Legislature(1999 - 2000)
05/06/1999 02:20 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 84-INTERNATIONAL AIRPORTS REVENUE BONDS CHAIRMAN WARD brought HB 84 before the committee for consideration. TAPE 99-12, SIDE B Number 545 MR. KURT PARKAN, Deputy Commissioner for the Department of Transportation and Public Facilities (DOTPF), stated HB 84 would authorize $25 million in additional bonding authority for the Anchorage International Airport Terminal expansion project. He introduced Mr. Dave Eberle, Program Manager for Gateway Alaska in charge of the construction of the project; Mr. Mort Plumb, Director of the Anchorage International Airport; Mr. Jim Kubitz with the Alaska Railroad Corporation; and Mr. Devon Mitchell, Debt Manager for the Department of Revenue (DOR). MR. PARKAN explained the purpose of HB 84 is to provide the airport a means of interim financing to enable the terminal redevelopment project to be constructed in a timely manner. The Governor introduced legislation last year to authorize $204 million in revenue bonds to finance the terminal redevelopment project. In addition to the bonding, DOTPF included $26.3 million in federal highway funds for a portion of the roads leading up to the terminal. The Senate bill that ultimately passed the legislature last year reduced the amount $25 million. The expressed intent of the legislature was that DOTPF secure additional federal dollars from the Federal Aviation Administration (FAA). During the summer, DOTPF received those discretionary dollars through a Letter of Intent. In February of 1999 the DOR issued $170 million in revenue bonds for the project. Currently the project is about 5% complete and major construction will begin this summer. DOTPF received the bonding authority coupled with federal highway funds to do the roadside and land-side improvements. However, the funding will be received over a 10-year period which creates a cash flow problem. The project's completion date is anticipated to be 3 to 4 years. To solve the cash flow dilemma and maintain the current project schedule, DOTPF is asking that the previously requested $25 million in bonds be authorized for interim financing. As proceeds from the FAA are received, they will be used to offset the additional bonds the department is requesting. Overall, the project cost remains at $230 million as anticipated; the $25 million in bonding authority will simply provide forward funding to allow the project to be completed as originally scheduled. Additional bonding authority will not increase the cost of the project and it will ultimately reduce the impact on the airlines. HB 131 will benefit the airport by allowing the terminal project to be completed on schedule, and the airlines because it reduces their costs. The airline carriers voted to approve the project with the full $204 million in bonding authority; DOTPF is reducing that amount by supplementing the cost with federal funds thereby reducing the costs borne by the airlines and the traveling public. CHAIRMAN WARD asked Mr. Plumb or Mr. Eberle to address the questions he had faxed to them. Number 488 MR. DAVE EBERLE, Program Manager for Gateway Alaska, said one question asked whether the design plan still contains five new jet gates and seven gates for smaller aircraft which, he said, has changed somewhat. The regional carriers now have the benefit of exclusive use of seven gates; the jet gates have been moved to the new Concourse C and reduced to four full-time gates for a net loss of one gate. One additional jet gate is currently earmarked as an alternate; in the event that bids come in higher than anticipated, that gate will not be built. MR. EBERLE presented the committee with a contingency analysis he had prepared. The original contingency amount was $30.6 million. He has accepted requested additions totaling $11.8 million and suggested reductions of $4.8 million. He said these additions and reductions will occur until the project is completed, and balancing them is a means of managing the contingency in order to stay within the $230 million budget. MR. EBERLE said he has identified potential alternates to reduce the scope of construction by not building certain aspects with the objective of staying within the original project budget. Number 445 MR. MORT PLUMB, Director of the Anchorage International Airport, said one question was whether the traffic projections were "too rosy" and have already fallen short in the first year. He said they had identified many shortcomings in the terminals, such as baggage claim and ticket cuing areas, and forecasted traffic in the year 2005. The Asian economy and other factors have impacted Alaska's economy, more particularly in cargo business with some impact in passenger business. He believes the forecast will be fairly representative and the only impact to the airport will be when to build additional infrastructure and what that trigger point would be. MR. PLUMB explained HB 131 will allow the airport to get the bond money up front to finance the construction costs, and over the ten year period, it would receive the money from the federal government to repay the bond debt. MR. EBERLE stated no cost overruns have occurred thus far, and he repeated that overall they would stay within the project budget. The total spent on administration, engineering, design and other non-construction expenses was $7.2 million through the end of March. Regarding the question of whether anything has been scaled back, MR. PLUMB said overall the square footage has increased based on the needs of the airlines. He offered to address specific questions regarding scope items. Number 380 SENATOR PEARCE expressed concern about the scope of the project. The original design work was done by a company considered to be an expert at airport design worldwide. She questioned why the airlines are now demanding more from DOTPF when their needs were defined in the scope by the expert designer. She noted the domestic carriers are not the only ones paying for the expansion, cargo carriers are involved as well. She questioned how DOTPF can justify this expansion if the design was for a certain size. MR. EBERLE said the original concept was based on averages, a numerical model of other airports around the nation. At the time the plan was developed, the design concept was based on deplanements and preliminary discussion with the airlines and tenants. The design concept contained an assumed square footage without a floor plan; it was very general in nature. Now, as they advance from the concept to the details of the schematic design in the design development process, discussions with the airlines and tenants have given rise to the various space increases. The goal is to meet all the users' needs and to accommodate the traveling public. SENATOR PEARCE commented that DOTPF should never have brought the project to the legislature and asked for bonding authority last year. It should have come with the actual design and actual cost. The cargo carriers bear the cost of the Anchorage International Airport, not the passenger carriers, and now they will carry more because the domestic passenger carriers want "new bells and whistles after the fact." MR. EBERLE responded the project cost remains at $230 million. The project presented to the legislature last year was expected to cost $204 million in bonding to be paid through airline revenues. That figure has been reduced to $179 million due to additional federal funding of $25 million. HB 131 requests bonding authority for interim financing, but the net cost to the airlines is $25 million less. SENATOR PEARCE countered that she disagrees, because some of the reductions are deferrals until a later date, including the North terminal connector and completion of the third floor space. She said that does not reduce the cost of the project or allow for completion with the same amount of money. MR. EBERLE replied he couldn't say the two projects referred to by Senator Pearce will never be necessary, but whether they get added will be subject to a vote of the airline carriers. SENATOR PEARCE said the airlines should not run the AIA, the State should. Number 269 MR. PLUMB said the gate configuration changed in the past year. The original concept had five additional gates, three of which would be cross-utilized. In the end, the regional carriers got three exclusive gates instead of three part-time, and domestic carriers lost three. To accommodate the domestic carriers they reduced the square footage of the regional carriers' area, the square footage was added to the "C" extension. He noted that, and a small amount of square footage added to the concession area, is the cause of the change. SENATOR PEARCE said the last time the group briefed the committee, they said the square footage increased because they had to build a mechanical utility underneath the terminal. MR. PLUMB said that was correct. SENATOR PEARCE repeated they are not reducing, just deferring some things. She emphasized that her point is that the original plan attached to the North terminal, so that in the long term, the North terminal would be fully utilized. Now, it is not being attached so the white elephant is still sitting there and $230 million will have been spent. She maintained that the project will not be complete after the $230 million is spent and the group will be before the legislature asking for more money to make the project work. SENATOR HALFORD asked the cost of the international terminal. MR. PLUMB said it was about $26 million. SENATOR HALFORD asked if it would sit vacant. MR. PLUMB said, "No, sir, it's 100% utilized right now by Delta and international carriers." It was built as a shopping center for international travelers, not as an emplanement/deplanement terminal. SENATOR PEARCE said she and Representative Hanley requested an audit on the domestic terminal project, and at that time the auditor concluded the project scope was not finalized prior to the construction commitment. The scope was revised both before and after the concession contract award date, which is partially why it went way over budget. Airport tenants' requests for scope revisions to the project necessitated redesign by the design consultant at the State's expense. The large number of design deficiencies resulted in the general contractor submitting over 750 design clarification and variation requests. The general construction contract was awarded for $17.8 million with an original contingency of $1.6 million through June 19, 1985. Ninety-nine change orders totaled $3,126,000 above the original contingency. SENATOR PEARCE said, "I hope that we've learned something from that previous experience. You gentlemen weren't there at the time, but we've been through terminal expansions before, and as far as I can tell, we are starting down the same road. That's why I am bothered by this." SENATOR LINCOLN asked about DOR's fiscal note which states that the airport has secured a federal grant, called a Letter of Intent, for $25 million, to be appropriated by Congress over a 10-year period, and whether the grant is secured or anticipated. MR. PARKAN responded the Letter of Intent is a promise by the FAA to pay over the course of 10 years, subject to appropriation by Congress every year. The grant totals $32 million in federal discretionary funds, and $16 million promised from the airport for their entitlements to be used toward terminal development. Letters of Intent are frequently and most commonly funded by front-loading with bonds. He said other airports use the same process. MR. JIM KUBITZ, Vice President of Real Estate and Project Planning with the Alaska Railroad Corporation (ARRC), stated the ARRC secured a $28 million grant from the federal railroad administration to build a passenger rail station at Anchorage International Airport. A year ago he became involved in the planning process of the airport at Commissioner Perkins' and Mr. Sheffields' request in order to protect its right-of-way into the airport for future development of a rail station. Through an RSA agreement with DOTPF, ARRC was able to work with the project architect to conceptually design a rail station into the airport. ARRC continued to work with the airport, and was successful in getting a grant from Alaska's congressional delegation. ARRC is now geared up to be a full participant in the airport project. MR. KUBITZ said ARRC uses its own revenues without subsidies and is careful with its operating funds. The project is designed to stay within budget. The schematic design is final, and because of procurement rules, ARRC will go out to bid for a final design. The estimated construction budget is $20 million with a 16-17% contingency built in. The elevated track portion, or rail station, will be about $10 million, with the rest used for contingency or the tunnel. The tunnel will be built underneath the circulation road that will connect to the main part of the terminal. Benefits to the airport include the new tunnel to help connect the rail station and long-term parking area to the airport terminal. The Board has committed to the tunnel; DOTPF will build it. ARRC is providing rights-of-ways to the airport for the circulation of the road, and along the rail line for a bike path designed into the project. The Board has not given full approval until ARRC provides it with a market identification study in June. ARRC intends to seek its approval to continue with full design and construction of the airport. CHAIRMAN WARD asked who this will benefit. Number 030 MR. KUBITZ said the potential markets identified for the rail station are cruise ship passengers motor-coached by Princess and Westours, as well as charter operations. Groups brought in on charter aircraft could be put on a train and taken directly to Denali Park, Fairbanks, Seward or Girdwood. ARRC is looking at the commuter market because line changes between Anchorage and Wasilla can speed up the train. TAPE 99-13, SIDE A Number 001 CHAIRMAN WARD stated three people are waiting on teleconference to testify on HB 84. MR. MIKE KEAN, Transportation Director of Anchorage Economic Development Corporation (AEDC), testified in favor of HB 84. He said AEDC believes the Anchorage International Airport is an "economic engine" of the City of Anchorage its expansion is much needed. Number 028 MR. CLIFF ARGUE introduced himself as Staff Vice President of Properties and Facilities at Alaska Airlines, and Chairman of Anchorage/Fairbanks Airport Affairs Committee which represents 25 airlines. He said his comments represent Alaska Airlines and most of the airline members of the committee. The airlines support HB 84. The bill is not a request for new or additional funding, it will provide for a steady cash-flow to pay for the terminal project as originally approved. MR. RON LANCE, General Manager of United Airlines, expressed support for HB 84 and agreed with Mr. Argue's comments. Number 072 SENATOR PEARCE moved HB 84 out of committee with individual recommendations. Hearing no objection, it was so ordered.
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