Legislature(2005 - 2006)SENATE FINANCE 532

03/21/2006 09:00 AM Senate FINANCE


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 261 REGULATION OF HWYS; TRAFFIC OFFENSES TELECONFERENCED
Moved CSSB 261(FIN) Out of Committee
+ SB 271 AUTHORIZE HWY PROGRAM PARTICIPATION TELECONFERENCED
Heard & Held
+ SB 308 ALASKA RAILROAD REVENUE BONDS TELECONFERENCED
Moved SB 308 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                                                                                                                                
     SENATE BILL NO. 308                                                                                                        
     "An  Act  authorizing  the Alaska  Railroad  Corporation  to                                                               
     issue revenue bonds to  finance rail transportation projects                                                               
     that  qualify  for   federal  financial  participation;  and                                                               
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
PAT  GAMBLE,  President  and   Chief  Executive  Officer,  Alaska                                                               
Railroad  Corporation (ARRC),  Department of  Commerce, Community                                                               
and  Economic Development  noted  that a  handout titled  "Alaska                                                               
Railroad  Corporation Legislative  Request for  Bonding Approval"                                                               
and  "a series  of maps"  depicting  the ARRC's  "work plan"  for                                                               
proposed tract  improvements during  the years 2006  through 2015                                                               
[copies on file] have been provided.                                                                                            
                                                                                                                                
Mr. Gamble reviewed the handout as follows.                                                                                     
                                                                                                                                
     Page 2                                                                                                                     
                                                                                                                                
     Request Legislative Approval                                                                                               
                                                                                                                                
     ARRC desires to issue one or more series of capital grant                                                                  
     receipts revenue bonds or notes, in aggregate not to exceed                                                                
     $165 million.                                                                                                              
                                                                                                                                
Mr.  Gamble  remarked  that  this  bill  would  seek  Legislative                                                               
approval  allowing  AARC  to  issue a  series  of  capital  grant                                                               
receipt  (CGR) revenue  bonds  not to  exceed  $165 million.  The                                                               
"sourcing  [of] these  bonds" would  be as  prescribed by  Alaska                                                               
State Railroad Transfer Statutes.                                                                                               
                                                                                                                                
     Page 3                                                                                                                     
                                                                                                                                
     What?                                                                                                                      
                                                                                                                                
     Rehabilitate Mainline Substandard or                                                                                       
     Potentially Unsafe Track                                                                                                   
                                                                                                                                
        · Single most important purpose for the use of federal                                                                  
          funds                                                                                                                 
        · Top capital investment effort and #1 priority since                                                                   
          1996 … $220 million already invested.                                                                                 
                                                                                                                                
Mr.  Gamble  informed that  in  1996,  ARRC  began an  effort  to                                                               
"rehabilitate" or  rebuild its main rail  tracks. This continuing                                                               
effort   has   been   primarily    funded   by   annual   federal                                                               
appropriations,  provided through  efforts by  Alaska Congressman                                                               
Ted Stevens  who recognized that no  regular deferred maintenance                                                               
had been conducted on the  Alaska Railroad's (Railroad) main line                                                               
since it was rebuilt in the 1950s following World War 11.                                                                       
                                                                                                                                
Mr.  Gamble  stated  that the  deferred  maintenance  effort  was                                                               
further  compounded by  the fact  that train  mainline derailment                                                               
occurrences  were increasing  and incurring  additional expenses.                                                               
That  risk  of  derailments  exacerbated the  need  for  deferred                                                               
maintenance since  the Railroad's  passenger count  and hazardous                                                               
cargo loads  were increasing. Actual track  improvements began in                                                               
1998.                                                                                                                           
                                                                                                                                
Mr. Gamble  noted that the  revenues generated from  this bonding                                                               
would be  used to  rapidly accelerate  and complete  the deferred                                                               
maintenance  plan  on  upgrading  the mainline  track.  ARRC  has                                                               
continued to request Federal  funding through Congressman Stevens                                                               
since it  ranked the mainline  track upgrade a priority  in 1996.                                                               
That federal money  has been and would continue to  be limited to                                                               
funding  work  on the  mainline  rather  than being  utilized  to                                                               
support  facilities and  equipment.  The money  generated by  the                                                               
revenue bonds requested in this  bill would also be limited, with                                                               
a few "minor exceptions", to the mainline rehabilitation work.                                                                  
                                                                                                                                
9:59:09 AM                                                                                                                    
                                                                                                                                
Mr.  Gamble  conveyed  that the  "Derailments,  1996-2005"  graph                                                               
depicted on  page 4 was  included to  provide an example  of what                                                               
has happened  on the mainline  since the improvements  began. The                                                               
blue line on  the graph indicates a downward trend  in the number                                                               
of derailments with reportable damage.  The "Train Accident Rate"                                                               
graph depicted  on page 5  compares the Alaska  Railroad accident                                                               
trend  to national  railroad  statistics.  These graphs  "provide                                                               
strong  evidence"  that  the  deferred  maintenance  efforts  are                                                               
"having  the desired  payoff".  This fact  is  what prompted  the                                                               
notion  amongst Railroad  staff that  "accelerating" the  work on                                                               
the main line would provide "a  safer railroad faster … The State                                                               
and our customers would expect  that from us." This prompted this                                                               
initiative.                                                                                                                     
                                                                                                                                
     Page 6                                                                                                                     
                                                                                                                                
     Project Information                                                                                                        
                                                                                                                                
       · 100% CWR from Anchorage to Fairbanks (355 miles)                                                                       
        · 85,000 concrete ties on curves less than 6 degrees (32                                                                
          miles)                                                                                                                
        · Wooden ties all upgraded to 35-year cycle                                                                             
        · All ballast reset                                                                                                     
        · Complimented by ARRC Bridge Program … $30 million                                                                     
        · Complimented by ARRC Collision Avoidance Program … $13                                                                
          million                                                                                                               
                                                                                                                                
Mr. Gamble reviewed the benefits  the Railroad would receive from                                                               
this endeavor. While  it was once thought  that Continuous Welded                                                               
Rail  (CWR) would  not  work  in the  cold  climates and  extreme                                                               
temperatures changes experienced  in the State, such  as the high                                                               
ninety-degree summer  time temperatures and  the sixty-below-zero                                                               
ambient temperatures  experienced in Fairbanks.  Railroad experts                                                               
from other parts  of the country "proved" that to  be wrong. Thus                                                               
ARRC is "vigorously"  conducting a CWR program.  CWR is important                                                               
because it  welds segments of track  together thereby eliminating                                                               
joints, which are  often the cause of  derailments. "The exchange                                                               
of energy" between the rail joints  and the train wheels "is hard                                                               
on  the  metals of  both  and  quite  often  is the  single  most                                                               
prominent source  of failures on  track and damage to  wheels. In                                                               
addition to improved safety, CWR  tracks are quieter as the noise                                                               
generated by the wheels hitting joints is eliminated.                                                                           
                                                                                                                                
Mr. Gamble noted that while  concrete ties provide no substantial                                                               
benefit  over   wooden  ties  on  straight   stretches  of  rail,                                                               
utilizing them on curves increases  the stability of the rail and                                                               
better absorbs  the energy transfer  between the track  and train                                                               
wheels. In  addition, concrete ties  are easier to place  at "the                                                               
right degree" to meet the  angle calculated for a specific curve.                                                               
85,000  concrete ties  would be  utilized  between Anchorage  and                                                               
Fairbanks  on curves  exceeding six  degrees. This  would further                                                               
improve rail safety, as curves are susceptible to track failure.                                                                
                                                                                                                                
Mr. Gamble  also noted that  the project would specify  a 35-year                                                               
tie upgrade  cycle. Depending  on how much  water is  absorbed by                                                               
the  tie  and  other  circumstances, a  tie  typically  does  not                                                               
undergo "serious breakdowns"  until about 40 years of  use. A 35-                                                               
year cycle would  provide a "safety margin" and  would align with                                                               
what "good railroads" in the contiguous United States are doing.                                                                
                                                                                                                                
Mr.  Gamble  noted   that  in  conjunction  with   tie  and  rail                                                               
replacement,  rock ballast  under the  railways, including  river                                                               
rock,  would be  replaced  "with solid  granite which  interlocks                                                               
very  tightly and  provides a  solid bed".  169 bridges  would be                                                               
upgraded in conjunction with track improvements.                                                                                
                                                                                                                                
Mr. Gamble  pointed out  that while the  majority of  his remarks                                                               
have addressed  "mitigating the physical risks  of track failure,                                                               
collision  avoidance   is  a  technology"  that   is  also  being                                                               
addressed by ARRC. This effort  would address "human mistakes and                                                               
errors  in  judgment".  Thus,  the  Railroad  is  "simultaneously                                                               
reducing  physical risk  as  well  as human  error  risks to  the                                                               
degree affordable and possible with  the current technology." The                                                               
effort would  be to provide "one  of the safest railroads  in the                                                               
United States within the next seven or eight years".                                                                            
                                                                                                                                
     Page 7                                                                                                                     
                                                                                                                                
     Why?                                                                                                                       
                                                                                                                                
        · Consistent with #1 priority                                                                                           
        · Faster "take" of safety benefits and risk reduction of                                                                
          non-human factors                                                                                                     
        · Continued mitigation effort                                                                                           
           -  More than 600 passenger trains per year                                                                           
           - 800 million gal. Refined product/hazardous                                                                         
               materials      (30,000 carloads)                                                                                 
           - 60% = hazardous cargo proportion                                                                                   
        · Builds clarity and budget discipline into capital                                                                     
          program                                                                                                               
           - Debt service schedule drives yearly capital                                                                        
               apportionment                                                                                                    
                                                                                                                                
Mr.  Gamble  reiterated  that this  endeavor  would  fulfill  the                                                               
number  one priority  of ARRC.  The fact  that this  effort could                                                               
reduce  "by as  much  as ten  years" the  work  that the  current                                                               
program would  otherwise allow would  be "worth the  premium that                                                               
we   would  pay   through  the   bonding".  The   Railroad  moves                                                               
approximately  600  passenger  trains   a  year  and  800,000,000                                                               
gallons  of hazardous  material on  its mainline.  The amount  of                                                               
hazardous material moved  by the Railroad is one  of the "highest                                                               
proportions of hazardous  material cargo" run on  any railroad in                                                               
the country.  Any effort to  increase the Railroad safety  is "an                                                               
obligation" owed to the State.                                                                                                  
                                                                                                                                
10:05:31 AM                                                                                                                   
                                                                                                                                
Mr.  Gamble  communicated  that  one  of  the  "advantages"  this                                                               
legislation  would provide  "internally" would  be that  "locking                                                               
these  dollars  in on  an  annual  basis through  bonding"  would                                                               
assist  ARRC in  determining the  level of  capital funding  that                                                               
would be available for other programs.                                                                                          
                                                                                                                                
     Page 8                                                                                                                     
                                                                                                                                
     Why Now                                                                                                                    
                                                                                                                                
        · SAFETEA-LU makes it possible                                                                                          
        · Formula Funds increased 6-fold                                                                                        
        · No undue risk to railroad or state                                                                                    
        · Consistent with corporate priority                                                                                    
        · Materials costs escalating annually                                                                                   
        · Growing passenger train demand required nothing less                                                                  
        · Desire to get pre-pipeline work done ASAP                                                                             
        · No impact to previous capital plan                                                                                    
                                                                                                                                
Mr.  Gamble  stated  that  after a  five-year  effort  to  secure                                                               
Federal Transit  Administration (FTA) Formula Funds  on an annual                                                               
basis, ARRC  is now  entitled to receive  a predictable  level of                                                               
funds from year to year. The  level is based on a formula relying                                                               
on such things as "passenger miles  and the number of total miles                                                               
on the railroad".  The formula is also subject  to an approximate                                                               
two percent growth  rate each year. The FTA  funding has provided                                                               
ARRC a "new  tool in the tool kit"; this  funding source could be                                                               
used "to pay off the debt service".                                                                                             
                                                                                                                                
Mr. Gamble stated  that two other positive  events occurred three                                                               
years  prior:  the ARRC  match  required  for federal  funds  was                                                               
reduced from  20 percent  to nine percent  and the  federal Safe,                                                               
Accountable,  Flexible, Efficient  Transportation  Equity Act:  A                                                               
Legacy for Users (SAFETEA-LU) "formula  for attributable miles to                                                               
the Alaska  Railroad has increased from  ten percent attributable                                                               
miles to 60 percent attributable  miles". This meant that the FTA                                                               
formula  dollars   increased  from  approximately   five  million                                                               
dollars a  year to approximately  $30,000,000 a  year. Therefore,                                                               
were the ARRC able to provide  its "low" nine percent match, ARRC                                                               
could   depend  on   receiving   total   funds  ranging   between                                                               
$30,000,000  to   $36,000,000  into  the  future.   These  events                                                               
provided  ARRC the  opportunity  to consider  a bonding  proposal                                                               
similar to the one presented in this bill.                                                                                      
                                                                                                                                
Mr. Gamble declared that this  proposal is consistent with ARRC's                                                               
priorities. It  would also  provide ARRC  the ability  to improve                                                               
materials management; particularly as  ARRC could make bulk steel                                                               
purchases and store the steel  in order to avoid continuing price                                                               
increases.  Furthermore, the  increasing passenger  train traffic                                                               
would benefit from safer tracks.                                                                                                
                                                                                                                                
Mr.  Gamble  also  noted  that this  proposal  would  allow  pre-                                                               
pipeline   work  to   be  conducted   in   anticipation  of   the                                                               
construction  of  the State  gas  pipeline.  Railroad tracks  and                                                               
bridges must  be ready to  handle the load capacities  that would                                                               
be required.                                                                                                                    
                                                                                                                                
10:08:20 AM                                                                                                                   
                                                                                                                                
Mr.  Gamble  stated that  these  improvements  would provide  the                                                               
Railroad the "ability  to flow" the demands of  the pipeline into                                                               
"our current customer load without cutting other customers off."                                                                
                                                                                                                                
Mr. Gamble  reiterated that  the bond  proposal would  not impact                                                               
the Railroad's capital program.                                                                                                 
                                                                                                                                
     Page 9                                                                                                                     
                                                                                                                                
     Proposed Financing                                                                                                         
                                                                                                                                
        · $165 million authorization requested                                                                                  
        · Currently planning three bond sales over next six                                                                     
          years                                                                                                                 
           - Maximum annual debt service: $19.1 million or 49%                                                                  
               of available FTA/match for year                                                                                  
        · ARRC Board approval required for each project and bond                                                                
          sale                                                                                                                  
                                                                                                                                
Mr. Gamble reviewed the proposed financing plans.                                                                               
                                                                                                                                
Mr. Gamble noted  that the "Debt Service as a  Percent of Formula                                                               
Funds/Match" graph on page 10  depicts the program's debt service                                                               
percentages from  the year 2007  through 2024. The  maximum level                                                               
of 49  percent would be  anticipated in  the year 2014,  with the                                                               
debt dramatically  decreasing toward zero  from the year  2017 to                                                               
2024.                                                                                                                           
                                                                                                                                
Mr.  Gamble reminded  the  Committee that  this  debt service  is                                                               
"just one  element" of  the Railroad's  debt. Some  other smaller                                                               
Railroad "borrowings"  would also be  retiring at that  time. The                                                               
Railroad's  "debt position"  would  remain  "very healthy  during                                                               
this whole process".                                                                                                            
                                                                                                                                
Mr.  Gamble   concluded  his   presentation.  He   could  provide                                                               
additional financial details or  review the remaining information                                                               
in  the handout  if so  desired by  the Committee.  The remaining                                                               
information  in  the  handout would  provide  "additional  detail                                                               
about some of  the methodology and considerations  that have gone                                                               
into this proposal".                                                                                                            
                                                                                                                                
10:10:43 AM                                                                                                                   
                                                                                                                                
Senator Dyson, being "visually  oriented", appreciated the charts                                                               
and  maps provided.  Continuing, he  asked the  location of  Wish                                                               
Bone Hill, as that is the prospective site of a new coal plant.                                                                 
                                                                                                                                
Mr.  Gamble  replied  that  Wish  Bone Hill  is  located  in  the                                                               
vicinity of Palmer, which is not on the Railroad's mainline.                                                                    
                                                                                                                                
Senator Dyson observed  that each of the maps from  the year 2007                                                               
to 2015,  depict two views  of the Railroad's mainline.  The view                                                               
on  the left  of the  page  depicts the  projects occurring  that                                                               
specific year and  the view on the right  depicts "the cumulative                                                               
status of the track" to date.                                                                                                   
                                                                                                                                
Mr. Gamble affirmed.  He apologized for not  fully explaining the                                                               
maps earlier.                                                                                                                   
                                                                                                                                
Senator Dyson, referencing  the map for the year  2015, asked for                                                               
clarification  as to  whether the  track  at Hurricane,  milepost                                                               
281.4, was CWT on wooden ties.                                                                                                  
                                                                                                                                
Mr. Gamble stated that was correct.                                                                                             
                                                                                                                                
Senator  Dyson  understood  that  concrete ties  usage  would  be                                                               
limited to the  areas highlighted in yellow  with orange borders,                                                               
as specified in the map's legend.                                                                                               
                                                                                                                                
Mr. Gamble  acknowledged that due to  the small map scale,  it is                                                               
difficult  to   show  much  detail  about   individual  projects.                                                               
Concrete  ties  would be  utilized  at  any  point of  the  track                                                               
containing a curve over six  degrees. For example, he pointed out                                                               
that, as  highlighted by  the yellow and  orange coloring  on the                                                               
map, concrete ties would be used on a curve near Broad Pass.                                                                    
                                                                                                                                
Senator  Dyson ascertained  therefore, that  concrete ties  would                                                               
also be used  between Potter, milepost 100.6,  and Bird, milepost                                                               
81.7.                                                                                                                           
                                                                                                                                
Mr. Gamble affirmed. There is a lot "of curvature" in that area.                                                                
                                                                                                                                
Senator Dyson  ascertained that the  narrow red line  depicted on                                                               
the map would indicate areas  with regular un-welded line on wood                                                               
ties.                                                                                                                           
                                                                                                                                
Mr.  Gamble affirmed.  For  example, the  line  near Eielson  Air                                                               
Force  Base  near Fairbanks,  milepost  G24,  is reflected  as  a                                                               
narrow red line  because that line "carries far  far less tonnage                                                               
than the main line". That  segment was constructed after the main                                                               
line  and would  not require  upgrading. He  reiterated that  the                                                               
view  on  the right  side  of  the  map reflects  the  cumulative                                                               
project status and the view on  the left side is that year's work                                                               
plan.                                                                                                                           
                                                                                                                                
Senator Dyson deemed the maps "very helpful".                                                                                   
                                                                                                                                
Senator  Olson,  noting that  80,000  joints  would be  upgraded,                                                               
questioned the total number of joints on the track.                                                                             
                                                                                                                                
10:14:57 AM                                                                                                                   
                                                                                                                                
Mr.  Gamble stated  that this  information would  be provided.  A                                                               
simple calculation  involving the  length of  the track  would be                                                               
required.                                                                                                                       
                                                                                                                                
Senator  Olson understood  that rails  were made  with joints  to                                                               
accommodate expansion and contraction.  Further information as to                                                               
how CWR would accommodate these occurrences is desired.                                                                         
                                                                                                                                
Mr. Gamble likened  this to the question about  "which came first                                                               
…  the chicken  or  the egg?"  for there  is  disagreement as  to                                                               
whether  train  track  joints  were the  result  of  rail  length                                                               
capabilities  or temperature  related  characteristics. The  rail                                                               
length used today has been constant since the 1860s.                                                                            
                                                                                                                                
Mr.  Gamble explained  that specifically  trained personnel  must                                                               
conduct the CWR forced weld  under exact circumstances. Expansion                                                               
and contraction can  be accommodated with a  CWR; however extreme                                                               
"vigilance" of the  track for signs of wiggling  or buckling must                                                               
occur. The experience is that  the CWR "could handle" the State's                                                               
temperature  conditions. A  few  instances  have occurred  during                                                               
times of "extremely hot weather  for several days" in which rails                                                               
have experienced "heat  soak" and have expanded  and attempted to                                                               
wiggle. However,  the rail ties  have securely held the  rails in                                                               
place.  Such   experiences  are   minor  in  comparison   to  the                                                               
maintenance cost  savings that  the CWR  provide. In  summary, he                                                               
concluded that "there  is a science" to the CWRs  and the process                                                               
must be done correctly.                                                                                                         
                                                                                                                                
Senator  Dyson inquired  to  the  number of  track  miles on  the                                                               
Railroad.                                                                                                                       
                                                                                                                                
Mr. Gamble advised that the  Railroad's mainline is approximately                                                               
500 miles long.                                                                                                                 
                                                                                                                                
Senator Dyson asked the length of a traditional rail segment.                                                                   
                                                                                                                                
Mr.  Gamble noted  that  the  CWR rail  could  be  welded into  a                                                               
continuous segment  of "up to half  a mile". That piece  could be                                                               
loaded  onto a  work  train and  "fed" onto  the  track from  the                                                               
train. A regular piece of rail is 80-feet in length.                                                                            
                                                                                                                                
10:18:58 AM                                                                                                                   
                                                                                                                                
Senator Bunde  asked for confirmation  that these bonds  would be                                                               
used to maintain existing track rather than to expand the line.                                                                 
                                                                                                                                
Mr. Gamble affirmed.                                                                                                            
                                                                                                                                
Co-Chair  Green noted  that Members'  packets  contain a  letter,                                                               
dated  March  14,  2006 from  Tom  Boutin,  Deputy  Commissioner,                                                               
Department  of Revenue  to Bill  O'Leary, Vice  President Finance                                                               
and Chief  Financial Officer,  Alaska Railroad  Corporation [copy                                                               
on file] that addresses the  debt liability that would be assumed                                                               
by the ARRC with the issuance of these bonds.                                                                                   
                                                                                                                                
Senator Bunde stated  that his concern was in regards  "to an on-                                                               
going  systemic   problem",  as,   since  "the  Railroad   is  an                                                               
instrument of  the State when  Railroad earnings are used  to pay                                                               
this, or  if there should be  a problem, it's really  State money                                                               
its just not general fund money."                                                                                               
                                                                                                                                
Based on  two rails, a  total mainline  length of 500  miles, and                                                               
rail lengths  of 80  feet, Senator Dyson  calculated there  to be                                                               
66,000 joints on the mainline of the Railroad.                                                                                  
                                                                                                                                
Senator  Stedman moved  to report  the bill  from Committee  with                                                               
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There  being no  objection, SB  308 was  REPORTED from  Committee                                                               
with  previous  zero  fiscal  note  #1  from  the  Department  of                                                               
Commerce, Community and Economic Development.                                                                                   
                                                                                                                                

Document Name Date/Time Subjects