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

GAO Highlights: 

Highlights of GAO-12-559, a report to congressional requesters. 

Why GAO Did This Study: 

In 2002, the Seldovia Village Tribe proposed building a year-round 
ferry that would serve several isolated communities on the south shore 
of Alaska's Kachemak Bay. Federal funding for a ferry was subsequently 
included in the Department of Transportation’s appropriations, 
transferred to the Department of the Interior, and then provided to 
the tribe through agreements under the Indian Self-Determination and 
Education Assistance Act, as amended. The tribe’s ferry began 
operating in May 2010, amid community concerns about significant 
changes in the ferry’s design and operation from the original proposal 
and its effect on existing private tour boat businesses. 

GAO was asked 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 projects; and (3) concerns and 
challenges, if any, regarding the continued operation of the ferry. 
GAO analyzed documents and interviewed federal agency officials and 
tribal and community representatives. 

What GAO Found: 

In examining the history of the Kachemak Bay ferry project, GAO found 
that the Seldovia Village Tribe’s federally funded ferry differs 
significantly from its original proposal. In 2002, the tribe proposed 
a vehicle and passenger ferry with year-round service between Homer, 
Alaska, on the north shore of Kachemak Bay and multiple southern 
ports, including the city of Seldovia. Federal funding was 
appropriated in fiscal years 2004, 2005, and 2006, from which about 
$8.5 million was provided to the tribe for a ferry. The state also 
provided $1.5 million. The tribe subsequently built a ferry and dock 
facilities that cost about $8.8 million, but the project was 
significantly more limited in scope and service than the original 
proposal. Specifically, the ferry, known as the Kachemak Voyager began 
operating in May 2010, but it only provided passenger and light-
freight service between Homer and Seldovia and only during the summer 
months. 

Federal agencies provided funding and limited oversight but had no 
decision-making role for the ferry project. After the Department of 
Transportation (DOT) received the funds for the ferry in its fiscal 
years 2004, 2005, and 2006 annual appropriations, it transferred these 
funds to the Department of the Interior (Interior). As a result of 
these transfers, DOT provided no oversight for the ferry project. 
Interior provided the funding to the tribe through agreements under 
the Indian Self-Determination and Education Assistance Act, as 
amended, that generally authorize tribes to use funds to plan and 
administer programs with little involvement by the federal government. 
The tribe provided Interior with quarterly project status reports, but 
Interior did not provide guidance to the tribe in response to changes 
in the project. Following a 2009 Inspector General investigation, 
Interior developed new procedures to preclude certain transportation 
projects like the tribe’s ferry from being funded through these 
agreements in the future. DOT’s Federal Transit Administration (FTA) 
also awarded the tribe two grants in 2010, totaling $675,000, and also 
provided limited oversight over the grants, according to agency 
officials. 

A number of concerns and challenges exist regarding future operations 
of the ferry and its financial sustainability. First, local private 
tour boat operators are concerned that competition from the ferry has 
and will continue to negatively affect their businesses. In 
particular, they noted that, because of federal grants, the ferry has 
been able to offer lower fares that the private operators cannot 
match. Second, it is unlikely that the ferry will become profitable as 
expected by 2013, largely because of lower passenger volume and higher 
operating costs than projected. Using actual passenger and cost data 
from 2010 and 2011, GAO determined that losses will most likely 
continue to grow, which will make the ferry financially unsustainable 
without further government subsidies. Third, FTA was concerned that 
the tribe had not complied with its grant requirements. The tribe 
needed prior FTA approval before using the ferry for nonpublic 
transportation activities, such as sightseeing, but did not obtain 
approval. The tribe took 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 awarding agency has a right to those proceeds. 

What GAO Recommends: 

GAO recommends that the Departments of the Interior and Transportation 
collaborate to determine the disposition of sale proceeds in the event 
the ferry is ever sold. Interior and Transportation agreed to 
implement GAO’s recommendation. The Seldovia Village Tribe did not 
comment on GAO’s recommendation but expressed a number of concerns 
which are discussed more fully in the report. 

View [hyperlink, http://www.gao.gov/products/GAO-12-559]. For more 
information, contact Anu K. Mittal at (202) 512-3841 or 
mittala@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

The Seldovia Village Tribe's Federally Funded Ferry Differs 
Significantly from Its Original Proposal: 

Federal Agencies Provided Funding and Limited Oversight but Had No 
Decision-Making Role for the Ferry Project: 

Concerns and Challenges Exist Regarding Continued Ferry Operations: 

Conclusions: 

Recommendation for Executive Action: 

Agency and Third Party Comments and Our Evaluation: 

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

Appendix II: Comments from the Department of the Interior: 

Appendix III: Comments from the Department of Transportation: 

Appendix IV: Comments from the Seldovia Village Tribe: 

GAO Comments: 

Appendix VGAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: The Seldovia Village Tribe's Kachemak Bay Ferry Project 
Expenditures for Planning and Construction, by Category, for 2005 to 
2010: 

Table 2: Assumed and Actual Ferry Operating Parameters: 

Figures: 

Figure 1: State of Alaska, with Selected Cities and Highway System: 

Figure 2: Kachemak Bay and Surrounding Communities: 

Figure 3: Timeline of Key Events for the Kachemak Bay Ferry Project: 

Figure 4: The Kachemak Voyager: 

Figure 5: Timeline of Ferry Project Federal Appropriations and Grants, 
and Transfer of Funds to the Seldovia Village Tribe, by Fiscal Year: 

Figure 6: Extended and Direct Kachemak Bay Ferry Routes from Homer to 
Seldovia: 

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

Abbreviations: 

BIA: Bureau of Indian Affairs: 

DOT: Department of Transportation: 

FTA: Federal Transit Administration: 

[End of section] 

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 $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, 
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. 

Background: 

Alaska--encompassing 586,412 square miles--is the largest state in the 
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. 

Figure 1: State of Alaska, with Selected Cities and Highway System: 

[Refer to PDF for image: map] 

Depicted on the map: 
Several highways, including from Anchorage to Prudhoe Bay, through 
Fairbanks. 

Cities depicted: 
Anchorage; 
Fairbanks. 
Homer; 
Juneau; 
Kodiak; 
Nome; 
Prudhoe Bay; 
Unalaska. 

Source: Pitney Bowes Business insight (map). 

[End of figure] 

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. 

Figure 2: Kachemak Bay and Surrounding Communities: 

[Refer to PDF for image: map] 

Communities depicted: 
Halibut Cove; 
Homer; 
Jakolov Bay; 
Kachemark Bay State Park and Wilderness; 
Nanwalek; 
Port Graham; 
Seldovia. 

Source: GAO and Google Maps. 

[End of figure] 

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.[Footnote 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. 
[Footnote 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-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 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.[Footnote 3] 

The Seldovia Village Tribe's Federally Funded Ferry Differs 
Significantly from Its Original Proposal: 

According to historical proposal, planning, and construction 
documents, the ferry currently operated by the tribe--the Kachemak 
Voyager--differs significantly from the tribe's original proposal for 
a year-round vehicle, freight, and passenger ferry to serve Homer and 
several of the isolated communities along the south shore of Kachemak 
Bay. The ferry project underwent significant changes from 2002 to 
2009, as shown in figure 3, 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. 

Figure 3: Timeline of Key Events for the Kachemak Bay Ferry Project: 

[Refer to PDF for image: timeline] 

December 2002: 
Tribe proposes $44 million vehicle and passenger ferry project serving 
three ports, including major road improvements. 

December 2003: 
Congress debates the fiscal year 2004 appropriations act which 
includes an appropriation for planning and design of a Seldovia-Homer-
Jakolof Bay-Halibut Cove ferry. 

January 2004: 
First federal appropriation enacted for a ferry project. 

December 2004: 
Second federal appropriation enacted for a ferry project. 

November 2005: 
Third federal appropriation enacted for a ferry project. 

May 2007: 
Tribe's study of ferry options finds that a vehicle and passenger 
ferry is not viable. 

March 2009: 
Tribe's study of operating options finds that passenger-only summer 
service between Homer and Seldovia is only viable option. 

May 2010: 
Contractor operates the Kachemak Voyager in first season. 

May 2011: 
Tribe operates the Kachemak Voyager in second season. 

Source: GAO. 

[End of figure] 

The Tribe Initially Proposed a Vehicle and Passenger Ferry Serving 
Multiple Ports Year-Round: 

To encourage economic development on the south side of Kachemak Bay 
and provide greater access to Alaska's state highway system in Homer 
for south shore communities, after conducting community meetings to 
determine local needs, the tribe in 2002 began distributing a 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. 

With the initial project plan deemed prohibitively expensive, the 
tribe scaled down the original plan and offered an alternative 
proposal in 2003.[Footnote 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 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 Operates a Passenger and Light-Freight Ferry 
Serving Two Ports in the Summer: 

The village corporation managed the ferry project in two phases: 
planning and construction. During the planning phase, the village 
corporation conducted two studies of options for the proposed project 
and, on the basis of these studies, selected a vessel option that 
could transport 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: 

* 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 
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. 

Figure 4: The Kachemak Voyager: 

[Refer to PDF for image: photograph] 

Source: Seldovia Village Tribe. 

[End of figure] 

The Tribe Spent about $8.8 Million of Federal Funding to Plan and 
Construct the Ferry Project: 

To plan and construct the Kachemak Bay ferry and associated docks in 
Homer and Seldovia, the tribe spent about $8.8 million of the close to 
$9 million in federal appropriations and grants it received beginning 
in fiscal year 2005. According to documentation provided by the tribe, 
it spent about $1.97 million for phase I project-planning activities, 
including 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. 

Table 1: The Seldovia Village Tribe's Kachemak Bay Ferry Project 
Expenditures for Planning and Construction, by Category, for 2005 to 
2010: 

Expenditure category: Administration; 
Phase I: planning: $287,006; 
Phase II: construction: $797,896; 
Total expenditures: $1,084,902. 

Expenditure category: Outreach, marketing, and mobilization; 
Phase I: planning: $73,836; 
Phase II: construction: $328,951; 
Total expenditures: $402,787. 

Expenditure category: Feasibility studies, design, and port authority 
development; 
Phase I: planning: $243,409; 
Phase II: construction: [Empty]; 
Total expenditures: $243,409. 

Expenditure category: Development of construction budget and sources; 
Phase I: planning: $22,874; 
Phase II: construction: [Empty]; 
Total expenditures: $22,874. 

Expenditure category: Environmental assessments and permits; 
Phase I: planning: $65,229; 
Phase II: construction: $274,386; 
Total expenditures: $339,615. 

Expenditure category: Project design; 
Phase I: planning: $1,214,646; 
Phase II: construction: [Empty]; 
Total expenditures: $1,214,646. 

Expenditure category: Staffing and oversight; 
Phase I: planning: $60,000; 
Phase II: construction: $309,136; 
Total expenditures: $369,136. 

Expenditure category: Ferry construction; 
Phase I: planning: [Empty]; 
Phase II: construction: $3,304,029; 
Total expenditures: $3,304,029. 

Expenditure category: Shoreside preparation and construction; 
Phase I: planning: [Empty]; 
Phase II: construction: $1,778,132; 
Total expenditures: $1,778,132. 

Expenditure categories: Total; 
Phase I: planning: $1,967,000; 
Phase II: construction: $6,792,530; 
Total expenditures: $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." 

[End of table] 

Federal Agencies Provided Funding and Limited Oversight but Had No 
Decision-Making Role for the Ferry Project: 

Federal agencies provided funding and limited oversight, but they had 
no decision-making role in determining the type of ferry to be 
constructed or how it would be operated. Congress appropriated funds 
for a ferry in fiscal years 2004 through 2006 without any specific 
description of the type of ferry to be constructed or its operations 
and well before the tribe's design and operating studies were 
completed. Similarly, DOT transferred the ferry construction funds to 
Interior without any specific design or operation limitations. BIA 
subsequently transferred the ferry construction 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.[Footnote 5] 
The tribe also applied for and was awarded grants by FTA for dock 
construction and ferry operation, which it received in 2010 (see 
figure 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. 

Figure 5: Timeline of Ferry Project Federal Appropriations and Grants, 
and Transfer of Funds to the Seldovia Village Tribe, by Fiscal Year: 

[Refer to PDF for image: timeline] 

Transfer of funds to the tribe: 
Appropriations and grants: 

    
January 2004: 
Appropriations and grants: $2,000,000 Department of Transportation 
fiscal year 2004 appropriation. 

December 2004: 
Appropriations and grants: $6,000,000 Department of Transportation 
fiscal year 2005 appropriation 

July 2005: 
Transfer of funds to the tribe: $1,967,000 of fiscal year 2004 
appropriation via self-determination contract. 

November 2005: 
Appropriations and grants: $1,000,000 Department of Transportation 
fiscal year 2006 appropriation. 

May 2006: 
Transfer of funds to the tribe: $1,935,569 of fiscal year 2005 
appropriation via self-governance compact. 

July 2007: 
Transfer of funds to the tribe: $3,848,000 of fiscal year 2005 
appropriation and $787,757 of fiscal year 2006 appropriation via self-
governance compact. 

May 2009: 
Appropriations and grants: Federal Transit Administration Tribal 
Transit Program grant application deadline (American Recovery and    
Reinvestment Act funds). 

June 2009: 
Appropriations and grants: Federal Transit Administration Tribal 
Transit Program grant application deadline (discretionary funds). 

June 2010: 
Transfer of funds to the tribe: $475,000 Federal Transit 
Administration Tribal Transit Program grant for Homer dock upgrades 
(American Recovery and Reinvestment Act funds). 

December 2010: 
Transfer of funds to the tribe: $200,000 Federal Transit 
Administration Tribal Transit Program grant for ferry operations 
(discretionary funds). 

Source: GAO. 

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. 

[End of figure] 

DOT Transferred Appropriations to Interior and Did Not Oversee the 
Ferry Project: 

DOT's annual appropriation acts made available a total of $9 million 
for a ferry serving four Kachemak Bay ports as follows: 

* Fiscal year 2004. Section 115 of Division F of the Consolidated 
Appropriations Act, 2004, appropriated funding for a Kachemak Bay 
ferry by incorporating a provision of the managers' statement by 
reference.[Footnote 6] The managers' statement identifies $2 million 
for the "Seldovia-Homer-Jakolof Bay-Halibut Cove Ferry planning and 
design, Alaska."[Footnote 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.[Footnote 8] The managers' statement identifies $6 million 
for the "Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry, Alaska." 
[Footnote 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.[Footnote 10] The 
managers' statement lists $1 million for the "Homer-Halibut Cove-
Jakolof Bay-Seldovia Ferry, AK."[Footnote 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 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.[Footnote 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:[Footnote 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. 
[Footnote 14] 

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 Funding for the Tribe to Administer Without 
Any Specific Design or Operation Limitations and Had No Decision-
Making Role for the Project: 

After receiving the funds from DOT, BIA provided the fiscal year 2004 
appropriation to the tribe under a self-determination contract and the 
fiscal years 2005 and 2006 appropriations under the tribe's self-
governance compact. In total, BIA provided the tribe with a little 
over $8.5 million as follows: 

* From the fiscal year 2004 appropriation, $1,967,000 for ferry 
planning 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. 
[Footnote 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.[Footnote 16] 

* 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.[Footnote 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. 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 the years that it reported expenditures of federal ferry 
boat funding, from fiscal year 2005 through fiscal year 2009.[Footnote 
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.[Footnote 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 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 Grants for the Ferry and Exercised Minimal 
Oversight over Their Use: 

FTA awarded the tribe two Tribal Transit Program grants as follows: 

* Fiscal year 2009 American Recovery and Reinvestment Act funding: 
$475,000 grant for Homer dock upgrades, awarded in June 2010,[Footnote 
20] 

* 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 
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.[Footnote 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 Engineers Provided No Funding but Issued Required 
Permits for Dock Construction: 

The tribe received no funds from the U.S. Army Corps of Engineers 
(Corps), but the Corps was responsible for reviewing and approving the 
tribe's River and Harbors Act section 10 permit applications for dock 
construction in both Homer and Seldovia. Section 10 of the River and 
Harbors Act requires that a Corps permit be obtained for certain 
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. 

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. 

Concerns and Challenges Exist Regarding Continued Ferry Operations: 

The operation of the Kachemak Voyager has raised a number of concerns 
and challenges regarding the consequences and viability of its 
continued operation. Specifically, private tour operators told us that 
they are concerned that the ferry competes directly with their long-
established businesses and will continue to negatively affect them, 
and the tribe faces 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' Concerns About Ferry Competition: 

Local private tour boat operators have raised concerns that the 
Kachemak Voyager duplicates services between Homer and Seldovia 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. 

Figure 6: Extended and Direct Kachemak Bay Ferry Routes from Homer to 
Seldovia: 

[Refer to PDF for image: illustrated map] 

Map depicted the following: 

Direct ferry route: 
Homer to Seldovia. 

Extended ferry route: 
Homer to Gull Island to Jakolof Bay to Seldovia. 

Source: GAO and Google Maps. 

[End of figure] 

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 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.[Footnote 22] 

Ferry Operations Are Not Financially Sustainable without Ongoing 
Subsidies: 

Given the differences between assumed ferry operations and actual 
ferry operations, it is highly unlikely that the ferry will become 
self-sustaining 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 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: Scheduled days per week; 
Assumed: 4; 
Actual (first two seasons): 7. 

Ferry operating parameters: Trips per day; 
Assumed: 4; 
Actual (first two seasons): 6. 

Ferry operating parameters: Days per year; 
Assumed: 60 in 2010 and 2011; 
Actual (first two seasons): 132 average for 2010 and 2011. 

Ferry operating parameters: Average passengers per trip; 
Assumed: 39 in 2010; 47 in 2011; 
Actual (first two seasons): 13 in 2010; 14 in 2011. 

Ferry operating parameters: Fuel cost (annual average); 
Assumed: $5.70 per gallon; 
Actual (first two seasons): $3.05 in 2010; $3.97 in 2011. 

Source: Seldovia Village Tribe. 

[End of table] 

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 study.[Footnote 
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: 

[Refer to PDF for image: vertical bar graph] 

Year: 2010; 
Village corporation's 2009 projections: -$184,663 (loss); 
Reanalyzed projections: -$324,028 (loss). 

Year: 2011; 
Village corporation's 2009 projections: -$122,699 (loss); 
Reanalyzed projections: -$352,654 (loss). 

Year: 2012; 
Village corporation's 2009 projections: -$34,356 (profit); 
Reanalyzed projections: -$372,604 (loss). 

Year: 2013; 
Village corporation's 2009 projections: $101,385 (loss); 
Reanalyzed projections: -$423,256 (loss). 

Source: GAO analysis of village corporation data. 

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. 

[End of figure] 

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 with Its FTA Grant Requirements but Has Taken 
Corrective Action: 

According to FTA officials, the tribe did not comply with the 
requirements of the FTA Tribal Transit Program grants that it received 
in 2010 for the Homer dock upgrades and ferry operating expenses 
because it did not obtain FTA approval for "incidental use" of the 
ferry for sightseeing. The 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 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. 

The Disposition of Sale Proceeds Is Unclear If the Tribe Sells the 
Ferry: 

Given the potentially unsustainable operating costs of the Kachemak 
Voyager without significant subsidies, should the tribe choose to sell 
the 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."[Footnote 
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 received because the funding was provided through 
a self-determination contract and self-governance compact.[Footnote 
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. 

Conclusions: 

Interior and DOT faced unusual challenges in funding and overseeing 
the 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 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. 

Recommendation for Executive Action: 

In preparation for a potential sale of the Kachemak Voyager, we 
recommend that the Secretary of the Interior direct the Assistant 
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. 

Agency and Third Party Comments and Our Evaluation: 

We provided a copy of our report to the Departments of Defense, the 
Interior, and Transportation and to the Seldovia Village Tribe for 
review and comment. The Department of Defense did not provide 
comments. The Department of the Interior agreed with our 
recommendation and provided technical comments which we incorporated 
as appropriate. (See appendix 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 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 appendix 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 
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-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.[Footnote 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. 

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 
[hyperlink, 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. 

Signed by: 

Anu K. Mittal: 
Director, Natural Resources and Environment: 

[End of section] 

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

United States Government Accountability Office: 
Washington, DC 20548: 

B-322791: 

April 3, 2012: 
The Honorable Don Young: 
House of Representatives: 

The Honorable Lisa A. Murkowski: 
United States Senate: 

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

This responds to your request for our legal opinion regarding amounts 
enacted for the Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry. Letter 
from Congressman Don Young and Senator Lisa A. Murkowski to General 
Counsel, GAO (Jan. 31, 2012) (Request Letter). For each of fiscal 
years 2004, 2005, and 2006, Congress enacted appropriations requiring 
that the Secretary of Transportation make amounts from the
Highway Trust Fund available for a project identified as the "Homer-
Halibut Cove-Jakolof Bay-Seldovia Ferry, Alaska” (Ferry). The amounts 
were made available to the Seldovia Village Tribe (Tribe), a federally-
recognized Indian tribe,[Footnote 1] who used the amounts for expenses 
related to a ferry. You asked us (1) which agencies other than the 
Department of Transportation (Transportation) were involved in the 
conveyance of funds to the Tribe; (2) whether Transportation's 
conveyances of funds to other agencies were consistent with the laws 
making funds available for the Ferry; and (3) whether the conveyances 
to the Tribe were consistent with the appropriations acts that made 
amounts available for the Ferry. 

In response to your first question, we found that Transportation 
involved one other agency, the Department of the Interior (Interior), 
in the conveyance of funds to the Tribe. For each of the fiscal years 
2004, 2005, and 2006, Transportation allocated[Footnote 2] funds for 
the Ferry to Interior, which then conveyed the amounts to the Tribe 
through its annual funding agreements pursuant to the Indian Self-
Determination and Education Assistance Act.[Footnote 3] 

In response to your second question, we conclude that Transportation's 
actions with respect to the fiscal years 2004 and 2005 amounts were 
consistent with specific provisions in the appropriations acts 
granting Transportation authority to transfer the amounts to another 
federal agency. Transportation did not identify, nor did we locate, 
specific statutory authority to transfer the fiscal year 2006 amounts 
to Interior. Given the facts and circumstances, if Transportation 
lacks specific authority, we would not object if the fiscal year 2006 
transfer were made pursuant to the Economy Act, 31 U.S.C. § 1535. 

In response to your third question, we conclude that both 
Transportation's allocation documents and Interior's annual funding 
agreements with the Tribe are consistent with the language of the 
appropriations. Their documents required that the Tribe use the funds 
for a ferry, the purpose stated in the appropriations acts.
Our practice when issuing opinions is to obtain the views of the 
relevant agencies to develop a factual record and to establish their 
legal positions on the subject of the request. GAO, Procedures and 
Practices for Legal Decisions and Opinions, GAO-06-1064SP (Washington, 
D.C.: Sept. 2006), available at [hyperlink, 
http://www.gao.gov/legal/resources.html]. In this regard, we requested 
the views of Transportation and Interior. Letter from Managing 
Associate General Counsel, GAO, to Solicitor, Interior (Dec. 16, 
2011); Letter from Assistant General Counsel for Appropriations and 
Budget, GAO, to General Counsel, Transportation (Jan. 23, 2012). 
Transportation provided additional information and its legal position. 
Letter from Deputy Assistant General Counsel for General Law, 
Transportation, to Assistant General Counsel for Appropriations and 
Budget, GAO (Feb. 23, 2012) (Transportation Letter). Interior did not 
respond to our letter. 

Background: 

For fiscal year 2004, the Transportation, Treasury, and Independent 
Agencies Appropriations Act, 2004, required that the Secretary of 
Transportation make specified amounts from the Highway Trust Fund 
[Footnote 4] available for necessary expenses to carry out projects 
"identified under this section in the statement of managers
accompanying this Act." Pub. L. No. 108-199, § 115, 118 Stat. 3, 279, 
294-95 (Jan. 23, 2004). The explanatory statement listed several 
"surface transportation projects"; one of these projects is designated 
"Seldovia-Homer-Jakolof Bay Halibut Cove Ferry Planning and Design, 
Alaska," with a corresponding amount of $2 million. H.R. Rep. No. 108-
401, at 960 (Nov. 25, 2003). The act also provided that "funds made 
available under this section may, at the request of a State, be 
transferred by the Secretary to another Federal agency to carry out a 
project funded under this section." Pub. L. No. 108-199, § 115, 118 
Stat. at 294-95. 

In fiscal year 2005, Congress enacted the Transportation, Treasury, 
Independent Agencies, and General Government Appropriations Act, 2005, 
as part of the Consolidated Appropriations Act, 2005. Pub. L. No. 108-
447, div. H, 118 Stat. 2809, 3199 (Dec. 8, 2004). This act required 
that the Secretary of Transportation make available a specified amount 
"for surface transportation projects as identified under this section 
in the statement of the managers accompanying this Act." Id. at § 117,
118 Stat. at 3212-13. The explanatory statement lists many projects; 
one of these is the "Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry, 
Alaska," with a corresponding amount of $6 million. H.R. Rep. No. 108-
792, at 1403 (Nov. 20, 2004). As with the fiscal year 2004 act, this 
act also included a provision for transfers: "funds made available 
under this section, at the request of a State, shall be transferred by 
the Secretary to another Federal agency." Pub. L. No. 108-447, 118 
Stat. at 3213. 

In fiscal year 2006, Congress enacted the Transportation, Treasury, 
Housing and Urban Development, the Judiciary, and Independent Agencies 
Appropriations Act, 2006. Pub. L. No. 109-115, 119 Stat. 2396 (Nov. 
30, 2005). This act specified that projects and activities described 
under the "Federal-Aid Highways" heading in the statement of managers 
accompanying the Act "shall be eligible for fiscal year 2006 funds." 
Id. at § 113, 119 Stat. at 2407. Among the several subheadings listed 
under the "Federal-Aid Highways" heading in the explanatory statement 
is "Ferry Boats and Ferry Terminal Facilities"; under this subheading 
a line appears for the project designated "Homer-Halibut Cove-Jakolof 
Bay-Seldovia Ferry, AK," for the amount of $1 million. H.R. Rep. No. 
109-307, at 158 (Nov. 18, 2005). Unlike the acts for fiscal years 2004 
and 2005, the fiscal year 2006 act includes no provision regarding 
transfer of amounts to other federal agencies. 

In both fiscal years 2004 and 2005, an official from the state of 
Alaska requested that Transportation transfer funds for the Ferry to 
the Bureau of Indian Affairs, which is an agency of Interior. 
Transportation Letter, enclosures. To accomplish this, Transportation 
established an allocation account in the U.S. Treasury, which 
permitted Interior to obligate and administer the funds for the Ferry. 
Transportation Letter, at 2; see also B-321823, Dec. 6, 2011; 1 TFM 2-
1500, § 1520.65. Transportation followed the same procedure in fiscal 
year 2006. Id. Interior provided the funds to the Tribe each fiscal 
year through an annual funding agreement between Interior and the 
Tribe pursuant to the Indian Self-Determination and Education 
Assistance Act, 25 U.S.C. §§ 450-458ddd-2. E.g., Kachemak Bay
Ferry Construction Addendum to the FY 2006 Annual Funding Agreement 
(2006 Funding Agreement). 

Discussion: 

To respond to your first question, we asked Transportation what other 
agencies were involved in the conveyance to the Tribe. Letter from 
Assistant General Counsel for Appropriations and Budget, GAO, to 
General Counsel, Transportation (Jan. 23, 2012). Transportation told 
us that for each of the fiscal years 2004, 2005, and 2006, it 
allocated funds for the Ferry to Interior, which then conveyed the 
amounts to the Tribe through annual funding agreements pursuant to the 
Indian Self-Determination and Education Assistance Act. [Footnote 5] 
Transportation Letter; see also 2006 Funding Agreement. 

To respond to your second question, we reviewed the appropriations 
acts provisions permitting Transportation to transfer to another 
agency amounts enacted for the Ferry. In fiscal year 2004, the 
appropriations act provided that "funds made available under this 
section may, at the request of a State, be transferred by the
Secretary [of Transportation] to another Federal agency to carry out a 
project funded under this section." Pub. L. No. 108-199, 118 Stat. at 
294-95. In fiscal year 2005, the appropriations act provided that 
"funds made available under this section, at the request of a State, 
shall be transferred by the Secretary [of Transportation] to another 
Federal agency." Pub. L. No. 108-447, 118 Stat. at 3213. For both of 
these years Alaska made a request of Transportation. Transportation 
Letter, enclosures. Thus, Transportation had authority to allocate the 
fiscal years 2004 and 2005 amounts to Interior. 

In fiscal year 2006, the appropriations act did not include the same 
transfer authority as in fiscal years 2004 and 2005. See Pub. L. No. 
109-115, 119 Stat. at 2407. Generally, agencies may transfer 
appropriations only as specifically authorized by law. 31 U.S.C. § 
1532. In its letter to us, Transportation did not acknowledge that the 
fiscal year 2006 act did not provide transfer authority. 
Transportation did advise that it had allocated the fiscal year 2006 
amounts to Interior in the same manner as it did the fiscal years 2004 
and 2005 amounts. Transportation Letter. If Transportation lacks 
specific transfer authority, we would not object if the transfer were 
made pursuant to the Economy Act, 31 U.S.C. § 1535. The Economy Act 
allows an agency to transfer appropriations to another agency in 
return for a service rendered. In that regard, the Economy Act would 
authorize Transportation to acquire Interior's services to convey the 
amounts to the Tribe, and permit Transportation to transfer the 
amounts to Interior to effect that purpose, just as Transportation did 
in fiscal years 2004 and 2005 with its allocation documents.[Footnote 
6] However, Transportation has not provided us with an Economy Act 
agreement. 

To respond to your third question, we reviewed the appropriations acts 
provisions for fiscal years 2004, 2005, and 2006 that enacted amounts 
for the Ferry. The appropriations act for each fiscal year 
incorporated by reference[Footnote 7] provisions from the statements 
of managers providing that amounts would be made available for a 
ferry.[Footnote 8] For fiscal year 2004, the statement of managers 
provided $2 million for the "Seldovia-Homer-Jakolof Bay Halibut Cove 
Ferry." H.R. Rep. No. 108-401, at 960. For fiscal year 2005, the 
statement of managers provided $6 million for the "Homer-Halibut Cove—
Jakolof Bay—Seldovia Ferry, Alaska." H.R. Rep. No. 108-792, at 1403. 
For fiscal year 2006, the statement of managers provided $1 million 
for the "Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry, AK." H.R. Rep. 
No. 109-307, at 158. 

The documents in which Transportation allocated amounts to Interior 
stated that the amounts were allocated for a ferry. See, e.g., Letter 
from Director, Office of Program Development, Federal Highway 
Administration, Transportation, to Deputy Director, Office of Tribal 
Services, Bureau of Indian Affairs, Interior (allocating fiscal year 
2004 amount). Similarly, the annual funding agreements required that 
the Tribe use the funds for expenses related to a ferry. See, e.g., 
2006 Funding Agreement. Therefore, we conclude that both the documents 
Transportation prepared to allocate funding to Interior and the annual 
funding agreements between Interior and the Tribe are consistent with 
the language of the appropriations acts; the documents required that 
the Tribe use the funds for a ferry, the purpose stated in the 
appropriations. 

Conclusion: 

Transportation allocated funds that Congress made available for the 
"Homer-Halibut Cove-Jakolof Bay-Seldovia Ferry, Alaska" to Interior, 
which conveyed the amounts to the Tribe. 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. While the appropriations 
acts for fiscal years 2004 and 2005 specifically authorized 
Transportation to transfer the amounts to another federal agency, 
Transportation did not identify, nor did we locate, similar authority 
for fiscal year 2006. If Transportation has no such specific 
authority, we would not object, as explained above, to 
Transportation's use of the Economy Act to justify the transfer. 

If you have any questions, please contact Thomas H. Armstrong, Managing
Associate General Counsel, at (202) 512-8257, or Julia C. Matta, 
Assistant General Counsel for Appropriations and Budget, at (202) 512-
4023. 

Sincerely, 

Signed by: 

Lynn H. Gibson: 
General Counsel: 

Appendix I Footnotes: 

1. 75 Fed. Reg. 60810 (Oct. 1, 2010). 

2. An allocation is a delegation, authorized in law, by one agency of 
its authority to obligate budget authority and outlay funds to another 
agency. GAO, A Glossary of Terms Used in the Federal Budget Process, 
GAO-05-734SP (Washington, D.C.: Sept. 2005), at 9. 

3. 25 U.S.C. §§ 450-458ddd-2. 

4. Congress authorizes Transportation, through the Federal Highway 
Administration and its other agencies, to incur obligations (using 
contract authority) on behalf of the federal government. See B-275490, 
Dec. 5, 1996; see also Federal Highway Administration, Financing 
Federal-Aid Highways, FHWA Publication No. FHWA-PL-07-017 (Mar. 2007), 
available at [hyperlink, 
http://www.fhwa.dot.gov/reports/financingfederalaid/] (last visited 
Mar. 19, 2012). Contract authority is a form of budget authority that 
permits an agency to incur obligations in advance of appropriations. 
See 2 U.S.C. § 622(2)(A)(iii); see also GAO, A Glossary of Terms Used 
in the Federal Budget Process, GAO-05-734SP (Sept. 2005) (Budget 
Glossary), at 21. Congress subsequently enacts an appropriation from 
the Highway Trust Fund to liquidate the obligations. Budget Glossary, 
at 21; see also Financing Federal Aid Highways, at 34. 

5. 25 U.S.C. §§450-458ddd-2. 

6. The Economy Act would authorize Transportation, also, to transfer 
an amount to pay Interior costs Interior may incur in handling the 
transaction for Transportation. 

7. For a discussion of the legislative practice of incorporation by 
reference, see B-316010, Feb. 25, 2008. 

8. See Pub. L. No. 108-199, 118 Stat. at 294; Pub. L. No. 108-447, 118 
Stat. at 3213; Pub. L. No. 109-115, 119 Stat. at 2407. Aside from the 
provisions from the statements of managers that the appropriations 
acts incorporated by reference, there is no additional legislative 
history concerning the appropriations for the Ferry for any of the 
three fiscal years 2004, 2005, or 2006. 

[End of section] 

Appendix II: Comments from the Department of the Interior: 

Note: We have not included the exhibits. 

United States Department of the Interior
Office of The Secretary: 
Washington, DC 20240: 

May 18, 2012: 

Ms. Anu K. Mittal: 
Director, Natural Resources and Environment: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Mittal: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office (CiA0) Draft Report (Report) entitled, Kachehak 
Bay Ferry: Federally Funded Ferry Was Constructed with Little 
Oversight, and Faces Future Operating Challenges (GA0-12-559). 

The Report recommends that the Secretary of the Interior and the 
Secretary of Transportation collaborate on the disposition of the sale 
proceeds in the event of a potential sale of the Kachemak Voyager. The 
Department of the Interior agrees with this recommendation and will 
coordinate with the Federal Highway Administration to determine the 
next action. based on the requirements of 23 U.S.C.§ 129(c)(6) and P. 
L. 93-638, the Indian Self-Determination and Education and Assistance 
Act. as amended. 

We enclose with this letter some technical comments (Exhibit 1) for 
your consideration. There are several areas in the Report where the 
term Division of Transportation is used interchangeably with the
Alaska Regional Office of the Bureau of Indian Affairs (BIA) and the 
Washington, D.C. Central Office. Ear clarification, the BIA Division 
of Transportation (BIADOT) is located within the BIA's Office of 
Indian Services in Washington, D.C. It is overseen by a Division Chief 
and has personnel in two locations: Washington, D.C. and Albuquerque, 
New Mexico, The BIADOT is the Federal Highwav Administration's (FHWA) 
Office of Federal Lands Highways primary point of contact for the 
Indian Reservation Roads (RR) Program and oversees the program from a 
national level. 

The Transportation Office in the Alaska Regional Office is overseen by 
the Regional Roads Engineer (RRE). The RRE reports directly to the BEA 
Regional Director. There is no line of authority between the RRE and 
the Division Chief of BIADOT. There is no BIA Division of 
Transportation in a regional office. 

As a further point of clarification, the funds appropriated by 
Congress in FY 2004 were provided by FHWA to BIADOT who, in turn, made 
them available to the Alaska Region for inclusion in a P.L. 93-638 
contract with the Seldovia Village Tribe (Tribe). A P.L. 93-638 
contract is project specific and is awarded and overseen by the BIA 
Staff (Awarding Official and the Awarding Officials Technical
Representative). Funds are obligated to the contract and expended and 
made available to the Tribe as work is completed and milestones are 
reached. For transportation projects, the regional transportation 
office carries out oversight on projects funded through P.L. 93-638 
contracts. 

The funds appropriated in FY 2005 and FY 2006 were provided by FHWA to 
BIADOT, who, in turn made them available to the Office of Self-
Governance (OSG) for inclusion in a P.L. 93-638 compact with the 
Tribe. When implementing a self-governance compact for an IRR project, 
050 includes a funding agreement that has an addendum attached. The 
addendum specifically sets forth the provisions that will apply to the 
IRR project. 

The funds appropriated by Congress were intended for the construction 
of a ferry. The BIA Alaska Region had the responsibility for oversight 
of the ferry and dock work. not OS6 (Exhibit 2). The BIA Alaska 
Regional oversight responsibilities were focused on ensuring that the 
ferry was built to specifications, that it met all safety and health 
requirements, and was a seaworthy Vessel. The Report does not 
recognize the oversight provided by the BIA Alaska Regional Office in 
this regard. 

The Report discusses the type of ferry, road, and dock work. The work. 
as initially: proposed and designed and approved would have cost $44 
million. This proposal was supported by the town and other ferry 
competitors. When the contract amount was reduced to S8.9 million, it 
was no longer possible for the Tribe to build the type of ferry that 
was initially envisioned and also support the dock and road work. The 
price of a ferry that would have met the requirements of the initial 
plans would have been approximately $12 million (Exhibit 3). 

The Tribe fulfilled its due diligence by completing a thorough 
feasibility study Which included an economic analysis based on data 
available at the time, by conducting a review and assessment of 
existing transportation resources in Kachemak Bay, and by soliciting 
public comment ane involvement. The Tribe assessed the feasibility of 
different alternatives and selected the best alternative that was 
achievable within the existing funding. Because a feasible alternative 
existed. abandonment of the project was not considered to be 
consistent with the intent of Congress. 

Although the BIA Alaska Region Transportation program had documented 
shortcomings in its monitoring program in that same time period, which 
have since been corrected. we believe the Alaska Region met its 
oversight responsibility in this case. 

The Department hopes that these comments will assist you in preparing 
the final report. If you have any questions, please contact Ms. Sharee 
Freeman, DOI, Office of Self Governance, at {202) 219-0240 or Mr. 
LeRoy Gishi, Division of Transportation at the Bureau of Indian 
Affairs. at (202) 513-7711. 

Sincerely, 

Signed by: 

Donald E. Laverdure: 
Acting Assistant Secretary — Indian Affairs: 

Enclosures (3): 

[End of section] 

Appendix III: Comments from the Department of Transportation: 

U.S. Department of Transportation: 
Office of the Secretary of Transportation: 
1200 New Jersey Avenue, SE: 
Washington, DC 20590: 

May 22, 2012: 

Ms. Anu K. Mittal: 
Director, Natural Resources and the Environment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20458: 

Dear Ms. Mittal: 

As directed by law, the Department of Transportation (DOT) fulfilled 
its requirement to transfer funds, identified by earmarks within 
appropriations law, to the Department of the Interior's
(DOI) Bureau of Indian Affairs (BIA) for the purposes described in the 
statute - to construct a Ferry. It is important to note that the Ferry 
project was not part of DOT's Ferry program, or selected as a 
participant in our rigorous Ferry discretionary program. The DOT's 
role was straightforward, to transfer funds totaling approximately $9 
million to the DOI. As a result, matters relating to the scope of the 
project and its actualization are beyond the purview of DOT. 

Once the funds were transferred to a Federal agency outside of DOT, 
the responsibility for financial and programmatic oversight becomes 
that of the recipient agency. There is considerable support in law and 
practice for DOT's position that with the transfer of funds, the 
responsibility for the project management and oversight resides with 
the recipient agency. First and foremost, there was language to this 
effect in the original, FY 2004 appropriations act. Specifically, the 
law stated that "...funds made available under this section may, at 
the request of a State, be transferred by the Secretary to another 
Federal agency to carry out a project funded under this section, such 
funds to be then administered by the procedures of the Federal agency 
to which such funds may be transferred..."[Footnote 1] [emphasis 
added]. There is further precedent within DOT for the recipient of 
transferred funds to be accountable for the use of those funds. For 
example, funds transferred from the Federal Highway Administration to 
the Federal Transit Administration are done so with the statutory 
provision that the administration of these funds is accomplished by 
the receiving agency.[Footnote 2] Finally, there is more general 
precedent discussed in a prior GAO Comptroller General decision 
relating to funding transfers among government entities. Specifically, 
GAO found that inasmuch as the funds were transferred to an 
independent Federal agency, it was with the expectation that the 
receiving agency has the responsibility to monitor its grants projects 
and ensure that funds were used properly.[Footnote 3] 

The BIA recognized its obligation to provide oversight of the funds 
when it reserved the $153,000 described in the GAO draft report for 
"travel to look at other independently owned ferries with the project 
manager, attend meetings and personally view ferry infrastructure 
landings, and other administrative expenses associated directly with 
this project, as deemed necessary by BIA." DOT is in no position to 
posit an opinion as to the impact the Indian Self Determination and 
Education Assistance Act (Pub. L. 93-638) may have had on BIA's 
oversight of the funds for the Ferry. However, we note that these and 
other issues were subject to previous analyses by the DOI's Office of 
Inspector General, as well as a joint review by the Inspectors General 
of both Departments. The joint investigation of the Ferry Project by the
DOT and DOI OIGs found that the Tribe's use of funds did not conflict 
with the language of the appropriations. 

DOT is prepared to assist the DOI in determining the applicability of 
23 U.S.C. § 129(c) (6) as to the disposition of the Ferry, should the 
operator default, as discussed in the GAO recommendation. In light of 
the discussion above relating to the transfer of these funds to be 
administered by DOI outside the authority of Title 23 U.S.C., it is 
not clear that this provision of law is applicable. First and foremost 
any disposal of the Ferry upon default should be consistent with the 
terms and conditions established by the DOI with the Tribe. In the 
event these terms and conditions were not spelled out under the 
agreement, ferry disposal may be governed by Common Grant Rule section 
.32 as it pertains to the disposal of equipment.[Footnote 4] In such 
case, DOT stands ready to assist the DOI in determining whether 
another Tribe, State, or local agency may be able to use the ferry for 
an eligible transportation purpose consistent with the Rule. 

We appreciate this opportunity to comment on the GAO report. Please 
contact Martin Genet, Director of Audit Relations with any questions 
or if we may be of further assistance. 

Signed by: 

Brodi Fontenot: 
Deputy Assistant Secretary for Administration: 

Appendix III Footnotes: 

1. Section 115 of Public Law 108-199; 118 Stat. 294-95. 

2. 23 U.S.C. 104(K)(1) specifically and unambiguously provides that 
upon transfer of highway funds for a transit project the highway funds 
are administered under chapter 53 of title 49 (the transit chapter). 

3. See GAO Comptroller General Decision, "Denali Commission — Transfer 
of Funds Made Available through the Federal Transit Administration's 
Appropriations," 8319189. 

4. See Office of Management and Budget Circular A-102, "Grants and 
Cooperative Agreements with State and Local Governments." 

[End of section] 

Appendix IV: Comments from the Seldovia 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. 

Seldovia Village Tribe:
Tradition Integrated with Technology: 
PO Drawer L: 
Seldovia, Alaska 99663: 

Via Email To dobbinsb@gao.gov and Overnight Mail: 

May 30, 2012: 

Ms. Anu K. Mittal: 
Director, Natural Resources and Environment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: Seldovia Village Tribe and Seldovia Native Association, Inc.'s 
Joint Comments on GAO's Proposed Report: 

Dear Ms. Mittal: 

By this letter, Seldovia Village Tribe (the "Tribe") and Seldovia 
Native Association, Inc. ("SNA"), provide objections and written 
comments to the U.S. Government Accountability Office ("GAO") proposed 
report entitled Kachemak Bay Ferry: Federally Funded Ferry Was
Constructed with Little Oversight and Faces Future Operating 
Challenges (GA0-12-559) supplied to the Tribe on April 23, 2012, 
("Draft Report") and respectfully request that these comments be 
incorporated into the final report issued by the GAO regarding the 
Kachemak Bay Ferry ("KBF").[Footnote 1] 

1. Introduction: 

The Tribe and SNA object to the tone and tenor of the Draft Report in 
its entirety.[Footnote 2] The Draft Report is currently written in 
such a manner that it portrays the ferry project in a negative light 
and insinuates that the Tribe arbitrarily changed the KBF project 
without government approval or public involvement and took actions 
beyond the scope of the Tribe's authority under its contractual 
agreements with the government; none of which are true. In fact, there 
is an abundance of evidence to the contrary, and no credible evidence 
to support the tone and tenor expressed in the Draft Report.
Indeed, the Draft Report contains misleading information and omits 
significant facts, which are necessary to understand the history and 
evolution of the KBF project, and therefore, misrepresents facts 
surrounding the tour boat operators and skews the history and 
evolution of the KBF project, which results in a negative portrayal of 
the KBF project. In addition, the Draft Report contains information 
that is not relevant to the funding or oversight of the KBF, or to the 
history of the KBF or continued operation of the ferry. These 
irrelevant facts should be omitted from the GAO Final Report. 

Moreover, there are fundamental errors, either explicitly or by 
implication, contained in the Draft Report because of the sources GAO 
chose to rely upon when formulating its conclusions. The GAO chose in 
many cases to use and rely upon self-serving after-the-fact statements 
despite having contemporaneous documents that contradict those 
statements. The reliance upon non-credible statements is the 
foundation for poorly-drawn conclusions. 

Regardless, the GAO implies throughout that something was wrong with 
this project, but fails to state how the oversight on this project 
deviated from the standard government oversight policy, or how the 
Tribe or SNA did anything inappropriately. Rather, the GAO chose to 
damn the Tribe through implication; namely, that if proper oversight 
was present, a different project would have resulted. In doing so, the 
GAO fails to acknowledge the depth of governance oversight on this 
project, choosing to rely, instead, on the self-serving statements of 
delinquent tax payers. The GAO does so despite an earlier Office of 
Inspector General ("OIG") report that essentially cleared the Tribe of 
any wrong doing and its own earlier opinion letter that the Tribe did 
nothing illegal. [See comment 1] 

The Tribe and SNA, at their own great expense, have presented evidence 
to the GAO. In some cases, the GAO failed to obtain the documents from 
government sources, and SNA obtained it through a Freedom of 
Information Act ("FOIA") request. The information obtained, which was 
made contemporaneously during the project, contradicts the GAO's own 
evidence and after-the-fact statements made by agency personnel.
This letter sets forth some of the more egregious errors contained in 
the Draft Report. 

II. Incorrect Factual Information And Significant Omissions Regarding 
Government Oversight And Approval: 

There are numerous incorrect factual statements and significant 
omissions in the Draft Report regarding government oversight and 
approval that should be corrected prior to the issuance of the GAO 
Final Report. The items that should be corrected are set forth in more 
detail below. 

A. The Proposed (and Approved) Ferry is the Same Ferry That is 
Operated by the Tribe: 

The ferry currently operated by the Tribe does not "significantly" 
differ from the Tribe's proposal that was approved for funding. 
[Footnote 3] While it is true that the project underwent significant 
changes between 2002 and 2007,[Footnote 4] the timing and reasons for 
those changes described in the Draft Report are inaccurate. The Tribe 
and SNA were completely transparent with the government and the public 
regarding any changes to its proposal prior to construction of the
KBF. [See comment 2] 

As stated above, the timeline of events in the Draft Report[Footnote 
5] omits significant and essential facts regarding the history and 
evolution of the KBF project, which are key to understanding why and 
how the design of the project changed. In this regard, the Tribe did 
not "scale down" its proposal in 2003;[Footnote 6] in fact, on or 
around March 11, 2003, the Tribe submitted a response to a 
questionnaire to Congressman Don Young, as the Chairman of the 
Transportation and Infrastructure Committee, that set out the details 
of its $44 million funding request. See Exhibit 1. This response 
detailed the request for funding and segregated the project into five 
phases, with the ferry and docks as one of the five phases of the 
overall project. Id. 

The Tribe separated its ferry proposal from the full Kachemak Bay 
Intermodal Transportation Improvements project proposal after it 
learned funding would not be available for the proposed road 
improvements. See Exhibit la, documenting modification of the 
proposal. Significantly, this modified proposal was submitted and 
approved prior to the Tribe receiving any compact funding from the 
government.[Footnote 7] 

Also of significance, the initial funding received by the Tribe in 
September 2005, was a contract from the BIA in support of a design and 
feasibility study for the project, and the Tribe appropriately 
utilized the funds it received on design and feasibility studies for 
the KBF. Simply put, until 2005, the design and feasibility for the 
project was not adequately studied, as with any other project prior to 
conducting the design and feasibility studies. That is, the project 
was conceptual in nature, as understood by all parties, when the 
initial larger funding was sought. 

In addition, the contract required that all design and feasibility 
study expenditures be submitted to the BIA accompanied by a report 
requesting reimbursement. The BIA reviewed every request for 
reimbursement and approved the expenditures they determined were 
appropriate prior to any federal funds being provided to the project. 
This system mandated direct and ongoing BIA oversight for all of the 
contract expenditures and was considerably more than "technical" 
compliance to the contract terms, as the BIA actively reviewed and 
approved expenditures. 

Further, the Draft Report does not contain any explanation of why the 
design of the ferry changed from a vehicle-passenger ferry to a 
passenger and light freight ferry.[Footnote 8] The Draft Report 
mentions that the Tribe sought $14 million in funding for the KBF 
project, which included $12 million for the ferry design and 
construction, and $2 million for docking facilities. The Draft
Report also correctly states that the Tribe only received a total of 
$10.9 million for the KBF project, including all sources.[Footnote 9] 
However, the Draft Report does not state how the lack of funding 
affected the design of the ferry. There is a large disparity between 
$10.9 million and $14 million; the Tribe was forced to change the 
design of the ferry because it simply did not have the funds to build 
a ferry that could haul vehicles. [See comment 4] 

Importantly, the price of steel increased drastically during the 
design phase of the KBF project, which greatly impacted the design of 
the KBF project. The same ferry that would have cost $12 million 
increased to $28 million due to this increase in steel prices during 
2007. See Exhibit 2, pp. 1, 7-8. 

In addition to the decreased funding amount and increases in the price 
of steel, the Alaska Marine Highway System (AMHS"), which operates the 
State ferry named the "Tustumena," also changed its position regarding 
the KBF during the design phase. In that regard, AMHS went through a 
change of personnel, and the new director was adamant about not 
partnering with the Tribe to replace the AMHS ferry services to 
Seldovia with the KBF. Coupled with the lack of funding and increased 
prices, the Tribe had no choice but to build a ferry that was not 
capable of hauling vehicles in order to prevent competition with AMHS. 
[See comment 4] 

Most importantly, the Tribe openly conveyed all of this information in 
its quarterly reports to the BIA prior to approval of construction of 
the KBF ferry. See Exhibit 3. Ultimately, the ferry now operated by 
the Tribe is exactly what was proposed as revised and authorized to be 
funded by the government. 

The following timeline succinctly demonstrates the significant events 
and government oversight over the project for the years 2002 — 2011. 

* December 2002 — The Tribe proposes $44 million Kachemak Bay Intermodal
Transportation Improvements project to the U.S. Congress, which 
included five phases, one of which was a vehicle and passenger ferry 
project serving three ports and four phases included major road 
improvements. See Exhibit 26. 

* March 2003 — Upon request, the Tribe provides additional information 
to Congress regarding the $44 million Kachemak Bay Intermodal 
Transportation Improvements project. See Exhibit I. 

* December 2003 — Congress considers funding the KBF project proposal 
for $14 million. See Draft Report at 11. 

* 2004 and 2005 — The appropriate and proper avenue of funding was 
extensively discussed and analyzed by the FHA, BIA, and DOT. There are 
several emails and references to in-person meetings discussing how the 
contractual and oversight relationships would be handled prior to 
approval and issuance of funding. See Exhibit 4. 

* March 2004 — The City of Seldovia resolves to form a Steering 
Committee that will expire on December 31, 2004. See Exhibit 17 at 2-3. 

* May 2004 — The local communities form a Steering Committee, and the 
Steering Committee meets on May 17, 2004. See Exhibit 17 at 1, 9-17. 
The Tribe supplies FHA with the proposal sent to Senator Stevens, 
draft design budget in the amount of $2 million, and requests approval 
for funding. See Exhibit 27. 

* May 2005 — The BIA approves a funding document for the design of the 
ferry in the amount of S2 million [signed by the Deputy Bureau 
Director of Tribal Services]. Art High, the BIA representative 
assigned to the ferry project, holds a teleconference with the Tribe 
and writes the Tribe a letter regarding required submittals to the 
BIA. See Exhibit 28 at 1. 

* July 18-19, 2005 — The BIA approves a funding document for the ferry 
project in the amount of $3.968 million [signed by the Deputy Bureau 
Director of Tribal Services] pursuant to Section 117. See Exhibit 28 
at 2. 

* January to July 2005 — The DOT, BIA, and Office of Self Governance 
review and analyze the project and determine the appropriate avenue 
for funding. Several in-person meetings are held discussing how the 
contractual and oversight relationships would be handled prior to 
approval and issuance of funding. See Exhibit 4. Art High with the BIA 
writes the Tribe on June 30, 2005 regarding questions concerning its 
proposal, and the Tribe provides responses to his questions. See 
Exhibit 29. 

* July 20, 2005 — An agreement is negotiated and executed between the 
U.S. and the Tribe in the amount of $1.967 million for design and 
feasibility studies. See Exhibit 30. 

* July 20, 2005 — An agreement is negotiated and executed between the 
U.S. and the Tribe in the amount of $1.967 million for design and 
feasibility studies. See Exhibit 30. 

* August 2005 — The City of Seldovia reactivates the Steering 
Committee after funding delays. Exhibit 31. 

* September 2005 — Tribe commences preliminary design and feasibility 
studies for the ferry project pursuant to its agreement with the U.S. 
government. The Tribe also has at least five meetings with the City 
Manager of Seldovia, Seldovia City Council members and representatives 
of Port Graham and Halibut Cove regarding the ferry project and 
executes a contract with the City of Seldovia to assist in the design 
and development of the ferry. See Exhibit 3 at 38-40. The City of 
Seldovia reactivates the steering committee. See Exhibit 17 at 24. 

* September to December 2005 — The Tribe has at least six meetings 
with Seldovia City Manager, representative of Halibut Cove, 
consultants, The Alaska Industrial Development and Export Authority 
and AMHS. See Exhibit 3 at 1-40. Working with the City of Seldovia and 
consultants, the Tribe finalizes its four Requests for Proposals for 
design and feasibility for the ferry project, coordinating the ferry 
project with AMHS and ADOT, and to plan and organize a Title 29 
municipal port authority. Id. The City of Seldovia organizes a Port 
Authority for the ferry. The Tribe also prepares and submits its first 
quarterly report for quarter ending September 30, 2005 and reports its 
progress to the BIA pursuant to its agreement. Id. 

* October 2005 — The BIA instructed the village corporation to include 
a description of work in their quarterly reports and specified that 
their new rules require the BIA to review scopes of work. See Exhibit 
5. 

* November 22, 2005 — The Tribe passes Resolution No. 2005-12 and 
exercises its authority to assume the Kachemak Bay Ferry Project and 
assume the $6 million FHWA funds into its 2005 compact annual funding 
agreement. See Exhibit la at 7-8. 

* December 1, 2005 — The Tribe meets with BIA, including Peggy Exedine 
and others to discuss the ferry project. See Exhibit 32. 

* January 2006 —The Tribe enters into a contract with the City of 
Seldovia, which details out a scope of work for the City of Seldovia. 
See Exhibit 18 at 3. Art High is assigned as the Awarding Official 
Technical Representative for the BIA. See Exhibit 32. 

* February 2006 — The Tribe supplies the U.S. Congress, the BIA and 
FHA the Kachemak Bay Ferry Project Briefing Report, which included 
concepts, resolutions, BIA Questionnaire, funding proposal, funding 
summary, first and second quarterly reports to the BIA, design budget, 
design scope, construction budget and scope, REP winners, landing site 
and shipyard recon, design recon, procurement plan, feasibility and 
design, port authority, convention, environmental, resumes, CEO diary, 
and original concept. The budget included in the Briefing Report is 
$14 million; $2 million for design and feasibility, $2 million for 
docks and infrastructure, $8.3 million for construction of the ferry, 
and $1.7 million for management, administration, and operation during 
the first two years. See Exhibit 32. 

* February 2006 — The Tribe verbally briefs Art High, the B1A 
representative assigned to this project, of the project status, and 
holds a separate meeting to report the ferry design status to Peggy 
Exedine, Walter Hislop, and BIA Director Niles Cesar. See Exhibit 32.
The Tribe submits its second quarterly report to the BIA pursuant to 
its contract and reports that the general consensus was that they 
could not afford the Lockheed Martin design with available funding and 
that the Tribe had "received excellent cooperation and attention from 
Art and Janette." See Exhibit 3 at 42-43. The Tribe also has at least 
live additional meetings with state lawmakers, Clem Tilliam, Governor 
Murkowski, Commissioner Mike Menge, Robin Taylor (AMHS Chief), Mike 
Barton (Alaska DOT Commissioner), Jim Potdevin and Andy Hughes (State 
DOT), and Dave Miller, Karen Schmidt, and Karen Tennyson (FHA). Id. at 
42-43 and Exhibit 32. 

* March 2006 — The Tribe has at least four meetings with Lockheed 
Martin, Allen Marine, the City of Seldovia Manager, Clem Tilliam of 
Halibut Cove, Tim Navarre (assistant to Kenai Peninsula Mayor), and 
provides a congressional update. See Exhibit 32, The Tribe writes Don 
Young, provides a copy of the Briefing Report, and requests $3.5 
million in funding. See Exhibit 33. 

* April 11, 2006 — The Tribe meets with Peggy Exedine and Niles Cesar 
with the BIA regarding the ferry project. See Exhibit 3 at 73. 

* April 12, 2006 — The Tribe gives a presentation to the Seldovia City 
Council and citizens of the community on the ferry project. Id. 

* May 2006 — The Tribe submits its third quarterly report for the 
quarter that ended March 31, 2006 to the BIA pursuant to its contract, 
and reports that the Lockheed Martin ferry design "is both too 
expensive and represents too much possible repair liability and this 
option that Lockheed Martin originally proposed is all but dead." Id. at
50. 

* June 1, 2006 — The Tribe meets with the FTA in Seattle regarding the 
ferry project. Id. at 88. 

* June 5, 2006 — A design work session is held in Seattle with SNA, 
designers, research consultants, and the representative of BIA 
assigned to the ferry project, Art High. It is known and discussed in 
this work session that the Lockheed vessel design, as originally 
proposed is not feasible. Four design options are discussed, one of 
which is a passenger/light freight high speed option (ultimately 
built), and three different conventional ferry options that would 
require AMHS to leave the market in Homer/Seldovia. See Exhibit 6. 

* July 2006 — The Tribe submits its fourth quarterly report to the BIA 
for quarter ending June 30, 2006 pursuant to its contract. See Exhibit 
3 at 54-98. The Tribe reports that a team meeting was held in Seattle 
that included the personal attendance of Art High from the BIA, and 
attaches the written trip report from this planning session (described 
above). Id. 

* August 2006 — The Tribe solicits public opinions through a survey. A 
website with public information about the project is online. Initial 
feasibility studies are complete.  The Seldovia City Council passes 
Ordinance 070-1 to establish the port authority, subject to voter 
ratification. Id. at 117-151. 

* September 2006 — The Tribe holds a dock facilities design 
reconnaissance in  Washington with PMTS. Id. at 108-113. 

* October 2006 — The citizens of the City of Seldovia vote to not 
authorize a Port Authority. Id. at 174. The Tribe enters into a grant 
agreement with the State of Alaska in the amount of $1.5 million. Id. 
at 104. The Tribe submits its fifth quarterly report to the BIA for 
quarter ending September 30, 2006 pursuant to its contract. Id. at 99-
163. The Tribe reports to the BIA that a "substantial amount of 
adjustments [were] made to the design of the ferry... it is becoming 
obvious following in the path of the Lockheed Martin boat that we 
originally thought would work best for Kachemak Bay is now not a 
viable alternative. The cost of aluminum and steel has placed this 
boat out of reach of our $14 million budget." Id. 

* November 2006 — The Tribe holds at least two meetings with the City 
Manager of  Seldovia and the FTA. Id. at 179-184. 

* December 6, 2006 — The Tribe meets with Art High from BIA in 
Anchorage regarding the ferry project. Id. at 185. 

* January 2007 — The Tribe submits its sixth quarterly report to the 
BIA for quarter ending December 31, 2006 pursuant to its contract and 
requests the BIA to transfer  $3.968 million and 5788K per the 
agreements. Id. at 164-189 and Exhibit 34. 

* February 13, 2007 — The Tribe holds a conference call with Sheldon 
Kipp and Peggy Exendine with BIA to discuss the ferry project. See 
Exhibit 3 at 216. 

• February to March 2007 — The Tribe holds at least three meetings 
with the Seldovia Chamber of Commerce, Clem Tillion, and AMHS. Id. at 
212-223. 

* May-2007 - The Tribe's study of ferry options confirms that a 
vehicle and passenger ferry is not viable. Id. at 224-226. The Tribe 
prepares and submits its seventh quarterly report for quarter ending 
March 31, 2007 to the BIA pursuant to its contract and attaches its 
design study that includes its preferred design alternative. Id. The 
Tribe reports that the design study "absolutely confirmed that the 
cost to build any type of ferry that hauls automobiles, trucks, and 
containers is out of the price range of our project and is not 
feasible. Id. at 225. The Alaska Marine Highway System also has 
emphatically stated that they will continue to run the AMHS ferries 
even if we had our own ferry. We absolutely cannot compete against the 
State of Alaska. All of our focus, consultants, budgets, and projects 
have now switched gears and are moving towards the design and 
development of a passenger only ferry system that may have 
capabilities for limited freight (totes/ATV)." Id. 

* June 22, 2007 — The Office of Self Governance approves the Tribe's 
IRR funding agreement for the ferry that states in part "[t]he signed, 
final version on the right hand side of this folder incorporates 
changes and edits made through extensive discussion with Andy Caulum, 
Office of the Solicitor, and LeRoy Gishi, BIA Division of 
Transportation. Those changes have been reviewed by the Tribe and 
agreed to by them." The agreement is signed by the federal negotiating 
team that includes the BIA Regional Director, Office of Self 
Governance Negotiator, and the BIA Regional Roads Administrator, and a 
certification that states, "We hereby attest that the programs and 
dollar amounts identified in the attached annual funding agreement are 
those which were negotiated at sessions involving federal and tribal 
representatives as part of the Tribal Self-Governance negotiations for 
2008 agreements." The funding agreement details the funding amount and 
source, reporting and oversight responsibilities, and attaches the 
approved budget for the project. See Exhibit 8 at 2-3. 

* June 25-27, 2007 — Art High with the BIA travels to Seldovia and 
prepares a trip report (dated July 2, 2007). Art High acknowledges the 
escalating prices of aluminum and that the project is being scaled 
accordingly. Art High also notifies the Tribe that the construction 
and operation funds will be released pending public comment on the 
project. Art High tours the roads originally proposed for 
reconstruction in 2002 and recommends these roads be included in the 
B1A's high priority project list. See Exhibit 7. 

* June 6 and 28, 2007 — The Office of Self Governance faxes the BIA 
routing slip, signed by several BIA personnel, where the subject, in 
bold is "Review of Kachemak Bay Ferry Program Addendum to the FY 2007 
Annual Funding Agreement between the Seldovia Village Tribe and the 
United States of America." See Exhibit 8. 

* July 3, 2007 — The Tribe writes Art High and requests a year 
extension to complete the project due to changes in the design and 
caused by the "skyrocketed" price of the original proposed ferry and 
decrease of available funding from $14 million to $10.2 million. The 
letter states "[w]e are moving forward with a passenger only ferry 
that will have a substantial favorable economic impact on Seldovia." 
See Exhibit 35 at 3. 

* July 2007 — The Tribe holds a public open house and public 
information meetings in Seldovia regarding the ferry and submits its 
eighth quarterly report for quarter ending June 30, 2007 to the BIA 
pursuant to its contract. See Exhibit 3 at 224-248. The Tribe reports 
that it completed and published its Design, Development and 
Feasibility Study Report and knows now that the project will not be 
funded as originally intended ($10.2M vs. $14M). The quarterly report 
also summarizes Art High's trip to Seldovia. Id. Art High approves the 
Tribe's extension request. See Exhibit 35 at 2. 

* September 2007 — Additional public meetings are held in Homer and 
Seldovia. The May 2007 design development and feasibility study report 
is presented and available to the public regarding the ferry project. 
See Exhibit 3 at 249 and Exhibit 18 at 43-44. 

* November 2007 — The Tribe submits its ninth quarterly report for 
quarter ending September 30, 2007 to the B1A pursuant to its contract. 
In its report, the Tribe describes its presentations of its preferred 
alternative to the communities of Homer and Seldovia for comment. See 
Exhibit 3 at 249-254. 

* December 2007 — Art High emails Peggy Exendine with the BIA 
regarding status of the ferry project holds an internal BIA meeting to 
discuss the controversy surrounding the project. See Exhibit 9. 

* January 2008 — The Tribe issues the Kachemak Bay Ferry project 
scoping report that contains records of public meetings, radio and 
newspaper ads regarding public notices, public input documents, and 
results of the Tribe's survey sent to the Kachemak Bay Communities. 
The Tribe also submits its tenth quarterly report for quarter ending
December 31, 2007 to the BIA pursuant to its contract. This report 
attaches the Tribe's scoping report and a draft environmental report 
for the BIA's review. The Tribe informs the BIA that it plans to 
develop its own dock in Seldovia. See Exhibit 3 at 255-262. 

* April 2008 — The Tribe submits its eleventh quarterly report for 
quarter ending March 31, 2008 to the BIA pursuant to its contract and 
summarizes its efforts in preparing a Request for Proposal (RFP) for 
construction of the ferry. Id. at 263-271. 

* May 2008 — The Tribe issues a RFP to solicit bids to construct the 
ferry and requests a one-year extension to the contract to complete 
the project. See Exhibit 10. 

* July 2008 — The BIA approves a year extension from July 31, 2008 to 
July 31, 2009 to complete the ferry project. The approval, signed by 
Art High, states "Seldovia has been making steady progress on the 
Ferry project...I believe this to be a reasonable no additional cost 
to the government request." See Exhibit 36. The Tribe also submits its 
twelfth quarterly report for quarter ending June 30, 2008 to the BIA 
pursuant to its contract and evaluates the responses it received from 
its RFP. See Exhibit 3 at 272-281.  

* September 2008 — The Tribe issues a notice to proceed with the 
construction of the ferry to All American Marine and submits an 
invoice to the BIA for construction funds, which the BIA approves. See 
Exhibits 10, 11, and 12. 

* October 2008 — The Tribe prepares and submits its thirteenth 
quarterly report for quarter ending September 30, 2008 to the BIA 
pursuant to its contract. The Tribe completes and files its 
environmental documents with the BIA. See Exhibit 3 at 282-297. 

* November 17, 2008 — The U.S. DOT receives a copy of SNA's October 
31, 2008, quarterly report. See Exhibit 12 at 1. 

* December 31, 2008 — The Tribe prepares and submits its fourteenth 
quarterly report for quarter ending December 31, 2008 to the BIA 
pursuant to its contract and reports on its progress with ferry 
construction. See Exhibit 3 at 298-317. 

* January 27, 2009 — Art High emails Peter Field with DOT regarding 
status of the ferry project and states that he had been giving copies 
of reports and information "upstairs." He also states that the project 
has become a little controversial and was "off course, so to speak." 
See Exhibit 13. 

* March 2009 — The Tribe applies for ARRA funding for the ferry 
project. 

* April 2009 — The Tribe prepares and submits its fifteenth quarterly 
report for quarter ending March 31, 2009 to the BIA pursuant to its 
contract and reports that construction of the ferry is almost complete 
and the set launch dated is May 7, 2009. See Exhibit 3 at 318-324. 

* July 27, 2009 — The OIG completes its investigation on the ferry 
project and concludes there was no improper conduct on the part of the 
Tribe. 

* December 30, 2009 — The Tribe is selected to receive $675,000 in 
grant funds from the FTA for the Seldovia and Homer docks/facilities. 

* May — September 2010 — Contractor operates the Kachemak Voyager in 
first season and provides three daily round-trip routes between Homer 
and Seldovia. The Kachemak Voyager operates these routes regardless of 
passenger count. 

* March 15, 2011 — After review of the project, no improper conduct on 
the part of the Tribe, and recommendation from the OIG, the BIA 
approves final payment to the Tribe and closes out the project. See 
Exhibits 14 and 15. 

* July 8, 2011— The BIA confirms to the FHA that the OIG investigation 
of the KBF project found no improprieties with the Tribe's conduct, 
which was also the BIA's position. See Exhibit 14. 

* May-September 2011 — Tribe operates the Kachemak Voyager in second 
season and provides three daily round-trip routes between Homer and 
Seldovia. The Kachemak Voyager operates these routes regardless of 
passenger count. 

The Final GAO Report must affirmatively state that the government 
approved the ferry as amended and must include all of these facts, 
including the events listed in the above timeline and the large scope 
of governmental oversight to be accurate. 

B. The Tribe and SNA Did Not Misuse Funding: 

The GAO reviewed and analyzed budget and expenditure documentation and 
conducted interviews to determine how and when the ferry project 
funding was spent.[Footnote 10] The Draft Report is void of any 
information or facts that would support the allegations that have been 
raised that the Tribe or SNA misused government funding or 
misrepresented its use of funding the Tribe received from the 
government. In contrast, the information supplied to the GAO by the 
Tribe supports that it appropriately spent the funds on the KBF 
project. As was found in the OIG report, dated July 27, 2009, the GAO 
must also affirmatively conclude in its Final Report that the Tribe 
and SNA did not misuse any funding, and they accurately represented 
the intent and use of funding received on the KBF project to both the 
government and the public. At a minimum, the GAO must include 
conclusions regarding expenditures and budgets, based on the 
information it reviewed and analyzed, regarding whether the ferry 
project funding was spent in accordance with the Tribe's contractual 
agreements. If the GAO saw no evidence of misuse of funding, it must 
affirmatively say so in the Final Report. [See comment 5] 

C. The BIA, FHWA, DOT, and the Office of Self Governance Oversaw the
Project: 

The GAO concludes that federal agencies provided funding, but 
generally had no oversight or decision-making role for the ferry 
project."[Footnote 11] This erroneous conclusion must be corrected to 
reflect the actual oversight that took place on this Project. To be 
objective in its Final Report, the GAO cannot ignore the plain 
language of the government's contracts, nor can it ignore the 
voluminous contemporaneous project records that demonstrate the 
government's own understanding and fulfillment of its oversight duties 
and responsibilities during the KBF project. As shown in more detail 
below, the BIA was extensively involved in oversight of the KBF 
project, and the FHWA, DOT, and Office of Self Governance all played 
oversight roles as well. Thus, the following facts must be added to 
the GAO Final Report. 

* In 2004 and 2005, the appropriate and proper avenue of funding was 
extensively discussed and analyzed by the FHA, BIA, and DOT. There are 
several emails and references to in-person meetings discussing how the 
contractual and oversight relationships would be handled prior to 
approval and issuance of funding. See Exhibit 4.[Footnote 12] 

* After the funding agreement was negotiated and approved, on October 
18, 2005, the BIA wrote a letter to SNA regarding the quarterly 
reporting requirements. The BIA also made clear that it understood and 
intended to follow its oversight responsibilities in that their new 
rules required them to look at scopes of work. See Exhibit 5. 

* During the entire course of the KBF project, the Tribe and SNA 
provided the BIA with quarterly reports that detailed progress and 
status each quarter as required by the funding agreements. Copies of 
these reports were provided to the GAO, and are again attached to this 
letter as Exhibit 3. In addition, Art High, the BIA representative 
assigned to this project, personally attended a project work session in
Seattle on June 5, 2006 to discuss the KBF project. See Exhibit 6. Mr. 
High also traveled to Seldovia "to review the project in depth with 
Michael Beal, SNA CEO, and Crystal Collier the CEO of the Seldovia 
Village Tribe," as summarized in his trip report with photos attached 
to the Tribe's Quarterly Report, dated July 31, 2007. See Exhibit 7. 
After this trip report and many meetings, Mr. High confirmed all of 
the funding was available and ready to proceed to the RFP construction 
phase after input from public meetings. Id. at 3. 

* On June 6, 2007, and again on June 28, 2007, the Office of Self 
Governance faxed the BIA routing slip, which was signed by several BIA 
personnel, where the subject, in bold, was "Review of Kachemak Bay 
Ferry Program Addendum to the FY 2007 Annual Funding Agreement between 
the Seldovia Village Tribe and the United States of America." See 
Exhibit 8 at 1. Attached to the routing slip is a memo, dated June 22, 
2007, from the Office of Self Governance that states, in part, "the 
signed, final version on the right hand side of this folder 
incorporates changes and edits made through extensive discussion with 
Andy Caulum, Office of the Solicitor, and LeRoy Gishi, BIA Division of 
Transportation. Those changes have been reviewed by the Tribe and 
agreed to by them. As of today, June 22, 2007, ASIA Artman has 
designated me to sign all IRR Funding Agreements." Id. at 2 
(emphasis added). Also attached is a signature page, signed by the 
federal negotiating team, that included the BIA Regional Director, 
Office of Self Governance Negotiator, and the BIA Regional Roads 
Administrator, and a certification that states, "we hereby attest that 
the programs and dollar amounts identified in the attached annual 
funding agreement are those which were negotiated at sessions 
involving federal and tribal representatives as part of the Tribal 
Self-Governance negotiations for 2008 agreements." Id. at 3. Further 
attached is the actual funding agreement that goes into detail about 
funding, reporting oversight responsibilities, and attaches the budget 
for the project. Id. at 4-17. Again, this demonstrates that the 
funding agreements that included the specific duties of each party to 
the agreement, outlined the reporting and oversight requirements, and 
detailed out the scope of work along with a budget for the KBF 
project, were reviewed, discussed, and negotiated at great length 
within federal agencies.  

* In December 2007, Art High emailed Peggy Exendine with the BIA 
regarding the status of the KBF project and a meeting to discuss the 
controversy surrounding the project. See Exhibit 9. Notably, this was 
well in advance of any construction of the ferry because the Request 
for Proposals ("RFP") for a contractor to construct the ferry was not 
issued until May 1, 2008, and a contractor was not selected, and a 
notice to proceed for construction was not issued, until September 
2008. See Exhibit 10, letter from SNA and first page of the RFP. This 
demonstrates that Art High and others within the BIA were overseeing 
the project and aware of the controversies surrounding the project in 
2007.  

* On September 17, 2008, immediately following the execution of the 
contract for All American Marine to build the ferry, the Tribe, 
through SNA, submitted an invoice to the MA and requested approval of 
funds to be dispersed specifically for construction. See Exhibit 11. 
Of note, the BIA reviewed and approved this invoice and request. See 
Exhibit 12 at 1.  

* As of November 17, 2008, the DOT had SNA's October 31, 2008 
quarterly report in its possession. This demonstrates that the BIA was 
indeed forwarding on status reports to DOT as part of its oversight 
duties. See Exhibit 12.  

* On January 27, 2009, Art High emailed Peter Field with DOT regarding 
the status of  the ferry project. See Exhibit 13. In this email, he 
states that he had been giving copies of reports and information 
"upstairs." He also states that the project has become a little 
controversial and was "off course, so to speak." Id. This email also 
shows that the BIA was aware of the status of the project at the time, 
and Art High was reviewing and analyzing the status reports from SNA 
and forwarding them on to his superiors and others. 

* On July 8, 2011, Stuart Hartford with the BIA emailed Paul Nishimoto 
with the FHA, and stated: 

The [ferry] project is complete and the contract closed as of 
3/15/2011. I believe the IG did a follow up look and verbalized to me 
that they found no improprieties which was our view all along. They 
would not provide me a copy of their report and told me I should 
proceed with `normal' contract close out procedures. The project was 
very controversial and frequently written about in the local press as 
other ferry operators in the area feared a loss of business resulting 
from a Government subsidized ferry for the Tribe, which is all true 
but not illegal. It was alleged by some that Seldovia did something 
different than what was authorized by the earmark because they did not 
produce a ferry capable of carrying vehicles and outsized cargo. 
Instead, they built a passenger ferry. They did so as a result of the 
feasibility study (a requirement of the earmark), which found that the 
State of Alaska ferry system (The Alaska Marine Highway) already 
provided vehicle and large cargo service in Kachemak Bay and it was 
not economically viable to compete with that. The study also found 
there was not enough funding available to design from scratch and 
build a new ferry of that size and capability. So Seldovia did the 
prudent thing which was to use an off the shelf design and build a 
ferry that was within the budget. 

See Exhibit 14. (emphasis added). Indeed, the project was, in fact, 
closed out by the BIA on March 15, 2011. See Exhibit 15. The final 
modification to the contract with the Tribe states "the Final SF-425 
(Federal Financial Report) and the Federal Finance System (FFS) 
indicate the amount of $1,967,000.00 the total amount of Highway Trust 
Funds obligated to the subject contract, have been expended and the 
terms of the contract have been fulfilled. The Final Narrative Report 
indicates that all activities and/or functions were performed. 
Further, this was reviewed by the Awarding Official Technical 
Representative, and recommended for closeout." Id. (emphasis added). 

Thus, the BIA and other federal agencies continuously provided 
oversight on the project, including before funding was approved and 
disbursed, during the course of the project, and with full knowledge 
of the controversies surrounding the project, up until the very end of 
the project prior to closeout and final disbursement of funds. 
Moreover, the Tribe and SNA accurately and appropriately reported the 
status of the project, and in the end, the Tribe and SNA delivered a 
ferry that was exactly as proposed and approved by the government. 

D. The Ferry Was Proposed to be Owned by the Tribe: 

The Draft Report states that the Tribe originally proposed to have a 
port authority own and operate the ferry, and that this 
changed.[Footnote 13] The KBF project was never planned or proposed to 
be owned by a port authority and these false statements in the Draft 
Report must be corrected. Although the City of Seldovia opposed the 
Tribe owning the ferry because it wanted to own it; neither the Tribe 
nor SNA ever proposed to the government that the City of Seldovia or a 
port authority own the KBF. See Exhibit 16 at 2. Indeed, the Tribe 
clearly proposed to own the ferry in its initial application for 
discretionary funding. Id. Page 2 of the Tribe's funding application 
states in no uncertain terms, "[t]he Kachemak Bay Ferry Boat will be 
'publicly owned' by the Seldovia Village Tribe, a federally recognized 
Indian Tribe headquartered [sic] in Seldovia, Alaska." In addition, 
the Tribe's original proposal clearly explained the options for 
operating the ferry, and that a port authority required voter 
ratification in order to operate the ferry. Id. at 3. In the event the 
public did not authorize a port authority to operate the ferry, the 
Tribe's proposal made it clear that the Tribe would operate the ferry. 
Id. [See comment 4] 

E. The City of Seldovia and the Public Were Involved in the Planning and
Design of the Ferry: 

Contrary to assertions in the Draft Report, the City of Seldovia and 
the public were involved in the planning and design of the ferry. The 
Tribe worked with the City of Seldovia to establish a Steering 
Committee in 2004, and the Steering Committee met regarding the KBF 
project. See Exhibit 17. The Tribe later worked with the City of 
Seldovia to form a Port Authority for the KBF project. See Exhibit 18, 
attached, demonstrating the Tribe's payments to the City of Seldovia 
for Port Authority expenses, as well as payments to a City of Seldovia 
consultant.[Footnote 14] The Tribe and SNA also met with City of 
Seldovia personnel on multiple occasions to discuss the project and 
paid the City of Seldovia over $90,000 for its input and work 
associated with the KBF. Id. The Tribe further organized and hosted 
several public meetings and issued a survey to residents of the 
community. See Exhibit 18 at 43-44; Exhibit 3 at 249. Thus, the GAO's
sentence that reads: "there were no opportunities to provide public 
comment or input during the project development period"[Footnote 15] 
should be stricken, and all of these facts should be included in the 
GAO Final Report. [See comment 7] 

F. Omissions Regarding State Ferry Service and Tour Boat Operators: 

The omissions in the Draft Report regarding the AMHS services and tour 
boat operations make it appear as if the KBF provides duplicate 
services to the Homer and Seldovia communities, which is not true. The 
KBF caters to residents who need to commute back and forth between 
Homer and Seldovia, and is the only ferry service that does this. The 
Draft Report concludes that the KBF "duplicates existing long-
established private tour boat and state ferry services to Homer and 
Seldovia."[Footnote 16] This conclusion is erroneous and must be 
corrected in the Final Report. 

The KBF does not duplicate services of the State ferry service. The 
Tustumena offers one round trip between Homer and Seldovia 
approximately two times per week during the summer, and sometimes not 
at all. See Exhibit 19. In addition, the single ferry trip leaves 
Homer at 11:45 a.m. and arrives in Seldovia at 1:15 p.m. (a P/2 hour-
ride), which does not accommodate commuters who live in Homer and work 
in Seldovia. Id. [See comment 4] 

The KBF does not duplicate services of the tour boats because both 
Rainbow Tours and the Discovery cater purely to tourists and not 
residents. Both of these tour boats offer six to seven-hour day trips 
that include more than three hours sight-seeing on the boats and three 
hours sightseeing in Seldovia. See Exhibit 20. 

Further, the facts in the Draft Report regarding the pricing of 
tickets in 2011 are misleading. The Draft Report correctly states that 
the regular adult fare for a round trip on the KBF was $64 in
2011, and local Seldovia residents and village corporation 
stockholders were eligible to receive a local discounted fare of $22 
each way. The Draft Report correctly states the lowest advertised one-
way rate that private tour operators could offer in 2011 was $30. 
However, what the Draft Report does not compare is the round-trip 
ticket prices of the tour boat operators with the round-trip ticket 
prices of the KBF, which portrays an entirely different picture. The 
cost of a six to seven-hour, fully-narrated round-trip tour was $45 
per adult, which was significantly less than the cost of a round-trip 
ticket on the KBF. See Exhibit 20. The discounted rate for local
residents that KBF offered was very comparable to the tour boat 
operator's round-trip ticket rate. Id. The table below demonstrates 
that the tour boat operators' fares are much cheaper for tourists than 
the KBF fares. 

Table: 

Entity: Kachemak Voyager; 
Tourist Round Trip 2001 Fare: $64. 

Entity: Rainbow Tours; 
Tourist Round Trip 2001 Fare: $45. 

Entity: The Discovery; 
Tourist Round Trip 2001 Fare: $45. 

[End of table] 

This misleading 2011 fare comparison must be stricken from the Final 
Report or revised picture of the round-trip rates charged.  

The Draft Report also emphasizes KBF's 2011 "extended scenic route for 
wildlife viewing and sightseeing."[Footnote 17] What the Draft Report 
fails to mention is that, even with this "extended" route, the KBF 
trip is still a shorter duration than the tour boats or the Tustumena 
at a total duration of one hour and fifteen minutes, compared to forty-
five minutes on the more direct route. See Exhibit 21. This extended 
route is also shorter than the Tustumena ride of 1Y2 hours each way.
Because of the way that the Draft Report is worded, it also appears 
that the majority of the routes are "extended." This is also not true. 
Only two of the six one-way routes ride by Gull Island, and they are 
at times when most of the occupants would not be commuting to or from 
work. None of the routes that leave Seldovia follow the "extended" 
route. In addition, SNA owns Gull Island and promotes its land with 
this route. The mission statement of the BIA is: [See comment 4] 

The BIA's mission is to enhance the quality of life, to promote 
economic opportunity, and to carry out the responsibility to protect 
and improve the trust assets of American Indians, Indian tribes and 
Alaska Natives. We will accomplish this through the delivery of 
quality services, maintaining government-to government relationships 
within the spirit of self-determination.[Footnote 18] 

The KBF falls exactly in line with the BIA's mission. In any event, 
after going into the 2011 "extended route" offered in 2011, the GAO 
states in its Draft Report that the Tribe will no longer offer this 
"extended route" commencing in 2012, and therefore, does not directly 
compete nor duplicate other existing services. 

The conclusion in the Draft Report states that the local tour 
operators may go out of business. This self-serving statement by the 
tour boar operators is being taken at face value by the GAO. When the 
Tribe and SNA presented the actual numbers from the seasons that the 
tour boat operators claimed were decreasing, it was clear that the 
numbers showed an increase. These numbers came directly from the City 
of Seldovia and demonstrated an increase for the tour boat operators 
for the years 2009, 2010, and 2011. Despite these numbers and trends, 
the GAO chose to discount the actual numbers for 2009 because it may 
not meet federal audit standards, while self-serving statements by 
delinquent tax payers do so. Even if 2009 were disregarded, the 
numbers for 2010 and 2011 demonstrate the tour boat operators' 
statements were false. The GAO's likely response is to drop the actual 
numbers into a footnote, while giving credibility to the self-serving 
statements. [See comment 4] 

When the GAO was given additional information, such as the actual 
numbers and the FTA documents, its response was that some information 
was furnished late. Not only was the vast majority of information 
given by the Tribe and SNA early, the GAO's criticism misses the mark.
It is actual incumbent upon the GAO to have factual documentation to 
support its findings, rather than a private party having to supply 
refuting evidence to demonstrate analytical and factual failures and 
inaccuracies. Moreover, some of the information was from government 
sources that had to be obtained by FOIA request. This information 
should have been readily available to the GAO. 

G. The Tour Boat Operators Are Delinquent on Their Taxes: 

The GAO affirmatively stated in conversations with the Tribe and SNA 
that the tour boat operators are current in paying their tax 
assessment to the City of Seldovia based upon the passenger count. 
This seems to be another example of a statement that is not based on 
facts or evidenced by hard documents. Tim Dillon, the City of Seldovia 
City Manager, stated that Rainbow Tours is three years behind in its 
taxes, and Coastal Marine Tours still owes taxes from last year when 
another tourism year is right around the corner.[Footnote 19] 

In contrast, the KBF has paid it taxes. The irony is that the word of 
delinquent tax payers is being taken at face value without hard 
document evidence by an investigative arm of the government while the 
tax paying corporate citizen is being investigated and has to disprove
nonexistent facts. Indeed, it was not until the Tribe and SNA obtained 
the actual tax records that the GAO reversed its position. [See 
comment 8] 

H. Tour Boat Ridership Has Not Declined: 

As mentioned previously, the local tour boat operators reported to the 
GAO, with unknown sources of backup, that they have seen a 30-40% 
decline in the last two operating seasons due to the KBF.[Footnote 20] 
Once again, facts supplied by independent third parties disprove this 
allegation. Layla Pedersen, the City of Seldovia Harbor Master, stated 
that the city recorded 5,186 passengers in 2009; 9,177 passengers in 
2010; and 10,007 passengers in 2011. See Exhibit 25. These numbers 
reflect the total number of passengers, age 13 and older, that 
disembarked from the commercial passenger carriers in the Seldovia 
Boat Harbor. Ms. Pedersen further indicated that the KBF accounted for 
3,703 passengers in 2010 and 4,501 passengers in 2011. Id. All 
commercial operators that park at the City of Seldovia Boat Harbor are 
included in the head count. The operators include Rainbow Tours, 
Central Charters, and KBF. Although it is fair to assume there might 
be some minor errors in the count, the overall figures from the City of
Seldovia establish that there has been no noticeable decline in 
ridership for the local tour operators. 

This is especially striking given the sharp downturn in the economy 
that has severely impacted the Alaskan tourist industry. The Alaska 
Visitor Statistics Program reported a 15% decrease of visitors to 
Alaska in 2010 and 2011 statewide, and a lower percentage of visitors 
who traveled to Alaska for vacation or pleasure. See Exhibit 22. 

III. Non-Relevant Facts Included In The Draft Report Must Be Removed: 

The section titled "The Army Corps of Engineers Provided No Funding 
but Issued Required Permits for Dock Construction," and any portion of 
the Draft Report that refers to the Army Corps of Engineers permit, 
should not be included in the GAO Final Report. This section does
not relate to any funding received on the KBF project, and does not 
relate to oversight of funding on the project. As such, this section 
should be removed in its entirety. [See comment 9] 

IV. The Tribe Is Compliant With The FTA Grant: 

The Tribe objects to the section of the Draft Report titled "The Tribe 
Did Not Comply with Its FTA Grant Requirements and Took Corrective 
Action." This title is incorrect, as well as the underlying 
conclusions reached by the GAO. Thus, this section needs to be revised 
in the Final Report to state the Tribe complied with its FTA grants. 
In that regard, the FTA requested that the Tribe supply it with 
information that confirmed it complied with the grant requirements.
Upon receipt of that request, the Tribe subsequently provided detailed 
financial documentation to FTA establishing that FTA grant money was 
used exclusively to fund "operating costs of equipment and facilities 
used in public transportation." See Exhibit 24. None of the FTA grant 
funds, either directly or indirectly, provided support for the 
extended route around Gull Island. The FTA accepted the Tribe's 
documentation and has not required corrective action from the
Tribe. [See comment 10] 

V. Conclusion: 

In 2010, the Departments of the Interior and Transportation devoted 
their limited resources to conducting an exhaustive joint examination 
into the history of the KBF project, its scope, and the federal 
funding provided for its development. Less than one year after the 
joint investigation's conclusion, the GAO undertook a second 
examination into virtually identical issues. These two extensive (and 
expensive) investigations reached the seine conclusions. There was no 
misuse of federal or state funds. There was no mismanagement or wrong-
doing. There was no unilateral or arbitrary change of scope. There was 
no indication by any source at any level that funds were stolen, lost, 
or unaccounted for. Instead, the KBF project was transparent, vetted 
and approved by the Department of Transportation, the Bureau of Indian 
Affairs, and the State of Alaska at every step over multiple years. 
There was nothing unusual about the level of oversight by federal 
agencies; it was the same as nearly every comparable project, the 
government never hinted of any oversight issues while the project was 
progressing, and the Tribe was providing all required reports and 
accountings. Indeed, everyone agreed that the KBF project had much 
potential based on 2002-2006 projections. Like so much else in this 
country, of course, the projections were impacted by the most severe 
economic downturn since the Great Depression. It is neither proper nor 
fair to use this downturn, as unforeseeable to the government as it 
was to the Tribe, as the basis for hindsight criticism. 

The Tribe and SNA sincerely hope and respectfully request that you 
seriously consider these comments and additional facts for inclusion 
in the GAO Final Report. As always, we are open to discuss or provide 
any additional information you may require. Please do not hesitate to 
contact me directly if you have any questions or concerns regarding 
this submission. 

Respectfully submitted, 

Seldovia Village Tribe: 

Signed by: 
Crystal Collier, President/CE0: 

Enclosures: 

Appendix IV Footnotes: 

1. The current name of this project is the Seldovia Bay Ferry. 

2. Even the GAO's proposed title is objectionable. The Tribe requests 
the GAO to revise the title of the Final Report to "Federally Funded 
Ferry Faces Future Operating Challenges" because the GAO's conclusions 
regarding oversight of the KBF project are in dispute. 

3. See Draft Report at 10. 

4. The GAO originally stated in its previous Draft Report that the 
project changed significantly between 2002 and 2007. The Tribe and SNA 
object to the allegation that the project underwent any significant 
changes during 2008 and 2009. By the end of 2007, it was known and 
disclosed to the government and the public that a year-round vehicle, 
freight, and passenger ferry serving multiple ports was not feasible, 
nor planned. The GAO has misinterpreted the report published by SNA on 
behalf of the Tribe titled "Seldovia Village Tribe's Seldovia Bay
Ferry Project Design, Development and Feasibility Summary Report," 
dated March 3,2009, as the end of the design of the K BF project. The 
design of the ferry project was complete prior to the issuance of this 
summary report, which is clearly demonstrated by the fact that the 
ferry was in its final stages of construction during that time. This 
report simply summarizes the final design as constructed and does not 
contradict or differ from the preferred alternative and 
recommendations included in the Tribe's 2007 preliminary design and 
feasibility report. Because the GAO misinterprets this 2009 report, it 
also incorrectly summarizes how the ferry differs from earlier 
proposals. The 2007 study made clear that the ferry would only serve 
two ports with the available funding in hand; set out the two routes; 
explained that a vehicle or heavy-freight ferry was not financially 
feasible; docks would be constructed in Homer and Seldovia; no funding 
for roads was even a viable option at that point; and the 2007 study 
proposed that a visitor center be built in Homer. The Tribe did not 
base its project on the results of the 2009 study. This was the
final report, based on the preliminary study, which did not change 
from the preferred recommendations in the earlier study. [See comment 
3] 

5. See Draft Report at 11. 

6. Id. 

7. The Tribe signed the funding agreement on July 20, 2005, and 
received its first draw of design and feasibility funds from the 
government on or around September 13, 2005. The Tribe later received 
its first compact funds in May of 2006. 

8. The Draft Report incorrectly concludes at page 12 that the ferry is 
a passenger only ferry. This is simply inaccurate. The ferry can haul 
light freight and sonic smaller vehicles such as ATVs, which no other 
operator offers. 

9. Also of note, the funding was received by the Tribe throughout a 
span of five years, and it was often unknown if any additional funding 
would be secured during that time. 

10. See Draft Report at 4. [Now on p. 2] 

11. See Draft Report at 17-24. [Now on pp. 19-29] 

12. Christine Williams, legal counsel to SNA, submitted a request for 
documents related to the KBF project to the Federal Highway 
Administration ("FHA") pursuant to the Freedom of Information Act 
("FOIA"). Exhibits 4, 8, 9, and 12-15 were produced by FHA in response 
to her FOIA request. 

13. See Draft Report at 12 and 13. [Now on pp. 14 and 15] 

14. This exhibit also demonstrates that the City of Seldovia had a 
written contract to assist in the design and development of the ferry, 
and the Tribe and the City of Seldovia observed the terms of that 
contract; however, a formal Port Authority could not be formed to 
operate the ferry because the public failed to authorize its formation 
by a public vote. 

15. See Draft Report at 17. 

16. See Draft Report at 27. 

17. See Draft Report at 27-28. [Now on pp. 30 and 31] 

18. See [hyperlink, http://www.bia.gov/FAQs/index.htm] 

19. See Affidavit of Rachael Pope, attached as Exhibit 23. 

20. See Draft Report at 29; see also the ill conceived conclusion 
section of the Draft Report stating the tour boat operators may go out 
of business. [Now on p. 32] [See comment 4] 

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

GAO Comments: 

1. Our legal opinion, which is reprinted in appendix I, discusses the 
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 
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 
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. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Anu K. Mittal, (202) 512-3841 or mittala@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Jeffery D. Malcolm 
(Assistant Director), Ellen W. Chu, Brad C. Dobbins, Karine E. 
McClosky, Mehrzad Nadji, and Jeanette M. Soares made key contributions 
to this report. 

[End of section] 

Footnotes: 

[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. 

[3] 33 U.S.C. § 403. 

[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. 

[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. 

[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). 

[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. 

[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. 

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

[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 
[hyperlink, 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). 

[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. 

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

[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. 

[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. 

[24] 23 U.S.C. § 129(c)(6). 

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

[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). 

[End of section] 

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