and Public Facilities planner on the governor’s industrial roads program. Generally, federal highway funds require public access to the roadway, he said.
But the oil and gas industry opposes unrestricted public access to its costly facilities along the route, while Nuiqsut residents worry that open access would bring too much pressure on fish and wildlife in their traditional subsistence areas. And security officials don’t like the idea of anyone being able to drive up to an oil pipeline, McKinnon said.
That means at least partial state bond funding could be the most likely option at this time, he said. Highway planners are continuing to work with state Revenue officials and the governor’s budget office to review all possible funding sources. It’s a matter of who pays how much “A discussion of financing mechanisms is really a discussion of the basic questions of who pays, how much, and when,” said a report prepared for the state by engineering and economic consultants CH2M Hill of Anchorage.
One option on the list is what are called GARVEE bonds, where the state would issue bonds to be repaid by future federal highway aid. Such financing would allow the state to build the road later this decade by using federal highway money it’s not scheduled to receive until the next decade. Alaska voters approved $102 million in such bonds in November 2002 for eight projects statewide.
A drawback to GARVEE bonds is that some of the state’s future federal highway funding would be committed to making the bond payments instead of being available for new projects. New revenues could repay debt A traditional government revenue bond is repaid from a stable source of outside funds, such as the state’s 1987 financing for the road and port serving the Red Dog lead and zinc mine near Kotzebue.
The mine operator pays a fee to the state, which the state then uses to pay back the borrowing.
One problem with revenue bonds for the NPR-A road, however, is the debt payments likely would start several years before oil — and state revenues — would start flowing from any new wells.
The CH2M Hill report suggests it may take a blending of two or more funding sources to put together a financing package for the project.
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