Legislature(2019 - 2020)BARNES 124

02/20/2020 01:00 PM TRANSPORTATION

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Audio Topic
01:02:37 PM Start
01:03:40 PM HB249
01:45:32 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                HB 249-MARINE HIGHWAY CORPORATION                                                                           
1:03:40 PM                                                                                                                    
CHAIR STUTES announced  that the only order of  business would be                                                               
HOUSE  BILL  NO. 249,  "An  Act  relating  to the  Alaska  marine                                                               
highway  system; establishing  the Alaska  Marine Highway  System                                                               
Corporation; and providing for an effective date."                                                                              
1:04:58 PM                                                                                                                    
SARA PERMAN,  Staff, Representative  Louise Stutes,  Alaska State                                                               
Legislature,  presented  HB  249   on  behalf  of  Representative                                                               
Stutes, prime  sponsor.  She  informed the committee that  HB 249                                                               
is the product of decades of work from many Alaskans.                                                                           
MS. PERMAN  informed the  committee that  the First  Alaska State                                                               
Legislature approved the Alaska  Ferry Transportation Act in 1959                                                               
and the  first ferry  became operational  in 1963.   As  early as                                                               
1984, she  continued, Governor Bill Sheffield's  AMHS task force,                                                               
established to assess  AMHS's structure and rates in  the face of                                                               
growing public  demand and reduced operating  budgets, determined                                                               
that  the system  was "archaic"  and that  there was  a "definite                                                               
lack of continuity or purpose."                                                                                                 
MS.  PERMAN  added   that  the  task  force   had  suggested  the                                                               
consideration  of a  public  authority or  corporation.   A  1989                                                               
memorandum  from  then-Department   of  Transportation  &  Public                                                               
Facilities (DOTPF)  Commissioner Mark Hickey,  acknowledging that                                                               
the system  "[had] suffered  greatly due to  its overall  lack of                                                               
continuity  in  top management  since  its  inception,  had  been                                                               
included  in packets  provided to  committee members,  Ms. Perman                                                               
informed them.                                                                                                                  
MS. PERMAN  stated that a  lack of new  boats being added  to the                                                               
system has also contributed to the  problem.  The AMHS system has                                                               
several vessels  built in the  1960s, there  is more than  a two-                                                               
decade span  when no new  vessels were  built, and today  half of                                                               
AMHS ships  are more than 40  years old and the  repair costs are                                                               
substantial.   Ms.  Perman  pointed out  that 11  out  of the  12                                                               
vessels are currently in lay-up or overhaul for repairs.                                                                        
1:06:46 PM                                                                                                                    
MS. PERMAN  went on  to say  that since the  1980s the  state has                                                               
asked  the  question  "How [should  Alaska]  better  operate  the                                                               
[AMHS]?"  again  and again.    In  2019, she  informed  committee                                                               
members,   a   report   prepared  by   Northern   Economics   and                                                               
commissioned by Governor [Mike]  Dunleavy entitled "Reshaping the                                                               
AMHS"  determined  that  it isn't  feasible  to  fully  privatize                                                               
marine ferry  service.  Backing up  a bit, Ms. Perman  added that                                                               
beginning in 2016, Southeast Conference  has led a statewide AMHS                                                               
reform   initiative  ["reform   initiative"]   with  a   steering                                                               
committee  of 12  members  from around  the  state, working  with                                                               
McDowell  Group  and  Elliot  Bay Design  to  study  other  ferry                                                               
systems from  around the world.   After looking at  several other                                                               
systems,  notably  the  British  Colombia (BC)  Ferries  and  the                                                               
Scottish  CalMac  Ferries,  the initiative  determined  that  the                                                               
public corporation  model actually is  a viable solution  for the                                                               
MS. PERMAN  brought up the  fact that public  corporations aren't                                                               
new to  Alaska: there  are the  Alaska Railroad  Corporation, the                                                               
Alaska Gas  line Development Corporation, and  the Alaska Housing                                                               
Finance Corporation, just  to name a few.   The reform initiative                                                               
looked  at  several  existing  models  and  made  recommendations                                                               
accordingly.  The model presented  along with HB 249, she stated,                                                               
is largely based off of  the Alaska Railroad Corporation's model;                                                               
with  a  seven-member,  governor-appointed  Board  of  Directors,                                                               
benefits of this model include  infusing private sector expertise                                                               
and generating consistent leadership  with a longer-term planning                                                               
power.   The   corporation    model   also   internalizes   labor                                                               
negotiations,  improving  the ability  to  quickly  react to  any                                                               
management-labor disputes, she added.                                                                                           
MS.  PERMAN added  that  HB  249 has  84  sections, including  an                                                               
entirely new chapter in Alaska  Statute 42:  Public Utilities and                                                               
Carriers.   What  HB  249 would  do is  transfer  the duties  and                                                               
responsibilities  currently held  by DOTPF  relating to  the AMHS                                                               
over to  the AMHS Corporation.   It would  put in place  a seven-                                                               
member  board of  directors  made up  of  one commissioner,  five                                                               
public members appointed by the  governor, and one representative                                                               
of labor.  The public  members would serve on staggered five-year                                                               
terms,   and  four   of  the   five  would   have  expertise   in                                                               
transportation,  finance,  and   business  operations,  with  the                                                               
remaining member representing the general public, she added.                                                                    
1:09:33 PM                                                                                                                    
MS.  PERMAN  informed the  committee  that  the AMHS  Corporation                                                               
would be tasked  with managing the AMHS and its  assets in a safe                                                               
and efficient manner.  It  must provide continuous transportation                                                               
services  to   coastal  communities   and  support   the  overall                                                               
transportation   needs  of   the   state,  while   simultaneously                                                               
providing public  accountability.   The Board of  Directors would                                                               
be responsible  for the  legal and  financial obligations  of the                                                               
corporation, she continued; these  would include overseeing labor                                                               
contracts,  leases, issuance  of bonds,  and any  other financial                                                               
transactions.   The  board would  also be  required to  establish                                                               
corporate objectives  and secure sustainable funding  from earned                                                               
income,  legislative  appropriations  or other  revenue  sources.                                                               
Last,  the  board  shall  appoint an  executive  director  to  be                                                               
responsible for the corporation's management.                                                                                   
MS.  PERMAN  imparted  that the  AMHS  Corporation  would  remain                                                               
accountable via  the Alaska Executive  Branch Ethics Act  and the                                                               
Executive Budget Act and that  executives of the AMHS Corporation                                                               
would be  required to conduct  business to the highest  moral and                                                               
ethical standards.   Since the AMHS Corporation would  own all of                                                               
its  assets,  continued  access  to  funding  would  be  ensured.                                                               
Notably, as a  public corporation, it would still  have access to                                                               
federal transportation funds, she added.   The powers of the AMHS                                                               
Corporation  would  include,  but  not be  limited  to,  adopting                                                               
regulations,  issuing bonds,  negotiating  leases, entering  into                                                               
loan agreements or contracts, and suing or being sued.                                                                          
MS. PERMAN concluded by mentioning  that a board of directors and                                                               
a  consistent CEO  would give  the  AMHS Corporation  significant                                                               
stability.    The fast  ferries,  the  M/V  Chenega and  the  M/V                                                               
Fairweather, as  well as  the new Alaska  Class ferries,  the M/V                                                               
Tazlina  and  the M/V  Hubbard,  with  their constantly  changing                                                               
designs, exemplify what instability  in the political climate has                                                               
done, Ms. Perman stated.   She also mentioned that labor relation                                                               
management  should   be  taken  into  consideration.     Personal                                                               
services  represents approximately  70 percent  of the  operating                                                               
budget of  the AMHS.   Significant savings are  anticipated under                                                               
the  AMHS  Corporation  model  through  the  development  of  new                                                               
contracts.  Currently   the  general   manager  and   the  deputy                                                               
commissioners  of DOA  and DOTPF  are responsible  for overseeing                                                               
labor  relationships on  top of  their  other job  duties:   this                                                               
could be  condensed to one  labor relations manager, such  as the                                                               
Alaska Railroad Corporation has.                                                                                                
1:12:02 PM                                                                                                                    
REPRESENTATIVE  STORY asked  why it  was decided  that that  five                                                               
members  would be  appointed by  the governor,  and that  she had                                                               
thought it would have been more appointees by stakeholders.                                                                     
1:12:44 PM                                                                                                                    
MS. PERMAN  responded to Representative Story  by suggesting that                                                               
the staggering of governor's appointees  ought to off-set any one                                                               
governor's ability to stack the board with chosen appointees.                                                                   
1:14:09 PM                                                                                                                    
ROBERT  VENABLES,   Executive  Director,   Southeast  Conference,                                                               
stated  that there  is no  one  system available  to "copy,"  but                                                               
there  are principles  of several  from which  the AMHS  would be                                                               
able to  glean.  In  1960, he  pointed out via  the presentation,                                                               
Alaska voters  said marine transportation was  a viable component                                                               
of  the transportation  system, approving  a bond  proposition to                                                               
invest in  what would  become the  AMHS, with  additional ferries                                                               
and docking facilities  [slide 3].  Operations of  the AMHS began                                                               
in 1963 with  four vessels, and it has been  a critical component                                                               
of  the  state's  transportation   since.    Then,  Mr.  Venables                                                               
continued, state  funding received gradual, assimilated  cuts, to                                                               
30 percent  over five years,  and these  days no other  system in                                                               
the  Western world  has a  fleet as  aged as  [that of  the AMHS,                                                               
slides  4-6].   The initiative  should have  taken place  fifteen                                                               
years ago, he added.                                                                                                            
1:18:34 PM                                                                                                                    
MR. VENABLES said  he thought he should go back  and address what                                                               
the  mission  of  the  AMHS  reform initiative  group  is.    The                                                               
initiative group contains  at least 150 people  who subscribed to                                                               
regular  updates   House  Bill   412  [sponsored  by   the  House                                                               
Transportation Standing Committee  in 2018]; now HB  249 takes it                                                               
one step further.   It all started with the  people, according to                                                               
Mr.  Venables:    first recommendations  were  made  following  a                                                               
summit  in Anchorage,  and then  a  case study  was conducted  on                                                               
governance  models across  the  world and  in-depth  in the  U.S.                                                               
[slides 7-8].                                                                                                                   
MR.   VENABLES  paraphrased   the  reform   initiative's  mission                                                               
statement:   the  AMHS   should  deliver   safe,  reliable,   and                                                               
sustainable  marine transportation  for its  residents, visitors,                                                               
and commercial customers [slide 9].                                                                                             
1:21:18 PM                                                                                                                    
SUSAN BELL, CEO,  McDowell Group, explained that Phase  II of the                                                               
initiative  involved a  team  from Elliot  Bay  Design group  who                                                               
focused on  operations and were  able to  look at ferries  from a                                                               
business  perspective  [slide  10].    Addressing  Representative                                                               
Story's  question,  she  said  that   McDowell  group,  with  its                                                               
understanding   of  and   expertise   in   dealing  with   public                                                               
corporations, "dove  deeply" into  the structure and  benefits of                                                               
said  corporations, analyzing  revenue  and looking  at the  AMHS                                                               
from different perspectives such  as route, vessel, resident, and                                                               
1:24:48 PM                                                                                                                    
MS.  BELL referenced  slide 11,  which showed  the AMHS  carrying                                                               
Alaska  residents from  175 different  communities.   She pointed                                                               
out  that non-residents  using  the AMHS  were  using the  system                                                               
quite extensively.   She added  that 51 percent  of non-residents                                                               
were  going  to  Anchorage,  she  added,  36  percent  to  Denali                                                               
National Park, and 25 percent to  Fairbanks [slide 12].  In slide                                                               
13, "Public Corporation Analysis," Ms.  Bell pointed out that the                                                               
reform  initiative  hoped   to  preserve  the  inter-departmental                                                               
coordination, public purpose, and  access to federal funding that                                                               
have  heretofore been  a  benefit  of the  AMHS  being housed  in                                                               
DOTPF.    It was  also  the  hope  that limitations  of  frequent                                                               
turnover in  senior leadership, the short-term  planning horizon,                                                               
and   indirect    labor   negotiations   would    be   addressed.                                                               
Furthermore,  she  added   that  incorporating  board  expertise,                                                               
including  one   member  chosen  from  current   AMHS  employees;                                                               
operating   in  a   businesslike  manner;   aligning  labor   and                                                               
management  interests;  and  reducing labor  costs  strategically                                                               
would  all  be  additional  benefits  of  moving  to  the  public                                                               
corporation model.                                                                                                              
1:28:05 PM                                                                                                                    
MS.  BELL imparted  that in  order to  provide safe  and reliable                                                               
transportation given Alaska's geography  and population, the AMHS                                                               
would always  require public  funding.  She  added that  a market                                                               
analysis  and  more  businesslike  focus  were  needed  for  AMHS                                                               
operations moving  forward.  Actions  that can be taken  while HB
249 is under consideration, in  terms of empowering management to                                                               
control  costs,  were also  broken  down:   stabilizing  funding;                                                               
standardizing   fleet  and   terminal;  labor   relations;  board                                                               
development;  corporation  development;  employee  communication;                                                               
exploring new revenue sources; and  communicating with the public                                                               
[slides 14-17].                                                                                                                 
MS.  BELL  pointed out  that  through  an economic  impact  study                                                               
McDowell  Group  conducted  it   was  determined  that  the  AMHS                                                               
provides local employment and wages,  makes purchases from a wide                                                               
variety  of  Alaska  businesses,  and   is  key  to  the  seafood                                                               
transport industry and  community viability at large  in terms of                                                               
reducing  the cost  of goods  and services  with regard  to time-                                                               
sensitive shipping.   The AMHS  plays a  key role, she  added, in                                                               
people moving from place to  place for medical, recreational, and                                                               
school-related travel  reasons.    She concluded by  sharing some                                                               
quotes from  the report, which  can be  summed up by  saying that                                                               
the AMHS  is critical to  the community, economy,  workforce, and                                                               
even to the population stability of Alaska [slides 18-20].                                                                      
1:31:14 PM                                                                                                                    
MR.  VENABLES directed  the  committee to  the  150 known  public                                                               
corporation  initiative reform  project  sponsors, which  include                                                               
the State  of Alaska, and  which can be  found in more  detail on                                                               
the website  www.amhsreform.com.  He  added that it is  timely to                                                               
introduce  HB 249  at  this time  as  it is  "in  step" with  the                                                               
governor's "reshaping" report, which  stated that privatizing the                                                               
AMHS  was "not  likely," but  that there  did exist  corporations                                                               
which could  be looked to  as models.   Mr. Venables  pointed out                                                               
that  the Alaska  Railroad  Corporation also  had  state law  and                                                               
constitutional  guidance to  come  up with  a professional  board                                                               
[slide 22].                                                                                                                     
MR. VENABLES told  the committee that [privatizing  the AMHS] was                                                               
not  a new  idea, referencing  a letter  from Nickum  & Spaulding                                                               
Associates, Inc.,  Naval Architects/Marine Engineers,  from 1982,                                                               
which points  to the  genesis of  the process  [of privatization]                                                               
beginning  in the  early 1970s  and 1980s  when the  professional                                                               
marine architects and naval engineers  were replaced by political                                                               
appointees.   Mr.  Venables added  that  nothing disparaging  was                                                               
meant  by  pointing  out  this  change, but  that  the  level  of                                                               
expertise  was  no  longer  always   present,  and  that  with  a                                                               
$100,000,000-plus   enterprise,   expertise    is   a   necessary                                                               
component.   He related  anecdotally that  "time and  time again"                                                               
the engineers were overruled by  the political appointees when it                                                               
came to  ferry engine and part  selection.  These choices  led to                                                               
"extreme costs"  for the state,  he added.  The  report concluded                                                               
that   DOTPF   engineers   were  very   focused   on   land-based                                                               
infrastructure needs,  and for  the AMHS's  success it  should be                                                               
divorced from  the DOTPF altogether.   Contrasting  with Governor                                                               
Dunleavy's report, the Nickum &  Spaulding report concluded:  "It                                                               
is not  good management  to expect  bridge and  highway engineers                                                               
with  their  training  to  oversee  marine  operations  and  ship                                                               
instruction with [ships'] broad base of technical requirements."                                                                
1:36:12 PM                                                                                                                    
REPRESENTATIVE CLAMAN  asked whether a different  reform bill had                                                               
been introduced in a previous legislature.                                                                                      
1:36:31 PM                                                                                                                    
MR. VENABLES  answered that HB  249 is  a new rendition  of House                                                               
Bill 412.                                                                                                                       
1:37:02 PM                                                                                                                    
REPRESENTATIVE STORY asked Mr. Venables  to summarize some of the                                                               
models  of other  ferry systems  that were  looked at  before the                                                               
current model was chosen.                                                                                                       
1:37:02 PM                                                                                                                    
MR. VENABLES  replied that  the Washington  State model  with its                                                               
high volumes of traffic and  the British Columbia model, to which                                                               
the government  provides a fee  for its service, were  looked at,                                                               
as well as some models on the East Coast.                                                                                       
1:38:53 PM                                                                                                                    
CHAIR  STUTES told  the  committee  it was  clear  that with  the                                                               
ongoing  maintenance and  operational  issues, it  has been  very                                                               
difficult  for DOTPF  to make  long-term decisions  regarding the                                                               
AMHS and its  ridership.  She added that HB  249 "opens the door"                                                               
to conversations about restructuring the  AMHS for the purpose of                                                               
creating stability within the system,  but that it was imperative                                                               
to act as communities are currently in a crisis situation.                                                                      
1:41:04 PM                                                                                                                    
REPRESENTATIVE CLAMAN added that he has been wondering about                                                                    
the  decisions to  buy  the  fast ferries  and  the Alaska  class                                                               
ferries, which do  not have the capability for the  crew to sleep                                                               
on  them,  and thinking  about  the  benefit  of going  toward  a                                                               
corporate model in terms of  internal operational consistency and                                                               
the benefit of  long-term planning instead of  "just looking back                                                               
in  retrospect and  wondering" why  a certain  decision had  been                                                               
1:43:29 PM                                                                                                                    
REPRESENTATIVE  STORY  added that  it  was  clear that  the  AMHS                                                               
"[needed] a new start," and  that people were ready for something                                                               
that  has   the  mechanism  to   take  into   consideration  more                                                               
stakeholder engagement.  She also  emphasized the short-term need                                                               
and the work that must be done in the near term.                                                                                
1:44:51 PM                                                                                                                    
CHAIR STUTES announced that HB 249 would be held over.