Legislature(1997 - 1998)
04/28/1997 01:15 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 210 - AIRPORT DUTY-FREE CONCESSIONS Number 1697 CHAIRMAN WILLIAMS announced the next order of business to come before the House Transportation Standing Committee was HB 210, "An Act relating to the extension of contracts for the sale and delivery of inbound merchandise at international airports." Number 1729 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, explained HB 210 would give the authority to the Department of Transportation and Public Facilities (DOT/PF) to grant a lease extension to a lease holder for areas which were for sale and delivery of inbound merchandise. At one point as much as $100,000 million in gross revenues were produced by the duty free ports at the Anchorage International Airport, with annual receipts back to the state in excess of $19 million. However, because of the change in air traffic, there was a period when Anchorage was skipped as part of the passenger refueling and servicing destinations for the international traffic between Europe and the Orient. The traffic was picking up again and it was to the benefit of the state of Alaska to enhance the revenues of the Alaska International Airports Systems - Anchorage and Fairbanks. It was necessary for the concessionaires to make substantial lease holding improvements to the premises in the international terminal in Anchorage in order to merchandize some of the world-class merchandise. As a result, they were asking for an extension of their lease to enable them to amortize the cost of several millions of dollars worth of improvements. Anchorage was in the middle of the flight patterns competing with New York City, Hong Kong, and Seoul - all with vast duty free shops. The bill would enhance the revenues to the state and it was critical that the best interest of the state be served. Number 1948 REPRESENTATIVE ELTON asked Representative Rokeberg what had been the practice of time for the contracts? REPRESENTATIVE ROKEBERG replied that it had been for four years and eleven months. There was a Federal Aviation Agency (FAA) regulation that mandated certain activities at international airports be limited to five years because the federal government wished to have economic opportunity or consideration of minority participation in lease hold interests at these types of concessions. The Alaska group did have substantial ownership by minority people. Renewal options were common but they depended on market conditions. Number 2071 SAM S. KITO III, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities, was the next person to testify in Juneau. The department had submitted a zero fiscal note for this piece of legislation. The department's position was neither in favor nor in opposition to the legislation. It was his understanding that the bill was not retroactive. Number 2122 REPRESENTATIVE ROKEBERG asked Mr. Kito III if his prospective opinion was based on a legal opinion? Number 2130 MR. KITO III replied he would defer it to the Department of Law. Number 2140 LYNN KLASSERT, General Manager, David Green Group, testified next via teleconference in Anchorage. The Alaska location competes for a market share with many Asian Airports. The group took over the concession in 1995, when revenues were at $17 million verses $100 million in 1988. The group had invested $1.5 million in trying to find out the needs of their customers - mostly Korean and Chinese. The facility needed to be improved and the group was willing to spend the money to bring it up to recapture the market share. However, to invest the money, the group needs a longer period to receive the investment back. The group had increased its staff from 25 to over 80 employees, but the growth would not come without enhancements to the assets. The group would like an extension that would meet the needs of the capital improvement so everyone could benefit. Number 2386 RICK BENEDETTI, Representative, David Green Group, testified next via teleconference in Anchorage. The contract exemption should apply to the existing contract. This type business was competitive and moved forward quickly. Waiting could cause a missed opportunity. Number 2421 REPRESENTATIVE ROKEBERG asked Mr. Klassert if the transition situation of being recruited by the state to take over could be addressed? Number 2432 MR. KLASSERT replied that Mr. Benedetti and himself prepared the business plan to try and qualify themselves and to find investors to work with them. They were both employed by the former operator - Duty Free Shoppers Limited. The state had put it up for bid and they qualified on the fourth go around. TAPE 97-25, SIDE B Number 0008 ELIZABETH HICKERSON, Assistant Attorney General, Transportation Section, Civil Division, Department of Law, testified next via teleconference in Fairbanks. She was concerned how the bill applied to the existing contract and the retroactivity. It was an exclusive contract for a competitive situation. There were two other bidders that did bid on the contract. The airport regulations required that the terms and conditions of all competitive bids be publicly noted. The invitation to bid provided that the contract terms were not negotiable. There was a major section on disclaimer. There would be litigation, if there was an attempt to extend the existing contract. The last bid was in fact litigated up to the supreme court. Today, there were six interested parties including the existing concessionaire. The interest was there and the market place was watching. She was concerned about legislation that would only apply to the David Green Group contract. She was also concerned about the issue of competitive principles. Today, she was asking that the legislature be very cautious when applying the bill to the existing contract because it would break the non-negotiable terms promise that the state made in 1995 when it offered the bid to the public. Number 125 REPRESENTATIVE ELTON stated, according to AS Sec. 02.15.091 (d), one of the factors of consideration was the character and improvements of the proposed facilities. He asked Ms. Hickerson if that would apply to improvements made by the old lease holder; or, to prospective improvements that any lease holder would plan on making? MS. HICKERSON replied the state could structure a bid that was based on future improvements. The David Green Group took existing fixtures left by the previous concessionaire. Number 185 REPRESENTATIVE ELTON stated the provision in the bill would give the Department of Law the ability to say that any extension of the existing contract could be questionable and that the it could be denied based on advise from the department in regards to her concern of retroactivity. MS. HICKERSON stated she saw an extension awarded after a bid to be inconsistent with the principles of competitive bidding. Number 240 REPRESENTATIVE ROKEBERG asked Ms. Hickerson, in light of the North Star activity in the Nineteenth Alaska State Legislature, wasn't it the right of the legislature to set the policy of the state? For example, HB 210 would give the department the latitude to renegotiate an existing lease or concession. Number 253 MS. HICKERSON replied the department had looked at the North Star lease and had concerns about the position of the state. There were many differences between the North Star lease and the duty free lease, however. The duty free lease was a short-term concession contract based on a percentage of revenue. It was very different from the development of state resources. Number 295 REPRESENTATIVE ROKEBERG asked Ms. Hickerson if the bill would give authority to the department to renegotiate the existing lease? In other words, the intention of the bill. Number 304 MS. HICKERSON replied the wording would give the state the ability to provide an extension to the duty free contract. The provision did not contain a retrospective section. The state could provide for an extension in a new bid packet such as a three year term with options. Number 363 ASHLEY REED, Lobbyist, David Green Group, was the next person to testify in Juneau. He also served as the lobbyist for Duty Free Shoppers Limited - the previous concessionaire. It was ironic that the state was pleased that it had 6 people interested in the up and coming bid package when the last time there were 23 people interested and it could not get anybody to bid the first two times. It was also ironic that at one time the concession produced about $19 million for the state when retail sales did not even approach that amount now. The bill offered a very valuable economic development tool to stay competitive. As Ms. Hickerson indicated, you could write options in a bid, but it was such a rapidly changing business that nobody had a perspective into the future. The David Green Group felt that if it was allowed to make this type of investment, and to make its case to the state, that the state would find it to be in its best interest. Right now, the group had surpassed the minimum payments required and were paying on a percentage. The concession was a state asset and its value should be of concern to the state and to the legislature. The big companies were not interested in the concession because it did not hit their revenue threshold. But, if we could increase revenues and the active participation of the bid process, it would be in the best interest of the state ultimately. Some lawyers argued that HB 210 was not needed to move forward but it would provide a tool for the state whether it was looked at retroactively or perspectively. Number 504 REPRESENTATIVE ROKEBERG announced that he respectfully disagreed with the opinion of Ms. Hickerson. It was deja vu in regards to the airport leasing regulations. Number 525 REPRESENTATIVE ALBERT KOOKESH stated he was comfortable with the bill because of the language "may" and "determines". Ms. Hickerson was looking into the bill a little bit more than she should. It was a tool. REPRESENTATIVE KOOKESH moved that HB 210 move from the committee with individual recommendations and the attached fiscal note. There was no objection, HB 210 was so moved from the House Transportation Standing Committee.
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