Legislature(1997 - 1998)
05/06/1997 08:10 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 55 - ALASKA RAILROAD BUDGET AND LAND CHAIR JAMES announced the next item of business, House Bill No. 55, "An Act relating to the fiscal operations of the Alaska Railroad Corporation and to land acquired by the State of Alaska under the Alaska Railroad Transfer Act of 1982 or otherwise acquired for railroad purposes; and providing for an effective date." The committee would continue discussion from the previous week's committee meeting. Chair James noted witnesses in Anchorage, the Matanuska-Susitna Valleys and Fairbanks would be participating via teleconference. Number 0248 ROBERT CACY, Chief Steward, Alaska Railroad Workers Local 183/AFGE (American Federation of Government Employees), came forward to testify. Mr. Cacy identified himself as a 22-year employee of the Alaska Railroad Corporation. MR. CACY stated he'd seen the inflation and constraints of operating within an approved federal budget, and he was concerned about the loss of the Alaska Railroad Corporation's (ARRC'S) own budget process. He asked, "... I would like to know how your budget and audit committee thinks ... including another layer of authority on the Alaska railroad meets the criteria of less government regulation." MR. CACY continued, "The Alaska railroad was set up to operate as a private corporation by the legislature in 1985. The railroad has the peoples' interest at heart, with oversight by the governor and the board of directors. The railroad is supposed to report on its profitability and its proposed budget to the legislature to (indisc.) prove it is operating with the best interest of the state and its people foremost. And I reiterate, why do you think more control of the Alaska Railroad is less government regulation? I would hope this committee would see the error of this proposed legislation." Number 0340 REPRESENTATIVE AL VEZEY asked Mr. Cacy to define his position with the ARRC. He questioned whether Mr. Cacy was involved in procurement or related areas for the ARRC. MR. CACY responded he was a plumber with the ARRC and not involved in procurement or related areas. Number 0371 REPRESENTATIVE VEZEY continued, mentioning he was not questioning the motivation or intent of the sponsor of HB 55. Representative Vezey noted the existing public perception that the ARRC is owned by the state of Alaska, and is a state of Alaska entity. He commented that the public is disenchanted with some of the ARRC's procurement practices. He stated his opinion that complaints about ARRC procurement practices could be resolved internally. REPRESENTATIVE VEZEY stated his agreement with much of Mr. Cacy's testimony, noting the inability of the state to run its government, let alone a railroad. He commented that the ARRC is owned by the state of Alaska, and the public does feel it has grounds to be incensed about the manner in which the ARRC does business. Representative Vezey asked Mr. Cacy if the employees of the railroad had, in their meetings with management, spoken about the necessity of doing business in a manner that would build public support, as opposed to doing business in a manner that could create ire with the public. Number 0451 MR. CACY responded such a discussion had occurred in a track council meeting about a month ago, concerning actions of the ARRC in Eklutna. Mr. Cacy attributed most of the ARRC problems to inadequate public relations, and noted the situation was improving, although not fully improved. He further noted the ARRC came under state regulations regarding procurement process. Number 0500 REPRESENTATIVE VEZEY clarified that the public relation problems Mr. Cacy mentioned appeared to be problems of communication with the people. He also noted, unless he was seriously mistaken, that the ARRC was not subject to state of Alaska procurement regulations, as the ARRC was set up as a private entity. MR. CACY responded that the ARRC has to either abide by the state of Alaska's regulations for procurement process or supply their own regulations for procurement process equal to the state's. REPRESENTATIVE VEZEY replied, "The complaints that I get frequently have to do with the railroad procuring goods and services from outside vendors." He brought up the concepts of local hire and local business. Representative Vezey went on to say that, to his knowledge, the ARRC's procurement has been done properly in all cases. However, he noted that the lack of a local bidder preference makes many local businesses angry and denies the company a natural constituency. This local bidder preference is allowed, he said, if the ARRC is following state of Alaska procurement code. MR. CACY requested that Representative Vezey provide a specific example of a complaint. REPRESENTATIVE VEZEY said he knew of quite a few such cases. The most recent case, in his memory, occurred approximately two years ago. He described a situation in which the ARRC purchased a fleet of new work vehicles, pick-up trucks, from an out-of-state supplier for a small amount below the in-state cost. Number 0621 MR. CACY said he was somewhat familiar with that particular case, mentioning Alaska Sales and Service in Anchorage as one of the bidders and noting there were others. He stated the contract in question was awarded to the lowest bidder. To his knowledge, the rest of the cases were bid in Alaska first, before going anywhere else. Mr. Cacy added that ARRC bid decisions were made by committee. REPRESENTATIVE VEZEY responded he knew Mr. Blasingame [James Blasingame, Vice President for Corporate Affairs, ARRC], and said they have had similar discussions. Representative Vezey stated that the ARRC needs to be aware it is perceived as a political entity. He indicated the ARRC needs to conduct its procurement with this public perception in mind. REPRESENTATIVE VEZEY brought up another situation, which, he remarked, caused a lot of anger directed toward the ARRC. The situation occurred approximately five years ago, involving track repair with an extensive amount of welding. Representative Vezey mentioned the repairs could have been readily performed by skilled in-state workers. However, he noted the bid specifications were written so that only firms with a considerable amount of railroad experience were eligible, limiting the field of bidders to two or three Lower 48 firms. REPRESENTATIVE VEZEY said he had discussed this track repair matter with Mr. Blasingame. Representative Vezey recounted, "... and there again, I talked to Mr. Blasingame about it and he admitted that the railroad was technically over its head, did not know what it was trying to do, and therefore, he wrote into the specs technical requirements for the background and experience of the contractor." Representative Vezey went on to say the ARRC could have instead instituted an internal quality control procedure and used Alaskan labor for the repairs. REPRESENTATIVE VEZEY noted such situations build public animosity toward the ARRC, and it is difficult to counteract such negative public relations. Number 0724 MR. CACY indicated he understood Representative Vezey's comments and wasn't aware of the track repair situation. REPRESENTATIVE VEZEY added he thought the incident occurred in 1993 or 1994. Number 0764 BRAD PHILLIPS, President and Owner, Phillips Cruises and Tours, testified via teleconference from near Whittier. Mr. Phillips stated, that while he is aware many members of the legislature do not support the tourism industry, he reminds everyone it is the second or third most important industry in the state in terms of economic impact. The tourism industry contributes dollars to the state treasury and employs between 27,000 and 30,000 people in Alaska. MR. PHILLIPS noted he has been in the tourism industry for approximately 48 years. He stated his concern regarding HB 55 is that, if passed, HB 55 takes long-range planning ability away from the tourism industry. Mr. Phillips mentioned the importance of planning and providing vital infrastructure for the orderly development of tourism in Alaska. He noted the new direct passenger service enacted this year from Anchorage to Whittier and commented it would not have happened, had HB 55 been passed a couple of years ago. MR. PHILLIPS stated that putting the ARRC into a bureaucracy would destroy the usefulness of the Alaska railroad for tourism development. He noted his company has a great deal on the financial line in its planning, and he reiterated the importance of the ARRC's ability as a business to make long-range plans, including debt, if necessary, and the acquisition of equipment. MR. PHILLIPS commented on the ARRC's development plans for freight and passenger services. Citing his 17 years of experience working with the legislature, he stated the impossibility of long-range planning, noting that a future legislature may not agree with a current legislature's actions. Number 0948 ED RIVERA, President, Alaska Railroad Workers Local 183/AFGE (American Federation of Government Employees), representing 240 employees of the ARRC, came forward to testify in opposition to HB 55 on behalf of the employees he represents and their families. He also noted most of the people he knows in the community are against HB 55. Mr. Rivera described a recent $15 million contract with BP Exploration (Alaska) Incorporated that hinged on the flexibility the ARRC had to spontaneously react to customer needs, leasing $500,000 worth of cars. He added that this action keeps car prices for BP stable, whereas prices fluctuated before. MR. RIVERA noted that if the ARRC came under the jurisdiction of the budget and audit act [Executive Budget Act], he felt the ARRC would no longer have the ability to spontaneously respond to business concerns in the community and would have lost the above contract. He noted a contract of $15 million over five years may not seem much to the legislature, but it provides income to the state and to the ARRC. MR. RIVERA said he doesn't feel HB 55 is beneficial to anyone. He doesn't understand why we're trying to fix something that hasn't broken yet, referring to the ARRC. Mr. Rivera asked the committee to consider HB 55 and not allow it to go through as it is currently written. Number 0117 BYRON HENSHAW, Mechanic, Alaska Railroad Corporation; General Chairman, International Association of Machinists and Aerospace Workers, testified in opposition to HB 55 via teleconference from Anchorage. MR. HENSHAW stated, "I'm against this bill for a few reasons. I and my co-workers take pride in maintaining and being part of the Alaska railroad. This is why I was upset when the discussion of selling the railroad for what was paid for it came up. I did not want to see our hard work and improvements made, to be lost because they weren't realized when they were talking about selling it what was already put into it since it was purchased." MR. HENSHAW continued, "Likewise, I would not feel the same commitment to the railroad if all that mattered was what was in the budget. When times are good, we push for improvements we feel we need. When times are poor, we improvise to make things work. It is a challenge to keep the railroad profitable while following the safest means possible, and a challenge and a commitment I wish to keep." Number 1178 BILL HUPPRICH, Associate General Counsel, Alaska Railroad Corporation, testified in opposition to HB 55 via teleconference from Anchorage. Mr. Hupprich noted he oversees procurement functions and finance for the ARRC. His comments were addressed to Representative Vezey's questions during Mr. Cacy's earlier testimony. MR. HUPPRICH explained the ARRC is required, by law, to have procurement rules that are substantially equivalent to the state of Alaska procurement code. In reality, the railroad's procurement rules are nearly identical to those rules found in the state procurement code, including an Alaskan bidder preference. An Alaskan bidder has a 5 percent preference on all of the ARRC's procurement actions. MR. HUPPRICH noted he was not familiar with the track welding situation Representative Vezey discussed, but he stated that the ARRC has purchased track welding equipment and track repair work is currently being done by ARRC employees. Mr. Hupprich added that he is prepared to answer any questions on procurement, or on the financing issue he addressed in his letter. Number 1241 REPRESENTATIVE DYSON asked Mr. Hupprich if the ARRC was taking an active part in the Department of Administration's current complete revision of procurement codes and policies. Number 1260 MR. HUPPRICH replied the ARRC, to his knowledge, was not aware of this project and had not been contacted. Number 1268 REPRESENTATIVE DYSON mentioned the awkward, highly centralized nature of the state of Alaska procurement system, especially for organizations involved in field work. Representative Dyson strongly encouraged the ARRC to pursue involvement in the procurement code revision process. He recommended, if the procurement code was not revised, that the ARRC opt out at its earliest opportunity and write its own procurement code. MR. HUPPRICH replied that the ARRC would follow up on Representative Dyson's recommendations. Number 1299 REPRESENTATIVE VEZEY asked if he could refer a constituent to Mr. Hupprich with questions regarding a recent procurement action of the ARRC, possibly relating to windows for a building. MR. HUPPRICH provided his phone number, (907)265-2461. Number 1341 DONALD McPHEE, Director, Fairbanks Historical Preservation Foundation, testified via teleconference from Fairbanks. He stated he is employed with the state of Alaska, Department of Transportation and Public Facilities (DOT/PF) as a budget coordinator and took annual leave to testify at this meeting. MR. McPHEE said it seemed like folly to expect a privately owned corporation which is making a profit while meeting community needs, operating under a calendar fiscal year budget, to become just another state agency, operating under a state fiscal year budget ending June 30. He drew from his experience as a budget coordinator for DOT/PF, noting, since the ARRC's peak operating time is in the summer, that the state fiscal year would be especially inappropriate for the ARRC. MR. McPHEE further stated, "I think the legislation as read would simply tie the hands of a publicly owned private corporation that is doing the job that the state of Alaska set it up to do; i.e., it is responding to the economic needs of the Alaskan public." MR. McPHEE mentioned the instrumental role the ARRC played in setting up Fairbanks land sales resulting in the economic development of the Chena River north bank, noting these actions were in response to direct community wishes, not necessarily involved with pure profit-making. MR. McPHEE stated that he speaks for the Fairbanks Historical Preservation Foundation regarding their project to relocate the historic coal bunkers in Fairbanks, a national historic landmark. He commented that Representative James and Representative Kelly are both familiar with this project. Mr. McPhee noted the ARRC board, acting under an active board of directors without a chief executive officer, responded to the foundation's needs and helped the foundation resolve the coal bunker relocation problems extremely successfully. He added that this effort was supported by a Fairbanks North Star Borough resolution. MR. McPHEE strongly disagreed with the advisability of turning the ARRC into a nonprofit state agency. He did not believe it would be possible for the railroad to make a profit under those constraints. Mr. McPhee further reminded the committee the Fairbanks North Star Borough assembly had recently passed a resolution against HB 55. He asked the committee members to vote against HB 55 and not to allow further action on HB 55 in the House. Number 1524 DENNIS WILFER, President, C and R Pipe and Steel, Incorporated, a Fairbanks business, testified via teleconference from Fairbanks. As a customer of the ARRC, Mr. Wilfer stated his opposition to HB 55. MR. WILFER said his company depends heavily on the ARRC for southbound shipping of scrap and surplus steel products and northbound shipping of new steel products. MR. WILFER said he is opposed to HB 55 because he feels it will be detrimental to his business. He was a customer with the ARRC while the railroad was under federal management. He stated, "It was abominable. We were a frustrated customer." Mr. Wilfer continued, "Today the Alaska Railroad Corporation is responsive to my needs. It has improved steadily. In recent years it's a better and better-run business." MR. WILFER cited better and more available equipment, and better customer service as improvements he has noticed in the ARRC. He noted steady economic growth over the past five years in Interior Alaska. Mr. Wilfer stated he felt the ARRC was a significant contributor to that growth through its strong role in the freight links connecting Alaska to the continental United States. In closing, Mr. Wilfer reiterated, "The Alaska railroad isn't broke. Please don't fix it." Number 1632 JEFF LOWENFELS, President and Chief Executive Officer, Yukon Pacific Corporation; President, Commonwealth North, testified via teleconference from Anchorage. He noted he had sent a letter in his capacity as president of Commonwealth North to all members of the legislature the previous month. That letter, he stated, expressed Commonwealth North's position regarding the long-term need for an independent and competitive Alaska railroad. Mr. Lowenfels informed the committee he was testifying today on behalf of Yukon Pacific Corporation (YPC) in interest of the company's proposed liquefied natural gas (LNG) project. MR. LOWENFELS remarked the legislature has worked, and continues to work, very hard to develop a formula to ensure the state of Alaska is a competitive place for an LNG project. He stated, "A number of potential participants have indicated they will not invest in this project unless they see a very stable and competitive environment in which to make that investment." From Mr. Lowenfels' perspective, a stable Alaska railroad is part of the state of Alaska's formula. MR. LOWENFELS noted the Alaska railroad would be a major part of the infrastructure delivering pipe up to the Fairbanks area and into the right-of-way farther north. He stated, "And there is no question that if that railroad cannot act in a competitive basis, if it cannot contract as we have discussed and as we've been hearing people discuss today and on Saturday, it cannot be part of that formula." MR. LOWENFELS continued, "We need a very safe and a very efficient Alaska railroad, and we believe that the railroad now is operating in a fashion that would encourage anybody to make the investment in an LNG project based upon that component of the formula." MR. LOWENFELS further stated, "... We would urge the legislature not to take action on this bill, to leave the railroad alone, and to make sure that it is not influenced by political pressures or the necessities of having to act -- to act like a state agency. And that's not to say that acting like a state agency is good or bad, it's just that for a railroad which would be serving a large scale LNG project, it just simply wouldn't make any sense." Number 1738 ERNEST BRANNON, Former Mayor, Matanuska-Susitna Borough, testified via teleconference in opposition to HB 55. Former-Mayor Brannon said he believes HB 55 is flawed and goes against the principles under which the ARRC operates. FORMER-MAYOR BRANNON listed some of those principles: flexibility to respond to market conditions, flexibility to purchase equipment and supplies to operate under market demands, competitiveness in the marketplace, control of capital assets to collateralize operations, maintenance of sufficient cash flow to operate in the competitive marketplace, and provision of a service or commodity desired by the public. FORMER-MAYOR BRANNON then commented that state government in its normal role is not designed to do any of the above. For example, government does not respond to markets, its budgets are not flexible enough to respond to changing market conditions, and it does not compete in the marketplace. Former-Mayor Brannon noted that government does control public capital assets, and it does maintain a cash flow for normal government operations. However, government is not operating in a competitive, profit-driven atmosphere. He noted there is a long, drawn-out public process before public capital assets can be utilized. FORMER-MAYOR BRANNON continued, noting there's no flexibility for government to change quickly like a private business to respond to market conditions. He said government doesn't provide service and competition with others, nor does it provide commodities. FORMER-MAYOR BRANNON commented that the ARRC should not be put in budget competition with schools, hospitals, prisons and so forth. He noted the railroad would probably lose in such budget competition. In his opinion this would have devastating effects on businesses now dependent on the ARRC. FORMER-MAYOR BRANNON stated, "The railroad as it exists today, provides Alaska the best of all worlds: the state still owns all of its [the ARRC's] assets, it pays its own way as well as makes a profit, and it operates as a private entity without a burden on the taxpayers, and provides a necessary public and private service." FORMER MAYOR-BRANNON continued, "To me, this bill is contradictory to the philosophy of this legislature. This legislature wants to privatize prisons, it wants to create a ferry authority in Southeast Alaska, it wants to privatize some schools, auto licenses and so forth. As a private citizen, I'm getting a mixed message." Former-Mayor Brannon noted, in his travels around the state, he has never heard anyone suggest changing the operation of the ARRC. Number 1872 DAVID JOHNSON, Manager, Alaska West Express, testified via teleconference from Fairbanks in opposition to HB 55. He noted he has been dealing with the ARRC for the past ten years on a daily basis. Mr. Johnson said the railroad does an excellent job while providing excellent customer service, and has significantly improved its efficiency over the years. He suggested any small problems that might exist be dealt with internally. Number 1929 JOHN D. (JACK) WILLIAMS, Founder and Executive Vice President, Fairbanks Historical Preservation Foundation, testified via teleconference from Fairbanks. He noted he was testifying here as a private citizen in strong opposition to HB 55. Mr. Williams said he was in agreement with the previous witnesses' testimony. MR. WILLIAMS referred to Mr. McPhee's comment that the fiscal operation of the ARRC could be severely hampered if it was tied to the budgetary actions of the legislature. In Mr. William's opinion, the ARRC is successfully doing what it was mandated to do. Mr. Williams stated that it made no sense to put the railroad under a new mantle when it was currently serving the needs of all the people. MR. WILLIAMS mentioned a recent Denali Borough assembly meeting in Cantwell concerning a subdivision built on ARRC property. He said, "The time is running out on that subdivision to go way beyond [the] amortization period needed to finance a house. ... Governor Bill Sheffield was down there, and he addressed that matter to those people [in a manner] ... which I thought was very, very genuine, and he meant every word he said." MR. WILLIAMS continued, "... Here's the chairman of the board and the acting CEO [Chief Executive Officer] of this big corporation, the Alaska Railroad Corporation, with a very, very personal contact in that relatively small community. And I thought, this is the meaning of cohesiveness; this is what it's all about -- serving Alaska, serving Alaskans, and taking the time and trouble to do it -- their motivation is not totally profit. However, they are very successful at being profitable." MR. WILLIAMS finished, "I ... have nothing more to add. I am strenuously against this bill; it just simply does not make any sense." Number 2065 JOSEPH FIELDS, President, Kanitishna Holdings, Incorporated, testified via teleconference from Fairbanks in opposition to HB 55. He noted he is involved with the Denali railway system project. They have been very pleased with the assistance and direct response they've received from the ARRC. Mr. Fields stated the Denali railway system project sees the ARRC as a management operations model for other facilities in the state. He believes going back toward a centralized economy, as provided in HB 55, does not make a lot of sense. Number 2106 CHARLIE BODDY, Vice President, Government Relations, Usibelli Coal Mine, testified from Fairbanks via teleconference in opposition to HB 55. He noted Usibelli Coal Mine has a very good working relationship with the ARRC and feels HB 55 could put that relationship in jeopardy in many ways. Mr. Boddy referred to previous comments regarding the ARRC's necessary ability to operate in a businesslike manner in order to quickly respond to customers' needs. MR. BODDY stated the purported changes in HB 55 could severely hamper the current working relationship between Usibelli Coal Mine and the ARRC, and therefore the Usibelli Coal Mine could not be in support of the current proposed legislation. Number 2162 REPRESENTATIVE TERRY MARTIN testified on HB 55, stating, "We, as the legislature, have to make up our mind. Do we want this to be a private enterprise, which I wholeheartedly support, or should we follow the constitution? From the very beginning it was very clear that we are going to stray from the constitution, Article IX and ... Section 7 (indisc.) Section 13. This is a public identity; this is public property. It's much like AIDEA [Alaska Industrial Development and Export Authority], it's much like the Alaska Housing [Finance] Corporation, the mental health corporation ...." REPRESENTATIVE MARTIN briefly described the struggle of the "mental health corporation" to avoid the authority of the Executive Budget Act, discussing the responsibilities of the legislature. He also mentioned the Alaska Housing Finance Corporation (AHFC), citing that agency's struggle to avoid legislative control, and the fears of devastation accompanying legislative control that proved unfounded. Representative Martin noted the similarity of those fears to the fears expressed in today's testimony regarding HB 55 and the ARRC. REPRESENTATIVE MARTIN declared, "I think that we, as legislators, as long as it is public assets, as long as it is public land, we are responsible." He commented that two years ago the ARRC absolutely opposed any attempts to be privatized. Representative Martin stated the opposite is happening now; there's resistance to making the ARRC a public corporation, under the authority of the Constitution of the State of Alaska and overseen by the legislature. REPRESENTATIVE MARTIN said he believes there won't be any devastation. The ARRC's $85 million budget is "like a drop in the water" compared to other state corporations like the Alaska Permanent Fund Corporation or AIDEA. Representative Martin went on to say "... it is our responsibility whether we like it or not, and I think all the fears that the state, that the railroad employees have, about losing their jobs, about the fear of the world falling down, [are] completely wrong." REPRESENTATIVE MARTIN continued, "... this railroad, in my mind, is not going to improve at all without federal, state money or private money, and they're real lucky in the last few years where Senator Stevens through (indisc.) mechanism found a way to get them more money, which shows up as profit." REPRESENTATIVE MARTIN said the legislature needed to decide if the ARRC should be public or private. He expressed his hopes that someday the ARRC would be run purely as private industry, with the ability to expand in directions of its choosing, mentioning the possibility of a Canadian connection. Representative Martin noted the ARRC's expansion was not going "to happen on the public concept." REPRESENTATIVE MARTIN concluded, "If it is a public asset, then I think we have the absolute responsibility of putting it on the Executive Budget Act, following the Constitution of the State of Alaska." Number 2307 CHAIR JAMES questioned how the case in point - the previously mentioned $15 million ARRC contract with British Petroleum Exploration (Alaska) Incorporated, which was dependent on the quick decision by the ARRC to lease $500,000 worth of extra cars - would have been handled under the Executive Budget Act. Number 2324 REPRESENTATIVE MARTIN replied, noting he was not an expert on private business, that it would be a situation much like AIDEA's private enterprise deals with public funds. He added, "It's much like we do with the mental health corporation, where they contract ...." CHAIR JAMES questioned whether the mentioned public entities operated under a time frame similar to the ARRC's. REPRESENTATIVE MARTIN assented, "They do. Look at the Permanent Fund Corporation ... instantly, they're making $100 million deals." He noted this action would not delay the ARRC at all in their normal day-to-day activity. The ARRC would be able to operate with flexibility from a year-to-year contract, or a 5, 10, or 20-year contract. Representative Martin stated, "It's not going to limit them by a time (indisc.) like July 1, or the budget year, or ... December 31 of the calendar year. There's no limitations there, and that kind of fear that we will hold up their operation because the budget stops on July 1 or starts on July 1 ... it's just a pseudo-crisis fear." Number 2369 CHAIR JAMES replied, "But Representative Martin, currently in the budget process that we're going on, there are some corporations out there that fear for their life because when the legislators are sitting around a table, they don't know what the end result's going to be. And if someone makes a little faux pas out there, then it seems to me like the first thing that the legislature wants to do is cut their budget." Number 2385 REPRESENTATIVE MARTIN replied, "Well that's give and take. If we want to make them private then, please, I beg you, make them private. Governor Sheffield, buy the railroad. Mr. Binkley said the other day he'd like to buy it. Please, Mr. Binkley, buy it. Do what you want. I don't know those answers, you know." Number 2401 CHRIS KNIGHT, Researcher for Representative Terry Martin, commented that the railroad was faced with the exact same situation a few years ago, referring to the $15 million BP Exploration (Alaska) Incorporated contract. He recounted that Anchorage Sand and Gravel wanted to increase their production, hauling sand and gravel between Fairbanks and the general Anchorage area. They came to the ARRC with their request, but the ARRC didn't have enough cars. Mr. Knight added that the ARRC didn't have the money to purchase more cars. MR. KNIGHT stated that Anchorage Sand and Gravel bought 40 cars, barging the cars up at their own expense. Anchorage Sand and Gravel still owns those cars, which are being used by the ARRC. He questioned whether the current system was effective from the perspective of Anchorage Sand and Gravel, which incurred a probably unexpected extra expense. Mr. Knight expressed the opinion that, perhaps, it would be possible to provide greater assistance to companies if the ARRC came under the Executive Budget Act. Number 2434 CHAIR JAMES noted she appreciated Mr. Knight's optimism, but, in her opinion, it would be very difficult to quickly get any kind of authorization for such an action under the Executive Budget Act. Number 2441 FORMER-GOVERNOR BILL SHEFFIELD, President and Chief Executive Officer, Alaska Railroad Corporation, testified via teleconference from Portage. Former-Governor Sheffield responded to the comments, noting he had been listening for a couple of years to testimony from people who had never run a business or made a payroll. He said he would address the comments one at a time [response cut off mid-sentence by tape change]. TAPE 97-58, SIDE B Number 0001 FORMER-GOVERNOR SHEFFIELD continued, emphasizing the inability to obligate one legislature to follow the intentions of a previous legislature. Former-Governor Sheffield noted the ARRC is a public corporation dealing with the private sector. The private sector changes its plans and has different needs throughout the year, from month to month and season to season. He stated that the ARRC doesn't know at all times what those changes in plans may be, but it is able to write its own budget, and move money around within that budget, to respond to the varying needs of its small and large customers. Former-Governor Sheffield named C and R Pipe, Fort Knox (ph) and BP Exploration (Alaska) Incorporated as some of those customers. FORMER-GOVERNOR SHEFFIELD then affirmed with Chair James that she had not planned another hearing on HB 55. Former-Governor Sheffield noted the points that had been brought up needed to be clearly and concisely answered. He commented that the ARRC would not be able to contract under the Executive Budget Act. FORMER-GOVERNOR SHEFFIELD stated, "We couldn't have a long-term contract with MAPCO [Alaska Petroleum Incorporated]; we couldn't have a long-term contract with Usibelli [Coal Mine]. Those people are in business for a long period of time. We couldn't have a contract to run our train to Whittier to take care of the small cruise ship business in Whittier; we couldn't run a contract to take of the passengers out of Seward and run them to the airport. We can't contract for long-term." FORMER-GOVERNOR SHEFFIELD continued, "If we needed to borrow money from a bank, how would we borrow money and guarantee we're going to pay it back two and three and four years now when the legislature changes every two years? Hopefully it will change. And how could we run our business; how can we, how can the legislature, be exempt from all the railroad's activities? With control comes liability; you don't have any liability now. It states that in all of the acts, the transfer act, the state law. With control you're going ... to get liability. And also, Madam Chairwoman, they make a foo foo out of this calendar year stuff, but all of our private sector people are on calendar years; we're on a calendar year. It's not that easy to change over. We don't have the staff to be able to do it." FORMER-GOVERNOR SHEFFIELD continued, "Now then, we get money from the federal government two years in a row. We hope to get some more money in the next five years where it will be written into the ISTEA [Intermodal Surface Transportation Efficiency Act], which the FRA (ph) administrator spoke about on Saturday, the next-TEA (ph) is what they call it. There's two and a half billion dollars out there that goes to passenger railroads around the country, but we never qualified. And so now we qualify, I think we should be applauded for that, not condemned for getting money from the federal government. They owed it to us. And so we get that money now and we hope to get it for the next five years, and why not? That's the law, the president put it in his bill, $178 billion for rail service in America, and we might as well get our share of that money." FORMER-GOVERNOR SHEFFIELD continued, "So from safety to the operations to being flexible to respond to our customers, it's very important. I tell you, and I can prove it to you, unless you change the Executive Budget Act entirely, what's going to happen is if we're under that we'll start to be forced to lose money. How can we contract for barge service from Seattle to Whittier? How can we do all these things and still stay in business under the Executive Budget Act? So what happens, Representative James, we just start to lose money and then we go broke and then we devalue the assets and we'll be in, just like it was when it was under federal ownership." FORMER-GOVERNOR SHEFFIELD continued, "So it doesn't make any sense to the people of Alaska; I don't know why it makes any sense down there. So I ask you to think about it long and hard. If you want legislative oversight, think of another way. Let us come and talk to you once a month if we could; (indisc.) we're an open company and all you're doing is just raising hell with our employees, the unrest of this company, and it makes it very, very difficult. Thank you very much." Number 0221 REPRESENTATIVE DYSON questioned former-Governor Sheffield on behalf of Representative Mark Hodgins, who had left for another meeting. He said Representative Hodgins wondered when the ARRC board of directors had last declared a bonus for employees, board members and/or officers. Number 0240 FORMER-GOVERNOR SHEFFIELD replied that in 1996 the ARRC board had given a bonus to all non-represented employees because there had been no salary increases for those employees since 1992. Number 0263 REPRESENTATIVE DYSON asked, for Representative Hodgins, the number of times the ARRC board had declared a bonus for some group of employees or board members. FORMER-GOVERNOR SHEFFIELD replied that the 1996 bonus was the only one he was aware of. He noted the ARRC's represented employees have had salary increases through union negotiations. Number 0287 REPRESENTATIVE DYSON, in his final question on behalf of Representative Hodgins, asked what criteria are used to set a price when the ARRC is competing with private enterprise. Representative Dyson commented that he assumed Representative Hodgins was referring to competition with the trucking industry. Number 0298 FORMER-GOVERNOR SHEFFIELD stated the ARRC files a public tariff on everything it does. To the best of his knowledge, these tariffs are competitive and controlled by federal law. Number 0334 JOHNE BINKLEY, Chairman, Board of Directors, Alaska Railroad Corporation, testified via teleconference from Fairbanks in response to Representative Hodgin's questions. Mr. Binkley clarified that the ARRC board of directors has never received compensation besides the stipend mandated in the Act, and has never received any bonus. The bonus former-Governor Sheffield referred to was strictly for upper-level management in lieu of salary increases since 1992. Number 0364 RANDY WELKER, Legislative Auditor, Legislative Audit Division, Legislative Affairs Agency, testified on HB 55. Mr. Welker commented on the motivation and purpose behind the desire to bring the ARRC under the Executive Budget Act. MR. WELKER stated, "The Alaska Railroad is the only entity of state government that is not subject to the Executive Budget Act. Right now ... the only legislative involvement we've had over the last quite a few years has been through the audit process. Usually in that audit, when we're at that point in time, someone is already disenfranchised and has gone to some legislator that has brought that forward. So we go in, we do an audit, and we make the recommendations for improvement to those problems. What we think is more important is to get the cart behind the horse here again and provide the oversight up front. ... There are two principal pieces to the Executive Budget Act: one is the act of appropriating itself, and there's a lot of concern been voiced about that process." MR. WELKER continued, "I think if you look at the language the House Finance Committee put into the budget this year on the railroad, it simply says all the money necessary to run the railroad is appropriated to the railroad for the purposes of the railroad. ... That is a very wide-open appropriation. It would cover any of these contingencies that have been brought up today, the urgent need to go out ... and increase spending of any nature, because it is the amount necessary to operate -- is appropriated and is available to the railroad." MR. WELKER went on to say, "The Senate Finance Committee amended the bill to take debt service out of consideration in the Executive Budget Act, so ... that is not a part of it from the Senate's perspective. ... The debt goes on outside of the Executive Budget Act, similar to, and to correct some previous testimony, AIDEA; certain corporations, certain aspects of their operation, are not subject to the Executive Budget Act. AIDEA, in their bonding activity, that, with the exception of those bonds of large dollars which require legislative approval, the debt service and aspects of that sort, AHFC's debt service payments, I don't believe, are subject to the Executive Budget Act. But the other part of the Executive Budget Act is what I believe is the important element here; ... that's the oversight that the legislature provides." MR. WELKER continued, "It ... is a mechanism we have established for all state government to provide the communication between entities of state government and the legislature. The railroad is wholly owned by the state, and I believe the legislature has a certain responsibility to provide some oversight of the railroad. I don't believe asking someone to come down and talk to the legislature while they're in session through the formal structure that we have set up for the budget is an onerous request on anybody. ... I think it's that oversight and that discussion, the ability to express concerns to the board, to the executive officers, to express them up front so that we're airing those things out in the open and before we're in to the point where we're in doing audits and that." MR. WELKER continued, "... I don't believe, and I believe Governor Sheffield would concur, that in the past the communication between the railroad and the public, between the railroad and the legislature, has not been what it should be. I continue to credit the Governor for making improvements in those relationships over the last few years. I'm very hopeful that the new CEO, when we have one on board, will pursue and continue that effort to be open and communicating to the public and the legislature, but I think that executive budget process is a mechanism to allow the legislature to communicate, and it is the formal process that we have in place for all other entities of state government." Number 0561 CHAIR JAMES noted she considered the role and function of the ARRC, with its daily contact with customers, to be different from AIDEA and AHFC, which are both in the banking business. Chair James inquired about the fiscal year for the ARRC if the legislature appropriated the ARRC's budget. She asked, "Are you saying the language that all the money that's needed for the railroad is appropriated is the language we currently use?" Number 0598 MR. WELKER replied that the language in question was added to the budget, in the front section, during the current legislative session for the ARRC. That language was in the version of the budget passed by the House. Number 0614 CHAIR JAMES continued, "And you're saying that wouldn't change under the Executive Budget Act?" Number 0619 MR. WELKER replied there is nothing in the Executive Budget Act which makes the ARRC subject to the budget, nothing that would mandate a change by the ARRC to the state fiscal year. Number 0630 CHAIR JAMES questioned, "I don't understand you. You say they put that language in the budget, you don't know whether it's going to come out or not, that authorizes any amount that the railroad needs is appropriated. They're doing that now when they're not under the Executive Budget Act, and supposedly that's O.K. to put that language in there, and then if we put them under the Executive Budget Act, the same language is there? ... Why do we need the Executive Budget Act to do it if we can put the language in there without it?" Number 0649 MR. WELKER answered that he believed the front section of the budget act takes care of the appropriation side, but more of the oversight, the preparing, the submitting, the process of communicating and discussing that budget is driven by the Executive Budget Act. He noted that there is nothing in the Executive Budget Act that mandates an appropriation. He continued, "The budget act process is more that communication; that process ...." Number 0672 CHAIR JAMES interjected, "If all you want them to do is to come down here during a legislative session and make an extensive report on the railroad, they can do that now?" MR. WELKER answered in the affirmative. CHAIR JAMES continued, "So putting them under the Executive Budget Act won't change that either, would it?" MR. WELKER explained, "I believe putting them under the Executive Budget Act brings them into the formal process that we have put in place for legislative oversight. That's not to say that there couldn't be some alternative oversight process." Number 0693 CHAIR JAMES, speaking from her experience with small business and her close following of the ARRC over the past five years, noted the changes she'd seen in the ARRC over the last years. She attributed those changes to the freedom of action the ARRC currently has. Chair James noted she was not in favor of one action of the ARRC, the Comfort Inn purchase. She said she felt the ARRC unfairly competed with private industry in putting the Comfort Inn property up for security and becoming a partner in the hotel, instead of opening the land up for lease at fair market value. However, Chair James noted, the ARRC changed its policy because of this incident and will not be involved in a similar situation again. CHAIR JAMES noted she did see a problem for the ARRC with the ARRC's calendar fiscal year and the legislature's appropriations on a fiscal year ending June 30. In her opinion, the language allowing the ARRC all necessary appropriations was not valid if the appropriations were not going to be examined and decided on by line item by the legislature. CHAIR JAMES concluded that the ARRC has been making a profit and is now eligible for, and is receiving, a share of federal funds available for railroad passenger services. Chair James asked: What would, and could, the legislature do with the extra funds the ARRC has been generating? Number 0861 MR. WELKER replied he believed the legislature has the inherent power to extract anything from the ARRC if the legislature so wills. He said this ability of the legislature is not dependent upon the Executive Budget Act. Mr. Welker continued, "You mention the broad language of the current front section that the House put in, and I believe you characterized it as a sham, that it's wide open. If all we're going to do is come down and drop that in as a token gesture of complying with the constitution and appropriation and all of that, I might tend to agree with you." MR. WELKER continued, "But that's why I believe it needs to go hand in hand with the Executive Budget Act process where we deliberate, where we review and we discuss and have an understanding of what their proposed budget is, but then we turn around and as we do many times, with many agencies, we set appropriation levels. At a low level if we have concerns on agencies, or at a high level if we have a relative range of comfort, that we have faith in their ability to administer that appropriation at a very high level. So what we're doing with the railroad is the budget act would provide that basis for discussion and understanding of what's in their budget, but then giving them the flexibility to operate (indisc.) that very language." Number 0950 CHAIR JAMES stated she understood Mr. Welker's explanation. She commented the legislature does have the power of appropriation and uses that power to get what it wants. She noted the public understands the legislature's authority to appropriate. CHAIR JAMES continued, "When they [the public] don't like what Fish and Game is doing somewhere, someone irritates some private people, they say to the legislature, 'Cut their budget.' It doesn't make any difference what agency is out there, if they don't like the way they're doing it, the people say 'Cut the budget,' and the legislature says, 'That's our authority, we can cut the budget.' What happens, sometimes they will cut the budget, the people will come in and say, 'Well, what did I do wrong? I'll change ... I won't do that anymore.' ... That's what you want the railroad to be under the Executive Budget Act for, ... so you have that little oversight that says if you don't like what they're doing, you have the right then to take that out of the budget." CHAIR JAMES continued, "My point is we can do that now. I have been successful in doing that by working with the railroad. I have found them to be very responsive to every concern that I've had. I agree with the people here from the unions who testified, that they have a PR [public relations] problem. I have been telling them that for five years and I've been telling them they should have a PR person to feel out the problems in the public and bring them back to the board so that they can address them. They are a public corporation; they do need to have the public support. They can't just be arrogant and say, 'We're here, we're protected and so therefore what you say doesn't matter.' I think they understand that, and I think we're moving in the right direction." CHAIR JAMES continued, "I think that when you put them under this, what I see people get suspicious, we have about six or seven, as an example, bills on the legislative plate this year that all take a hit at employee rights, or employee rights that they've had, either their wages or their benefits or their ... something." She noted the employees in this state, both union and nonunion, are rising up and saying, "'Why are you an anti-worker legislature?'" CHAIR JAMES said, "There is a message that we send, and I think ... when we do things in the legislature, we need to bring the people along with us on this issue so that we don't make rash decisions that take care of things with a machete." She concluded, "So I can see, I understand now, and I'm glad you're here to define what this -- because I've been questioning in my mind why do they want to do this? I think I see why now, and I think there's another solution ... that might be the right way, and I'll talk to you about it later." Number 1086 MR. WELKER replied that he agreed with everything Chair James said about the improvement in communication at the ARRC. He noted he had met with former-Governor Sheffield. Mr. Welker stated he believed in the past there had been some arrogance at the ARRC, and he believed former-Governor Sheffield was intent on changing that situation. Mr. Welker said he'd seen a change in the audit division's relationship with the ARRC. Mr. Welker concluded, "... still, I don't know that that necessarily satisfies the greater legislative oversight process." Number 1116 CHAIR JAMES stated that she understood Mr. Welker's comments. She noted she was not opposed to the eventual sale of the ARRC, but she was opposed to giving it away. Chair James remarked that her desire was to keep the ARRC the best-operating, most effective and efficient railroad there is. She commented on her fears about putting the ARRC into the legislative process, mentioning the "legislative attitude." Number 1159 MR. WELKER responded that he didn't believe enough was known about the railroad to discuss its sale yet. CHAIR JAMES stated that, there being no further comment, HB 55 be set aside.
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