The Federal Transit Administration wants $12.3 million back from the Matanuska-Susitna Borough for the borough’s failed Knik Arm ferry plan.

Acting FTA Administrator Therese McMillan sent a letter to Mat-Su Borough Manager John Moosey Aug. 5 demanding repayment of the grant money. The $12.3 million is the portion of approximately $21.2 million in grants approved for the project that the borough has spent.

The letter states that the borough has 30 days to repay the Transportation Department agency before FTA begins collections through administrative offset.

Moosey said in an official statement on the borough’s website that he was not surprised by the letter.

“I expected this (ferry crossing) to be done much easier but this was a challenge,” he said. “We’ve been working diligently looking for solutions to this issue for the last 2.5 years. If we had ferry landings, I’m confident we would not be here today.”

McMillan wrote that the FTA is required to begin debt collection per the terms of the grants and does not have the legal authority to waive the debt despite the bind the borough is in.

The Mat-Su Assembly held a special meeting Aug. 12 that left the issue unresolved. After a nearly hour-long executive session during which the borough’s legal options were discussed, the assembly and borough officials decided to continue the meeting Aug.  21 at 3 p.m.

Assemblyman Jim Sykes said he hopes details about the payment requirements and options can be made public at the Aug. 21 meeting.

“I hope we can work our way out of this and not pay any of it,” he said.

Assemblyman Matthew Beck said the borough is in the situation largely because the Municipality of Anchorage would not cooperate in building a landing site on the Anchorage side of Knik Arm.

“I think it will work out,” Beck said.

The ferry vessel, the M/V Susitna, was built as a half-scale naval prototype landing craft vessel, with an agreement that the borough would take ownership and put it to use as a shuttle between Port MacKenzie and Anchorage when the U.S. Navy was through with it.

The Navy paid for the lion’s share of the $78 million construction bill.

The borough has been looking to sell or give away the ferry for more than a year since plans to build a terminal dock in Anchorage fell through.

If the Susitna is sold to a private entity, the borough would have to pay back much of the FTA grant money. However, if it can be donated to an eligible domestic government, the Mat-Su Borough might be able to seek grant forgiveness, a borough release states.

The borough has approached the Alaska Marine Highway System and the National Oceanic and Atmospheric Administration about donating the Susitna, but an agreement couldn’t be reached.

Private groups have made offers to purchase the Susitna, but none would have covered the cost to repay the grants.

The Philippine Navy and an oilfield service company are expected to inspect the Susitna, docked at Ward Cove near Ketchikan, later this month.

Dock fees, insurance and general upkeep have cost the borough several hundred thousand dollars per month while the Susitna has gone unused, Mat-Su officials have stated.

The $3.6 million ferry terminal at Port MacKenzie is part of the $12.3 million FTA debt, according to the borough.

Despite being unwanted, the 195-foot Susitna is a vessel with remarkable capabilities. The catamaran ferry has the space to hold up to 129 passengers, 20 vehicles and has a 35-ton overall freight capacity. It has a main deck that can be lowered to offload equipment and can land on beaches in as little as four feet of water.

 Elwood Brehmer is a reporter for the Alaska Journal of Commerce.