Part II — 5.10

PART II THE LUTAK DOCK

3. THE BOROUGH'S RAISE* GRANT APPLICATION WAS INACCURATE THIS PUTS BOROUGH TAXPAYERS AT RISK

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

A. The Borough ignored the new ro-ro and the already-closed Lutak Dock at the time of their RAISE grant application

B. The Borough's RAISE grant application and supporting documents described inaccurate 'baseline' and 'most likely outcome' scenarios

C. The granting agency (MARAD) could impose serious penalties for false statements, including 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 an inaccurate and misleading $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 falsely claiming a dire situation that ignored the use of AML's new ro-ro dock. The Borough claimed that if they didn't rebuild the Lutak Dock and it failed, we would 'most likely' be forced to truck our local goods from Seattle, Valdez, Skagway, and Anchorage. This claim was unfounded.

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 statements of fact. The Borough's misstatements expose its taxpayers to financial, reputational, and legal risks and burdens. The grant agreement has yet to be signed and no money has yet changed hands.

LUTAK DOCK BASELINE

In its RAISE grant application, the Borough's “without project” or baseline scenario assumes 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."

FACTS ON THE GROUND

The baseline, or 'world without the proposed project' included the fully functional ro-ro, and the existing dock had already become nonoperational at the time the borough applied for the grant. Passenger activities do not occur over the Lutak Dock. This service is provided by the nearby AMHS ferry dock, owned and operated by the State of Alaska.

QUOTES FROM RAISE GRANT APPLICATION

MODAL SHIFT TO TRUCKING

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

SAFETY

"[T]he increased risk of accidents and injuries associated with a major mode shift to truck traffic that would occur in the event of dock closure."

GREENHOUSE GASES

"If the Lutak Dock closes, the subsequent mode shift to truck transportation for fuel and cargo would result in significantly higher greenhouse gas emissions.."

ECONOMIC HARDSHIP

"Dock closure would create a significant economic barrier for businesses and residents in Haines, with effects extending to the region."

"[A]ll freight and passenger activities will be diverted to other modes of transportation."

-2021 Haines Borough RAISE grant application

BOROUGH USED 'STRAW MAN' ARGUMENTS

Benefit-Cost Analysis (BCA)

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

In support of its RAISE grant application, the Haines Borough also included a benefit-cost analysis (BCA) that was deeply flawed and misleading. Despite grant guidance to the contrary, the Borough used 'straw man' arguments to support its claims.

"Applicants should also be careful to avoid using “straw man” baselines with unrealistic assumptions about how freight and passenger traffic would flow... in the absence of the project, particularly when alternate modes of travel are considered."..."Applicants should assume that users would choose the next best (i.e., least costly) alternative, rather than an overtly suboptimal one."

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

DIVERTED FREIGHT ROUTES

The BCA outlined the four feasible transportation route alternatives and detailed what percentage of freight would come from each distant city:

"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.

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. "

--U.S. Dept. Transportation, MARAD, NOFO

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 granting agency.

However, at any point, MARAD could decide that the Borough was not transparent about the need for the grant, or the project is too risky, and 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 project also risks costly cleanup due to potential preexisting contamination.

Fortunately, the grant agreement has yet to be signed, no money has changed hands, and neither of those will happen until after permitting is complete. Permitting will take until sometime this summer or fall. 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. Cost overruns are foreseeable, according to an Independent Cost Estimate

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

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

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

E. The Borough has assumed responsibility for cleanup of any contaminated soil, which could bring numerous associated costs to taxpayers

E. Skagway's ore terminal warns of additional risks and costs

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.

What does this mean for Borough taxpayers?

Although Turnagain has assumed most of the risk for cost overruns as the design-builder, the Borough is the sole responsible party for the cleanup of any contaminants found, which could be very costly.

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

estimated to cost $3.75 Million

every 10 years (according to the Borough's BCA, pg. 8)

Low level estimate: $1.36 million

every 10 years

High level estimate: $2.12 million

every 10 years

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 DESIGN

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. 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

DO NOT WANT TO PAY FOR THIS DOCK

From 2012-2022, the Lutak Dock made a total of $1.5 million — an average of $136,360 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

"

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

The seabed beneath the Skagway ore terminal is contaminated with thousands of tons of 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.

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. This will prevent Minto Mine from using Skagway's ore port for the next 2 years during construction. The municipality is in the process of finalizing a 35-year agreement with Yukon mines to ship Yukon ore through Skagway's ore platform.

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

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