Legislature(1993 - 1994)
03/01/1994 01:45 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR KELLY announced SB 338 (ALASKA RR REVENUE BONDS:SHIP CREEK) K) to be up for consideration. JOSH FINK, Aide to Senator Kelly, reviewed the proposed CS to SB 338. MR. FINK said he ran the finance section by the municipal bond bank people and the people at AIDA and they indicated that the provisions should insure the bonds negligibly, if at all, affect the state's financial rating. He said the differences between SB 338 and the CS are that it's not the Alaska Discovery Center, but the Northern Crossroads Discovery Center, so the title has been changed to reflect that. The language referring to the Board of Directors was tightened up. and the performance bond in section 3 was changed to read "payment and performance bond." Number 408 MARK LOPATIN, John Nuveen and Co., testified that one of the most exciting things about this project is the opportunity to bring international travelers, from London and Tokyo, to Anchorage. The area they are developing is at Ship Creek. He said this bill is for the Discovery Center and nothing else in that project. He pointed out the features of the proposed center. He said there was already ICT money identified for the walkway. SENATOR LINCOLN asked if this was the money Alaska had already received this year. MR. LOPATIN said the walkway was a request from the Municipality of Anchorage to the state which, then, becomes a request to the federal government. SENATOR KELLY asked if he had permission from the Anchorage Assembly for the project. MR. LOPATIN answered yes and they had made all the corrections that were required in planning and zoning. SENATOR KELLY asked him why he wanted to take the bonds into the private sector? MR. LOPATIN said first of all it is a $54 million project which is a very specialized use. Railroad property, specifically, cannot be subordinated or pledged to a mortgage. The facility generates $41.6 million to the area economy. It was clear creative financing tools were needed and Railroad bonds are very unique - being sold on a tax exempt basis for private purposes. SENATOR KELLY asked about the state's credit risk if the project didn't get completed or didn't perform to expectations. KEN VASSER, testifying via teleconference, explained that the bonds are payable from revenues from the project and are not obligations of the State of Alaska. SB 338 goes further and requires that the bonds state on their face that they're are not a legal or moral debt of the state. Number 561 SENATOR SHARP asked what would be the difference with AIDA bonds? MR. VASSAR said that AIDA also has language saying the bonds are not obligations of the state of Alaska. SENATOR SHARP asked if the Railroad would be doing this and would the bonds be insured? MARK HICKEY, Alaska Railroad, said he didn't know if the Railroad had any other outstanding bonds at the time. TAPE 94-12, SIDE B Number 580 SENATOR RIEGER asked if the Railroad would pledge any assets to back the bonds. MR. LOPATIN explained that the only assets or revenue of the Railroad's that will be pledged to repay the bonds will be from this project. SENATOR RIEGER asked who would own the Discovery Center. MR. LOPATIN said the entity would own it. SENATOR KELLY asked how confident he was that he could sell the bonds. MR. HICKEY explained he was convinced it couldn't be financed more traditionally. Therefore, the financing has to be creative and this project makes sense. Economic Research Associates was hired to come up with figures the market would bear and The Northern Crossroad Discovery Center was developed from those figures. He said he felt comfortable that this project would be financed. SENATOR LINCOLN asked why they are discussing the legislation now instead of letting the Alaska Railroad Board first review it. SENATOR KELLY said he thought the legislature would have to pass authorizing legislation before the LoPatin group would commit the kind of money it would take to do a serious feasibility study. SENATOR LINCOLN also commented that she hoped it wasn't his intent to just benefit the educated and well to do in Anchorage as it says in the handout for the Northern Crossroads Discovery Center. She also wondered what they meant by "person" to do the feasibility study. MR. HICKEY apologized and explained that Anchorage and Alaska have a very high per capita income for the tourists who come here, compared to other tourist locations. That is what those comments were in reference to. He said the facility is designed to accommodate 60% of the tourists who arrive during a three month period. The facility has to be large enough to move that many people through in a short period of time. During the other eight and a half months the facility would still accommodate some tourists and more area residents, as well. Rates would drop substantially. The area residents would pay less. The project would be marketed differently for them. SENATOR LINCOLN asked if there was another way to get funding for the moving walkway if the ICT money doesn't come through. MR. HICKEY said he didn't have final figures, but it will be dropped if it can't be accommodated. SENATOR LINCOLN said she was concerned that the people employed by the Center would be Alaskans. MR. HICKEY said there would be approximately 350 employees and there was no reason to bring people in from out of state. They would hire native Alaskans to go along with the mythology part of the package. This would also be a union construction. A representative of the Union said they supported the project. SENATOR SALO asked about the time line with the construction. MR. HICKEY said that construction would start in 1995 with an opening in 1997. Number 460 BOB LERESCHE, John Nuveen & Co., said the bonds this legislation would authorize would be high yield bonds for a non-government project. It's an extremely common type of bond in the market today. The bonds will probably be required to have reserves to cover things like a year's debt service, capitalized interest, working capital reserves, and insurance. What the market will look for in deciding how much to pay for these bonds are basically a feasibility study, conducted by someone with whom the bond market is familiar, predicting the revenues would be more than sufficient to cover debt service at a certain coverage level. The bond market also would look at who would manage the project and at the Alaska tourism industry. SENATOR LINCOLN said she needed clarification of page 2, line 30 stating the Railroad is not obligated to pay the bond or the interest, except for the revenue stream or assets pledged for the bond. MR. HICKEY answered that the revenue is admission tickets and the assets are the Discovery Center itself - the brick and mortar. MR. LERESCHE said the Railroad will pay these bonds by passing the money through their system, but they're obliged to pay no more than they get from the owner of the Discovery Center. SENATOR KELLY moved to add the words "or firm" to "shall select the person." There were no objections and it was so ordered. SENATOR KELLY moved to add flexibility to go lower by inserting "not more than" before "$55 million". There were no objections and it was so ordered. SENATOR RIEGER moved to adopt the CS with the two amendments to SB 338. There were no objections and it was so ordered. SENATOR RIEGER moved to pass CSSB 338 (L&C) from Committee with individual recommendations. SENATOR LINCOLN objected. SENATORS KELLY, RIEGER, SHARP, and SALO voted yes; SENATOR LINCOLN voted no. The motion to pass CSSB 338(L&C) out of committee carried.
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