Part II — final

PART II THE LUTAK DOCK

3. THE BOROUGH'S RAISE* GRANT APPLICATION WAS MISLEADING

THIS PUTS BOROUGH TAXPAYERS AT RISK

HOW DO WE KNOW THIS? In this chapter, we will cover:

A. The Borough glossed over the use of AML's ro-ro for freight delivery in their RAISE grant application and benefit-cost analysis

B. The Borough's RAISE grant application contained misleading assumptions about the operation of freight and passenger activities in the event of Lutak Dock closure

C. Risks include the Borough (taxpayers) being required to repay the $20M grant, being barred from receiving future federal grants, and/or additional legal penalties

*Rebuilding America's Infrastructure with Sustainabilty and Equity grant

BASIC SUMMARY of RAISE GRANT ISSUES

In June 2021, the Borough submitted a $20 million RAISE grant application to the federal granting agency MARAD, (the U.S. Department of Transportation's Maritime Administration).

In the application, the Borough justified the need for the Lutak Dock project by describing a dire situation that basically ignored the use of AML's new ro-ro dock for freight delivery. The Borough claimed that if they didn't rebuild the Lutak Dock and it failed, we would 'most likely' be forced to truck our freight from Seattle, Valdez, Skagway, and Anchorage.

In fact, at the time the grant was submitted, the new ro-ro was already in use and the old Lutak Dock face was already closed. There was no interruption in service and no longdistance freight trucking was required.

MARAD requires honesty and transparency from its applicants and may impose severe penalties for false or misleading statements of fact. The Borough's misstatements expose its taxpayers to financial, reputational, and legal risks and burdens.

MISLEADING GRANT APPLICATION

In its RAISE grant application, the Borough claimed that "the existing dock will become nonoperational in 1 to 8 years, and that all freight and passenger activities will be diverted to other modes of transportation". However, the new ro-ro was already fully functional and serving freight needs at the time of the grant application.

The Borough also claimed that "[the dock] serves as a key node in the Alaska Marine Highway System." It is misleading to imply that passenger activities rely on the Borough-owned portion of the Lutak Dock. Passenger service is provided by the nearby State-owned and operated AMHS ferry dock.

DIVERTED FREIGHT ROUTES

The benefit-cost analysis describes a combination of four alternate routes that would feasibly be utilized to import goods into Haines following Lutak Dock closure:

"Freight is trucked directly from Seattle to Haines (approximately 1,805 road miles)."

"Freight is shipped from Seattle to Anchorage (weekly service provided by AML) and then trucked from Anchorage to Haines (756 road miles)."

"Freight is shipped from Seattle to Valdez (weekly service provided by AML), and then trucked from Valdez to Haines (691 road miles)."

"Freight is shipped from Seattle to Skagway (weekly service provided by AML), and then trucked from Skagway to Haines (352 road miles)."

...when in fact, the dock face was already closed at the time the RAISE grant was submitted, and none of these scenarios have unfolded.

1.

2.

3.

4.

BOROUGH'S BENEFIT-COST ANALYSIS WAS MISLEADING

Benefit-Cost Analysis (BCA)

BCA is a systematic process for identifying, quantifying, and comparing the expected benefits and costs of a potential infrastructure project.

In support of its RAISE grant application, the Haines Borough also included a misleading benefit-cost analysis (BCA) that attempted to monetize the benefits associated with the replacement of Lutak Dock. The Borough claimed that in the absence of the project, freight and passenger traffic would need to be rerouted via truck, when in fact, passenger traffic is not reliant on the Lutak Dock, and freight traffic had already been rerouted to the new ro-ro dock. The BCA monetized the supposed benefits from emissions reductions, traffic safety, and other factors if the dock project could prevent the shift from barge to truck.

USDOT "believes that a transparent, reproducible, thoughtful, and well-reasoned BCA is possible for all projects, even as the depth and complexity of those analyses may vary according to the type and scope of the project. The goal of a BCA is to provide an objective assessment of a project that carefully considers and measures the outcomes that are expected to result from the investment in the project and quantifies their value."

--U.S. Dept. Transportation, BCA Guidance

QUOTES FROM RAISE GRANT APPLICATION &

BENEFIT-COST

ANALYSIS

TRANSPORTATION COSTS

TRAFFIC SAFETY

"In the event of dock closure, barged goods would need to be trucked into Haines at a significantly higher financial and environmental cost."

"[T]here is also an increased risk of accidents and injuries associated with increased truck traffic [from the modal switch from barge to truck].

EMISSIONS REDUCTIONS

MAINTENANCE COSTS

"The modal switch from barge to truck would increase greenhouse gas (GHG) emissions like carbon dioxide (CO2) by ten times per ton-mile of cargo moved."

"The replacement of Lutak Dock, allowing for the continuation of AML’s weekly barge service to Haines, would reduce pavement maintenance costs."

SUMMARY OF POTENTIAL CONSEQUENCES

When a grant application and supporting materials include false statements of fact, MARAD is authorized to terminate a RAISE grant agreement, seek reimbursement of grant funds, initiate suspension and debarment proceedings, and pursue other remedies based on the recipient’s failure to comply with federal law or the terms and conditions of the agreement, or MARAD’s determination that termination would be in the public interest.

— RAISE 2021 MARAD General Terms and Conditions, FY2021 RAISE Grants Notice of Funding Opportunity

PROBLEMS FOR BOROUGH TAXPAYERS

The problems in the Borough's grant application— and other problems with this project— are problems for Borough taxpayers. The grant is reimbursable; it's not upfront money. The Borough must first request permission to expend the funds, then expend its own funds or incur debt with contractors, and later request reimbursement by the MARAD (the granting agency).

However, at any point, MARAD could withdraw from the grant agreement process or otherwise refuse repayment. Borough taxpayers could end up paying the federal government back or paying for an unfinished or over budget project.

The grant agreement won't be signed until after permitting is complete, which is expected to be in the summer or fall of 2023.

The grant funds won't expire until September 30, 2029. The next page shows the timeline projected by Turnagain.

Definitions:

NEPA: National Environmental Policy Act

ESA: Endangered Species Act

IHA: Incidental Harassment Authorization

4. THERE ARE ADDITIONAL RISKS

HOW DO WE KNOW THIS? In this chapter, we will cover:

A. Skagway's ore terminal already serves Yukon mines, is undergoing major redevelopment, and warns of additional risks and costs

B. Cost overruns are foreseeable, according to an Independent Cost Estimate

C. The Borough is responsible for cleanup of any contaminated soil, which could bring numerous associated costs to taxpayers

D. Maintenance costs are projected to outpace revenue brought in by current users of the dock

E. The Borough has claimed it can recoup maintenance costs by raising user fees, which would result in higher costs for residents and consumers

F. Lutak Inlet is a Natural Hazard Designated Area and a crucial area for subsistence, sport, and commercial fishing and recreational and cultural values

Skagway Ore Terminal Nakhu Ore Facility

Skagway's ore port and Haines' potential ore dock are interconnected. When Skagway's lease with AIDEA was approaching expiration, AIDEA looked to Haines as a possible place to relocate Skagway's 60-year-old aging and contaminated ore loader.

SKAGWAY ORE TERMINAL

CONTAMINATION

The seabed beneath the Skagway ore terminal contains thousands of tons of sediments contaminated with heavy metals from decades of ore shipments.

A November 1985 state memo noted that ″the bottom sediments in the Skagway Harbor have been found to be among the most toxic in the world... The air, waters, streets, even kids’ sandboxes are contaminated with hazardous waste."

The Skagway Ore Terminal under the name Nahku Ore Facility is listed by EPA as a potential Superfund site. (see link under 'Nakhu Ore Facility' on slide) or here.

3,000 CUBIC YARDS

of contaminated sediment was dredged and removed by White Pass (who hired Turnagain Marine) last spring at an estimated cost of just under $4 million.

200,000 CUBIC YARDS

of sediment may have to be removed before the harbor is considered to be remediated, according to a 2014 report by the Alaska Department of Environmental Conservation.

-Alaska Public Media

APRIL 22, 2022

“Folks, don’t harvest shell food and eat it right now. Don’t go get shrimp or crab. We’re trying to come up with a public service announcement about what’s safe, when, and how far away from the Port of Skagway. But be smart about it. Don’t put your crab pots in the vicinity of the Skagway Port right now. We all know people who have gotten cancer. Just be reasonable … go farther away

Assemblymember Orion

News (during the 2022 dredging that stirred up contaminated sediments)

Skagway

Hanson, The Skagway

SKAGWAY ORE TERMINAL

PORT DEVELOPMENT

As of March 18, 2023, Skagway is the sole owner/operator of the Port of Skagway.

Skagway is upgrading its ore port and cruise ship docks over the next 2 years with a $65 Million bond.

The municipality is in the process of finalizing a 35-year agreement with Yukon mines to ship Yukon ore through Skagway's ore platform.

Skagway is just fifteen nautical miles from Haines. While some in the Haines Borough want to promote mining, it still remains speculative whether there will be enough users to make the Lutak Dock project worthwhile, especially in light of Skagway's dock improvements.

PROJECTED COST OVERRUNS

An Independent Cost Estimate (ICE) prepared for R&M Consultants concluded that the project would cost $29 Million. The report predicts the project will cost $3.5 Million more than Turnagain's GMP of $25.6 Million (Guaranteed Maximum Price). Turnagain's GMP does not include any contingency, which would allow a buffer in case of unforeseen expenses.

Although Turnagain has assumed most of the risk for cost overruns as the design-builder, the price discrepancy between the ICE and GMP increases the risk of Turnagain breaching their contract and not finishing the work, or doing shoddy work in order to stay under the budget cap. The Borough remains the responsible party for the cleanup of any contaminants or hazardous materials.

The Engineering Risk Assessment the Borough is required to submit for its RAISE grant names 'Haines' as the Responsible Party for hazardous materials cleanup.

The Lutak Dock is located between ADEClisted Contaminated Sites. Petroleum, PCBs, Dioxin, and other hazardous substances have been found on the nearby Chilkoot

Lumber Dock and 200 acre US Army Tank Farm properties. Contaminants can migrate via ground or surface water, tidal currents, or wind currents.

Maintenance Costs (not including operating costs)

R&M'S DESIGN

$19.2 million over the next 50 years, averaging about $384,000 per year (according to the Borough's BCA, pg. 8)

DESIGN

Low level estimate: $6.8 million over 50 years, averaging about $137,000 per year

High level estimate: $10.6 million over 50 years, averaging about $213,000 per year

The Borough has budgeted a mere $5,000 in dock maintenance costs per year for the past 10 years. Interestingly, the Borough expects maintenance costs to be even less than that in the future, due to new construction. Yet...

TURNAGAIN'S

MAINTENANCE COSTS OUTPACE REVENUES

...Turnagain has given both a low-level and high-level maintenance estimate. Since the low-level estimate didn't include epoxy recoating, which is an extremely important measure to combat corrosion, we're just focusing on the high-level estimate. It's unclear why Turnagain's maintenance estimates for their design are so much lower than R&M's, since R&M's design contained significantly less steel in the water. Though there are discrepancies between maintenance cost estimates, they all outpace anticipated revenues over time.

The Borough has not identified any new customers and therefore has not established that the additional maintenance costs of an expensive new dock would be offset by user fees. The Borough says it has the ability to raise user fees to offset costs, but user fees for consumer goods are ultimately paid by consumers through higher prices. In this way, the burden of maintenance costs for the expensive new, large-scale dock would fall on residents of the small Haines Borough tax base.

Turnagain's high level maintenance estimate

LOCAL TAXPAYERS DO NOT WANT TO PAY FOR THIS DOCK

From 2012-2022, the Lutak Dock made a total of $1.5 million — an average of $136,000 per year from user fees (after the deduction of operating expenses, including depreciation).

DEPRECIATION

The Borough has also glossed over the cost of depreciation in connection with the Lutak Dock project, obscuring the issue of whether dock revenue will be sufficient to cover ongoing maintenance. Depreciation is an important measure that accounts for decreases in the value of an asset over time.

Excluding it ignores the degradation of the asset from ongoing use, as well as the eventual cost of replacing it. Lutak Dock’s depreciation expenses over the past 11 years totaled $1.6 million, comprising roughly half of its operational expenses.

Despite its important role in determining net revenue, the Borough has left depreciation out of financial charts and information concerning the Lutak Dock, incorrectly suggesting cash revenue would be sufficient to address longterm maintenance costs. When depreciation is accounted for, the dock's revenues from current users do not cover its projected maintenance costs.

Turnagain's cathodic protection system involves a zinc primer and then coating steel pilings with coal tar epoxy.

COAL TAR EPOXY IS NOT BEST PRACTICE, BUT RATHER THE CHEAPEST OPTION.

TOXINS HAVE BEEN FOUND TO LEACH INTO MARINE WATERS AND ACCUMULATE IN MARINE LIFE.

Coal tar epoxy contains high concentrations of known carcinogens and is banned in numerous states and cities due to its toxicity and health and environmental risks.

NATURAL GEO HAZARD AREA

(Natural Hazard Designated Areas shown in pale yellow)

LUTAK INLET IS LANDSLIDE-PRONE

Landslides, debris flow, flooding, and sloughing.

LUTAK INLET FAULT

Segment of the Denali

Fault: earthquakes, localized tsunamis to 100' above MLLW or higher

The Lutak Dock, its shoreline, and the slopes above the dock are Natural Hazard Designated Areas.

GEOLOGICAL HAZARDS

Geological surveys, historical records, and recent experience tell us that the Lutak Inlet corridor is at elevated risk for avalanches, landslides, earthquakes, localized tsunamis, periodic flooding and storm surges. This means that anything stored on the Lutak Dock is at risk of being washed into the rich marine waters of Lutak Inlet.

The Haines Coastal Management Plan describes Natural Hazard Designated Areas in Lutak Inlet: "Local tsunamis generated from landslides, either generated by earthquakes or other conditions, above or below the water are more likely to be hazardous than distant tsunamis, and are much harder to predict... [U]plands along Lutak Highway are also designated as natural hazard areas due to slope instability and landslides... During periods of high seasonal rains and storm driven high tides the Haines area is subject to the effects of 100-year floods up to 25' above MLLW. ...[T]idal waves generated by nearby surface or submarine landslides... could have impacts up to 100' elevation above MLLW shoreward, with higher effects also possible." (MLLW: Mean Lower Low Water, or average height of lowest tide)

Important Subsistence Designated Areas

According to the Alaska Department of Fish and Game, 100% of residents of the federally-recognized Tribe in the Chilkat Indian Village of Klukwan depend on wild salmon and other subsistence foods to feed their families. 98% of Haines-area residents also rely on subsistence foods such as salmon. Lutak Inlet and Chilkoot River are crucial for subsistence, sport, and commercial fishing, as well as cultural values. The proposed Lutak Dock project could negatively impact subsistence resources such as salmon, shrimp, crab, halibut, eulachon, seals, and other marine and terrestrial foods and cultural resources.

"Due to the popularity of the area [Lutak Inlet] for subsistence, sport and commercial fisheries, there could be great concern for the effect of any port development on fish habitat and populations.

--Public Interest Analysis on Ports Options

Prepared for Yukon Government, Economic Development by Gartner Lee Limited, 2006

"

AN ALTERNATE PLAN

As we've seen, all of the designs for the Lutak Dock commissioned by the Borough over the years featured Handymax ships as a design vessel, driving cost estimates up. Borough citizens have not seen a plan that would serve only current users.

The Borough has said that demolishing the dock (as proposed in R&M's original phased design) would cost $4 million. Demolishing the decaying face of the Lutak Dock, reinforcing the pass-pass area and adding dolphins to support current users (rather than heavy-duty dolphins to support fully loaded Handymax ships) could be components of a low-cost, long-term solution.

WHAT NOW?

Ask your Borough representatives:

Does the Borough have a business plan for the Lutak Dock going forward, including viable new users of the rebuilt dock?

How will the Borough pay for project cost overages if Turnagain encounters contamination?

How will the Borough pay maintenance costs if dock revenue/raising tariffs is insufficient?

If the deadline for fund obligation is 2029, couldn't the Borough submit a request to MARAD to extend their self-imposed deadline for project completion?

Who are the "additional customers" referenced in the Borough's Lutak Dock Jobs Analysis?

Why not consider an alternative that only accounts for current users and doesn't rely on future users to cover future costs?

THANK YOU for taking the time to learn more about this important issue.