oversight

Kachemak Bay Ferry: Federally Funded Ferry Was Constructed with Limited Oversight and Faces Future Operating Challenges

Published by the Government Accountability Office on 2012-06-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




June 2012
             KACHEMAK BAY
             FERRY
             Federally Funded
             Ferry Was
             Constructed with
             Limited Oversight and
             Faces Future
             Operating Challenges




GAO-12-559
                                             June 2012

                                             KACHEMAK BAY FERRY
                                             Federally Funded Ferry Was Constructed with
                                             Limited Oversight and Faces Future Operating
                                             Challenges
Highlights of GAO-12-559, a report to
congressional requesters




Why GAO Did This Study                       What GAO Found
In 2002, the Seldovia Village Tribe          In examining the history of the Kachemak Bay ferry project, GAO found that the
proposed building a year-round ferry         Seldovia Village Tribe’s federally funded ferry differs significantly from its original
that would serve several isolated            proposal. In 2002, the tribe proposed a vehicle and passenger ferry with year-
communities on the south shore of            round service between Homer, Alaska, on the north shore of Kachemak Bay and
Alaska's Kachemak Bay. Federal               multiple southern ports, including the city of Seldovia. Federal funding was
funding for a ferry was subsequently         appropriated in fiscal years 2004, 2005, and 2006, from which about $8.5 million
included in the Department of                was provided to the tribe for a ferry. The state also provided $1.5 million. The
Transportation’s appropriations,             tribe subsequently built a ferry and dock facilities that cost about $8.8 million, but
transferred to the Department of the
                                             the project was significantly more limited in scope and service than the original
Interior, and then provided to the tribe
                                             proposal. Specifically, the ferry, known as the Kachemak Voyager began
through agreements under the Indian
Self-Determination and Education
                                             operating in May 2010, but it only provided passenger and light-freight service
Assistance Act, as amended. The              between Homer and Seldovia and only during the summer months.
tribe’s ferry began operating in May         Federal agencies provided funding and limited oversight but had no decision-
2010, amid community concerns about          making role for the ferry project. After the Department of Transportation (DOT)
significant changes in the ferry’s           received the funds for the ferry in its fiscal years 2004, 2005, and 2006 annual
design and operation from the original       appropriations, it transferred these funds to the Department of the Interior
proposal and its effect on existing          (Interior). As a result of these transfers, DOT provided no oversight for the ferry
private tour boat businesses.
                                             project. Interior provided the funding to the tribe through agreements under the
GAO was asked to examine (1) the             Indian Self-Determination and Education Assistance Act, as amended, that
history of the Kachemak Bay ferry            generally authorize tribes to use funds to plan and administer programs with little
project; (2) the roles of federal            involvement by the federal government. The tribe provided Interior with quarterly
agencies in funding and overseeing the       project status reports, but Interior did not provide guidance to the tribe in
ferry project and associated dock            response to changes in the project. Following a 2009 Inspector General
projects; and (3) concerns and               investigation, Interior developed new procedures to preclude certain
challenges, if any, regarding the            transportation projects like the tribe’s ferry from being funded through these
continued operation of the ferry. GAO        agreements in the future. DOT’s Federal Transit Administration (FTA) also
analyzed documents and interviewed           awarded the tribe two grants in 2010, totaling $675,000, and also provided
federal agency officials and tribal and
                                             limited oversight over the grants, according to agency officials.
community representatives.
                                             A number of concerns and challenges exist regarding future operations of the
What GAO Recommends                          ferry and its financial sustainability. First, local private tour boat operators are
GAO recommends that the                      concerned that competition from the ferry has and will continue to negatively
Departments of the Interior and              affect their businesses. In particular, they noted that, because of federal grants,
Transportation collaborate to                the ferry has been able to offer lower fares that the private operators cannot
determine the disposition of sale            match. Second, it is unlikely that the ferry will become profitable as expected by
proceeds in the event the ferry is ever      2013, largely because of lower passenger volume and higher operating costs
sold. Interior and Transportation            than projected. Using actual passenger and cost data from 2010 and 2011, GAO
agreed to implement GAO’s                    determined that losses will most likely continue to grow, which will make the ferry
recommendation. The Seldovia Village         financially unsustainable without further government subsidies. Third, FTA was
Tribe did not comment on GAO’s               concerned that the tribe had not complied with its grant requirements. The tribe
recommendation but expressed a               needed prior FTA approval before using the ferry for nonpublic transportation
number of concerns which are                 activities, such as sightseeing, but did not obtain approval. The tribe took
discussed more fully in the report.          corrective actions. Finally, should the tribe choose to sell the ferry, it is unclear
                                             what statutory provisions govern the sale, and it is therefore uncertain whether a
                                             portion of the proceeds must be credited to the federal-aid highway fund or if the
View GAO-12-559. For more information,
contact Anu K. Mittal at (202) 512-3841 or   awarding agency has a right to those proceeds.
mittala@gao.gov.

                                                                                       United States Government Accountability Office
Contents


Letter                                                                                   1
               Background                                                                4
               The Seldovia Village Tribe’s Federally Funded Ferry Differs
                 Significantly from Its Original Proposal                              10
               Federal Agencies Provided Funding and Limited Oversight but Had
                 No Decision-Making Role for the Ferry Project                         19
               Concerns and Challenges Exist Regarding Continued Ferry
                 Operations                                                            30
               Conclusions                                                             38
               Recommendation for Executive Action                                     39
               Agency and Third Party Comments and Our Evaluation                      39

Appendix I     GAO Legal Opinion on Department of Transportation—Homer-
               Halibut Cove-Jakolof Bay-Seldovia Ferry                                  44



Appendix II    Comments from the Department of the Interior                             50



Appendix III   Comments from the Department of Transportation                           52



Appendix IV    Comments from the Seldovia Village Tribe                                 55
               GAO Comments                                                            77

Appendix V     GAO Contact and Staff Acknowledgments                                    80



Tables
               Table 1: The Seldovia Village Tribe’s Kachemak Bay Ferry Project
                        Expenditures for Planning and Construction, by Category,
                        for 2005 to 2010                                               18
               Table 2: Assumed and Actual Ferry Operating Parameters                  33




               Page i                                         GAO-12-559 Kachemak Bay Ferry
Figures
          Figure 1: State of Alaska, with Selected Cities and Highway System                         5
          Figure 2: Kachemak Bay and Surrounding Communities                                         7
          Figure 3: Timeline of Key Events for the Kachemak Bay Ferry
                   Project                                                                          11
          Figure 4: The Kachemak Voyager                                                            17
          Figure 5: Timeline of Ferry Project Federal Appropriations and
                   Grants, and Transfer of Funds to the Seldovia Village
                   Tribe, by Fiscal Year                                                            20
          Figure 6: Extended and Direct Kachemak Bay Ferry Routes from
                   Homer to Seldovia                                                                31
          Figure 7: Projected Kachemak Voyager Financial Performance and
                   Reanalysis, 2010-2013 Operating Season                                           34




          Abbreviations

          BIA               Bureau of Indian Affairs
          DOT               Department of Transportation
          FTA               Federal Transit Administration




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          Page ii                                                   GAO-12-559 Kachemak Bay Ferry
United States Government Accountability Office
Washington, DC 20548




                                   June 11, 2012

                                   The Honorable Don Young
                                   Chairman
                                   Subcommittee on Indian and Alaska Native Affairs
                                   Committee on Natural Resources
                                   House of Representatives

                                   The Honorable Lisa Murkowski
                                   United States Senate

                                   Alaska’s Kachemak Bay lies on the southwestern edge of the Kenai
                                   Peninsula, roughly 220 miles south of Anchorage by road. The city of
                                   Homer, located on the bay’s north shore, is the most populated
                                   community along Kachemak Bay, with roughly 5,000 residents. Situated
                                   at the end of Alaska’s state highway system, Homer is accessible by land,
                                   air, and water. In contrast, across the bay on the south shore are several
                                   smaller communities with a combined population of about 900, including
                                   the city of Seldovia, that can only be reached by air or water. Seldovia is
                                   home to one of Alaska’s federally recognized Native entities—the
                                   Seldovia Village Tribe. A commercial fishing village of roughly
                                   250 people, Seldovia is also a summer home and tourist destination, with
                                   its population and number of visitors decreasing significantly outside of
                                   the summer months. Private air services and tour boats, as well as water
                                   taxis and private vessels, are the primary means of daily transportation
                                   between Homer and Seldovia and the other south shore communities.
                                   The Alaska Marine Highway System’s passenger, vehicle, and freight-
                                   carrying ferries also serve Homer and Seldovia but not on a daily basis.
                                   Frequency of service for all transportation options can be affected by
                                   weather and maintenance demands, particularly in the harsh winter
                                   months.

                                   The limited transportation options for the communities on the isolated
                                   southern shore of Kachemak Bay raised concerns among residents about
                                   the communities’ long-term sustainability and economic development. To
                                   address these concerns, in 2002 the tribe proposed a project to build a
                                   year-round, high-speed car and passenger ferry serving multiple
                                   communities in Alaska’s Kachemak Bay, with associated dock and road
                                   upgrades. Funding for a ferry that would serve four Kachemak Bay
                                   communities was included in the Department of Transportation’s (DOT)
                                   fiscal years 2004, 2005, and 2006 appropriations, which DOT transferred
                                   to the Department of the Interior. Interior subsequently provided about


                                   Page 1                                          GAO-12-559 Kachemak Bay Ferry
$8.5 million of this funding to the tribe. In addition, the tribe received some
funding for the ferry from the state of Alaska and additional federal
funding from DOT’s Federal Transit Administration (FTA). The tribe’s
ferry—the Kachemak Voyager—began operating in May 2010, amid
community concerns about significant changes in the ferry’s design and
operation from the original 2002 proposal and its effect on existing private
tour boat businesses.

In light of questions about the ferry project, you asked us to examine
(1) the history of the Kachemak Bay ferry project; (2) the roles of federal
agencies in funding and overseeing the ferry project and associated dock
facility projects; and (3) concerns and challenges, if any, regarding the
continued operation of the ferry. In addition, you asked our Office of the
General Counsel to issue a legal opinion regarding appropriations
enacted for a ferry. This legal opinion is provided in appendix I.

To examine the history of the Kachemak Bay ferry project, we reviewed
and analyzed ferry project proposal, planning, and construction
documentation from local and tribal sources as well as from private tour
boat operators, and we interviewed individuals with knowledge of the
project. We reviewed and analyzed budget and expenditure
documentation and interviewed tribal officials to determine how and when
ferry project funding was spent, including for the Homer and Seldovia
docks and ferry operations. We visited Homer and Seldovia, Alaska, to
observe firsthand the ferry, ferry terminal, and docks. To examine the
roles that federal agencies played in funding and overseeing the ferry
project and associated dock projects, we reviewed appropriations and
relevant documentation from DOT’s Federal Highway Administration and
interviewed officials. We reviewed and analyzed project files and relevant
guidance from Interior’s Bureau of Indian Affairs (BIA) and Office of Self-
Governance and interviewed officials to determine the roles the agencies
took in overseeing the project. We also interviewed officials from the U.S.
Army Corps of Engineers and reviewed and analyzed documentation
about their role in providing permits for the ferry dock projects. We
reviewed and analyzed documentation and interviewed officials from FTA
to determine the agency’s role in providing grant funding to and oversight
of the Homer dock upgrade and ferry operations. We reviewed and
analyzed reports from Interior’s Office of Inspector General to identify
past concerns raised about oversight of the ferry project and how those
issues were resolved.

To examine any concerns and challenges regarding the ferry’s continued
operation, we reviewed and analyzed documentation from federal, state,


Page 2                                            GAO-12-559 Kachemak Bay Ferry
local, and tribal sources and from private tour boat operators and
interviewed officials and tribal representatives knowledgeable about
current and planned ferry operations. We analyzed documentation of
operations for the Kachemak Voyager and other boats serving Kachemak
Bay to determine the ferry’s current status and concerns raised over its
effect on already-existing services. We evaluated the extent to which the
ferry was on course to becoming self-sustaining by reestimating the
ferry’s financial projections for 2010 through 2013 from the tribe’s 2009
Feasibility Summary Report, using actual operating data from 2010 and
2011 provided by the tribe. For 2010 and 2011, we replaced estimated
values with actual values for (1) the number of trips, (2) passenger count
per trip, (3) fuel consumption, and (4) fuel costs. For all other parameters
we analyzed, such as ticket prices, crew wages, or Homer terminal costs,
we used the estimated values in the 2009 report. To develop projections
for 2012 to 2013, we assumed that (1) the number of passengers would
grow at the same rate as from 2010 to 2011, (2) the number of one-way
trips per day would remain the same as in 2011, (3) fuel consumption per
hour for the ferry would remain at the 2011 level, and (4) cost per gallon
of fuel would grow at the same rate as from 2010 to 2011. We also
assessed the tribe’s compliance with FTA’s grant requirements by
reviewing and analyzing FTA grant documentation and reports submitted
by the tribe and interviewing agency officials. We also gathered
documentation and interviewed DOT officials about where the proceeds
from a potential sale of the ferry should be credited and what amount
should be credited if the ferry were deemed to be not self-sustaining and
was sold by the tribe.

We conducted this performance audit from July 2011 to June 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 3                                           GAO-12-559 Kachemak Bay Ferry
             Alaska—encompassing 586,412 square miles—is the largest state in the
Background   union, one-fifth the size of the lower 48 contiguous states combined.
             Despite its size, Alaska is one of the least populated states, with only
             about 700,000 people, nearly half of whom live in the three largest cities
             of Anchorage, Fairbanks, and the capital of Juneau. The remainder of the
             population lives in smaller, often isolated communities scattered
             throughout the state, and access to these communities can be difficult,
             not just because of the state’s size but also because of its rugged terrain
             and harsh winter weather. As shown in figure 1, Alaska’s highway
             system, operated by the Alaska Department of Transportation and Public
             Facilities, connects some of the larger population centers by road, from
             Prudhoe Bay in the far north through Fairbanks and Anchorage to Homer
             on the Kenai Peninsula, where the highway ends on the north shore of
             Kachemak Bay.




             Page 4                                          GAO-12-559 Kachemak Bay Ferry
Figure 1: State of Alaska, with Selected Cities and Highway System




                                         Page 5                      GAO-12-559 Kachemak Bay Ferry
As shown in figure 2, communities located on the south side of the bay—
including Seldovia, Halibut Cove, Jakolof Bay, Nanwalek, and Port
Graham—are accessible only by water or air; they are served largely by
private boat and airplane transportation businesses. The Alaska
Department of Transportation and Public Facilities operates the Alaska
Marine Highway System, a fleet of 11 ships that transports passengers,
vehicles, and freight to more than 30 ports along a 3,500 mile route from
Bellingham, Washington, to Unalaska in the Aleutian chain of islands.
One of the system’s ferries, the Tustumena, provides regularly scheduled
direct route service between Homer and Seldovia, generally visiting
Seldovia twice per week in the summer and once per week in the winter,
when resident and tourist demand is lower. Severe weather, rough water
conditions, and scheduled maintenance for the state ferry can also affect
access to Seldovia during the winter months.




Page 6                                         GAO-12-559 Kachemak Bay Ferry
Figure 2: Kachemak Bay and Surrounding Communities




                                     Page 7          GAO-12-559 Kachemak Bay Ferry
The city of Seldovia is home to the federally recognized Seldovia Village
Tribe. Many of the tribe’s approximately 470 members live in Seldovia,
surrounding lands, and nearby south shore communities, as well as in
Homer across the bay. The tribe’s leadership and headquarters are
located in Seldovia, and the tribe operates businesses and provides
services to its members and the surrounding communities. Among other
things, the tribe owns and operates (1) medical and dental centers in
Seldovia and Homer, (2) a company that makes and sells local wild berry
products, (3) a museum and visitor center, (4) a conference center in
Seldovia, and (5) the Kachemak Voyager ferry. Pursuant to the Alaska
Native Claims Settlement Act, the Seldovia Native Association, Inc., was
incorporated under state law as a village corporation in 1972. 1

Under the Indian Self-Determination and Education Assistance Act, as
amended, federally recognized Indian tribes can enter into self-
determination contracts and self-governance compacts with the federal
government to take over administration of certain federal programs
previously administered by the federal government on their behalf. 2 Self-
determination contracts under the act allow tribes to contract for the
administration of programs for the benefit of Indians that would otherwise
be managed by Interior’s BIA on their behalf. Having contracted a
program, a tribe assumes responsibility for managing the program’s day-
to-day operations, such as hiring program personnel, conducting program
activities and delivering program services, and establishing and
maintaining administrative and accounting systems. BIA representatives
provide technical oversight to ensure that the tribe meets contract terms.
Self-governance compacts under the act transfer to tribes the
administration of programs for tribes and Indians administered by Interior
and provide the tribes with some flexibility in program administration. The
terms for administering programs under self-governance compacts are
largely established in negotiations between the tribe and Interior’s Office
of Self-Governance, but they generally allow for reduced oversight by
Interior, even though the compacts are subject to the act’s requirements
and implementing regulations. The Director of Interior’s Office of Self-


1
 The Alaska Native Claims Settlement Act, enacted in December 1971, authorized Alaska
Native villages to establish for-profit or nonprofit corporations, which were vehicles for
distributing the settlement’s land and monetary benefits to Alaska Natives, who are
shareholders in the corporations. Pub. L. No. 92-203. 85 Stat. 688 (1971), codified as
amended at 43 U.S.C. §§ 1601-1629h.
2
Pub. L. No. 93-638 (1975), codified as amended at 25 U.S.C. §§ 450 to 458ddd-2.




Page 8                                                    GAO-12-559 Kachemak Bay Ferry
Governance enters into self-governance compacts with tribes that have
requested to do so by tribal resolution and that meet specific planning and
financial management criteria.

For both self-determination contracts and self-governance compacts, the
Secretary of the Interior negotiates and enters into written annual funding
agreements with the governing body of each participating tribe, which
specifies the Interior program that the tribe will administer, the tribe’s and
Interior’s obligations, and the funds being transferred to the tribe. Subject
to the terms of the agreement and purpose for which the funds were
appropriated, the tribes are also authorized to redesign programs, as well
as to reprogram or reallocate funds provided under self-governance
compacts and their annual funding agreements. In this report when we
refer to the tribe’s self-determination contract or self-governance
compact, we are referring to the contract or compact along with its
associated annual funding agreements.

BIA is responsible for implementing federal Indian policy and
administering the federal trust responsibility for both American Indians
and Alaska Natives. BIA assists tribes in various ways, such as providing
social services; law enforcement; and developing and maintaining
infrastructure, including transportation. BIA either provides services
directly or provides transportation funding to tribes through self-
determination contracts, self-governance compacts, or other agreements.
BIA’s Division of Transportation and DOT’s Federal Highway
Administration’s Federal Lands Highway Office jointly administer the
Indian Reservation Roads Program, in accordance with an interagency
agreement, to provide funding for tribes to plan, design, construct, and
maintain transportation projects. The program’s definition of
transportation facilities includes public roads, ferry routes, marine
terminals, and transit facilities, but the program only includes one ferry
operated by a tribe in eastern Washington under a self-determination
contract. Under the program, tribes submit tribal transportation
improvement programs or a priority list of tribal transportation projects to
BIA, which BIA uses to develop the Indian Reservation Roads
transportation improvement program. After DOT’s Federal Highway
Administration approves the transportation improvement program, it is
implemented by the tribes or BIA. DOT’s Tribal Transit Program,
administered by FTA, also provides grants to tribes to construct and
operate tribal transportation projects. If a planned project, such as




Page 9                                            GAO-12-559 Kachemak Bay Ferry
                         building or upgrading a dock, requires excavation in navigable waters of
                         the United States, among other things, the tribe must obtain a River and
                         Harbors Act section 10 permit from the U.S. Army Corps of Engineers. 3


                         According to historical proposal, planning, and construction documents,
The Seldovia Village     the ferry currently operated by the tribe—the Kachemak Voyager—differs
Tribe’s Federally        significantly from the tribe’s original proposal for a year-round vehicle,
                         freight, and passenger ferry to serve Homer and several of the isolated
Funded Ferry Differs     communities along the south shore of Kachemak Bay. The ferry project
Significantly from Its   underwent significant changes from 2002 to 2009, as shown in figure 3,
Original Proposal        which resulted in construction of a seasonal ferry capable of transporting
                         passengers and light freight and serving regularly scheduled routes to
                         Homer and Seldovia, at a cost of about $8.8 million.




                         3
                         33 U.S.C. § 403.




                         Page 10                                        GAO-12-559 Kachemak Bay Ferry
Figure 3: Timeline of Key Events for the Kachemak Bay Ferry Project




Page 11                                             GAO-12-559 Kachemak Bay Ferry
The Tribe Initially         To encourage economic development on the south side of Kachemak
Proposed a Vehicle and      Bay and provide greater access to Alaska’s state highway system in
Passenger Ferry Serving     Homer for south shore communities, after conducting community
                            meetings to determine local needs, the tribe in 2002 began distributing a
Multiple Ports Year-Round   project summary to federal, state, and local officials and to residents. This
                            summary included a plan for improving existing roads, constructing new
                            roadways, and providing year-round ferry service to the south Kachemak
                            Bay communities. The tribe-sponsored plan was to be implemented in
                            multiple phases and included the following features:

                            •   Twenty-six and a half miles of road reconstruction and resurfacing
                                and 1 mile of new road construction, providing vehicle access
                                between isolated communities and to recreational opportunities in the
                                Kachemak Bay State Wilderness.

                            •   Daily passenger and vehicle ferry service between Homer, Seldovia
                                (via Jakolof Bay), and Halibut Cove (via Peterson Point).

                            •   New ferry docks at Jakolof Bay and Peterson Point.

                            The tribe’s estimated cost for the project was $44 million: $32 million for
                            the road improvements and $12 million for the ferry and dock
                            improvements.

                            In 2003 the tribe reported that the plan had wide public support and was
                            recommended for implementation by Alaska state officials. Residents and
                            local business owners we spoke with confirmed that they supported the
                            plan to provide daily transportation of vehicles and freight across
                            Kachemak Bay. Nevertheless, according to a former state legislator,
                            although state officials had initially agreed to provide significant financial
                            support to the project, that support did not materialize because of a
                            change in administration. Consequently, village corporation officials told
                            us, not enough funding was available to carry out the plan as originally
                            envisioned.




                            Page 12                                           GAO-12-559 Kachemak Bay Ferry
With the initial project plan deemed prohibitively expensive, the tribe
scaled down the original plan and offered an alternative proposal in
2003. 4 The revised proposal included the following features:

•   Daily passenger and vehicle ferry service between Homer, Halibut
    Cove (via Peterson Point), Jakolof Bay, Nanwalek, Port Graham, and
    Seldovia.

•   New ferry docks at Jakolof Bay and Halibut Cove.

•   Limited road access improvements.

The tribe’s estimated cost for the scaled-down project was $14 million:
$12 million for the ferry and $2 million for docks and associated road
construction. Federal funding for a ferry project serving multiple ports in
Kachemak Bay was first appropriated in fiscal year 2004, with additional
funding appropriated in the following 2 fiscal years. The state also
provided funding.

This scaled-down project, however, did not have the same degree of
support within the community as the original proposal. For example,
according to a former state legislator, he did not support the revised
project because it did not include the extensive road improvements of the
original proposal, which he believed were vital to encouraging regional
economic development. He told us that the road improvements were
necessary to sustain Seldovia and the surrounding communities by
connecting them to one another, and to the state highway system in
Homer, by way of a vehicle-carrying ferry. Similarly, Seldovia city officials
told us they were not informed of the tribe’s 2003 proposal until a few
days before Congress passed the fiscal year 2004 appropriation for a
ferry. They told us they notified their congressional representative that the
city had not been consulted on the project. In response to the city officials’
concerns, the tribe and the village corporation—which the tribe had hired


4
 There is some disagreement among stakeholders regarding when the ferry project was
scaled down from its original plan. According to the tribe it did not scale down its original
plan until 2005, concurrent with the award of the self-determination contract. However,
Seldovia city officials provided us with an undated brochure that contained information on
the scaled down proposal, which they said they received in late 2003, and this information
was also provided to a member of the Alaska congressional delegation prior to
congressional consideration of funding for planning and design of a Seldovia-Homer-
Jakolof Bay-Halibut Cove ferry, which occurred in December 2003.




Page 13                                                     GAO-12-559 Kachemak Bay Ferry
                              to manage the project—told us that they immediately agreed to work with
                              the city of Seldovia to conduct community outreach, assist with request
                              for proposals and a design feasibility study, and form a port authority to
                              potentially operate the new ferry.


The Tribe Built and Now       The village corporation managed the ferry project in two phases: planning
Operates a Passenger and      and construction. During the planning phase, the village corporation
Light-Freight Ferry Serving   conducted two studies of options for the proposed project and, on the
                              basis of these studies, selected a vessel option that could transport
Two Ports in the Summer       passengers and light freight in 500-pound containers—but not vehicles—
                              and would run between Homer and Seldovia during the peak-traffic
                              summer season.

                              The first study, published in 2007, analyzed ferry vessel alternatives, as
                              well as project-scoping options, regional passenger traffic, and the
                              project’s potential financial outcomes. This study established criteria
                              stating that the recommended ferry service must be self-sustaining in
                              both the short and long term. Vessels were evaluated according to the
                              extent to which they could (1) be constructed with available funds,
                              (2) generate sufficient revenue to cover operating costs, and (3) provide
                              social and economic benefits. The study reviewed five different vessel
                              types, four of which could carry passengers and vehicles and one that
                              could carry only passengers and light freight. The study found that ferries
                              carrying both vehicles and passengers could not operate without a
                              substantial subsidy, would be impossible to operate in competition with
                              the Alaska state ferry, and concluded that the only viable alternative was
                              a fast passenger-only catamaran with optional light-freight capability.
                              According to the tribe, the level of funding available at that time and a
                              steep increase in steel prices contributed significantly to this conclusion.

                              The village corporation’s second study, which focused primarily on ferry-
                              operating alternatives, projected that the selected vessel would be
                              profitable in its fourth year of operation (2013) if it ran only during the
                              peak-traffic summer season. This study, published in 2009 by the village
                              corporation, evaluated different service and route options and the
                              financial feasibility of the selected vessel—a 150-passenger and light-
                              freight-only 83-foot catamaran.

                              The village corporation’s proposed project, based on the results of the
                              2009 study, differed significantly from earlier proposals in a number of key
                              ways:



                              Page 14                                          GAO-12-559 Kachemak Bay Ferry
•   The ferry would serve only two ports, Homer and Seldovia.

•   The ferry would run only during the peak-traffic summer season,
    generally May through September.

•   The ferry would run two routes—a direct 16.7-nautical-mile route
    across Kachemak Bay and an extended 22-nautical-mile route, which
    would include wildlife viewing and sightseeing.

•   The ferry would not have vehicle or heavy-freight transport
    capabilities.

•   The tribe would operate the ferry.

•   Docks would be constructed only in Homer and Seldovia.

•   No roads would be built or improved.

•   A visitor center would be built in Homer.

The release of the 2009 study generally represented the end of the
planning phase, although the construction phase had already begun. In
the summer of 2008, the village corporation selected a company in
Bellingham, Washington, as the contractor for boat construction. The
village corporation separately contracted the construction of the docks—
one on village corporation-owned land in Seldovia and the other in
Homer’s small boat harbor.

Because of the changes in scope and service from the original project
proposal, the city of Seldovia withdrew its support for the project and
contacted us, BIA, and members of Congress to ask that the project be
halted. City officials told us that they had not been consulted by the tribe
or the village corporation on changes to the project and that, other than a
single port authority steering committee meeting in 2004, there were no
opportunities to provide public comment or input during the project
development period. According to the tribe, the village corporation and
the tribe met with, consulted with, and involved the city and the public in
the design and development of the ferry through announced public
meetings, a survey, and a consulting contract with the city. Voters also
ratified, after initially failing to ratify, the city council ordinance establishing
a port authority, but according to the city officials, the entity has never
functioned because no public transportation exists in Seldovia’s harbor for
it to oversee. Some city residents we spoke with said they also withdrew



Page 15                                              GAO-12-559 Kachemak Bay Ferry
their support for the ferry project after learning that the proposed vessel
(1) would run only in the summer, (2) was not capable of transporting
vehicles and freight, and (3) would compete with local tour companies.

The Kachemak Voyager, shown in figure 4, began operating in 2010,
providing service between Homer and Seldovia for the summer season
that extended from May through October. The village corporation hired a
contractor to operate the ferry in 2010, and the tribe took over operations
for the 2011 season. Since the ferry began operating, the tribe has
promoted it to local commuters and tourists, advertising daily extended
trips for wildlife viewing and charters for hire. In both years, the ferry
operated only during the summer months, with an average of six daily
one-way trips between the two ports, including two trips from Homer to
Seldovia via the extended scenic route that passes by the village
corporation-owned Gull Island. During the Kachemak Voyager’s first
season of operation, the tribe completed construction of the two docks—
one in Homer and one in Seldovia. The Homer harbormaster told us that
the dock and accompanying ramp were welcome improvements. City of
Seldovia officials, however, told us that the dock in Seldovia is unstable
and, therefore, has not been used for safety reasons; instead, the
Kachemak Voyager has used the main dock in the city’s harbor for
mooring the ferry in Seldovia.




Page 16                                          GAO-12-559 Kachemak Bay Ferry
                          Figure 4: The Kachemak Voyager




The Tribe Spent about     To plan and construct the Kachemak Bay ferry and associated docks in
$8.8 Million of Federal   Homer and Seldovia, the tribe spent about $8.8 million of the close to
Funding to Plan and       $9 million in federal appropriations and grants it received beginning in
                          fiscal year 2005. According to documentation provided by the tribe, it
Construct the Ferry       spent about $1.97 million for phase I project-planning activities, including
Project                   expenditures for project design, administration, feasibility studies, and
                          environmental assessments and permits, and about $6.79 million for
                          phase II construction activities, including expenditures for ferry
                          construction, dock construction, administration, and outreach and
                          marketing. Expenditures for both phases are summarized by category in
                          table 1. Additional funding, including a $1.5 million Alaska state grant and
                          an operating grant from FTA, was used to subsidize ferry operations.
                          According to the tribe, little funding remains after the 2011 season to
                          subsidize ferry operating costs in the future.




                          Page 17                                          GAO-12-559 Kachemak Bay Ferry
Table 1: The Seldovia Village Tribe’s Kachemak Bay Ferry Project Expenditures for Planning and Construction, by Category,
for 2005 to 2010

                                                                                  Phase I:                 Phase II:                      Total
Expenditure categories                                                           planning               construction               expenditures
Administration                                                                   $287,006                    $797,896                  $1,084,902
Outreach, marketing, and mobilization                                               73,836                     328,951                    402,787
Feasibility studies, design, and port authority development                        243,409                                                243,409
Development of construction budget and sources                                      22,874                                                  22,874
Environmental assessments and permits                                               65,229                     274,386                    339,615
Project design                                                                   1,214,646                                              1,214,646
Staffing and oversight                                                              60,000                     309,136                    369,136
Ferry construction                                                                                          3,304,029                   3,304,029
Shoreside preparation and construction                                                                      1,778,132                   1,778,132
Total                                                                          $1,967,000                  $6,792,530                  $8,759,530
                                             Source: Seldovia Village Tribe.


                                             Note: A total of $9 million was originally appropriated for the design and construction of a ferry. The
                                             fiscal years 2005 and 2006 appropriations, however, were subject to rescissions that made available
                                             less than the full amount of the appropriation. In addition, BIA retained $33,000 and $120,000 of the
                                             fiscal years 2004 and 2005 appropriations, respectively, for oversight. Specifically, a provision in the
                                             self-determination contract notes that the $33,000 retained by BIA was “for travel to look at other
                                             Alaska independent owned ferries with the project manager, to attend any community meetings, to
                                             personally view the ferry infrastructure landings and any other administrative expenses associated
                                             directly with this project as deemed necessary by the BIA.”




                                             Page 18                                                            GAO-12-559 Kachemak Bay Ferry
                        Federal agencies provided funding and limited oversight, but they had no
Federal Agencies        decision-making role in determining the type of ferry to be constructed or
Provided Funding and    how it would be operated. Congress appropriated funds for a ferry in
                        fiscal years 2004 through 2006 without any specific description of the type
Limited Oversight but   of ferry to be constructed or its operations and well before the tribe’s
Had No Decision-        design and operating studies were completed. Similarly, DOT transferred
Making Role for the     the ferry construction funds to Interior without any specific design or
                        operation limitations. BIA subsequently transferred the ferry construction
Ferry Project           funds to the tribe in fiscal years 2005 through 2007 without any specific
                        design or operation limitations and before the tribe had completed its ferry
                        design and operating studies. The self-determination contract and self-
                        governance compact that BIA used to provide the funds authorized the
                        tribe to plan, conduct, and administer the funding for planning and
                        constructing the ferry and provided for limited oversight. 5 The tribe also
                        applied for and was awarded grants by FTA for dock construction and
                        ferry operation, which it received in 2010 (see fig. 5). In total, the tribe
                        received about $9.2 million from these sources to plan, construct, and
                        operate the ferry. The U.S. Army Corps of Engineers issued required
                        permits for dock construction but did not provide funding.




                        5
                         The ferry was not included in the Seldovia Village’s Tribal Transportation Improvement
                        Program, a multi-year financially constrained list of proposed transportation projects
                        developed by a tribe from the tribal priority list or the long-range transportation plan,
                        because the appropriation was not for the Indian Reservation Road program.




                        Page 19                                                    GAO-12-559 Kachemak Bay Ferry
Figure 5: Timeline of Ferry Project Federal Appropriations and Grants, and Transfer
of Funds to the Seldovia Village Tribe, by Fiscal Year




Note: The fiscal years 2005 and 2006 appropriations were subject to rescissions that made available
less than the full amount of the appropriation. In addition, BIA retained $33,000 of the fiscal year 2004
appropriation for oversight, such as travel and other agency administrative expenses associated with
the project, and $120,000 of the fiscal year 2005 appropriation, even though this funding was
provided to the tribe under a self-governance compact and not a self-determination contract.




Page 20                                                            GAO-12-559 Kachemak Bay Ferry
DOT Transferred              DOT’s annual appropriation acts made available a total of $9 million for a
Appropriations to Interior   ferry serving four Kachemak Bay ports as follows:
and Did Not Oversee the
                             •     Fiscal year 2004. Section 115 of Division F of the Consolidated
Ferry Project                      Appropriations Act, 2004, appropriated funding for a Kachemak Bay
                                   ferry by incorporating a provision of the managers’ statement by
                                   reference. 6 The managers’ statement identifies $2 million for the
                                   “Seldovia-Homer-Jakolof Bay-Halibut Cove Ferry planning and
                                   design, Alaska.” 7

                             •     Fiscal year 2005. Section 117 of Division H of the Consolidated
                                   Appropriations Act, 2005, appropriated funding for a Kachemak Bay
                                   ferry by incorporating a provision of the managers’ statement by
                                   reference. 8 The managers’ statement identifies $6 million for the
                                   “Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry, Alaska.” 9

                             •     Fiscal year 2006. Section 113 of Division A, Title I of the
                                   Transportation, Treasury, Housing and Urban Development, the
                                   Judiciary, and Independent Agencies Appropriations Act, 2006,
                                   appropriated funding for a Kachemak Bay ferry by incorporating a
                                   provision of the managers’ statement by reference. 10 The managers’
                                   statement lists $1 million for the “Homer-Halibut Cove-Jakolof Bay-
                                   Seldovia Ferry, AK.” 11

                             The appropriation acts and the associated managers’ statements did not
                             provide any specific description of the ferry to be constructed or its
                             operations. In addition, the funds for constructing the ferry, appropriated
                             in fiscal years 2005 and 2006, were appropriated before completion of


                             6
                              Pub. L. No. 108-199, div. F, § 115, 118 Stat. 3, 294-95 (2004). Division F is the
                             Transportation, Treasury & Independent Agencies Appropriations Act, 2004.
                             7
                              H.R. Rep. No. 108-401, at 960 (2003).
                             8
                              Pub. L. No. 108-447, div. H, § 117, 118 Stat. 2809, 3212-13 (2004). Division H is the
                             Transportation, Treasury, Independent Agencies, and General Government
                             Appropriations Act, 2005.
                             9
                              H.R. Rep. No. 108-792, at 1403 (2004).
                             10
                               Pub. L. No. 109-115, div. A, tit. I, § 113, 119 Stat. 2396, 2407 (2005). Division A is the
                             Transportation, Treasury, Housing, and Urban Development, the Judiciary, the District of
                             Columbia, and Independent Agencies Appropriation Act, 2006.
                             11
                                 H.R. Rep. No. 109-307, at 158 (2005).




                             Page 21                                                     GAO-12-559 Kachemak Bay Ferry
ferry planning and design, funded in fiscal year 2004. The design and
operating studies were not completed until May 2007 and March 2009,
respectively.

The fiscal years 2004 and 2005 appropriations acts provided that the
appropriated funds may, at the request of the state, be transferred by the
Secretary of Transportation to another federal agency to carry out the
identified project. According to DOT and Alaska state officials, the state of
Alaska notified DOT that it did not want to administer the funds for the
tribe’s ferry project or provide them to the tribe as a subrecipient and
asked that a federal agency administer the funds. 12

As a result, BIA and DOT officials agreed to use the process already
established for the jointly administered Indian Reservation Roads
Program as a means of providing the ferry funding to the tribe. The
allocations were executed under the Indian Reservation Roads Program
Stewardship Plan, a 1996 agreement between DOT’s Federal Highway
Administration and BIA that, as of March 2012, was being revised and
updated. In keeping with this agreement, DOT allocated a total of about
$8.7 million in ferry project appropriations to the BIA Division of
Transportation as follows: 13

•    In March 2005: $2,000,000 of the fiscal year 2004 appropriation.

•    In June 2005: $3,968,000 of the fiscal year 2005 appropriation.

•    In March 2006: $1,935,569 of the fiscal year 2005 appropriation.

•    In July 2006: $787,757 of the fiscal year 2006 appropriation. 14




12
  According to Alaska state officials, they did not want to provide the tribe with the funding
as a subrecipient because the state would be responsible for overseeing the tribe’s use of
the funds.
13
   The fiscal years 2005 and 2006 appropriations were subject to rescissions that made
available less than the full amount of the appropriation for transfer to BIA.
14
  This allocation letter to BIA identified the route, location, and work type as the Homer-
Halibut Cove-Jakolof Bay-Seldovia Ferry—“Kachemak Bay Ferry” (Kbay), Kenai
Peninsula Borough—construction of ferry and ferry terminal facilities. Except for this letter,
the allocation letters to BIA only repeated the language from the managers’ statements
and did not include any additional information on the nature and scope of the ferry.




Page 22                                                     GAO-12-559 Kachemak Bay Ferry
                            According to DOT officials, the fiscal years 2004 and 2005 funding was
                            transferred to BIA pursuant to the transfer authority in the appropriations
                            acts. We discuss these transfers in the legal opinion presented in
                            appendix I. DOT officials also told us that the agency did not have any
                            oversight responsibility for the project after transferring these funds to
                            BIA. However, the Chief of BIA’s Division of Transportation told us that
                            because the funding was not for an Indian Reservation Roads project or a
                            transportation project on federal land, transferring the funds to BIA did not
                            transfer oversight responsibility for the project to BIA; oversight
                            responsibility remained with DOT.


Interior Provided Ferry     After receiving the funds from DOT, BIA provided the fiscal year 2004
Funding for the Tribe to    appropriation to the tribe under a self-determination contract and the
Administer Without Any      fiscal years 2005 and 2006 appropriations under the tribe’s self-
                            governance compact. In total, BIA provided the tribe with a little over
Specific Design or          $8.5 million as follows:
Operation Limitations and
Had No Decision-Making      •    From the fiscal year 2004 appropriation, $1,967,000 for ferry planning
Role for the Project             and design, provided by BIA’s Division of Transportation to BIA’s
                                 Alaska Region for obligation to the tribe in the annual funding
                                 agreement to a self-determination contract, awarded in July 2005. 15

                            •    From the fiscal year 2005 appropriation, $1,935,569 provided by BIA’s
                                 Division of Transportation in the tribe’s Fiscal Year 2006 Annual
                                 Funding Agreement, Kachemak Bay Ferry Program Addendum, to the
                                 tribe’s self-governance compact in May 2006.

                            •    From the fiscal year 2005 appropriation, $3,848,000 provided by BIA’s
                                 Division of Transportation to Interior’s Office of Self-Governance in the
                                 tribe’s Fiscal Year 2007 Annual Funding Agreement, Kachemak Bay
                                 Ferry Program Addendum, to the tribe’s self-governance compact in
                                 July 2007. 16




                            15
                              BIA retained $33,000 of the fiscal year 2004 appropriation for oversight, such as travel
                            and other agency administrative expenses associated with the project.
                            16
                              Even though this funding was provided to the tribe under a self-governance compact
                            and not a self-determination contract, BIA retained $120,000 of the fiscal year 2005
                            appropriation.




                            Page 23                                                    GAO-12-559 Kachemak Bay Ferry
•    From the fiscal year 2006 appropriation, $787,757 provided by BIA’s
     Division of Transportation to Interior’s Office of Self-Governance in the
     tribe’s Fiscal Year 2007 Annual Funding Agreement, Kachemak Bay
     Ferry Program Addendum, to the tribe’s self-governance compact in
     July 2007.

Officials from BIA’s Alaska Region, told us that the $1,967,000 self-
determination contract for ferry planning and design was administered as
part of its Indian Reservation Roads Program, but that neither the ferry
project nor the funding actually fell under this program. As a result,
according to BIA’s current regional transportation director, the project did
not undergo the BIA and the Federal Highway Administration’s Indian
Reservation Roads Program review and approval process for inclusion in
the tribe’s Tribal Transportation Improvement Program—the document
that specifies the allowable activities for a project—and BIA did not
identify Indian Reservation Roads regulations as applicable in the tribe’s
contract. Nevertheless, the Alaska Region did assign an awarding official
to provide oversight, as it normally would for an Indian Reservation Roads
project, with oversight responsibilities focused on ensuring that the ferry
was built to specifications, that it met all safety and health requirements,
and was a seaworthy vehicle.

The village corporation, which administered the project, provided BIA’s
Alaska Region awarding official with quarterly status reports from 2005
through early 2009 and the contract file contains documentation of some
oversight, such as site visits and attendance at meetings by the awarding
official. This documentation demonstrates that the village corporation kept
the awarding official apprised of the status of the project and the reasons
that it would likely produce a ferry that differed significantly from what was
originally proposed. As reported by Interior’s Office of Inspector General
in July 2009, the Alaska Region awarding official did not act to object or
provide any guidance or direction to the tribe regarding changes in the
project. 17 BIA’s current regional transportation director noted that this
contract was for planning, not construction of the ferry, and the tribe used
the money to conduct a study. In commenting on our report draft, BIA
stated that because a feasible alternative existed, abandonment of the
project was not considered to be consistent with the intent of Congress,
and that the Alaska Region met its oversight responsibility for the ferry.


17
 Department of the Interior, Office of Inspector General, Report of Investigation: Seldovia
Ferry, OI-OR-09-0225-I (Portland, Ore: July 27, 2009).




Page 24                                                   GAO-12-559 Kachemak Bay Ferry
The self-determination contract was finally closed at the tribe’s request in
March 2011.

In addition to the nearly $2 million self-determination contract, Interior
provided about $6.5 million to the tribe in the fiscal years 2006 and 2007
ferry project funding agreements under its self-governance compact. BIA
allocated funding to the tribe under the fiscal year 2006 funding
agreement, and Interior’s Office of Self-Governance administered the
fiscal year 2007 funding agreement. Interior’s authority to oversee these
self-governance compacts was limited because compacts transfer control
over program funding and decision making to tribes, provide the tribes
with meaningful authority to plan and administer programs, and generally
allow for limited oversight by Interior. According to the Chief of BIA’s
Division of Transportation, BIA’s Alaska Region was responsible for
providing technical oversight and assistance for transportation projects
but that BIA can do little given the authority of tribes to operate their own
programs and projects under self-governance compacts. Although the
Alaska Region Office awarding official for the self-determination contract
continued to receive quarterly status reports from the village corporation
while the project was funded under the tribe’s self-governance compact
because the self-determination contract had not yet been closed, he did
not act to provide any oversight or direction to the tribe regarding the
project.

Furthermore, according to Interior’s Director of the Office of Self-
Governance, the Kachemak Bay Ferry Program Addendum to the Fiscal
Year 2007 Annual Funding Agreement, makes it clear that the Alaska
Region was responsible for oversight of the project and that the Office of
Self-Governance was responsible only for administering the transfer of
funds to the tribe. Moreover, according to Office of Self-Governance
officials, they do not have sufficient staff to provide oversight to the
programs they fund and, specifically, do not have engineers on staff to
provide oversight for transportation projects. The officials noted that
participation in self-governance requires tribes to conduct a single
organizationwide audit as prescribed under the Single Audit Act. Our
review showed that the tribe received an unqualified opinion in each of




Page 25                                          GAO-12-559 Kachemak Bay Ferry
the years that it reported expenditures of federal ferry boat funding, from
fiscal year 2005 through fiscal year 2009. 18

In 2009, following up on concerns about mismanagement in BIA’s Alaska
Region, Interior’s Inspector General issued a report on the region’s Indian
Reservation Roads Program. The report provided examples of projects
that the Inspector General was told may have involved mismanagement
and the potential loss or theft of funds, including the Kachemak Bay ferry
project. 19 It was alleged that the intent of the ferry project had been
arbitrarily changed, without approval from BIA, from addressing the
community’s transportation needs to creating an avenue of tourism
revenue. Interior’s Inspector General jointly investigated the ferry project
with DOT’s Office of Inspector General and issued its findings in July
2009. The report concluded, among other things, that (1) the tribe’s use of
the funds did not conflict with the language of the appropriations; (2) the
project’s changes in scope were allowed under the tribe’s annual funding
agreements; (3) BIA was informed of the changes but did not attempt any
corrective action; and (4) because the tribe had notified BIA of changes to
the project, any proposed misapplication of funds would be due to BIA’s
lack of oversight.

According to Interior officials, BIA has changed its procedures since the
Inspector General’s report, and it no longer provides funding to tribes via
self-determination contracts or self-governance compacts for projects it


18
  Pub. L. No. 98-502 (1984), amended by Pub. L. No. 104-156 (1996), codified as
amended at 31 U.S.C. §§ 7501-7507. The purpose of the Single Audit Act of 1984, as
amended, is, among other things, to promote sound financial management, including
effective internal controls, with respect to federal awards administered by nonfederal
entities. Under the act, certain nonfederal entities—such as a state, local government,
Indian tribe, or nonprofit organization—that expend $500,000 or more in federal awards in
a year must have an audit conducted in accordance with Office of Management and
Budget Circular No. A-133 and submit a report regarding the audit to the Federal Audit
Clearinghouse Single Audit Database. The U.S. Census Bureau, in the Department of
Commerce, maintains the database, which contains summary information on completed
single audits, including information on the auditor, the recipient and its federal programs,
and the audit results. The database is available for agency and public access at
https://harvester.census.gov/fac/. An unqualified opinion states that the financial
statements present fairly in all material respects the financial position, results of
operations, and cash flows of the entity in conformity with generally accepted accounting
standards.
19
  Department of the Interior, Office of Inspector General, Flash Report: BIA Alaska
Regional Indian Reservation Roads Program Rife with Mismanagement and Lacking
Program Oversight, WR-IV-BIA-0001-2009 (Washington D.C.: Feb. 9, 2009).




Page 26                                                    GAO-12-559 Kachemak Bay Ferry
                           would not normally undertake under its Indian Reservation Roads
                           Program. According to the Chief of BIA’s Division of Transportation, tribes
                           prefer that their Indian Reservation Roads funding and their funding from
                           other sources, such as federal aid highways appropriations, be included
                           in their self-determination contracts and self-governance compacts
                           because these agreements allow them greater control over their
                           transportation projects. However, the Chief told us that he now consults
                           with Interior’s Office of the Solicitor to determine if non-Indian Reservation
                           Roads funding is for a project that the Secretary of the Interior would
                           normally perform for tribes—that is, as part of the Indian Reservation
                           Roads Program—thereby making it eligible for inclusion in a self-
                           determination contract or self-governance compact. If not, according to
                           the Chief and a Solicitor’s Office attorney, BIA transfers the funding
                           through an alternative agreement, which provides the funding to the tribe
                           but disclaims Interior from having responsibility for the project and places
                           responsibility for the project with, for example, the state and DOT’s
                           Federal Highway Administration for federal aid-highway funding.
                           According to the Chief, this alternative agreement has so far been used
                           for several projects that were determined not to meet the definition of an
                           Indian Reservation Roads Program project or were deemed otherwise
                           inappropriate for inclusion in the program under a self-determination
                           contract or self-governance compact.


FTA Awarded the Tribe      FTA awarded the tribe two Tribal Transit Program grants as follows:
Grants for the Ferry and
Exercised Minimal          •    Fiscal year 2009 American Recovery and Reinvestment Act funding:
                                $475,000 grant for Homer dock upgrades, awarded in June 2010, 20
Oversight over Their Use
                           •    Fiscal year 2009 Tribal Transit Program funding: $200,000 grant for
                                ferry boat operations, awarded in December 2010.

                           According to FTA’s grant documentation, the $475,000 grant was
                           requested by the tribe to construct and install improvements to Homer’s
                           small-boat harbor, including new piers, a gangway, and related


                           20
                             The American Recovery and Reinvestment Act of 2009 was enacted on February 17,
                           2009, in response to what is generally reported to be the most serious economic crisis
                           since the Great Depression. The purposes of the Recovery Act include promoting
                           economic recovery, making investments, and minimizing and avoiding reductions in state
                           and local government services.




                           Page 27                                                GAO-12-559 Kachemak Bay Ferry
                        infrastructure for the ferry terminal and moorage, to facilitate the safe
                        loading and unloading of passengers and light freight to and from the
                        ferry. The $200,000 grant was requested by the tribe to provide operating
                        assistance for ferry service between Homer and Seldovia, beginning
                        approximately May 1, 2010, with peak service estimated to occur
                        between Memorial Day and Labor Day, running approximately 4 to 5 days
                        per week with two trips per day. FTA Region X and other agency officials
                        reviewed the tribe’s applications and recommended them for funding, with
                        the final approval decision made by the Administrator of FTA and the
                        Secretary of Transportation. 21 FTA officials told us that given the agency’s
                        staffing structure, its oversight approach does not rely on visiting every
                        grant site to assess compliance with grant terms. Instead the agency
                        uses a risk-based process to identify an oversight approach. Based on
                        the nature of the grants to the tribe, FTA chose to review quarterly reports
                        for the $475,000 dock construction grant and annual reports for the
                        $200,000 ferry operation grant.


The Army Corps of       The tribe received no funds from the U.S. Army Corps of Engineers
Engineers Provided      (Corps), but the Corps was responsible for reviewing and approving the
No Funding but Issued   tribe’s River and Harbors Act section 10 permit applications for dock
                        construction in both Homer and Seldovia. Section 10 of the River and
Required Permits for    Harbors Act requires that a Corps permit be obtained for certain
Dock Construction       structures or work in or affecting navigable waters of the United States
                        before work begins, although the Corps does not oversee the actual
                        design or construction of projects for which it issues permits. Officials in
                        the Corps’ Kenai field office approved the tribe’s permit applications on
                        February 26, 2010, with both permits specifying that dock construction
                        work was to occur from March through April 2010, the time frame
                        requested by the tribe. Documentation in the Corp’s permit files show that
                        the village corporation’s consultant informed the Corps in March and
                        again in May 2010 that the dock construction work would not take place
                        during this permitted work window. On both occasions, the Corps
                        instructed the consultant to submit a modification request for the permits
                        because the permits were not valid for work outside of March and April
                        2010, but, according to a Corps official, no modification request was
                        submitted.




                        21
                         FTA Region X covers Alaska, Idaho, Oregon, and Washington.




                        Page 28                                             GAO-12-559 Kachemak Bay Ferry
Corps officials learned in November 2010 that both docks were actually
constructed from July through September 2010, outside the permitted
work window. In addition, the officials learned that the Homer dock as
constructed deviated from the dock as permitted. The Corps, in
December 2010, sent the tribe notices of alleged noncompliance. The
tribe acknowledged that the construction did occur outside the permitted
work window but considered the discrepancy a “clerical error,” since the
Corps was aware of the delayed construction, and the permits’ time limit
for completing the work was February 28, 2015. Corps officials told us
that they did not take further action on the noncompliance with the
permitted work window because there was no indication of any impact on
marine mammals and fish populations. To resolve the dock construction
noncompliance, the Corps approved an after-the-fact permit modification
and did not require removal of the dock.

Documentation from the Corps’ files shows that it received a permit
modification request from the tribe in November 2010 to reorient the
Seldovia dock for safety reasons because incoming storms were
damaging it. The Corps informed the tribe on November 30, 2010, that
the modification request would not be evaluated until the permit
noncompliance issues were resolved. The permit noncompliance for the
Seldovia dock was resolved on March 9, 2011, via a letter informing the
tribe that no further action would be taken regarding the permit
noncompliance issues on the Seldovia dock. The Corps’ March 9, 2011,
letter to the tribe also requested that the tribe provide information needed
to make its November 2010 permit modification request complete. The
tribe contacted the Corps about the Seldovia dock in July and September
2011; as of March 27, 2012, however, the tribe had not submitted a
completed permit modification application. Corps approval of the permit
modification is required before the tribe can lawfully proceed with
reorienting the Seldovia dock.




Page 29                                          GAO-12-559 Kachemak Bay Ferry
                             The operation of the Kachemak Voyager has raised a number of
Concerns and                 concerns and challenges regarding the consequences and viability of its
Challenges Exist             continued operation. Specifically, private tour operators told us that they
                             are concerned that the ferry competes directly with their long-established
Regarding Continued          businesses and will continue to negatively affect them, and the tribe faces
Ferry Operations             challenges meeting the projected milestone for the ferry to become
                             financially self-sustaining. In addition, FTA officials raised concerns about
                             the tribe’s compliance with grant requirements and the tribe has taken
                             corrective actions to resolve them. Given these challenges and concerns,
                             should the tribe choose to sell or dispose of the ferry in the future, neither
                             DOT nor Interior officials have taken steps to prepare for a potential sale.


Local Tour Boat Operators’   Local private tour boat operators have raised concerns that the
Concerns About Ferry         Kachemak Voyager duplicates services between Homer and Seldovia
Competition                  and competes with their businesses. Like private tour operators, the
                             Kachemak Voyager operates only during the peak summer tour season,
                             and it follows an extended scenic route for wildlife viewing and
                             sightseeing, as shown in figure 6, on two out of three daily trips from
                             Homer to Seldovia. Like tour operators and the state ferry, on the
                             remainder of its trips between the two ports, the Kachemak Voyager
                             follows the direct ferry route. The Kachemak Voyager and private tour
                             boats are similarly capable of carrying light freight and transporting more
                             than 50 passengers per trip; the state ferry also has those capabilities,
                             plus the additional capability to carry heavier freight and vehicles.




                             Page 30                                           GAO-12-559 Kachemak Bay Ferry
Figure 6: Extended and Direct Kachemak Bay Ferry Routes from Homer to Seldovia




One of the concerns raised by the private tour boat operators is that the
tribe can offer significantly discounted fares for the Kachemak Voyager
because of the federal assistance that the tribe receives. According to
documentation provided by the tribe, the Kachemak Voyager has offered
a variety of discounts and promotions to attract local commuter and
tourist business. For example, during the 2011 season, the regular adult
fare for a round-trip on the Kachemak Voyager was $64, but many
passengers paid discounted fares because of the more than
25 promotions and discounts offered during the 2011 season. Also during
the 2011 season, Seldovia residents and village corporation stockholders
were eligible to receive a “local” discounted fare of $22 each way. During
this same time, tourists were offered “two for the price of one” ticket
discounts for the Kachemak Voyager in a coupon booklet promoting
Alaska tourism, which would equate to $32 round-trip per person. In



Page 31                                           GAO-12-559 Kachemak Bay Ferry
                            contrast, after taking into account all of their costs, the lowest advertised
                            rate private tour operators could offer that year was $30 one-way and
                            $45 round-trip.

                            The two private tour operators providing service between Homer and
                            Seldovia during peak season told us that the direct competition from the
                            Kachemak Voyager has negatively affected their businesses. They stated
                            that competition from the Kachemak Voyager in the last two operating
                            seasons has caused their combined ridership to decline by roughly 30 to
                            40 percent. Moreover, even though fuel prices have risen significantly in
                            recent years, they told us that they cannot raise their ticket prices to offset
                            the additional cost and remain competitive with the Kachemak Voyager.
                            Both of these tour boat operators told us that they plan to alter their
                            operations for 2012 because of the competition from the tribe’s ferry. One
                            operator told us that his company will shift tour boat departure and return
                            times as needed to maximize his market share, and the other operator
                            told us that he plans to eliminate one of his two round-trips from Homer to
                            Seldovia. Both operators were concerned about their ability to continue to
                            operate their businesses in the future. According to the tribe, declines in
                            sales for the two tour boat operators may not be solely because of
                            competition from the Kachemak Voyager, citing national economic
                            conditions that have contributed to a statewide decline in tourism in 2010
                            and 2011. 22


Ferry Operations Are Not    Given the differences between assumed ferry operations and actual ferry
Financially Sustainable     operations, it is highly unlikely that the ferry will become self-sustaining
without Ongoing Subsidies   within four seasons as projected by the village corporation. Instead, the
                            ferry is likely to need significant and increasing subsidies into the future to
                            continue operating. According to the corporation’s 2009 study of
                            operational options for the project, the Kachemak Voyager was projected


                            22
                              One of the private tour operators provided us with ridership information from 2003
                            through 2011 to document the effect of the Kachemak Voyager on his business. The other
                            operator told us that the effect on his business was similar but was not able to provide us
                            with documentation because he was out of the country while we were collecting these
                            data. The tribe provided us with ridership information from the City of Seldovia, which in its
                            opinion shows that the ridership of the private tour operators had increased from 2009 to
                            2010 and 2011, while also stating that any losses reported by the private tour operators
                            were likely, in part, due to the poor economy. We have not included total ridership
                            numbers from either source in the report because we were unable to independently verify
                            their accuracy and our review of the data collected by the City of Seldovia indicates that
                            these data are neither complete nor reliable especially prior to 2010.




                            Page 32                                                     GAO-12-559 Kachemak Bay Ferry
to turn a profit by its fourth season (in 2013), given certain expected
operating parameters. Actual ferry operating parameters during the first
two seasons, however, differed greatly from what was assumed in the
2009 study, and the passenger counts anticipated in the study did not
materialize. As shown in table 2, during the first two seasons of operation,
the Kachemak Voyager ran more than three times the number of one-way
trips as the 2009 study assumed for the first 2 years of operation. At the
same time, passenger counts per one-way trip during this period were
much lower than anticipated. In fact, ferry records for the first season
indicate that 44 one-way trips were made with no paying customers, only
crew and occasional light freight.

Table 2: Assumed and Actual Ferry Operating Parameters

 Ferry operating
 parameters                       Assumed                  Actual (first two seasons)
 Scheduled days per week          4                        7
 Trips per day                    4                        6
 Days per year                    60 in 2010 and 2011      132 average for 2010 and 2011
 Average passengers per trip      39 in 2010; 47 in 2011   13 in 2010; 14 in 2011
 Fuel cost (annual average)       $5.70 per gallon         $3.05 in 2010; $3.97 in 2011
Source: Seldovia Village Tribe.


To examine the impact of the changed parameters on the ferry’s financial
performance, we reassessed the financial projections made by the village
corporation’s 2009 study on the basis of the ferry’s actual performance
over the 2010 and 2011 seasons. Our analysis used the same
methodology as the 2009 study, except that we used actual performance
data for 2010 and 2011, where available, and we assumed for the 2012
and 2013 seasons that (1) the passenger counts per trip would increase
at the same rate as from 2010 to 2011 and (2) the number of trips per day
would continue at the same level as in 2011. Figure 7 shows the results
of our analysis compared with the village corporation’s projections. The
2009 study projected that the ferry’s operation would turn a profit and
become self-sustaining by 2013, but our analysis shows that by 2013 the
ferry is likely to still be operating at a loss. The ferry’s continued
operational loss results primarily from rising costs, particularly for fuel,
and also in part because of fewer passengers per trip and the addition of
more trips per day compared with the assumptions used in the 2009




Page 33                                                    GAO-12-559 Kachemak Bay Ferry
study. 23 Neither the village corporation’s 2009 study nor our adjusted
projections included any allowance for depreciation of capital assets or
recovery of the capital cost of the ferry. If such an allowance had been
made, it would have substantially increased the estimated annual losses
from ferry operations.

Figure 7: Projected Kachemak Voyager Financial Performance and Reanalysis,
2010-2013 Operating Season




Note: Graph compares the village corporation’s 2009 projections of the Kachemak Voyager’s financial
performance with our analysis based on the ferry’s actual performance parameters in 2010 and 2011.




23
   The 2009 study assumed growth in some cost items, but some costs, such as wages
and fuel, remained unchanged over the 2010 to 2013 seasons. But, as reported by the
tribe, the average price of fuel purchased over the 2010 to 2011 seasons rose from $3.05
to $3.97, or by about 30 percent. For our analysis, we assumed this same percentage
increase in fuel prices over the 2012 and 2013 seasons.




Page 34                                                        GAO-12-559 Kachemak Bay Ferry
                           Tribal officials told us they expect the ferry to need ongoing subsidies to
                           continue operating. They noted that the ferry’s operating costs have
                           increased because of two costly and unanticipated ferry repairs. Although
                           these costs are not expected to recur in the future, they had a significant
                           impact on operating costs in 2010 and 2011. According to tribal officials,
                           they may also take cost-cutting measures during the 2012 season to
                           reduce operating expenses. For example, according to the 2012
                           operating schedule on the ferry’s website as of mid-April, the ferry will
                           operate four direct one-way trips between Seldovia and Homer starting on
                           May 3 and is not offering extended sightseeing trips. The ferry is
                           scheduled to operate an average of 5 days per week—with no service
                           most Tuesdays and Wednesdays—and service will end after the first
                           week of September 2012. Fares are decreased from the 2011 season,
                           with full-priced tickets for passengers ages three and over costing
                           $23 each way. Nevertheless, even with reduced operating costs, tribal
                           officials expect that the ferry will need ongoing subsidies to continue
                           operations.


The Tribe Did Not Comply   According to FTA officials, the tribe did not comply with the requirements
with Its FTA Grant         of the FTA Tribal Transit Program grants that it received in 2010 for the
Requirements but Has       Homer dock upgrades and ferry operating expenses because it did not
                           obtain FTA approval for “incidental use” of the ferry for sightseeing. The
Taken Corrective Action    tribe has since taken corrective actions to resolve FTA’s concerns. Tribes
                           can use Tribal Transit Program grants for operating costs of equipment
                           and facilities used in public transportation, which is defined as
                           transportation by a conveyance that provides regular and continuing
                           general or special transportation to the public but not charter or
                           sightseeing transportation, among other exclusions. FTA does permit
                           “incidental use” of FTA-funded equipment and facilities for purposes other
                           than public transportation, such as sightseeing, although FTA must
                           provide prior approval of such incidental use. According to agency
                           guidance, FTA will approve requests for incidental use if such use will not
                           interfere with the grantee’s public transportation operations, the grantee
                           fully recaptures the costs of the incidental use from the nontransit public
                           or private entity, the grantee uses revenues received from the incidental
                           use to pay for public transportation expenses, and private entities pay all
                           applicable excise taxes on fuel.

                           FTA Region X officials told us they initially became concerned about the
                           tribe potentially using its grants for nonpublic transportation purposes
                           because the tribe’s applications described an extended scenic route
                           followed by the Kachemak Voyager on some trips. FTA Region X officials


                           Page 35                                         GAO-12-559 Kachemak Bay Ferry
told us that because of their concerns—and because the tribe was
applying for the first time for Tribal Transit Program grants—they included
the following language in both of the grants to ensure that the tribe was
aware of the incidental use requirements:

“…funds awarded under this grant shall be used solely for public transportation purposes.
Any activities not considered public transportation, such as sightseeing, may not benefit
from the use of these funds unless prior written approval by FTA is obtained for such
incidental use.”

According to the FTA officials, by accepting the grants, the tribe certified
that it would comply with all of the grants’ requirements, including the
requirement to obtain prior approval for incidental use. The officials told
us that even if the tribe segregated the grants from other funding and
used them only for operating expenses incurred on the direct route
between Homer and Seldovia, it still needed prior FTA consent for
incidental use to run on the indirect route. According to the officials,
however, the tribe did not request approval for incidental use.

In September 2011, we met with FTA Region X officials and shared our
concerns about the potential noncompliance with FTA’s grant
requirements by the tribe because of the Kachemak Voyager’s indirect
scenic route. After gathering additional information, FTA sent a letter to
the tribe in December 2011 regarding the grants, noting that the grants
limited the use of the funds to public transportation services and that
sightseeing may not benefit from the use of the grant unless prior written
approval was obtained from FTA for such incidental use. FTA cited the
Kachemak Voyager’s two daily extended trips for wildlife viewing and its
advertised charter service as examples of incidental use. FTA notified the
tribe that it must request written approval from FTA for future incidental
use if it plans to continue the extended route, as well as for each charter it
runs, and asked the tribe to document that the $200,000 operating grant
was used for allowable costs, noting that failure to do so could result in a
request for repayment and affect the evaluation of future grant
applications. According to FTA officials, the tribe replied with a letter in
January 2012 stating that it will operate only direct runs in 2012 and has
neither provided charter services nor plans to offer charter services in the
future. In addition, the tribe submitted documentation of enough eligible
costs to justify its grant disbursements, and FTA does not plan to request
that the tribe repay any grant funds. The tribe applied for another FTA
grant in 2011 to subsidize its 2012 operations, but, according to FTA
officials, the grant was not approved because of a large number of higher-
priority applications from other entities.


Page 36                                                  GAO-12-559 Kachemak Bay Ferry
The Disposition of Sale      Given the potentially unsustainable operating costs of the Kachemak
Proceeds Is Unclear If the   Voyager without significant subsidies, should the tribe choose to sell the
Tribe Sells the Ferry        ferry in the future instead of continuing to operate it at a loss, it is unclear
                             what would happen with the proceeds. Neither DOT nor Interior has
                             definitively identified what statutory provisions would govern the sale. In
                             addition, neither agency has taken any steps to prepare for the potential
                             sale of the ferry.

                             Generally, federal participation in the construction of ferry boats and ferry
                             terminal facilities is subject to the following requirement regarding the
                             disposition of a ferry:

                             “No such ferry shall be sold, leased, or disposed of without the approval of the Secretary
                             of Transportation. The Federal share of any proceeds from such a disposition shall be
                             credited to the unprogrammed balance of Federal-aid highway funds of the same class
                             last apportioned to such State. Any amount so credited shall be in addition to all other
                             funds then apportioned to such State and available for expenditure in accordance with the
                             provisions of this title.” 24

                             The funds that Interior provided to the tribe for the ferry may be subject to
                             this requirement. The fiscal years 2006 and 2007 annual funding
                             agreements providing funds to the tribe under its self-governance
                             compact incorporate this requirement by reference, so the funds could be
                             subject to it. Traditionally, only states have received federal funding for
                             ferry boats and ferry terminal facilities, so determining where to credit the
                             federal share of the proceeds has been relatively clear. In this instance,
                             however, the funding for the ferry was not apportioned to a state, thereby
                             complicating where the proceeds should be credited.

                             DOT, however, does not believe that this provision applies to the funding
                             because the funding was made pursuant to general provisions in DOT’s
                             annual appropriations act, the appropriations acts made the funding
                             available notwithstanding any other provision of law, and neither DOT nor
                             a state awarded the funding to the tribe. Instead, DOT maintains that the
                             funding provided to the tribe for the ferry is subject to governmentwide
                             common grants requirements, including the disposition of property
                             requirements codified in 49 C.F.R. § 18.32(e). It is unclear, however,
                             whether these common grant requirements apply to funding the tribe



                             24
                              23 U.S.C. § 129(c)(6).




                             Page 37                                                   GAO-12-559 Kachemak Bay Ferry
              received because the funding was provided through a self-determination
              contract and self-governance compact. 25 If these requirements do apply,
              the ferry would still face legal uncertainties. For example, under the grant
              requirements, the federal agency awarding the grant has a right to a
              certain amount of the boat’s current market value or sale proceeds when
              equipment acquired with grant funds is no longer needed for the original
              project. Moreover, the grant requirements generally prohibit grant
              recipients from using equipment acquired with grant funds to provide
              services for a fee to compete unfairly with private companies that provide
              equivalent services.

              In addition, neither DOT nor Interior has taken any steps to prepare for
              the potential eventuality of the tribe selling the ferry, such as assessing
              how the requirement regarding the disposition of the ferry would be
              implemented in this unique situation. In fact, the agencies do not agree on
              which agency is responsible for ensuring that the tribe complies with
              applicable sale requirements. For example, Federal Highway
              Administration officials told us that the agency routinely takes steps to
              ensure that the federal share is credited to the appropriate account when
              a ferry boat is disposed of by the funding recipient, but in this case BIA
              would be responsible in accordance with the Federal Highway
              Administration’s transfer of the funds to BIA under the Indian Reservation
              Roads Program Stewardship Plan.


              Interior and DOT faced unusual challenges in funding and overseeing the
Conclusions   unique Kachemak Bay ferry project within the framework of their existing
              transportation program. The history of the Kachemak Voyager illustrates
              the need for collaboration between federal, state, local, and tribal entities
              to ensure that tribal transportation projects achieve their objectives and
              meet community needs, particularly when the project is unique and has
              an unusual funding source. Collaboration was limited in this case
              because the funding for the ferry project came from appropriations that
              were not effectively managed within the framework of existing agency
              transportation program policies and procedures. The state of Alaska,
              DOT, BIA, and the tribe chose to handle the appropriations in accordance
              with the established process for Indian Reservation Roads Program
              funds. Even though BIA will no longer provide funding to tribes through



              25
               See 25 U.S.C. § 450k(a)(1), 25 C.F.R. § 1000.220.




              Page 38                                              GAO-12-559 Kachemak Bay Ferry
                     self-determination contracts and self-governance compacts for projects
                     that it would not normally undertake under the Indian Reservation Roads
                     Program, in this case, the tribe received funds through such a contract
                     and compact, which enabled it to proceed with constructing a ferry that
                     differed significantly from what it originally proposed. The resulting ferry
                     did not meet local communities’ expectations or needs for year-round
                     daily vehicle ferry service to multiple ports, and it is questionable whether
                     the ferry will achieve the objective of encouraging economic development
                     for the communities, since it duplicates existing transportation options and
                     competes with existing businesses. Furthermore, if the Kachemak
                     Voyager stops operating and is sold, it is unclear what should happen to
                     the proceeds of the sale.


                     In preparation for a potential sale of the Kachemak Voyager, we
Recommendation for   recommend that the Secretary of the Interior direct the Assistant
Executive Action     Secretary for Indian Affairs, and that the Secretary of Transportation
                     direct the Federal Highway Administrator, to collaborate in determining
                     the applicability of 23 U.S.C. § 129(c)(6)’s requirement or any other legal
                     requirements regarding disposition of ferries. If the requirement of
                     23 U.S.C. § 129(c)(6) is applicable, (1) identify which agency will assume
                     responsibility for having the federal share of proceeds credited, including
                     notifying the tribe of what steps to take if it wants to sell or dispose of the
                     ferry, and (2) determine what constitutes the federal share of sale
                     proceeds. If another legal requirement is applicable, determine which
                     agency will assume responsibility for ensuring that the tribe complies
                     with it.


                     We provided a copy of our report to the Departments of Defense, the
Agency and Third     Interior, and Transportation and to the Seldovia Village Tribe for review
Party Comments and   and comment. The Department of Defense did not provide comments.
                     The Department of the Interior agreed with our recommendation and
Our Evaluation       provided technical comments which we incorporated as appropriate.
                     (See app. II for Interior’s written comments.) Interior emphasized that the
                     Alaska Region was responsible for oversight of the tribe’s ferry project
                     under the contract and compact. The Alaska Region’s oversight was
                     focused on ensuring that the ferry was built to specifications, that it met all
                     safety and health requirements, and was a seaworthy vessel. The tribe
                     did not obtain the funding needed for its initial proposal but identified a
                     feasible alternative; therefore, Interior did not consider abandonment of
                     the project to be consistent with the intent of Congress. Interior believes
                     that the Alaska Region fulfilled its oversight responsibility for the ferry


                     Page 39                                            GAO-12-559 Kachemak Bay Ferry
project. Based on Interior’s and other comments we replaced the phrase
“little oversight” with “limited oversight” in the title and throughout the
report in describing Interior’s oversight role.

As we recommended, the Department of Transportation agreed to assist
Interior in determining the proper disposition of the ferry should the tribe
default. (See app. III for Transportation’s written comments.)
Transportation noted that it fulfilled its requirement under law to transfer
the ferry appropriations to BIA, and because the ferry project was not part
of Transportation’s ferry program, matters relating to the scope of the
project and its actualization are beyond its purview. Transportation
asserted that once funds are transferred to another federal agency, the
responsibility for financial and programmatic oversight becomes that of
the recipient agency. Transportation believes that BIA’s actions indicate
that it recognized its oversight responsibilities, and noted that the joint
investigation of the ferry project by the Interior and Transportation Offices
of Inspector General found that the tribe’s use of the funds did not conflict
with the language of the appropriations.

The Seldovia Village Tribe did not comment on our recommendation or
the future sustainability of the Kachemak Voyager. In its written response,
reprinted in appendix IV, the tribe stated that it objected to the tone and
tenor of the entire report. Specifically the tribe noted that:

•   The ferry which it currently operates is not significantly different from
    the tribe’s proposal that was approved for funding, and that we
    inaccurately describe the timing and reasons for changes that
    occurred. As we describe in detail in the report, the ferry that the tribe
    built and now operates based on its 2007 and 2009 studies differs
    significantly from the proposals provided to federal, state, and local
    officials and residents beginning in 2002 up to when funding was
    appropriated for a ferry from fiscal years 2004 to 2006. We state that
    the availability of funding was among the reasons for changes in the
    ferry design and operation and we believe that the dates presented in
    the report are accurate. In its comments, the tribe provided a more
    detailed 8-page timeline of events which is generally consistent with
    the key events that we highlight in figures 3 and 5. We have noted the
    tribe’s disagreement with one aspect of our timeline in the report (see
    footnote 4).

•   The report omitted information about oversight provided by Interior’s
    BIA and Office of Self-Governance and by Transportation and its
    Federal Highway Administration. As discussed above, we revised the



Page 40                                           GAO-12-559 Kachemak Bay Ferry
    report to describe Interior’s oversight role as limited. In the report we
    describe the limited oversight provided by BIA, which primarily
    focused on the self-determination contract for planning and design, in
    keeping with its project funding agreements with the tribe. We also
    report that the Office of Self-Governance’s role was to provide
    funding, not oversight, to the tribe’s project, and that Transportation
    and its Federal Highway Administration provided no oversight after
    transferring ferry appropriations to BIA. We believe this information is
    complete and accurate.

•   Contrary to the report, the private tour boat operators’ ridership had
    not declined, citing passenger counts from the City of Seldovia from
    2009 through 2011. Based on our discussions with Seldovia officials,
    we do not believe the city’s counts are reliable. Based on
    documentary and testimonial information gathered from the private
    tour operators, we believe our characterization of their ridership
    decline is accurate; however, we have included the tribe’s perspective
    in this section of the report.

•   The report’s section on the Army Corps of Engineers was irrelevant
    because this agency did not provide funding for the ferry project or
    provide any oversight over the funding for the project. Consequently,
    the tribe stated that this section should be removed from the final
    report. Our objective was to describe the roles of the federal agencies
    involved in funding and overseeing the ferry project and associated
    dock facility projects. As our report acknowledges, while the Army
    Corps of Engineers did not provide funding for the project, it did have
    a role in issuing permits for dock construction and ensuring
    compliance with them. As a result, we made no changes to the report
    in response to this comment.

The tribe further stated that it fully complied with the terms of its self-
determination contract and compacts and that we must affirmatively
conclude that the tribe and the village corporation did not misuse any
funding. The Interior and Transportation Inspector Generals’ joint 2009
investigation report concluded that BIA’s funding agreements with the
tribe allowed changes in scope, and that the village corporation indicated
to BIA that it intended to depart from its original specifications before
doing so; it did not report any noncompliance by the tribe. As we state in
our report, BIA approved the closure of the self-determination contract.
Our report focuses on the roles of federal agencies in funding and
overseeing the ferry project and associated dock facility projects and
does not address whether the tribe complied with the terms of its self-



Page 41                                           GAO-12-559 Kachemak Bay Ferry
determination contract and self-governance compacts or misused
funding.

The tribe further stated that BIA reviewed every request for
reimbursement and approved the expenditures they determined were
appropriate prior to any federal funds being provided to the project.
Therefore, the tribe stated that the ferry now operated by the tribe is
exactly what was proposed as revised and authorized to be funded by the
government. We disagree with that conclusion. Although the self-
determination contract required the tribe to submit requests for payments,
quarterly financial reports, and annual narrative reports to BIA, as we
point out in the report, self-determination contracts and self-governance
compacts transfer responsibility for decision-making to the tribe. 26 As long
as the tribe complied with the terms of the contract and compacts, BIA
had no role in approving or disapproving the decisions the tribe made
regarding the type of ferry to be constructed and how it should be
operated. Neither the contract nor compact contained any specific
description of the type of ferry or its operations. We agree that BIA was
kept informed of the tribe’s decisions, but we do not believe that the
receipt of that information or disbursement of funding to the tribe can be
construed as BIA’s approval of the tribe’s decisions because, according to
BIA, the ferry the tribe developed was a feasible alternative and that
abandonment of the project was not considered consistent with the intent
of Congress in enacting the appropriations for a ferry.

The tribe also provided other comments that we have incorporated in the
report, as appropriate.




26
  Section 3 of the Indian Self-Determination and Education Assistance Act articulates the
federal government’s Indian self-determination policy by noting that the policy “will permit
an orderly transition from the Federal domination of programs for, and services to, Indians
to effective and meaningful participation by the Indian people in the planning, conduct, and
administration of those programs and services.” 25 U.S.C.A. § 450a(b) (emphasis added).
See also Lesoeur v. United States, 21 F.3d 965, 968-969 (9th Cir. 1994) (“The United
States has made a clear policy decision to diminish regulation of Indian tribal activities,”
citing the Indian Self–Determination and Education Assistance Act).




Page 42                                                   GAO-12-559 Kachemak Bay Ferry
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 16 days from the
report date. At that time, we will send copies of this report to the
appropriate congressional committees; Secretaries of Defense, the
Interior, and Transportation; and other interested parties. The report will
be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please
contact me at (202) 512-3841 or mittala@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix V.




Anu K. Mittal
Director, Natural Resources and Environment




Page 43                                         GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on
              Appendix I: GAO Legal Opinion on Department
              of Transportation—Homer-Halibut Cove-
              Jakolof Bay-Seldovia Ferry


Department of Transportation—Homer-
Halibut Cove-Jakolof Bay-Seldovia Ferry




              Page 44                                       GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on Department
of Transportation—Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry




Page 45                                       GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on Department
of Transportation—Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry




Page 46                                       GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on Department
of Transportation—Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry




Page 47                                       GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on Department
of Transportation—Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry




Page 48                                       GAO-12-559 Kachemak Bay Ferry
Appendix I: GAO Legal Opinion on Department
of Transportation—Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry




Page 49                                       GAO-12-559 Kachemak Bay Ferry
Appendix II: Comments from the Department
                         Appendix II: Comments from the Department
                         of the Interior



of the Interior

Note: We have not
included the exhibits.




                         Page 50                                     GAO-12-559 Kachemak Bay Ferry
Appendix II: Comments from the Department
of the Interior




Page 51                                     GAO-12-559 Kachemak Bay Ferry
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of Transportation



Department of Transportation




              Page 52                                      GAO-12-559 Kachemak Bay Ferry
Appendix III: Comments from the Department
of Transportation




Page 53                                      GAO-12-559 Kachemak Bay Ferry
Appendix III: Comments from the Department
of Transportation




Page 54                                      GAO-12-559 Kachemak Bay Ferry
Appendix IV: Comments from the Seldovia
                            Appendix IV: Comments from the Seldovia
                            Village Tribe



Village Tribe

Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.
In addition, we have not
included the exhibits.




                            Page 55                                   GAO-12-559 Kachemak Bay Ferry
                 Appendix IV: Comments from the Seldovia
                 Village Tribe




See comment 1.




                 Page 56                                   GAO-12-559 Kachemak Bay Ferry
                 Appendix IV: Comments from the Seldovia
                 Village Tribe




See comment 2.




See comment 3.




                 Page 57                                   GAO-12-559 Kachemak Bay Ferry
                 Appendix IV: Comments from the Seldovia
                 Village Tribe




See comment 4.




                 Page 58                                   GAO-12-559 Kachemak Bay Ferry
                 Appendix IV: Comments from the Seldovia
                 Village Tribe




See comment 4.




                 Page 59                                   GAO-12-559 Kachemak Bay Ferry
Appendix IV: Comments from the Seldovia
Village Tribe




Page 60                                   GAO-12-559 Kachemak Bay Ferry
Appendix IV: Comments from the Seldovia
Village Tribe




Page 61                                   GAO-12-559 Kachemak Bay Ferry
Appendix IV: Comments from the Seldovia
Village Tribe




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See comment 5.




See comment 6.


Now on p. 2.
Now on pp. 19-29.




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See comment 4.




See comment 7.




Now on pp. 14 and 15.




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                 Village Tribe




See comment 4.




See comment 4.




Now on p. 15.
Now on p. 30.




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See comment 4.




See comment 4.




Now on pp. 30 and 31.




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                 Village Tribe




See comment 8.




See comment 4.



Now on p. 32.
See comment 4.




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                  Village Tribe




See comment 9.




See comment 10.




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               Appendix IV: Comments from the Seldovia
               Village Tribe




               The following are our comments on the Seldovia Village Tribe’s letter
               dated May 30, 2012.


               1. Our legal opinion, which is reprinted in appendix I, discusses the
GAO Comments      Department of Transportation’s allocation of funds to the Department
                  of the Interior for the ferry and Interior’s annual funding agreements
                  with the tribe. Although the opinion concludes that both the allocation
                  and annual funding agreements are consistent with the language of
                  the appropriations, it does not discuss any actions of the Seldovia
                  Village Tribe. Therefore, our legal opinion does not find, as the tribe
                  maintains, that they “did nothing illegal.”

               2. The tribe commented that the ferry currently operated by the tribe
                  does not significantly differ from the tribe’s proposal that was
                  approved for funding. We accurately reported, and the tribe agrees,
                  that the scope of the ferry project changed significantly between 2002
                  and 2007. Because one of the report's objectives was to examine the
                  entire history of the ferry project, not just the history beginning in
                  2007, we made no changes in response to this comment.
                  Furthermore, as we discussed in the Agency and Third Party
                  Comments and Our Evaluation section, BIA’s receipt of quarterly
                  status reports and disbursement of funding under the self-
                  determination contract did not constitute approval of the ferry project
                  because the tribe—not BIA had decision-making authority—and BIA
                  had a limited oversight role. As we stated in our legal opinion, both
                  Transportation’s allocation documents and Interior’s annual funding
                  agreements with the tribe are consistent with the language of the
                  appropriations. The documents required that the tribe use the funds
                  for a ferry, the purpose stated in the appropriations acts.

               3. The tribe commented that the ferry project did not change after the
                  2007 study of ferry alternatives and that the 2009 study simply
                  summarizes the final design alternative and recommendations of the
                  2007 study. We believe that we have accurately characterized the
                  results of the two studies in the report. While we agree that the ferry
                  alternative of a passenger-only catamaran with light-freight capability
                  was recommended in both studies, the 2007 study only provided a
                  recommendation on the type of ferry and did not include specific
                  conclusions or recommendations for the operation of the ferry.
                  Therefore, we cannot assume, as the tribe suggests, that decisions
                  for the operation of the ferry had already been made in 2007. We
                  found no evidence, and the tribe has provided none beyond the



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    assertions in its May 30 letter, that the 2007 report's
    recommendations were in fact final determinations.

4. We made revisions to the report based on this comment.

5. Our report focuses on the roles of federal agencies in funding and
   overseeing the ferry project and associated dock facility projects and
   does not address whether the tribe complied with the terms of its self-
   determination contract and self-governance compacts or misused
   funding. In addition, a comprehensive analysis of the ferry's
   expenditures and budgets was beyond the scope of our review.

6. We accurately described the oversight actions taken by each of these
   agencies with respect to the ferry project. As we reported, for a variety
   of reasons many of these agencies had little or no oversight
   responsibility. We made some changes in the report to clarify each
   agency's role, but we believe the tribe's blanket statements
   concerning agency oversight and approval of the ferry are inaccurate.

7. We made changes to the report to ensure that we have accurately
   captured the views of the city and the tribe. As we report, city and
   tribal officials do not agree on whether the degree of city involvement
   was adequate.

8. Our report, including prior drafts, does not address the tax issue
   because it is not pertinent to our objectives.

9. Our objective was to describe the roles of the federal agencies
   involved in funding and overseeing the ferry project and associated
   dock facility projects. As our report acknowledges, while the U.S.
   Army Corps of Engineers did not provide funding for the project, it did
   have a role in issuing permits for dock construction and ensuring
   compliance with them. As a result, we made no changes to the report
   in response to this comment.

10. We reported the interaction between FTA and the tribe accurately,
   and made no changes in response to this comment. As we reported,
   in December 2011, FTA notified the tribe that the ferry’s extended
   trips with sightseeing activities appear not to serve any public
   transportation purpose by their less direct route, and that deviating a
   transit service for the purpose of sightseeing is not consistent with the
   requirement that FTA-funded facilities be used for public
   transportation. Moreover, FTA noted that incidental use of the ferry for
   sightseeing requires prior FTA written consent, which is not


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    automatically granted. In addition, FTA asked the tribe to (1) request
    approval for incidental use for the extended route trips to be done in
    the future and (2) provide documentation to support the operating
    costs for public transportation charged to the grant. As we reported,
    the tribe did not apply for incidental use approval because it took
    corrective action by stating that the ferry would no longer take the
    extended sightseeing route and provided FTA with documentation of
    enough eligible costs for its direct routes to justify its grant
    disbursements.




Page 79                                         GAO-12-559 Kachemak Bay Ferry
Appendix V: GAO Contact and Staff
                  Appendix V: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Anu K. Mittal, (202) 512-3841 or mittala@gao.gov
GAO Contact
                  In addition to the individual named above, Jeffery D. Malcolm (Assistant
Staff             Director), Ellen W. Chu, Brad C. Dobbins, Karine E. McClosky, Mehrzad
Acknowledgments   Nadji, and Jeanette M. Soares made key contributions to this report.




(361292)
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