PALMER – The Matanuska-Susitna Borough wants federal officials to forgive millions of dollars of transit grant repayments it owes as part of the failed Knik Arm ferry project, according to a letter sent this week to the Federal Transit Administration.
Transit officials late last month renewed their decade-old effort to require the borough to repay $5.8 million of the $12.3 million in grants spent between 2002 and 2008 to fund infrastructure for the defunct M/V Susitna ferry, including a ferry terminal at Port MacKenzie.
If they do not return the funds, the borough could face fines and the withholding of current federal grant payments, according to an Aug. 28 debt letter sent to borough officials from the Federal Transit Administration. The remaining $6.5 million was forgiven because the money was used for design work on the project, the debt notice states.
A borough appeal sent to transit officials on Wednesday on behalf of the Mat-Su Borough requests that the debt be further reduced to as little as $1.5 million, according to the letter.
The nearly $80 million Susitna ferry, which never operated or carried passengers, was given to the borough in 2010 through a series of federal earmarks.
Billed as the world’s first ice-breaking passenger catamaran and designed by the U.S. Navy, it was intended to transport passengers between Point MacKenzie and downtown Anchorage. But the project stalled in 2011 as funding to finish its infrastructure and the political will to select and build a dock site in Anchorage dried up.
The borough stored the ferry near Ketchikan and ultimately sold it to the Philippine Red Cross in 2015 for about $1.8 million. The Red Cross resold it to the Philippine Coast Guard earlier this year.
All told, the borough spent about $15 million in local funding on the project.
The new borough debt appeal asks transit officials to either settle the debt by accepting the net proceeds from the ferry’s sale – about $1.5 million – or reduce the bill to factor in the depreciated value of the Port MacKenzie ferry terminal, constructed with grant funds.
The debt should be lowered because the borough did not willfully misuse the funds, but instead was forced to abandon the project due to issues outside its control, including struggles to select an Anchorage landing location, the letter states.
“While MSB believes that all costs, other than the net proceeds from the sale of the ferry, should be permitted and forgiven since they were properly incurred during the term of the grants and not the result of willful misuse, it also seeks resolution of this matter,” the letter states. “As a result, (Mat-Su Borough) has proposed several options, some more appropriate and equitable than others, for FTA’s review and consideration.”
Proposed payback amounts included in the letter range from the $1.5 million ferry resale price to $3.7 million, depending on depreciation calculations and whether the repayment factors in about $295,000 worth of ferry outfitting and furnishing costs.
“At a minimum, (Mat-Su Borough) should be able to deduct eight and half years of depreciation, or 42.5%,” the letter states.
The letter is signed by Dismas N. Locaria, an attorney with the borough-contracted law firm Venable LLP, based in Washington, D.C. It was sent to transit officials following an approximately 35-minute closed-door session with the Mat-Su Assembly during a regular meeting Tuesday.
The Aug. 26 transit debt letter is the first communication from federal officials about the matter since the borough last filed an appeal in early 2017, Borough Attorney Nick Spiropoulos said in an email.
There is no set timeline for their next response, he said.
This story was originally published in the Mat-Su Sentinel and was republished here with permission Contact Amy Bushatz at contact@matsusentinel.com.
