Alaska’s state ferry system is at risk of a partial or total shutdown this summer due to the federal government’s failure to issue a key annual grant.
“Currently right now, we have a shortfall in our budget,” Dom Pannone, director of program administration and management for the Alaska Department of Transportation, told members of the Senate Finance Committee during a hearing Feb. 2.
Money from the Federal Transit Administration’s rural ferry program pays for almost half of the Alaska Marine Highway System’s operating expenses, but the Trump administration failed to open its annual grant process in federal fiscal year 2025, which ended Sept. 30.
The ferry system’s budget runs according to the calendar year. Last spring, the Alaska Legislature and Gov. Mike Dunleavy budgeted $171 million to operate the ferry system for 2026. Of that, almost $78 million was supposed to come from the federally funded rural ferry program.
Without that money, the system could be forced to tie up its ships in midsummer, at the peak of the state’s annual tourist season.
“Right now, we have a federal chaos problem,” said Juneau Sen. Jesse Kiehl, a member of the Senate Finance Committee.
Ryan Anderson, state Transportation Department commissioner, said his agency is “looking at several options” to prevent a shutdown of the ferry system. He did not discuss possible cutbacks to the summer schedule, which was not yet open for reservations as of Feb. 6.
“We don’t want to be caught flat-footed,” said Senate Finance Committee Co-Chair Bert Stedman, of Sitka.
Stedman opened the hearing by instructing the commissioner and his staff, “Please answer their questions truthfully and honestly. … Don’t concern yourself if we like the answers or not.”
At the hearing, neither state officials nor legislators could say why the Federal Transit Administration has failed to make grants available. Anderson said he would be traveling to Washington, D.C., to meet with agency officials to make sure “they understand the importance of these funds.”
Alaska U.S. Sen. Lisa Murkowski secured almost $1 billion in the 2021 Infrastructure Investment and Jobs Act bill for the rural ferry program at the Federal Transit Administration, which was written in a way to steer much of the money to Alaska.
By text after the Senate committee hearing, Murkowski spokesman Joe Plesha said the Federal Transit Administration told her office it will release the ferry grants this spring but did not give a timeline.
When Murkowski got the ferry language signed into law, it was the first time the federal government had significantly funded operational expenses for Alaska’s ferry system.
“In this particular case, it can actually pay for the operations of those (ferry) vessels,” Anderson said.
Alaska received more than five-sixths of the total nationwide distribution of $616 million in the program’s first three years, which allowed Gov. Mike Dunleavy to divert state dollars away from the ferry system to fund other parts of Alaska’s annual budget.
In addition to covering much of the ferry system’s operating budget, more than $260 million of the federal aid has gone toward paying the bill for a new ship to replace the 62-year-old Tustumena, which serves Southwest Alaska, adding crew quarters to the Tazlina, and several ferry terminal projects.
The state Transportation Department estimates that about $410 million remains available for the federal government to disburse, most of which Alaska expects to receive.
In each of the three prior grant years, it took between 152 and 199 days from the time the grant application period opened to the time the grant was awarded.
That timeline means that even if federal transit officials were to open the grant process tomorrow, a decision might not be made before the start of the summer ferry schedule in May.
Stedman said finding “backfill” money to cover for the delay or loss of federal aid will be difficult. “Our budgets are getting tighter and taking away the flexibility the (finance) committee has to backfill some of these holes, and this particular hole could be significant, pushing $80 million.”
The ferry funding issue could persist even if the Federal Transit Authority resumes paying grants, because its ferry operations program is set to expire this year.
“What happens when that grant money is gone?” asked Sen. Mike Cronk, from Tok.
“This year, the surface transportation reauthorization is up for renewal,” Anderson said. “This, we understand, is part of that discussion: Will the rural ferry program continue over the next subsequent four years?”
Anderson said that even if Congress renews the program, the current Alaska-favorable rules might be rewritten. “Other states are very interested in this program as well because they have a lot of similar challenges,” he said.
The Wrangell Sentinel added reporting to this story. The Alaska Beacon is an independent, donor-funded news organization. Alaskabeacon.com.
