What you need to know:
- The Matanuska-Susitna Borough must repay $5.8 million in federal transit grants tied to the failed Knik Arm ferry project or face fines and the withholding of current funding, according to a new letter from the Federal Transit Administration.
- The borough received more than $12 million in grants between 2002 and 2008 to build a ferry terminal and infrastructure at Port MacKenzie for a commuter ferry service between Mat-Su and Anchorage that was ultimately mothballed. After years of high maintenance costs, the borough sold the $80 million vessel to the Philippine Red Cross in 2015 for $1.8 million.
- Federal officials reduced the borough’s repayment obligation from $9.3 million after reviewing appeal documents. The borough has until late this month to respond and will discuss the matter in a closed Assembly session Sept. 16.
PALMER — The Matanuska-Susitna Borough must repay nearly $6 million in federal transit grants used for the defunct Knik Arm ferry project or face hundreds of thousands of dollars in annual fines and the withholding of current funding, according to a debt order federal officials sent to the borough late last month.
The payment returns a portion of more than $12.3 million in Federal Transit Administration grants issued to the borough between 2002 and 2008 that paid for a ferry terminal and related infrastructure at the borough’s Port MacKenzie for the never-used M/V Susitna ferry.
The grants required the borough to operate the ferry and terminal for transit services – actions that never happened – or repay part of the funds, the letter states.
“As you are aware, the debt arises from FTA funding the borough spent in pursuit of a never-completed capital project to initiate ferry service between Port MacKenzie and Anchorage,” the letter states. “After 10 years of working to bring the project to fruition, the borough was unable to implement ferry service in accordance with the requirements of the grant agreements.”
Mat-Su abandoned the ferry, which was gifted to the borough through a series of federal earmarks, because no passenger landing was constructed in Anchorage. The borough ultimately sold the nearly $80 million vessel to the Philippine Red Cross in 2015 for about $1.8 million.
The debt letter was sent to Borough Mayor Edna DeVries on Aug. 26 and signed by FTA acting Chief Financial Officer Adam Schildge, according to documents released by the borough Wednesday.
The borough must repay the debt by late this month or face fines and the withholding of current federal grant payments, the letter states. The borough may file an appeal with the U.S. Department of Justice, it states.
[Related: State orders new Knik Arm tunnel study]
The debt letter is the latest development in a decade-long dispute between the borough and the federal government over whether Mat-Su must repay the millions used to build infrastructure for the failed ferry program.
It is the first such communication from the FTA to the borough since 2017, Borough Attorney Nicholas Spiropoulos told the Assembly during a regular meeting Tuesday. The FTA did not respond to a request for comment as to why the letter was sent now.
FTA officials in 2017 said the borough owed about $9.3 million in grant repayments. The new letter reduces the debt to $5.8 million after recalculating figures provided during a 2016 borough appeal, according to the letter.
Originally envisioned as a state-of-the-art commuter ferry between Port MacKenzie and Anchorage and billed as the world’s first ice-breaking passenger catamaran, the ship was designed by the U.S. Navy and and built in Ketchikan in 2010, where it remained docked throughout the borough’s ownership.
The transit project first stalled in 2011 after funding and political will to build ferry docks in Anchorage dried up.
The ship’s construction and acquisition was free to the borough – but keeping it afloat was not. In 2012, borough budget shortfalls, mounting costs of docking and insuring the vessel, and the absence of a viable operating plan prompted the borough to offload the ship.
Officials initially sought to transfer the Susitna to another government agency, a move that would have allowed the borough to avoid repaying the FTA grant. But after years with no takers and docking and maintenance costs totaling nearly $5 million, the borough sold the ship to the Philippine Red Cross in 2015 for about $78 million less than its construction cost. As of 2016, the Susitna had cost borough taxpayers about $15 million.
Renamed the M/V Amazing Grace, the vessel served as the Philippines’ first humanitarian ship until earlier this year, when the Red Cross transferred it to the Philippine Coast Guard for use in search-and-rescue missions.
Federal officials first notified Mat-Su in 2014 that it would be required to repay the transit grants because it had “never used the ferry vessel or passenger terminal facilities for transit purposes,” according to the 2017 letter. The borough appealed, arguing factors out of its control such as disagreements over a ferry landing site in Anchorage had prevented the project’s operation, the letter states.
That appeal was denied, with federal officials stating the borough failed to “make adequate progress” on the project. They agreed to reduce the debt by the amount the borough spent on preliminary design and construction work, a deduction of about $3 million. That figure was recalculated in the letter sent last month, resulting in a new debt total of $5.8 million, according to the documents.
The Assembly will be briefed on the new debt letter during a closed-door session at a meeting scheduled for Sept. 16, Spiropoulos said Tuesday.
“I need to get you all up to speed on the Susitna ferry project. After eight years of being dormant, we got some information from FTA that we’re going to need to respond to,” he said. “Everybody who was involved in the entire ferry project is gone. So we’ll get everybody at this meeting, have a plan, talk to the manager a little bit, and respond to FTA.”
The discussion will not be held in public because it is a pending legal matter, Spiropoulos said in an email Wednesday.
“We are going to be discussing documents I prepared that are confidential work product, and the immediate public knowledge of our discussions would have an adverse effect upon the finances of the borough,” he said.
Next steps and payment decisions will not be subject to a public vote by the Assembly, he said.
-- Contact Amy Bushatz at contact@matsusentinel.com
