Legislature(1997 - 1998)
02/12/1998 01:40 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 328
"An Act making appropriations for continued maintenance
and operation of the Motor Vessel Malaspina; and
providing for an effective date."
JEFF MEUCCI, MAYOR, CITY OF PETERSBURG testified in support
of HB 328. He observed that, over the past three years,
Southeast Alaska communities have struggled to keep the
Alaska Marine Highway System operating with diminished state
dollars. He maintained that the Malaspina is a vital part
of the overall transportation system and is crucial to the
economic wellbeing of Southeast Alaska. He asserted that
operation of the Malaspina as a dayboat is the first stage
in a plan to improve the transportation system in Southeast
Alaska. He noted that the legislation has wide support in
Southeast Alaska. He stressed the need for dependable, safe
and economic travel within Southeast Alaska. He maintained
that the Alaska Marine Highway System should be treated the
same as roads or highways in other parts of Alaska.
In response to a question by Representative Martin, Mr.
Meucci stressed the legislation would be economical to the
local communities. He observed that large quantities of
seafood are transported out of Petersburg via the Alaska
Marine Highway System.
HOUSE BILL NO. 328
"An Act making appropriations for continued maintenance
and operation of the Motor Vessel Malaspina; and
providing for an effective date."
BOB DOLL, GENERAL MANGER, ALASKA MARINE HIGHWAY SYSTEM,
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES testified
in support of HB 328. Mr. Doll read from his prepared
statement to the House Finance Committee. He noted that
the timing of this improved service was prompted in
large part by two imperatives, which required prompt
action. The first was the need to publish the summer
1998 schedule no later than early January. Earlier
publication was desirable, but at the latest, the
schedule had to be available for the travel trade shows
which take place following the holidays. The
advertisers who had purchased space in the schedule
book, the show attendees, and individual travelers
depend upon early publication in order to make their
plans. Schedules were to be provided to the printer on
September 7th, but events following the Prince Rupert
blockade caused a delay. The schedule is now available.
Mr. Doll noted that the second requirement was to
provide for the contingency that the introduction of
the M/V Kennicott might be delayed or interrupted by
the kinds of breakdowns typical of a new ship. In the
spring of 1997 the Marine Highway Advisory Board had
cited a requirement for a backup ship. "We agreed that
a backup ship was needed. The logical ship for that
purpose, and the only one with a capability approaching
that of Kennicott, is the Malaspina. Neither of the
other mainline ships has the speed or capacity to meet
the backup requirement, and in any case, both would be
fully employed on other demanding routes."
Mr. Doll observed that: "Like all of our ships,
Malaspina must hold a US Coast Guard Certificate of
Inspection, issued each year. The Certificate in the
case of the Malaspina expired on 31 October. If she is
to operate at all in 1998, either as a temporary
replacement for the Kennicott or in the Lynn Canal, she
must be dry-docked and inspected. In addition, her
engines and generators have reached their maximum
operating hours and require overhaul. We have already
begun this work, which is not intended to do anything
more than to make it legally possible for her to carry
passengers in 1998."
Mr. Doll stressed that a significant, capital asset
would not earn any income in the summer of 1998 if the
Malaspina was not required as a substitute for the
Kennicott and she were left alongside the pier. He
asserted that: "The most prudent choice of a site for
the Malaspina to operate this summer is the Lynn Canal,
where her revenues can be maximized. That choice is
based on the results of studies, which show a 7.3
annual growth rate in the Juneau-Skagway city pair.
The same studies show that, in calendar year 1995,
ridership wholly within Lynn Canal exceeded 96,000
passengers and 27,000 vehicles, and generated nearly
$3.4 million in revenue. Additional traffic demand
to/from ports of call south of Juneau generated an
additional 43,000 passengers and more than 11,000
vehicles, adding another $1.7 million in marginal fare
revenue attributable to the Lynn Canal segments of
these trips. Operating seven days per week this
summer, I believe the Malaspina can pay her way. She
will bring to the Marine Highway something that it has
not had until now; daily, predictable service, on a
high-demand route. Passengers, and their servicing
travel agents, will be confident that they can move
north or south in the Lynn Canal every day, at
reasonable hours. Daily service will help move, to
areas north of Juneau, those visitors who, each year,
spend some $7.4 million in the Interior and northern
regions and $11.4 million in Southcentral. The small
business, "Mom and Pop," owners who depend upon those
summer travelers will be among the beneficiaries. It's
the kind of service that individuals and businesses
served by the Marine Highway have been seeking for
years. Now the opportunity is in our grasp."
Mr. Doll noted that: "Earlier efforts to develop a
Lynn Canal service had foundered on the issue of labor
agreements. While we were not successful in reducing
manning levels as much as had once been hoped, we were
able to obtain agreement that if the ship's hotel
services did not earn revenue adequate to justify the
initial employment levels, those shipboard positions
might be reduced proportionally. In other words, we
are able to monitor revenue and if that income is not
sufficient, adjust the crew level in the hotel area."
Mr. Doll pointed out that the Malaspina labor agreement
is the first example of a labor-management document
that does not increase shipboard labor costs in the
entire history of the Alaska Marine Highway System, and
perhaps in the history of the state of Alaska. The
agreement creates an ongoing relationship between
shipboard manning and the vessel's success as a
business venture. He stressed that this is a rare
provision, which establishes a relationship between the
profitability of a Marine Highway operation and the
number of jobs it supports.
Mr. Doll asserted that the Malaspina labor agreement is
unique. It is intended only for the special
circumstances surrounding the Malaspina in the Lynn
Canal setting. He maintained that it is in the best
interests of the State to encourage imaginative
approaches to labor issues and to welcome the
profitability concepts embodied in the proposed
Malaspina operations.
Mr. Doll observed that the Malaspina/Lynn Canal
proposal provides an opportunity to test, at minimum
cost, one approach to a possible future System, namely
the "dayboat." "If our operational experience so
indicates, it is possible that the Malaspina could be
replaced by a purpose-built ship, one designed for the
Lynn Canal and offering even greater economic
advantages. The conceptualization and design of that
ship could be accomplished using the data we have
gained from operating the Malaspina for a time in this
role. This proposal will collect real data, in a
controlled environment, in a kind of clinical setting."
Mr. Doll concluded after reviewing recent studies of
the Alaska Marine Highway System operations that a
dayboat makes both economic and operational sense.
In summary, the Malaspina/Lynn Canal proposal offers an
opportunity to:
- Obtain maximum use of a capital asset.
- Provide long-sought daily service on a heavy
demand route.
- Establish a profit-related basis for AMHS
operations.
- Implement an innovative, lower-cost labor
agreement.
- Test and evaluate the potential for dayboat
operations.
- Operate the ship on a revenue-neutral basis.
Mr. Doll acknowledged concerns regarding the proposal.
He emphasized that the proposal is consistent with the
legislature's stated objectives to reduce AMHS costs
while augmenting service. "Those objectives cannot be
met unless we alter our current operating concepts.
The Malaspina/Lynn Canal proposal can point the way to
the future. I hope the legislature will make a start
in that direction by approving this legislation and I
look forward to cooperating with both houses as you
examine this proposal."
(Tape Change, HFC 98 -30, Side 1)
LARRY WEST, HAINES testified in support of HB 328. He
stressed that the use of the Malaspina as a dayboat would
provide significant opportunities to generate additional
revenues.
BERNE MILLER, EXECUTIVE DIRECTOR, SOUTHEAST CONFERENCE
testified in support of HB 328. He observed that the
municipalities and chambers or commerce of Southeast Alaska
formed the Southeast Conference over 40 years ago to support
the creation of the Alaska Marine Highway System. He
emphasized that the Alaska Marine Highway System has become
the lifeblood of Southeast Alaska's economic and social well
being. He maintained that it would be irresponsible not to
keep the Malaspina as a backup to the Kennicott ferry until
the Kennicott is reliably in service. He asserted that
keeping the Malaspina in service represents a prudent use of
a valuable resource. The use of the Malaspina would help
meet transportation needs that are going unmet during a time
of economic vulnerability and uncertainty. He emphasized
that the Alaska Marine Highway System cannot stand the kind
of schedule chaos that would result if the Kennicott were to
drop out of service. He noted that coastal communities have
long been clamoring for better service. Hr observed that
there is a bottleneck in North Lynn Canal. He noted that
Commissioner Perkins stated that he would be willing to keep
the Malaspina operating as a dayboat in Lynn Canal for a
period of time. He referred to remarks by Mr. Doll. Mr.
Doll stated that he would try to keep the Malaspina as a
dayboat, providing that it is revenue neutral. Mr. Doll
also indicated his intent to stop the service if it turns
out to be a "revenue hemorrhage".
Mr. Miller observed that Mr. Doll estimates that there would
be a $1.1 million dollar operating deficit for the summer of
1998. Mr. Miller expressed confidence that the operating
deficit could be eliminated by the end of the summer. He
suggested that it would be better to run the Malaspina and
earn revenue while the ship remains a backup of the
Kennicott. He pointed out that summer travelers are leery
of the Alaska Marine Highway System after the Canadian
blockade. He stressed that schedule stability needs to be
maximized. He concluded that the operation of the Malaspina
is a bold experiment that will take cooperation and
creativity. He stressed that the experiment can be
terminated with minimum loss.
Co-Chair Hanley noted that customers will be displaced
from the Malaspina if it is taken off day service to
replace the Kennicott.
Mr. Miller observed that if the Malaspina is used to
replace the Kennicott that there are other ships in
North Lynn Canal to accommodate some of the
displacement.
Co-Chair Hanley pointed out that the Malaspina cannot
stop in Prince Rupert.
BOB WARD, CITY MANAGER, SKAGWAY testified in support of HB
328. He referred to a letter from the Mayor of Skagway to
Senator Mackie. He noted that the city of Skagway expressed
interest in the operation of the Malaspina as a dayboat.
The city of Skagway offered to berth the Malaspina for free
during the winter. Mr. Ward acknowledged that a winter
berth in Skagway would not offer as good a deal as the city
originally anticipated. He emphasized that the message is
that the community and region is interested and willing to
look at ways to reduce the fiscal impact to the state of
Alaska. He stressed that independent travel to Skagway is
diminished. He maintained that consistent day travel would
increase individual travelers, which spend more money in
Alaskan communities.
Co-Chair Therriault asked if Mr. Ward had an interest in
whether the service is provided by the state of Alaska or
private enterprise. Mr. Ward replied that he is more
interested in the service than who provides the service. He
expressed concern that private enterprise would only provide
summer service, which contributes the greatest revenues.
The Alaska Marine Highway System would loose summer revenues
and be forced to provide more expensive winter service.
BOB PROVOST, REGIONAL DIRECTOR, INLANDBOATMEN'S UNION OF THE
PACIFIC (IBU) testified in support of HB 328. He noted that
he has extensive experience working on ferries. He
emphasized that the IBU is committed to making the operation
of the Malaspina in the Upper Lynn Canal work. The Alaska
Marine Highway System and the IBU agreed to specific
contractual accommodations that allow the state of Alaska to
operate the Malaspina more cost effectively. Some savings
are the result of day operation. He noted that sick
employees can get off on a daily basis without costing a
whole week of work. He asserted that the Malaspina would
prove to be a valuable asset to the Alaska Marine Highway
System. He maintained that operation of the Malaspina would
result in expanded fleet operation, better service and less
general fund monies needed for operations. Mr. Provost
expressed certainty that the operation would be successful.
In response to a question by Co-Chair Hanley, Mr. Provost
reviewed concessions by the union. He observed that if
someone is sick or takes vacation under normal provisions
they would be gone for a whole week. Under the agreement,
employees can take a single day off. Under federal laws
merchant seamen must be paid for the entire voyage if they
are injured on the vessel. A dayboat would reduce pay to
injured employees. He observed that wages of sick or
injured employees that are not replaced are normally split
between the other employees on duty that cover for the
injured or sick employee. Under the agreement the Alaska
Marine Highway System can operate for 24 hours without
paying replacement wages. He observed that, under normal
provisions, employees with seniority can be flown to the
port of origin. He noted that the agreement restricts
employees from being flown at state expense to begin work on
the Malaspina. Juneau will be the Malaspina's homeport.
Co-Chair Therriault asked for a written list of the
contractual concessions. Representative Martin asked what
concessions are made for delays and what are the overtime
limitations on 40-hour workweek. He also asked for more
information on the benefits of daily leave evaluations.
Mr. Provost explained that the crew would maintain the
current week on/week off schedule. Personnel will be
utilized at night to clean the ship. He emphasized that it
is easier and more efficient to clean the ship without
passengers. Crew will work an 84 hour week of seven,
twelve-hour days. Crew do not receive overtime.
In response to a question by Representative Mulder, Mr.
Provost clarified that work goes on around the clock. The
Coast Guard requires a certain number of deck hands and
engine room personnel to be on board at all time. Steward
hours would be altered to correspond to the hours passengers
are on board. Most stewards would work from 7 a.m. to 10
p.m. Some cleaning would occur at night.
In response to a question by Co-Chair Hanley, Mr. Provost
noted that discussions occurred regarding the elimination of
hotel services. He maintained that the hotel service would
be profitable. Crew specifically related to hotel service
would be eliminated if hotel service is not profitable. The
method of evaluation has not been determined. He observed
that daily service of the Malaspina would continue until
September 1998, unless it is extended. He emphasized that
hotel service could be evaluated from week to week.
Mr. Doll noted that the Alaska Marine Highway System needs
approximately $30 million dollars in deferred maintenance.
Co-Chair Hanley questioned if the legislation is revenue
neutral. Mr. Doll noted that the original objective was to
operate the Malaspina 4-days a week with a bare bones crew.
The Department of Transportation and Public Facilities was
unable to obtain labor agreements to implement a 4-day
schedule. In order to generate the maximum ridership, the
Department of Transportation and Public Facilities intends
to market and publicize day service of the Malaspina. The
Department intends to have the minimum crew necessary for
operations. A labor management committee meeting would be
held the end of June to review room and cafeteria sales.
Revenue estimates are based on previous operations. It is
difficult to determine how much will be saved by the labor
concessions. There will be a reduction of 11 positions.
There will be no cost to fly crew to or from Juneau.
Co-Chair Therriault noted that two boats would stop in
Juneau on a number of days. Mr. Doll emphasized that the
operation of the Malaspina is uncertain. Passengers on the
mainliners that also stop in Juneau would have embarked
south of Juneau. He noted that adjustments will have to be
made if the Malaspina is not operating in the summer of
1998. If the Malaspina continues operations in the summer
of 1999, the Kennicott and the Columbia would be the only
other boats providing service from Juneau. Fifteen of the
38 positions on the Malaspina would be related to hotel
service.
Representative Martin clarified that it would cost $32.5
dollars to travel one-way. He referred to the fiscal note.
Mr. Doll explained that the Malaspina would operate for 18.1
weeks. Many of the costs are for the entire year. He
expressed hope that a successful summer operation could
result in extended operation of the Malaspina 4 days a week
during the rest of the year. There will be costs associated
with mooring the ship. There will also be some employee
costs regardless of operation.
Co-Chair Hanley noted that there is an estimated service
demand of 96,000 passengers annually in the Lynn Canal with
a 5 - 7 percent annual growth. He asked what percentage of
the passenger increase would be due to increased service.
He noted that there would be a decrease in passengers on
some of the other vessels. He asked if the net cost of
reduce ridership of other vessels as been included in
revenue estimates.
(Tape Change, HFC 98 - 30, Side 2)
Co-Chair Hanley referred to the Alaska Marine Highway System
Fund summary. He expressed concern that the Fund is being
reduced. He observed that there is an approximately $30
million dollar annual state subsidy in addition to revenues
earned by the system. The estimated 1999 Fund balance is
$34 million dollars. The balance was $44 million dollars in
1997. He observed that the endowment principle is being
reduced.
Co-Chair Therriault asked if negotiations occurred for
operations without hotel service. He questioned the level
of demand for hotel service.
Mr. Doll noted that the Department began negotiations with a
proposal for the lowest possible crew. Figures demonstrated
that there is a demand for greater service. The agreement
is based on an estimation of what crew is actually required
to provide a minimum level of hotel services. There is an
opportunity to lower service to the level of actual demand.
Co-Chair Therriault suggested that service be specialized on
different boats. Mr. Doll pointed out that it would be
difficult to market which boats have services. Co-Chair
Therriault noted that some boats already have different
level of services. Mr. Doll observed that all but 3 boats
provide a full range of services.
Representative Davies noted that a potential market would
not be developed if service is not available. He suggested
that a passenger that is getting up at 5 a.m. may want
cafeteria service.
Co-Chair Therriault pointed out that if the number of people
booking rooms is low that the service will be reduced. He
noted that people will have made reservations for a ship
they thought provided rooms.
Mr. Doll anticipated that some rooms would be sold on board
at a discount.
Co-Chair Therriault asked how many additional positions will
be associated with the operation of the Malaspina. Mr. Doll
noted that there would be no additional positions in the
terminals. There may be a little overtime in terminal
operations. An auditor position is the only new position
that would be added.
Co-Chair Therriault asked for the amount of maintenance
money spent on the Malaspina over the last year. Mr. Doll
explained that the only maintenance funds applicable to the
legislation would be $750 thousand dollars to restore the
ship's certificate and the amount proposed as a capital
expenditure of $2.4 million dollars. The capital expense
does not include any remodeling on the ship. The ship has
had little maintenance since the previous year.
HB 328 was HELD in Committee for further consideration.
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