Legislature(1993 - 1994)
03/21/1994 09:11 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 338(L&C): An Act relating to the issuance of revenue bonds for acquisition and construction of the Northern Crossroads Discovery Center for the Ship Creek Landings Project; relating to a study of the feasibility and financial viability of the Northern Crossroads Discovery Center; relating to construction of the Northern Crossroads Discovery Center; and providing for an effective date. See summary above for SB 148. CS FOR SENATE BILL NO. 338(L&C): An Act relating to the issuance of revenue bonds for acquisition and construction of the Northern Crossroads Discovery Center for the Ship Creek Landings Project; relating to a study of the feasibility and financial viability of the Northern Crossroads Discovery Center; relating to construction of the Northern Crossroads Discovery Center; and providing for an effective date. Co-chair Pearce announced that SB 148 and SB 338 were before the committee. She welcomed Robert Hatfield, Jr., President & CEO, Director Frank Chapodos (acting Chairman), and Director Michael Olson, Alaska Railroad Corporation, to the meeting via teleconference from Anchorage. She invited Commissioner Campbell and Commissioner Paul Fuhs to join the members at the table. Co-chair Pearce asked Senator Sharp to proceed with his questions. Senator Sharp said his main concern was support for the bond authorization and he wanted to hear comments on the timing of the authorization. ROBERT HATFIELD said that the Board had allowed Mr. Lopatin to attempt to get legislative approval for the bonds. It seemed appropriate, especially due to prior experience with the hotel venture, to receive legislative approval before going to the bonding agencies, and spending a considerable amount of money in preparation of that, only to find that the legislature disapproved of the bond authorization. In answer to Senator Sharp, Mr. Chapodos said that discussion had been had at previous board meetings regarding this project. There were concerns expressed regarding liabilities, and after that was cleared, it was decided to go to the legislature for approval. Again, in answer to Senator Sharp, Mr. Hatfield said the Lopatin & Co. lease was for five years (until 1997) in order to produce the first phase of the project. Legislative approval would be needed now if the other aspect of the timing in regard to the feasibility study, bonds, and construction was to happen in 1995. If legislative approval was not received this session, construction would have to be delayed until 1996. Senator Sharp asked Mr. Hatfield what the $55M would be spent on, and if it would include a hotel or other facility. Mr. Hatfield said the $55M was only for the Discovery Center and no hotel or office building would be included in that amount. Co-chair Frank objected to the fact that the legislature was being asked to approve a project without more details and then, today, the committee was informed that the railroad only had a five year lease with Lopatin & Co. Mr. Hatfield said the lease had options for renewal up to 105 years. He went on to say that financing would not be given to any project that did not have a long term lease, and this would give the Railroad Board the opportunity to review and approve the project for the longer term. Secondly, if Lopatin & Co. did not perform, it would give the Railroad Board an opportunity to cancel or end the lease without litigation. Co-chair Frank insisted the legislature needed more information. Mr. Hatfield said that Mr. Lopatin was the best person to answer those questions. Mr. Hatfield went on to assure Co-chair Frank that the Railroad would have no equity in the project. He would be glad to give the details of the current lease and said the Railroad would just extend the five year lease. He said the lease for the public amenity would be a non-compensatory lease. Co-chair Frank said that Mr. Lopatin had told the committee the Railroad would be paid fair market value for the land lease. Mr. Hatfield agreed with that statement but would get more information. Recess 11:05am Reconvene 5:22pm Co-chair Pearce reconvened the meeting. She said that Robert Hatfield, Jr., President & CEO, Alaska Railroad Corporation, was on line via teleconference from Anchorage, and Mr. Lopatin, via teleconference from Detroit. She also invited Commissioner Fuhs and Commissioner Campbell to return to the table. Co-chair Frank voiced his concerns regarding the feasibility of the project and latent concerns of government sponsorship of private business. He had doubt about getting real answers. He also voiced concern over curing a default in this type of situation. Discussion was had by Co-chairs Frank, Pearce, Senators Kelly and Jacko, Commissioner Fuhs regarding the Red Dog and other projects, bonds, and the state's equity position and liability. Commissioner Fuhs said the legislature needed to give approval before the feasibility study could be ordered. Mr. Hatfield said that a fair market value lease was being paid to the Railroad and would remain at fair market or be frozen for five years at this particular rate. He introduced Phyllis Johnson, legal counsel, via teleconference from Anchorage. PHYLLIS JOHNSON said the lease was a circuitous approach dependent upon a project coming on-line that required a long term lease. The specific lease that Lopatin & Co. had was a five-year term with two five-year extensions. There was a specific provision in it for an individual project to come on-line, at which time a regular long term lease would be executed. Whether it was between Lopatin & Co. or another leasee, and the Railroad. If the project came on-line as a non-profit entity, then the rent would continue at the rate set at the on-set of the lease at fair market value which had been decided by an appraiser two years ago. If Mr. Lopatin negotiated a higher rate with another company, it would trigger a fair market rate to the Railroad. If a for- profit organization took over the new portion of the project, the lease would revert to project rent which would be reappraised to current fair market value when the project started. The lease left a small window for a percentage of gross receipts, but if the parties could not come to an agreement, fair market value would govern. Co-chair Frank asked Ms. Johnson to fax the lease to the committee. Ms. Johnson agreed to fax the first nine or ten pages of the 40 page document which contained the meat of the lease. Senator Sharp said he continued to have concerns about the amount of money that Lopatin & Co. would have to invest. He wondered if there was a way to offer this project to other companies. Co-chair Pearce and Senator Kelly remarked that the Railroad had already put out a bid and that was how Lopatin & Co. had come into the picture in the first place. In answer to Co-chair Frank, Ms. Johnson said that rent was accruing at $1000 per acre per year to the Railroad Corp. for 120 acres less a certain number of acres of wetlands that were not usable. Mr. Hatfield said that was the fair market value of that industrial land. To everyone's amusement, Senator Kelly said it was the going rate for mud flats in Anchorage. Mr. Lopatin corrected the word "accruing" and said rent was being "paid" on a yearly basis. He went on to say that the Discovery Center was a "for-profit" project, the lease would be appraised at the fair market value, and would be of significant economic benefit to the Railroad Corporation. He felt the surrounding land the Railroad owned would also come to benefit the Railroad. Co-chair Pearce asked who would put in private dollars to finance the Discovery Center. Senator Kelly was adamant that the tax free bonds would be "private" money. Co-chair Pearce went on to voice her concern over the numbers used in justifying the Discovery Center visitor estimates. Mr. Lopatin defended the feasibility study for the Discovery Center by the McDowell Group. He went on to reassure the committee that the project would not be totally financed by bonds and 20-30 percent of equity dollars would be invested by Lopatin & Co. through cash or grants. In answer to Senator Kelly, Mr. Lopatin said that equity would be required to sell the bonds. He went on to speak to the market and equity required. He assured Senator Kelly that the equity would not come from the Railroad or the state of Alaska. End SFC-94 #47, Side 1 Begin SFC-94 #47, Side 2 In answer to Senator Sharp, Mr. Lopatin said his company was not a public traded company but assured him that the company's money would go in first or the bonds could not be sold. Commissioner Fuhs pointed out the Red Dog project had been a great success. The Discovery Center would not only help the company that owned it but would provide a wider economic benefit over the state and that would justify the public financing of the bonds. He said Lopatin & Co. could save 2- 3 points on the bond sale and in the end it would benefit the state of Alaska. Senator Kelly commented that instead of $55M the project would require about $47M in bonds. Mr. Lopatin agreed with that statement if all the numbers held true. The request for $55M would give some flexibility to the project.
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