Alaska Marine Highway seeks multiyear budget flexibility as fleet, crewing and federal grants shape 2026 plan

The House Finance Department of Transportation & Public Facilities Subcommittee on Feb. 11 heard a presentation on the Alaska Marine Highway System’s budget, vessel projects and staffing needs, including a proposal to shift portions of the 2026 calendar-year appropriation from the numbers section into budget language to create a two-year "waterfall" spending window.

The change, Don Pinon, a department staff member, told the panel, would keep AMHS on a calendar-year funding basis but allow funds to be spent across a two-year window to preserve surpluses and smooth shortfalls. "We're calling it the waterfall model," Pinon said, describing a structure that would let the system "roll forward" funding from one year to the next and reduce the administrative burden of two annual closeouts.

Why it matters: The Marine Highway’s finances now rely heavily on federal grants introduced by the Infrastructure Investment and Jobs Act (IIJA) and the FTA’s Rural Ferry Program, while operating revenue has not returned to pre-pandemic levels. Department presenters told the subcommittee the governor's 2026 operating proposal for AMHS is $159,400,000, roughly flat with 2025, and that federal grants were used to stabilize recent budgets. Pinon said the department will apply for the rural ferry program grant award this summer when the grant opportunity opens.

Details of federal and state funding: Pinon outlined recent uses of federal Rural Ferry Program grants (a competitive FTA program funded by IIJA) and other federal sources. AMHS used about $30.9 million of rural ferry funds in calendar year 2023 and about $38 million in 2024 (including carryforward). For calendar year 2025 the department reported a $66 million operating grant award, supplemented by $61.3 million of unrestricted general funds (UGF), a $10 million backfill appropriated in the prior year, and $20.7 million of AMHS-generated revenue. Pinon also summarized statutory funds that support AMHS, naming the Alaska Marine Highway System Fund and the Vessel Replacement Fund; he said those accounts report annually on a fiscal-year basis and showed a projected end-of-year fund balance of about +$4.4 million at the end of 2025 and a projected -$8 million at the end of 2026 under current assumptions, implying the system would need roughly $4–4.5 million additional annual revenue to break even.

Vessels and capital projects: Craig Tornga, Marine Director for the Alaska Marine Highway System, said four AMHS vessels are more than 50 years old and outlined active capital planning. The replacement for the M/V Tustumena is scheduled for a design and procurement path that puts a design RFP and related Buy America certifications this September and an expected construction completion in summer 2028 with acceptance in August 2028. Tornga said the department has spent the past year working with FTA on regulatory requirements and Buy America percentages, especially for power and propulsion components, and that Siemens is assisting with propulsion certification. He noted the Lituya (referred to in slides as a new mainliner and a new LCM/mainliner design) had design RFP activity planned as well; construction funding for additional mainline vessels was not yet in hand.

Hotel ship and maintenance assessments: Tornga and Pinon described how the Matanuska is being used as a "hotel ship" in Ketchikan to house up to 90 staff during onboarding and when vessels are in shipyard layup. Tornga said AMHS used the hotel ship because affordable housing is scarce for new hires and employees who cannot live aboard vessels when those vessels are in overhaul. Pinon added that a hull-thickness assessment of the Matanuska is near completion and will be presented to the Alaska Marine Highway Operations Board for decisions; he noted the older vessel's survey showed several areas with significant wastage.

Crewing and service restoration: Both presenters told lawmakers that staffing shortages — especially licensed officers who must obtain route-specific pilotage — are a primary constraint on restoring pre-pandemic sailings. Tornga said the system has been unable to sustain a seven-vessel operating level since before the pandemic and that restoring that level depends on recruiting and training licensed officers and engine-room personnel. He described efforts to subsidize licensing and training for mariners, noting that mate licensing schooling can cost roughly $28,000 and engine-room licensing about $25,000. Tornga said AMHS is proposing incentive and training programs, and has proposed limited travel and housing support to reduce barriers for Alaska-based recruits who must travel to crew-up locations.

Schedule, ridership and revenue: Pinon and Tornga told the subcommittee that moving to calendar-year appropriations (implemented in 2022) increased schedule visibility and allowed earlier publication of seasonal schedules, which correlated with higher ridership and revenue. Pinon added that the proposed two-year language-based appropriation would not change the amount requested for calendar year 2026 but would give the department flexibility to preserve surpluses or cover minor shortfalls by rolling funds forward.

Risks and constraints: Members raised questions about the federal funding outlook and the potential impacts of tariff changes on steel and aluminum prices. Tornga said because the vessels and major components must meet Buy America requirements, material-price volatility will be tracked and a third-party construction estimate will be updated close to the RFP date. On the budget structure, staff said moving appropriations into budget language would keep items out of subcommittees and present them directly to the full finance committee, a procedural difference lawmakers asked about.

What was not decided: The subcommittee did not take a formal vote on the proposed language change or any motion during the presentation. Department staff said the proposal is open to legislative modification and that any specific backfill language for anticipated federal reductions was not included in the current request.

The subcommittee adjourned at 1:34 p.m. after scheduling follow-up and offering to provide additional materials, including the Tustumena replacement schedule and a more detailed long-range asset reinvestment outlook.