Legislature(1999 - 2000)
04/13/1999 02:30 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. 84
"An Act relating to international airports revenue
bonds; and providing for an effective date."
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES testified in support of
HB 84. House Bill 84 would give the Department of
Transportation and Public Facilities $25 million dollars in
bonding authority needed to complete the Anchorage
International Airport terminal project. He gave a brief
history of the project. He noted that the airport terminal
project was presented to the airlines for a vote in 1994.
The airlines voted to authorize up to $235 million dollars
in bond authority. The department presented the Legislature
with a request for $204 million dollars in bond authority.
The Legislature reduced the request from $204 million
dollars to $179 million dollars and directed the Department
of Transportation and Public Facilities to seek the
additional $25 million dollars through federal funds. The
department was successful in receiving and additional $25
million dollars in federal funding through a letter of
intent (LOI) with the FAA. The federal dollars will be
received over a ten-year period. The LOI is a commitment of
the federal government to appropriate the money over the
next ten years. The money is needed to finish the project
within four years. House Bill 84 would authorize the
department to sell bonds to borrow money and allow the
project to be done on time. The bonds would be paid by the
airlines and the federal money would go into the revenue
account to reimburse the airlines for the bonds.
In response to a question by Co-Chair Therriault, Mr. Parkan
stated that some portions of the project would qualify for
the one percent for art program. He noted that it is
difficult to count design aspects as art. Representative J.
Davies stated that it is clear that wall and floor finishing
would be part of the industrial design and not count toward
the one percent for art program.
Vice-Chair Bunde noted that the Committee has received
assurances that the project would not go over budget. Mr.
Parkan stated that the project is on schedule and on budget.
He did not anticipate that the project would be over-budget,
but acknowledged that they are only 3 percent into the
project. He emphasized that the management team has handled
larger projects.
Co-Chair Therriault questioned if continuation of the
project is contingent on the extra bonding. He observed that
the current appropriation is not exhausted. Mr. Parkan
clarified that the construction schedule is contingent on
receiving the bonding authority. The design phase is nearly
completed. If the bonding were not approved by the
legislature the project would probably be stopped and the
project reviewed. He reiterated that it his intent to stay
on budget.
Representative Foster referred to the fiscal note and the
size of the debt service. He asked what would be paid back
on the loan.
DEVEN MITCHELL, ACTING DEBT MANAGER, DEPARTMENT OF REVENUE
discussed the fiscal note. He noted that there would be a
total of $350 million dollars in debt service for all
international airport revenue bonds. This includes all of
the issuances over the last 31 years. Each issuance
increases the authorized amount. He noted that the payback
would be more than the bond amount. Page 5 of the fiscal
note demonstrates the capitalized interest costs of $3.5
million dollars. The total payback would be $51,483,183
dollars.
Representative Foster questioned how much the improvements
would cost persons traveling from rural areas of the state.
Mr. Parkan stated that the department has not received
opposition from any airlines. He stressed that overall costs
are reduced by the addition of federal funds.
Co-Chair Therriault noted that the debt service would be
paid from the International Airport Revenue Fund. Mr. Parkan
noted that the funds from FAA discretionary dollars would be
deposited into the International Airport Revenue Fund.
Representative Austerman questioned the relationship of
passenger facility charge fees. Mr. Parkan noted that the
department is in the process of putting in an application
for passenger facility charges for the Anchorage and
Fairbanks International airports. The first application
would be put toward the terminal project to reduce debt
service payments. This could reduce debt service paid by an
additional $15 million dollars.
Representative Austerman asked if the department is
requesting any exemptions. Mr. Parkan noted that the
department is asking for an exemption for communities of
less than 10,000 that are not connected to the road system.
This would include Bethel, Nome, Kotzebue, and many of the
small communities around the state. The application process
is proceeding. The intent is to have the plan reviewed by
the airlines in May. If it is approved it would be submitted
to the FAA.
Representative G. Davis asked the rationale for the
exemption. He asked if Kodiak could charge a passenger
facility charge. Mr. Parkan noted that Kodiak is a state
owned airport. The state could charge a passenger facility
charge, but there is no intent to implement one in Kodiak.
Mr. Parkan noted that opposition to the passenger facility
charge in Fairbanks came from carriers that serve the rural
areas. The rationale for the exemption is that these
communities can only be served by air.
Representative Foster noted remarks in opposition to the
project by small air carriers.
Vice-Chair Bunde asked if the marine highway system would be
considered as part of the road system. Mr. Parkan noted that
the exemption would be based on the hard road system.
Vice-Chair Bunde questioned why the payoff would be over 25
years. Mr. Mitchell explained that the 25-year pay back
period is designed to protect the airlines. He noted that
the bonds are based on federal discretionary dollars. If
funding did not come through there would be an undue burden
on the airport to have debt service based on a 10-year
payback.
Mr. Parkan explained that the LIO is a letter of intent from
the FAA stating that they intend to give the state the money
over 10 years. He acknowledged that it is subject to
appropriation by Congress. He stressed that this is a
standard procedure used by other airports in other states.
CLIFF ARQUE, STAFF VICE-PRESIDENT, PROPERTIES AND
FACILITIES, ALASKA AIRLINES, SEATTLE AND CHAIRMAN, ANCHORAGE
AND FAIRBANKS AIRLINES AIRPORT AUTHORITY COMMITTEE testified
via teleconference in support of HB 84. He noted that the
Airlines Airport Authority Committee is an organization of
25 airlines that have signed operating agreements at the two
airports. He clarified that comments referenced by
Representative Foster were in relationship to concerns about
potential cost overruns and the need to proceed with
passenger facility charges. He stated that he did not know
of any airlines that are opposed to HB 84. He observed that
the legislation would not require additional money. The
request is for a bond issuance that would allow the project
to be completed on schedule and the bonds to be paid back.
The payback would be through federal discretionary money
that has been promised in a LIO that would be paid over a
10-year period.
Representative Foster asked the connection between passenger
facility charges and HB 84. Mr. Arque stated that there is
no connection between passenger facility charges and the
legislation. He noted that passenger facility charges would
supply additional funds to reduce the direct payments from
the airlines. House Bill 84 would only supply the cash
needed to bid the project. The cash must be in hand before
the project can be bid. For the project to stay on schedule
the bid must occur in the spring.
Mr. Arque stated that the increase in the cost would be
modest. He did not know if the cost of the project would be
factored into the cost of tickets.
Representative Foster asserted that carriers must pass on
costs to the consumers. Representative Austerman agreed that
airfares would go up as a result of the project. He
referenced concerns by Senator Pearce.
(Tape Change, HFC 99 - 78, Side 2)
Mr. Parkan acknowledged that Senator Pearce had expressed
concerns regarding baggage handling. He stated that he had
spoken to Senator Pearce and the department had addressed
her concerns. He observed that Senator Pearce's concerns
were separate to the issue of the bond authority needed to
capture federal funds.
In response to a question by Co-Chair Mulder, Mr. Parkan
explained that the first LIO payment would be received this
year. Payments until 2002 would go to the non-terminal
project. The remaining funds would go to the terminal
project. The payment amount varies. The payment for 1999 is
$3.9 million dollars. The department has also pledged a
portion of its entitlement funds to the project. The total
funds for the project would be between $4 and $5 million
dollars per year.
Co-Chair Mulder observed that the department would receive
more funds in the near years than the debt service would
cost. Mr. Mitchell noted that the funds would be deposited
into the Airport Revenue Fund and used to pay debt service.
He agreed that funds would be received prior to the debt
service. There would be a 4.95 interest rate on the bonds.
Co-Chair Mulder noted that Senator Pearce was concerned with
issues surrounding baggage. He stated that Mr. Plum assured
him that modifications to resolve baggage issues would be
made without cost overruns.
Representative Foster reiterated concerns that costs would
be passed to rural residents.
Co-Chair Therriault asked if the payment schedule is based
on an increase in passenger deplanements.
Mr. Parkan stated that the project was based on a 3 percent
increase over time. He observed that the estimate was
conservative. Other projections used a 4 percent growth
rate. He acknowledged that there was a dip in the last year,
but pointed out that the rating agencies and feasibility
analysts did not show concern.
Co-Chair Mulder observed that the price of fuel has a larger
impact on the cost of airplane tickets. He acknowledged that
there would be some impact from the project. He pointed out
that the legislature decided to advance the project and
requested that the department obtain additional federal
funding. The department was successful in obtaining a LIO
for $25 million dollars. He emphasized that a delay would
deny an opportunity to capture a favorable interest rate.
Co-Chair Mulder MOVED to report HB 84 out of Committee with
the accompanying fiscal notes. Representative Williams
OBJECTED.
Vice-Chair Bunde noted that he was formerly employed by
Northern Air Cargo. He expressed concern that the
expenditure is coming during a time of fiscal deficits.
Representative Williams Withdrew his objection. He noted
that some air carriers preferred that the project proceed in
stages.
Representative J. Davies clarified that the project has not
increased in cost. A portion of the cost is being replaced
with federal money. Mr. Parkan added that the airlines would
make the debt payments. Their payments would be reduced by
the federal funds.
Vice-Chair Bunde maintained that passengers would pay for
the debt service.
HB 84 was REPORTED out of Committee with "no recommendation"
and with a fiscal note by the Office of the Governor,
2/10/99.
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