Alaska Marine Highway Could Face Deep Funding Cuts

The Alaska Marine Highway ferry Kennicott (AMHS)

Published Apr 4, 2019 8:11 PM by The Maritime Executive

A deep cut in funding in Alaska Governor Mike Dunleavy's proposed budget could significantly reduce the size of the state's ferry system. The planned 75-percent cut would deeply curtail operations after September 2019, unless the state can find a willing partner to help operate a privatized ferry system. 

The Alaska Marine Highway System runs a network of about one dozen ferries on a 3,500 mile network, from Bellingham, Washington all the way to Dutch Harbor. It has an operating budget of about $140 million per year, with one third covered by fares.

A recent state-funded study found that there was no financially viable option for privatization, given the system's public mission and its long routes to remote villages, many of which have no access to roads. However, the governor's medium-term goal is still to privatize the system in order to reduce cost and liability, and his office seeks to immediately reduce its operating hours by about three quarters. The AMHS has already stopped selling tickets past September in anticipation of the change. 

Gov. Dunleavy's office has suggested that the proposed budget is not intended to "eliminate" the ferry system, but some observers are not so sure. “The budget bill says the balance of the funds will be transferred to dismantle the marine highway system. The language is clear – Gov. Dunleavy is moving funds to divest the marine highway," said Rep. Louise Stutes (R-Kodiak), speaking to the Juneau Empire. 

Alaska residents do not pay state taxes, so the cost savings would not reduce their tax burden. However, it could help to increase their state oil revenue dividends: The governor ran for office on a proposal to pay extra dividends of about $3,700 per person, which would require $2.3 billion in additional spending from the state's Permanent Fund. These payments would be in addition to the normal annual payout of about $2,000-3,000 per resident. 

Even before the threat of a deep budget cut, the Alaska Marine Highway faced challenges. Its state funding has fallen by one third since 2013, and last year it would have experienced a temporary shutdown if not for an emergency appropriation from the state legislature. The Southeast Conference, a community development agency based in Juneau, is pursuing legislation to reform AMHS and turn it into a public corporation rather than an agency, thereby freeing it to act more like a business and pursue new cost-saving strategies.