Legislature(2005 - 2006)SENATE FINANCE 532

03/07/2005 09:00 AM FINANCE


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09:04:17 AM Start
09:16:45 AM HB115
09:41:37 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 63 USE SEAT BELT ROAD SIGNS TELECONFERENCED
Scheduled But Not Heard
+ HB 158 PUBLIC SCHOOL ACCOUNT/PUBLIC EDUC FUND TELECONFERENCED
Moved HB 158 Out of Committee
+ HB 115 AIRPORT CUSTOMER FACILITY CHARGES TELECONFERENCED
Heard & Held
                                                                                                                                
     SENATE CS FOR CS FOR HOUSE BILL NO. 115(TRA)                                                                               
     "An  Act relating  to charges  paid  or collected  by users  or                                                            
     occupants  of an airport  facility owned  or controlled  by the                                                            
     state; and providing for an effective date."                                                                               
                                                                                                                                
                                                                                                                                
This was the first hearing for this bill in the Senate Finance                                                                  
Committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE TOM ANDERSON, Chair of the House Labor and Commerce                                                              
Committee, the bill's sponsor, read the sponsor statement as                                                                    
follows.                                                                                                                        
                                                                                                                                
     HB  115 provides the  mechanism (customer  facility charges  or                                                            
     "CFCs") to improve  airport facilities without the expenditures                                                            
     of state funds. The  most common projects to use CFCs funds are                                                            
     car rental facilities.  The bill also provides a revenue stream                                                            
     to maintain  and operate the  facilities, without requiring  an                                                            
     increase  in the airport-operating  budget, as the cost  of the                                                            
     maintenance  will be paid using  the related customer  facility                                                            
     maintenance charge.                                                                                                        
                                                                                                                                
     In  2001, the  legislature passed  chapter 99  SLA 2001,  which                                                            
     authorized the imposition  of customer facility charges to fund                                                            
     the construction  of improvements  on airport properties.  CFCs                                                            
     have been imposed  by many other airports around the country as                                                            
     a means of  funding car rental facility improvements.  No state                                                            
     credit is  pledged to support the bonds. Dallas-Fort  Worth and                                                            
     Denver are two examples  out of many where CFC's have been used                                                            
     successfully to build these facilities.                                                                                    
                                                                                                                                
     During negotiations  with the state over the  implementation of                                                            
     the  project, issues were  identified and  set forth in  ch. 99                                                            
     SLA 2001. These issues  should be clarified to ensure the bonds                                                            
     could  be marketable.  Those issues  revolve around  clarifying                                                            
     the  new revenue  stream  generated by  the CFC  should not  be                                                            
     considered  revenue  of the state  when the  bond is a  private                                                            
     initiative  and ensuring that the bond trustee,  not the state,                                                            
     will take custody of the funds.                                                                                            
                                                                                                                                
     Because the  facility will revert to the state  in its entirety                                                            
     at the end  of the term, it would also be appropriate  to allow                                                            
     the  imposition of a  customer facility  maintenance charge  to                                                            
     ensure   the   facility   is  well-maintained    and  kept   up                                                            
     appropriately.   The charge  also  avoids  any  impact  on  the                                                            
     airport's   operating  budget  as  the  airport   will  not  be                                                            
     responsible  for the  maintenance  and repair  of the  facility                                                            
     while under airport car rental company's control.                                                                          
                                                                                                                                
     This  bill  implements   a valuable   private  market  tool  to                                                            
     construct   improvements  to   Alaska  airports,  without   the                                                            
     expenditure  of public funds.  This will improve the  amenities                                                            
     provided to the traveling  public, both Alaskan and non-Alaskan                                                            
     alike.                                                                                                                     
                                                                                                                                
Representative  Anderson noted the  key element of this legislation                                                             
is  that  private  entities  and  their  customers,   through  funds                                                            
generated   by  the  imposition  of   CFCs  and  customer   facility                                                            
maintenance  charges (CFMCs)  rather  than the  State would  provide                                                            
funds for the  construction, maintenance, and operations  associated                                                            
with  improvements  to  airport  facilities;  specifically  the  car                                                            
rental  facility project  being advanced  by  a private development                                                             
group, Venture Development  Group, and car rental agencies (RACs) at                                                            
the Ted  Stevens Anchorage  International  Airport (TSAIA).  Work on                                                            
this project has  been conducted for several years,  but was delayed                                                            
due to the  terrorism attack on the  United States on September  11,                                                            
2001. While the work on  developing the project has resumed, further                                                            
clarification  regarding  the  bond mechanism  associated  with  the                                                            
passage  of  the CFC  legislation  in  2001 was  identified  and  is                                                            
addressed in this legislation.  "The definition of what bond related                                                            
purposes  the CFCs could  be applied  to will  also be clarified  to                                                            
include   debt   reserve   funds   and   other   bond   underwriter                                                             
requirements".  Since the facility would become the  property of the                                                            
State at the conclusion  of the specified term, it  was decided that                                                            
maintenance  of the facility  would be provided  for by a CFMC  that                                                            
would  be separate  from the  CFC "for  the protection  of the  bond                                                            
holders". This would also  insure that no maintenance responsibility                                                            
would  be levied  on the  State  while the  facility  was under  RAC                                                            
control.  He  voiced  that  one of  the  reasons  he  sponsored  the                                                            
legislation  was to insure that the  CFC process would not  obligate                                                            
the State. The expectation  is that the fees would be less than four                                                            
dollars per transaction  at the TSAIA. This legislation would create                                                            
new jobs,  would reflect  efficiency and innovation  on the  part of                                                            
the RACs, would  enhance partnerships  with private enterprise,  and                                                            
would  modernize  the  TSAIA  to  a  level  competitive  with  other                                                            
airports. This  type of improvement at the TSAIA would  combine with                                                            
other  efforts to  further  define  the community  as  a robust  and                                                            
growing city.                                                                                                                   
                                                                                                                                
Representative   Anderson  noted   that  the  House  Transportation                                                             
Committee added an immediate  effective date to the legislation, and                                                            
that the Senate  Transportation Committee's changes  would serve "to                                                            
further  tighten  the  bill's   language  and  reduce  the  risk  of                                                            
misinterpretation  on the  bonding". Letters  of support [copies  on                                                            
file] from the RACs have been included in Members' bill packets.                                                                
                                                                                                                                
Co-Chair Green  asked regarding the design of the  proposed facility                                                            
at the TSAIA.                                                                                                                   
                                                                                                                                
Representative  Anderson  stated  that  while  "this  is a  work  in                                                            
progress" the  intent is to develop  a car rental facility  near the                                                            
airport.  Access to  the facility  would be provided  via an  access                                                            
tunnel   or  a  shuttle.   The  developer   would  provide   further                                                            
information. This  legislation would allow any airport  in the State                                                            
to develop such  a project provided there was sufficient  population                                                            
support.                                                                                                                        
                                                                                                                                
9:16:45 AM                                                                                                                    
                                                                                                                                
Representative  Anderson stated  that the  more convenient  location                                                            
would  also allow  for better  staff management  at  the car  rental                                                            
agencies, as currently,  employees are separated from the rental car                                                            
return location.                                                                                                                
                                                                                                                                
Co-Chair Green  asked whether the proposed Anchorage  facility would                                                            
be covered.                                                                                                                     
                                                                                                                                
Representative Anderson affirmed that it would be.                                                                              
                                                                                                                                
Co-Chair Green viewed this as an important feature.                                                                             
                                                                                                                                
JOHN STEINER,  Assistant Attorney  General, Transportation  Section,                                                            
Civil Division (Anchorage),  Department of Law, and Primary Counsel,                                                            
TSAIA and  the Alaska  International Airport  System, testified  via                                                            
teleconference  from an offnet site  and explained that the  changes                                                            
made in the Senate Transportation  committee substitute, Version 24-                                                            
LS0300\I include such "linguistic  changes" as the allowance of only                                                            
those CFC projects  approved by the  Commissioner of the  Department                                                            
of Transportation  and Public Facilities;  clarifies that  any third                                                            
party as well  as any trustees to  whom these charges might  be paid                                                            
would be  a third  party bondee,  as the proceeds  return  principal                                                            
interest and  reserve just like a  trustee; and that the  fees would                                                            
generate  sufficient proceeds  to  satisfy the  requirements of  the                                                            
indebtedness.  The Version "I" committee  substitute served  to make                                                            
the bill "more precise."  The concept of retaining reserves was also                                                            
included in Version "I".                                                                                                        
                                                                                                                                
Mr. Steiner  further stated that language  in Version "I"  served to                                                            
clarify  that  the  CFC "could  be  collected  during  some  of  the                                                            
preliminary stages  of the project before the construction  actually                                                            
occurs." Some  minor language changes  were also included  regarding                                                            
the terms  that would apply  to a facility  that would be built  for                                                            
State ownership were either  the State to issue the revenue bonds or                                                            
a  third  party  on   the  behalf  of  the  State's  Department   of                                                            
Transportation and Public  Facilities to issue the bonds. Finally, a                                                            
clause  was  added  to allow  that  the  CFC would  be  exempt  from                                                            
taxation.                                                                                                                       
                                                                                                                                
Co-Chair Green asked the location of the tax exemption language.                                                                
                                                                                                                                
Mr. Steiner  replied that this language  is located in Section  7 of                                                            
the bill.                                                                                                                       
                                                                                                                                
Representative  Anderson observed  a typographical error  in Section                                                            
7, line  16, page  seven, in that  instead of  the subsection  being                                                            
correctly  identified  as  subsection   (G),  it was  inadvertently                                                             
labeled subsection (F).                                                                                                         
                                                                                                                                
Co-Chair Green  asked for clarification that this  legislation would                                                            
apply to a variety of approved airport projects.                                                                                
                                                                                                                                
Representative  Anderson understood  that the  legislation would  be                                                            
limited to car rental facility projects.                                                                                        
                                                                                                                                
Mr.  Steiner clarified  that  this  legislation  "would  apply to  a                                                            
facility that  would be occupied by a single user  or group of users                                                            
and the facility being  prepared by either a third party for turning                                                            
over to the  State or by the State  to be used by those third  party                                                            
entities,  typically  in  which  those  private  entities  would  be                                                            
supplying  the revenue stream  for the facility".  While rental  car                                                            
facilities are the common  scenario, this funding mechanism has been                                                            
used elsewhere  in the nation to construct  terminal facilities  for                                                            
airline  use.  This  would not  be  an  anticipated  occurrence  for                                                            
Alaska.                                                                                                                         
                                                                                                                                
Senator Olson understood  that at the end of the 30-year period, the                                                            
State would own  the facility. To that point, he inquired  about the                                                            
facility's maintenance costs.                                                                                                   
                                                                                                                                
Representative  Anderson responded  that the project designer  could                                                            
better respond to that question.                                                                                                
                                                                                                                                
Co-Chair Green  understood that the  State would not be responsible                                                             
for the facility's  maintenance expenses  "during the life  of this"                                                            
as  those  funds   would  be  provided  by  the  customer   facility                                                            
maintenance charges.                                                                                                            
                                                                                                                                
Mr.  Steiner,  noting his  participation  in  the development  of  a                                                            
Memorandum of Understanding  [copy not provided] agreement regarding                                                            
this project,  stated that the anticipation is that  the CFC and the                                                            
CFMC, combined,  would total approximately four dollars.  The actual                                                            
amount would  be determined prior  to the beginning of the  project.                                                            
During  the period  of time  associated  with the  bonds, the  State                                                            
would have no  maintenance obligation associated with  the facility,                                                            
as the  facility would  be maintained  by an entity  created  by the                                                            
developer,  to manage it. The primary  funding would be provided  by                                                            
the CFMC. Were the maintenance  and operation expenses to exceed the                                                            
amount  generated  by  the  CFMC,  additional  funds  would  be  the                                                            
obligation  the tenant rental car  companies rather than  the State.                                                            
                                                                                                                                
Senator  Olson  asked  whether   the  CFC  and  CFMC  charges  might                                                            
"escalate in five or ten years".                                                                                                
                                                                                                                                
Mr. Steiner  shared that the primary  factor in increasing  the rate                                                            
"would  be  a  reduction  in  the  amount  of  traffic  through  the                                                            
facility."  Before the  bonds were  sold, a  feasibility  consultant                                                            
would estimate  the amount of rental car traffic,  or "the number of                                                            
transaction days  of rentals", that would be anticipated  to utilize                                                            
the facility.  Were  the actual transactions  to  exceed or fail  to                                                            
meet  projections  would  dictate  whether  the  charges  should  be                                                            
adjusted.   Another  influence   could  be   increased  maintenance                                                             
expenses. The  Commissioner would  determine whether the  additional                                                            
maintenance  or operating  expenses  would be  addressed through  an                                                            
increase  in  the CFMC  or  would  be  absorbed  by the  rental  car                                                            
companies. The dollar amount  required for the debt service would be                                                            
known  in advance,  based on  the total  cost of  the facility,  the                                                            
total number  of transactions, and  the interest rate on  the bonds.                                                            
These factors would determine the total annual monetary needs.                                                                  
                                                                                                                                
Senator Stedman asked for  assurance that an increase in fees rather                                                            
than  obligating  the State  would  address  any  potential  revenue                                                            
shortfalls;  specifically that  the bondholders  could not  hold the                                                            
State accountable.  In addition, he asked whether  the "per day, per                                                            
average car size" four-dollar  CFC/CFMC fee would be imbedded in the                                                            
airport system  fees or would be eliminated  at the end of  the bond                                                            
period.                                                                                                                         
                                                                                                                                
Mr.  Steiner  understood  that  unless  something  such as  a  major                                                            
rehabilitation  of the facility were  to occur, "in all likelihood"                                                             
the CFC  charge "would crease"  upon the  conclusion of the  30-year                                                            
bond. The CMFC  fee could continue, with the revenues  shifting into                                                            
the State revenue  stream, because at that point the  State would be                                                            
assuming complete ownership and responsibility of the facility.                                                                 
                                                                                                                                
9:29:27 AM                                                                                                                    
                                                                                                                                
Mr. Steiner,  in response  to Senator Stedman's  question  regarding                                                            
possible  recourse  against the  State,  stated that,  "the  support                                                            
behind  the bonds would  be a sole  pledge of  CFC revenues  without                                                            
recourse to the State;  either the general fund or the airport fund.                                                            
The only way in which the  State might become responsible in any way                                                            
would  be some  kind  of  litigation  alleging  that the  State  had                                                            
somehow  not fulfilled  its obligation  to impose  the CFC" or  make                                                            
some type  of misrepresentation.  He  assured that  the project  was                                                            
"designed so that the State does not hold liability."                                                                           
                                                                                                                                
Senator Stedman voiced  that 30-years is a long time. Continuing, he                                                            
asked regarding  any bond issuance  provisions that would  allow the                                                            
fees to be increased to address future maintenance needs.                                                                       
                                                                                                                                
Co-Chair Green  asked for clarification  as to whether the  proposed                                                            
CFC/CFMC fees would be levied on a per-day basis.                                                                               
                                                                                                                                
Representative Anderson deferred to Mr. Steiner.                                                                                
                                                                                                                                
Mr. Steiner  replied  that the  State owns "the  underlying  airport                                                            
property" that  would be leased to  the entity that would  manage it                                                            
for the RACs.  The State would hold the facility 's  "title from the                                                            
beginning and would obtain  complete possessory rights at the end of                                                            
30-years."  The State would  require that  the facility be  properly                                                            
maintained  during that period.  The Commissioner  would decide  how                                                            
much of the maintenance  costs would be derived from  the CFMC. Were                                                            
additional  funds  required,  "the  rental car  companies  would  be                                                            
required  to absorb  that under  their subleases  with the  facility                                                            
management company to ensure  that the State gets it back in a well-                                                            
maintained"  status  for the  rest  of its  remaining  useful  life,                                                            
anticipated  to be a minimum  of another ten  years. There  would be                                                            
"mechanisms in  the contracts to enable the State  to make sure that                                                            
it is well-maintained throughout."                                                                                              
                                                                                                                                
Co-Chair Green understood  that the Commissioner would establish the                                                            
fee.                                                                                                                            
                                                                                                                                
Mr. Steiner affirmed.                                                                                                           
                                                                                                                                
BOB  EVANS, Representative,  Venture  Development  Group,  expressed                                                            
that the Group  "would be participating  in the development  of this                                                            
project"  with   the  RACs.  He  shared   that  the  Department   of                                                            
Transportation and Public  Facilities has worked with the Group from                                                            
the onset of this  endeavor. The Department is "very  supportive" of                                                            
the project.                                                                                                                    
                                                                                                                                
Co-Chair  Green understood  there  is  widespread support  for  this                                                            
project.                                                                                                                        
                                                                                                                                
Representative  Anderson affirmed. No objections have  been received                                                            
from any entity, including  off or on-site car rental companies, the                                                            
chamber of commerce, or the visitor industry.                                                                                   
                                                                                                                                
Senator Olson  applauded the involvement of State  government in the                                                            
project.  He  asked  how  this  project  would  affect  surrounding                                                             
businesses such as the air taxi providers at Lake Hood.                                                                         
                                                                                                                                
Mr. Evans  explained  how that  the facility  would accommodate  the                                                            
eight  car companies  that  would utilize  it. Off-site  car  rental                                                            
companies would  not be required to  charge the associated  facility                                                            
fees.                                                                                                                           
                                                                                                                                
Representative  Anderson  stated  that  the site  proposed  for  the                                                            
facility "has  been designated and purchased". There  are no further                                                            
plans to acquire or usurp other land holdings.                                                                                  
                                                                                                                                
Mr. Evans communicated  that the location  of the proposed  facility                                                            
would  be  "the  open  area"  where  the  car  rental  vehicles  are                                                            
currently stored.  It would be a four-story structure  with a tunnel                                                            
leading to the airport.  The structure would allow room for the RACs                                                            
to clean, maintain, store, and rent vehicles in one location.                                                                   
                                                                                                                                
Senator  Stedman   asked  for  further  information   regarding  the                                                            
development group.                                                                                                              
                                                                                                                                
Mr. Evans stated  that in the year  2000, Venture Development  Group                                                            
was approached  by  the RACS to  initiate the  project. Legislation                                                             
that was adopted in 2001  provided the ability to establish CFCs for                                                            
the purposes  of debt service; however,  after the terrorist  attack                                                            
on the nation in 2001,  it was necessary to expand the provisions of                                                            
that legislation  to allow  for operations  and management.  Venture                                                            
Development  Group  is a  joint venture  consisting  of individuals                                                             
involved  in  construction   and  architectural  firms.   The  Group                                                            
recently  completed   the  design/build   project  for  the   Alaska                                                            
Psychiatric Institute (API).                                                                                                    
                                                                                                                                
Amendment  #1: This  technical  amendment correctly  identifies  the                                                            
subsection  reference   in  Section  7,  line  16   page  seven,  as                                                            
subsection (G).                                                                                                                 
                                                                                                                                
Co-Chair Wilken moved to adopt Technical Amendment #1.                                                                          
                                                                                                                                
There being no objection, Technical Amendment #1 was ADOPTED.                                                                   
                                                                                                                                
9:40:28 AM 9:41:37 AM                                                                                                       
                                                                                                                                
Co-Chair Wilken  asked the amount  of money the fees would  generate                                                            
over a 30-year period.                                                                                                          
                                                                                                                                
Representative  Anderson  responded that  the answer  would  require                                                            
extrapolation.                                                                                                                  
                                                                                                                                
Senator Stedman furthered  the question by sharing that in many real                                                            
estate ventures,  the return is divided "into ongoing  cash flow and                                                            
the residual  value  of the liquidation  of  it. Apparently  there's                                                            
going to be no liquidation  of it, it's just going to be transferred                                                            
to the  State." Therefore,  it would  be addressed  by the  on-going                                                            
cash flow.  The bonding and  backing ability  of the State  would be                                                            
used to support the revenue  bond. Therefore, he asked regarding any                                                            
parameters included in  the proposal to guarantee, "that there would                                                            
be a fair  and equitable  rate of return  to the development  group"                                                            
without there being "an  excessive rate of return using State backed                                                            
leverage".  In other  words,  he asked  what  regulatory  provisions                                                            
would be included "to protect the public".                                                                                      
                                                                                                                                
MARK  PHEFFER,  Partner, Venture  Development  Group,  informed  the                                                            
Committee that  "the actual transfer  of the facility" to  the State                                                            
would  be at  the completion  of  construction  rather  than at  the                                                            
conclusion of  the 30-year bond period. "There would  be a customary                                                            
development fee  charged during the development of  the project that                                                            
would be part of the total  capital costs and of the bond issuance."                                                            
                                                                                                                                
Senator  Stedman assumed  therefore  that the rate  of return  being                                                            
utilized by the Venture Development Group is zero                                                                               
                                                                                                                                
Mr. Pfeffer  stated  that is correct.  An up-front  development  fee                                                            
would be charged  "for the total development  of the project".  That                                                            
fee would be capitalized  "as part of the allowable capital costs of                                                            
the overall  project". "The  transfer is to  the State at the  total                                                            
cost to the  airport". The development  group would have  no further                                                            
"ownership  in the facility. There's  no rate of return over  time."                                                            
                                                                                                                                
Co-Chair Green and Senator  Stedman asked that Mr. Pfeffer meet with                                                            
Senator Stedman  to further discuss the particulars  of the project.                                                            
                                                                                                                                
Senator Dyson  asked whether  other entities  have been provided  an                                                            
opportunity  to  participate  in this  project,  as there  would  be                                                            
criticism otherwise.                                                                                                            
                                                                                                                                
Mr. Pfeffer  responded that the initial  work on this project  began                                                            
in  the year  2000 "when  the  car rental  industry  sought out"  an                                                            
entity  who  was willing  to  organize  and  develop  this  project.                                                            
Venture Development  Group has been  working on the project  for the                                                            
past  four and  a half  years.  There would  be an  opportunity  for                                                            
others to compete when  the airport advertises the land for lease at                                                            
the airport.                                                                                                                    
                                                                                                                                
Senator Hoffman  asked whether it  is anticipated that the  facility                                                            
would meet the future needs of the State.                                                                                       
                                                                                                                                
Mr.  Pfeffer replied  that  it  would. The  facility  would  provide                                                            
approximately  four  times the  current  space; this  would  include                                                            
1,400 vehicle  parking spaces as well  as car washing, fueling,  and                                                            
cleaning  facilities. Were  future  airport growth  to require  more                                                            
public parking spaces, these components could be relocated.                                                                     
                                                                                                                                
Co-Chair  Green  ordered the  bill  HELD in  Committee  in order  to                                                            
further review it.                                                                                                              

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