The ferry Taku leaves Ketchikan’s Ward Cove. (Photo by Leila Kheiry/KRBD)

Alaska is slated to get $285 million from the federal government to modernize the state’s ferry fleet and improve service. It’s part of the bipartisan infrastructure law passed in 2021.

But to actually spend the windfall, the state needs to put up money, too. That’s a hard request in a state that’s facing a deficit amid falling oil revenue.

So, the state is turning to an obscure accounting quirk to turn old federal funds into new ones.

The $285 million federal windfall is a boon to the state’s ferry system.

Katherine Keith is the deputy commissioner for the state’s Department of Transportation. She told the state’s Marine Highway Operations Board earlier this month that the federal grants would inject some life into the Marine Highway System.

“Modernize our vessels, begin designing some new builds, construction of new builds,” Keith said. “And then also reinvesting in some of our ferry terminal facilities so that we can get closer to running all ships and all docks, and then finally providing the Marine Highway System of some operating funds.”

But the grants aren’t free money. Each of the six grants requires a match from the state — between 25% and 50%.

Ferry board member Wanetta Ayers said she was worried about the state prioritizing the matching funds.

“The reality is, we’re in a deficit budget situation under certain circumstances,” Ayers said. “And that puts pressure on cash available for match.”

Ferry boosters might have a reason to be skeptical: During his first term, Gov. Mike Dunleavy cut millions from the ferry system’s budget and sold off three state ferries.

But in a state budget amendment submitted this month, Gov. Mike Dunleavy’s administration proposed a solution. DOT Commissioner Ryan Anderson, says the state needs almost $50 million in matching funds for this year’s ferry grants. And he’s got an idea for where to get it:

“To meet this requirement, the state is proposing to use an innovative federal aid highway tool that allows the state to use existing federal dollars to capture these new federal dollars,” Anderson said.

Turning old federal money into lots and lots of new federal money. It’s not alchemy. It’s accounting.

The secret here are so-called “toll match credits.”

Think of it this way: the Marine Highway System is part of the federal highway system. And if you think about ferry tickets as tolls, it’s not just a highway, it’s a toll road. And those toll revenues are at least partly invested in maintaining the ferry fleet and its network of terminals.

Toll match credits allow that maintenance spending to count towards the state’s portion of the match.

The federal grants break down like this: $68.4 million towards a hybrid diesel-electric replacement for the ferry Tustumena. That project is already underway. There’s also $8.6 million to design a new mainliner for Southeast. Another $163.7 million would go towards a new electric ferry, as well as upgrades to the system’s dock infrastructure and modernizing the existing vessels.

The $285 million package also includes nearly $45 million for operating funds.