WASILLA -- Saying it's not to blame for the failure of Cook Inlet passenger ferry service, the Matanuska-Susitna Borough hopes to repay just a fraction of the $12.3 million in grants spent on the ill-fated M/V Susitna, according to a letter sent last week to the Federal Transit Administration.
The Transit Administration in August demanded repayment of the federal money spent on the ferry, designs for landings at Anchorage and Port MacKenzie, and a terminal. Borough officials were on the hook, the agency said, because the ferry never started making the 2-mile run across the inlet, so the public money was spent without public benefit.
But it wasn't the borough's fault that Anchorage officials and others couldn't settle on a landing location, that problematic protections arose for beluga whales, or that the FTA itself decided to halt grant spending in 2012 after the ferry's failings started to become clear, according to the 26-page letter emailed to top FTA officials Jan. 15 by a Washington, D.C., law firm hired by the borough.
Venable LLP attorneys Dismas Locaria and Melanie Totman contend the FTA is only entitled to the full share of grant funds if the borough "unreasonably" failed to put the ferry into use.
"Given that MSB was legally prevented from putting the ferry into service, MSB never actually failed to use the ferry itself -- it never had the opportunity," the letter contends.
The firm also notes that $12.3 million amounts to a quarter of the borough's general fund operating budget. The attorneys outline what Mat-Su might be willing to pay, including whatever a buyer pays for the ferry, as well as 80 percent of the estimated $3 million value of the terminal that now houses the port director's offices plus seasonal rentals for port tenants.
It's also possible the FTA could simply transfer the building to the borough, or work with officials to find some other public transit use, the letter suggests.The borough has tried to find a public entity to take the ferry so they don't have to pay back the vessel costs as well.
An FTA spokeswoman said she couldn't comment on the borough's letter and said there's no specific timeline for the agency's response. Federal officials are reviewing the borough's information -- along with the letter, there are 49 attachments -- and it will take some time to review it and determine the next steps, she said.
Mat-Su Borough Manager John Moosey said Thursday that borough officials hope to meet with FTA representatives in D.C. to talk about the grant obligation.
The Transit Administration initially requested the borough pay back the money in early September, within 30 days of a letter demanding payment of $12.3 million out of the total $21 million the FTA awarded the ferry between 2002 and 2009. But the borough successfully pushed back the deadline with a series of requests.
Selling the ferry could be a long shot. The borough has been trying since 2013 to find a viable buyer for the Susitna without luck. Even a current proposal is far from assured, officials say.
The offer on the table now is less than a previous, fizzled $6 million offer but more than several other prior offers of $2 million or less, according to the letter.
The owner of a number of international companies, including a Turkish rental car firm, has emailed an offer but there's no signed agreement yet, borough port director Marc Van Dongen said Thursday. He wouldn't say how much the offer is for. The FTA and U.S. Department of Commerce still need to sign off on that deal because it involves a foreign buyer, Van Dongen said. That could take months.
But if the sale goes through -- and if the FTA agrees to the borough's terms -- then it's possible the borough might be on the hook for a lot less than the original demand, he said. "We might only have to pay back like a million and a half dollars to get out of the whole deal, not the $12.3 million."
Built at the Ketchikan shipyard, the 195-foot M/V Susitna was designed as a half-size prototype of a U.S. Navy twin-hulled beach landing craft. It's billed as the world's only ice-breaking catamaran, though designed for the loose, tidally influenced "brash" ice of Cook Inlet rather than thicker pack ice. It holds up to 129 passengers and 20 vehicles.
Along with laying out the borough's stance on repayment, last week's letter to the FTA also provides a detailed and comprehensive accounting of the borough's version of what went wrong with the ferry:
Mat-Su needed a U.S. Army Corps of Engineers permit to build a ferry landing on the Anchorage side but the Corps couldn't approve a permit without Anchorage officials signing off on a location. That didn't happen until officials agreed to Ship Creek in 2012. By then, environmental laws -- specifically, protections for Cook Inlet beluga -- changed enough to make permitting problematic. At that point, concerns about the ferry service were surfacing.
Borough officials have put the total cost of the ferry at about $78 million. The Office of Naval Research obligated a little more than $74 million to build the vessel, according to the letter. The prototype wasn't called Susitna. It was "Expeditionary Warfare Craft (E-Craft)/Knik Arm Transport Rescue Boat" when it was built.
But the actual vessel the borough acquired in April 2012 was smaller and faster than officials here expected, according to the letter. It held fewer vehicles, cutting into anticipated passenger revenue, and was unexpectedly classified as high-speed, which triggered costly staffing increases. The Susitna's fuel efficiency also proved lower than expected amid fuel price hikes. By then, the proposed Knik Arm Crossing was also competing with the ferry.
By May 2012, FTA told the borough to stop putting any more grant money toward Susitna given questions about its future, the letter states. "Thus, although the grants did not come to fruition, MSB performed its obligations under the grant agreements in good faith and to the best of its abilities, given the circumstances."
Even as the borough fends off federal pressure and hustles for a buyer, bills to keep the ferry berthed at Ward Cove near Ketchikan continue to mount. The borough spends an average of $30,000 every month on insurance, security, power and maintenance. That's far less than the $70,000 a month it used to cost. Still, the borough has spent an estimated total of $1.5 million to berth the ferry since April 2012.