PALMER — The Matanuska-Susitna Borough will repay nearly $5.8 million in federal grants through installments between now and September 2029, a step that should finally put to rest the financial consequences of the defunct Knik Arm ferry project.
The payments refund a portion of the $12.3 million in grants the borough received between 2002 and 2008 to create infrastructure for the M/V Susitna, including a ferry terminal at Port MacKenzie now used as borough office space. Federal transit officials in August renewed their effort to recoup the funds after nearly a decade of silence on the matter.
The borough will repay $1.5 million by mid-March, then about $1.07 million by Sept. 30 each year until the debt is fully settled in 2029, according to a payment plan approved by federal officials Jan. 14. The payments will not be subject to interest or penalties, and the borough can repay early if officials choose to do so, according to the plan.
The $5.76 million in repayments should fully close the book on repercussions to the borough and its taxpayers for the failed commuter-ferry project.
Billed as the world’s first icebreaking passenger catamaran, the nearly $80 million ship was designed by the U.S. Navy and gifted to the borough through federal earmarks in 2007.
The project stalled in 2011 amid political disputes over where to build a terminal in Anchorage and a lack of funding to complete it, despite a 2002 agreement between local leaders to work together to find appropriate landing sites.
While the ship itself was free to the borough, preparing for it, docking it and maintaining it were not. Built in Ketchikan, where it remained throughout the borough’s ownership, the ferry never made it to Port MacKenzie and was ultimately sold in 2015 to the Philippine Red Cross for about $1.8 million.
In total, the borough spent about $27.3 million on the project, including $12.3 million in federal grants and about $15 million in local taxpayer funding.
Federal officials initially demanded transit grant repayments in 2015. The borough countered with a litany of reasons why it should owe well under the $9.3 million transit officials said was due. A 2017 letter from the borough received no response, and Mat-Su officials put the matter on hold.
That pause ended in August when Mat-Su received a new communication from federal officials lowering the demand to just under $6 million and requiring immediate full repayment. The borough again countered with a list of reasons why it should not be required to repay most of the debt.
Federal officials responded in November, rejecting those arguments. If the borough did not pay immediately or submit a payment plan, the letter stated, it would be charged penalties.
A repayment plan was presented to the Mat-Su Assembly in a closed meeting Dec. 16, and a letter with the now-accepted offer was sent to transit officials Jan. 8. Borough officials also used the letter to reiterate their belief that they should only be required to hand over $1.5 million in proceeds from the ferry’s sale.
“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 (and in this regard, MSB reserves all rights), in order to fully resolve this matter, MSB proposes this repayment plan as the full and complete settlement of the matter,” the letter states.
This story originally appeared in the Mat-Su Sentinel and is republished here with permission.
