Legislature(1997 - 1998)

02/12/1998 01:40 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
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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