Legislature(2021 - 2022)BELTZ 105 (TSBldg)
02/22/2022 01:30 PM Senate TRANSPORTATION
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| Audio | Topic |
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| Start | |
| SB170 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 170 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 170-MARINE HIGHWAY CORPORATION
1:39:43 PM
CHAIR MYERS announced consideration of SENATE BILL NO. 170 "An
Act relating to the Alaska marine highway system; establishing
the Alaska Marine Highway Corporation; and providing for an
effective date."
1:40:28 PM
THERESA WOLSTAD, Staff, Senator Robert Myers, Alaska State
Legislature, Juneau, Alaska, on behalf of the committee, briefly
summarized the bill as establishing the Alaska Marine Highway
Corporation (AMHC).
1:41:28 PM
CHAIR MYERS said the new corporation would have a recurring
contract with the state. He asked whether any other corporations
do something similar, and if so, who handles their negotiations.
1:42:14 PM
WILLIAM MILKS, Chief Assistant Attorney General, Statewide
Section Supervisor, Legislation & Public Corporations &
Governmental Services, Civil Division, Department of Law,
Juneau, Alaska, responded that communications between
corporations and the legislative branch occur. At times, public
corporations work with executive branch departments. For
example, during the first year of COVID-19, the Department of
Commerce Economic Development (DCCED), and the Alaska Industrial
Development and Export Authority (AIDEA) jointly administered
the Small Business Relief Program. The Alaska Permanent Fund
Corporation (APFC) provides the financial expertise for the
Alaska Mental Health Trust Authority (AMHTA), so he believed the
APFC would have various memorandums of agreement to carry out
those kinds of tasks.
1:44:08 PM
SENATOR KIEHL stated that he liked that the legislature could
fund AMHS at a certain level of service from an appropriator's
standpoint. However, he wondered how that would work. He related
that the corporation exists in the executive branch of the
state. He asked for the other signing party in the contract.
1:44:56 PM
CHAIR MYERS deferred to Mr. Milks.
1:45:04 PM
MR. MILKS agreed that public corporations are housed in the
executive branch. He pointed out that he did not draft this bill
but offered to review specific provisions in the bill. He stated
interactions generally occur between public corporations and
executive branch departments. Often, there is an initial
legislative appropriation to provide seed money for the
corporation. He deferred to the Department of Transportation and
Public Facilities (DOTPF) or others to explain how that would
work.
1:46:19 PM
SENATOR KIEHL acknowledged that he liked the concept. As Mr.
Milks mentioned, the natural contracting agency for
transportation service would be DOTPF. Since DOTPF's
commissioner sits on the board and could sign on behalf of the
agency, it could give the appearance of less than arms-length
distance. He suggested that the committee should address this
issue. He asked if this contract would need to be subject to an
appropriation.
1:47:38 PM
MR. MILKS agreed that this would need more of an explanation.
Monies would go from the executive branch to the public
corporation. Again, many public corporations receive initial
appropriations as seed money, so that would not be an unusual
event. Sometimes the legislature appropriates a significant sum
for future years to carry out a program, which historically has
occurred. He said that is his best response at the moment.
1:49:23 PM
SENATOR KIEHL acknowledged that the question might have been
better directed to the sponsor and the intent. As he read the
bill, he envisioned that it was aimed at AMHS's service level,
requiring an annual appropriation rather than an initial one. He
wondered how the sponsor intended the service contract to
operate.
CHAIR MYERS responded that the intent was to have the
corporation sign the contract with the state, subject to
appropriation. He directed attention to [Sec. 42.50.560.
Appropriations.] on page 25 of the bill. He stated that
negotiating an [assurance agreement] would reduce the
legislature's ability to micromanage the corporation by
periodically appropriating or cutting a couple of million
dollars. He acknowledged that the Alaska Marine Highway
Corporation (AMHC) would require subsidies and noted that the
bill would restructure them. He stated the intent is to put [the
funding process] at an arms-length from the management process.
He related that he would rather have the state indicate the
amount it was willing to fund than to involve the state in the
nitty-gritty of the operations.
1:51:39 PM
TERRY BANNISTER, Attorney, Legal Counsel, Legislative Legal
Services, Legislative Affairs Agency, Juneau, Alaska, speaking
as the bill drafter, asked if he was referring to Sec. 42.50.570
on page 25 of SB 170.
CHAIR MYERS answered yes.
MS. BANNISTER responded that she did not see any problem with a
public corporation entering into an agreement with another
entity, even a state organization. She said it seems to
frequently happen, that there is an exchange of funds or
memorandums of agreement to accomplish it. In this case, the
Minimum Service Assurance Agreement would be difficult to
enforce. It is difficult to say what it means, although it does
identify the number of sailings. She was unsure whether
enforcement would be straightforward if the state didn't enter
into an agreement.
1:53:26 PM
SENATOR MICCICHE offered his view that it would depend on how
accurate the new corporation was on its sailings. He said it
would be difficult if the corporation is trying to be accurate,
but agreements guarantee the rates on tickets. He remarked that
ferry service is an unpredictable mode of transportation. He
said it is a different question about whether the agreement is
enforceable or could be upheld. He suggested that the committee
may need to look at the structure of this section to achieve a
more viable agreement in the first place. He characterized it as
more of an operational question. He acknowledged that some of
the legs of service might be provided by a private service
provider. If so, he was unsure whether that would meet the
intent of the minimum service assurance. He commented that his
questions were more about the operational reality than about the
agreement's legality.
1:55:30 PM
SENATOR KIEHL related that the corporation would enter a
contract to provide a basic service level through the assurance
agreement. The legislature will be asked to appropriate funds
for that service. He asked for a hypothetical order of
operations and schedules. He asked who would negotiate the
agreement and how far in advance. He wondered who does the
renegotiation and when that would go into effect. He asked
whether a flowchart could show how this would work on the ground
in Alaska.
1:56:14 PM
CHAIR MYERS related that the current AMHS sometimes needs to
contract out services because a vessel is down. He asked for a
review of the contract process.
1:56:53 PM
ANDY MILLS, Legislative Liaison, Office of the Commissioner,
Department of Transportation and Public Facilities (DOTPF),
Juneau, Alaska, responded that the department could provide
supplemental ferry service for specific ports in Northern Lynn
Canal and the village-run areas per an exemption in the
collective bargaining unit statutes. He explained that DOTPF
could issue an Invitation to Bid (ITB) to supplement service.
The department issues ITBs when AMHS ships, such as the
Matanuska, are in layup status longer than anticipated. He
stated that DOTPF put out an ITB, multiple parties indicated
they could provide lots of supplemental service runs. He
recalled Allen Marine Tours and Goldbelt Transportation provided
the service.
1:58:35 PM
CHAIR MYERS recalled one question was how that supplemental
service would interact with the state's budget process. For
example, how does the supplemental service in northern Lynn
Canal and the vessel providing ongoing service between
Metlakatla and Ketchikan interact with the budget process.
Further, if the contract is completed in December, how would
that fit in the budget negotiations. He wondered how much
flexibility it would provide.
MR. MILLS deferred to Captain Falvey to respond.
1:59:22 PM
JOHN FALVEY, General Manager, Alaska Marine Highway System,
Department of Transportation and Public Facilities (DOTPF),
Ketchikan, Alaska, answered that Mr. Mills correctly identified
the process for outsourcing service to the Northern Panhandle
communities and northern Lynn Canal. He explained that AMHS uses
outsourcing to fill gaps created when ships remain in the
shipyard longer than anticipated. He stated that those ship
layups provided extra budgeting for the outsourcing service.
2:00:12 PM
CHAIR MYERS highlighted that the state is not providing that
service directly but it outsources some vessel services. He said
to some extent SB 170 contemplates creating the same
relationship, but this time it would be outsourcing to a state-
owned corporation. He asked how that would interact with the
legislative budget process and how that relationship would work.
2:00:46 PM
CAPTAIN FALVEY answered that the state ferry Lituya provides the
service between Ketchikan and Metlakatla. When the Lituya goes
out of service, the Inner-Island Ferry Authority (IFA) picks up
that run. He noted that AMHS had used this process for many
years.
2:01:16 PM
CHAIR MYERS asked whether AMHS only uses IFA for backup.
CAPTAIN FALVEY answered yes. He reported that typically, IFA
fills in on the Metlakatla to Ketchikan run when the Lituya is
out of service for its annual overhaul. This summer, the Lituya
will be out of service during June, July, and August for its
first federally-funded capital improvement project since it was
built, and Inter-Island Ferry Authority, (IFA) would fill in for
those three months.
2:01:58 PM
MS. WOLSTAD noted that this outsourcing refers to the Prince of
Wales Inter-Island Ferry Authority, IFA. It is a [public, non-
profit corporation organized under Alaska's Municipal Port
Authority Act] that contracts and provides ferry service from
Ketchikan to the Prince of Wales Island.
CHAIR MYERS said he misspoke, that he meant to inquire about the
ferry run to Prince of Wales Island.
2:02:45 PM
CAPTAIN FALVEY responded that IFA maintains, manages, and
controls the run from Ketchikan to [Hollis] on Prince Wales
Island. It has no bearing on state vessel service activities. He
noted IFA is under municipal authority.
CHAIR MYERS asked whether the state provides any supplemental
funding to IFA.
CAPTAIN FALVEY offered his belief that IFA does receive some
supplemental state funding via the Department of Commerce,
Community and Economic Development (DCCED).
2:03:26 PM
CHAIR MYERS asked whether the contract was negotiated and signed
by DCCED.
CAPTAIN FALVEY offered his belief that the supplemental funding
is via DCCED.
2:03:53 PM
SENATOR KIEHL said he was unsure that was a comparable scenario.
He explained that the state does not contract with IFA to
provide service. Instead, the state provides direct cash
assistance to IFA that could be used for fuel costs. He said it
was an unrestricted grant recipient in the capital budget.
2:05:05 PM
SENATOR KIEHL related his understanding that the bill would give
the new board almost plenary power to dispose of any AMHS
assets, including ships, terminals, terminal lands, which is
broader than most state corporations. He asked for the rationale
to take this approach.
CHAIR MYERS emphasized that the goal was to provide the
corporation with broad authority to make the most efficient use
of its resources. It might mean leasing an asset, buying a new
terminal lease or vessel, or disposing of property. He did not
envision any significant changes initially since the corporation
would focus on getting the system up and running. He suggested
that Mr. Milks could address the structure for other
corporations with similar purchasing power, such as the Alaska
Railroad Corporation (ARRC) and Alaska Aerospace Corporation
(AAC).
2:07:22 PM
MR. MILKS acknowledged that he did not study each corporation on
this discrete issue, but public corporations typically have
broad powers created by the legislature. However, the
corporations could not be given powers not permitted under the
Alaska Constitution. He related the legislature has discretion
when establishing powers for public corporations, but it does
runup to a line. He referred to an Alaska Supreme Court case
related to constitutional issues for public notice requirements
for the Alaska Railroad Corporation (ARRC) when disposing of or
leasing state lands. The Alaska Supreme Court ruled that the
legislature could exempt ARRC from some state laws but not from
constitutional provisions, and the Alaska Constitution has a
public notice provision. It often turns into a policy judgment
on the extent of powers to grant a corporation.
2:09:46 PM
MS. WOLDSTAD referred to a reference sheet providing comparisons
of the powers and authorities granted in Alaska statute to
public corporations of the State of Alaska. The legislature can
direct a public corporation on certain caveats on its lease
properties. For example, for the Aerospace Corporation related
to Poker Flats, the corporation may not pledge or encumber the
Poker Flats Research range since it is considered an asset of
the University of Alaska. However, Poker Flats may be leased by
the corporation and may be leased as facility space to the
university. She stated that in special cases, the legislature
allows and defines certain assets to the corporation and how
they can use them. She suggested that provision could be put
into the bill if the legislature wanted to stipulate certain
assets cannot be surplused or removed.
2:10:53 PM
SENATOR KIEHL related his understanding that ARRC can lease
land, but that it must come to the legislature if ARRC wants to
sell land.
MS. WOLSTAD clarified that ARRC does have the authority to
request permission from the legislature to do so.
2:11:13 PM
SENATOR KIEHL asked why AMHC would have so few sideboards
compared to ARRC. He suggested that when ARRC was established,
the legislature knew about abuses and "wheeling and dealing" by
other railroads in the Lower 48. He said it raises questions
related to the future of AMHS vessels. AMHS vessels are built
and overhauled by federal transportation funds, subject to
federal rules. He asked whether the proposed AMHC risks getting
DOTPF into trouble with the federal government.
MR. MILLS answered that he would need to look into it further.
He acknowledged that he had received slightly different answers
on assets purchased with federal funds. He deferred to Captain
Falvey to respond.
2:13:16 PM
CAPTAIN FALVEY said he agreed with Mr. Mills that questions
exist. He said AMHS has several funding sources for vessel
maintenance, including state funding for the annual overhauls
each vessel receives and is recertified for minor and moderate
maintenance. He stated that the large federal capital
improvement projects (CIP) are funded via Federal Highway
Administration (FHWA). He pointed out that FHWA imposes rules
for the use of those funds. He was unsure whether that would
differ for a corporation structure compared to the existing
state structure. He said he did not know whether FHWA or Federal
Transit Administration (FTA) funding would differ for AMHC. He
stated that the FTA funding tends to be granted for
transportation in larger urban areas with populations of 50,000
or more. The department has applied for FTA grants but has not
been successful. He said FHWA funding is formulaic, and AMHS
would need to review it closely to see if AMHC would be
eligible.
2:14:54 PM
SENATOR KIEHL said he was unsure whether the spreadsheet Ms.
Wolstad referred to indicated that AMHC can acquire rights-of-
way. He expressed concern that the docks and terminals get into
upland, tideland, and adjacent property ownership, and someday
AMHC may wish to expand the adjacent terminals. He noted at
least one terminal is jointly-owned. He asked for the reason to
exclude that power from AMHC.
2:15:48 PM
MS. WOLSTAD asked if he was referring to eminent domain with
governor approval or the ability to purchase land to expand the
marine highway's property.
SENATOR KIEHL answered that he was interested in the line item
on the spreadsheet under "Powers and Authorities" and "Lands and
Property" that reads, "Secure Rights-of-way and Easements."
MS. WOLSTAD responded that she held discussions regarding ARRC's
authority for rights-of-way and easements. She explained that
the railroad was set up initially as a charter under the federal
government. When the federal government transferred the railroad
to the state, the powers also transferred. This provides the
Alaska Railroad substantial power to secure rights-of-way and
easements. Since federal laws and regulations govern ARRC, the
railroad can work through any issues that impact federal lands.
She offered her belief that AMHS does not have a charter through
the federal government to use federal easements and rights-of-
way.
2:17:31 PM
MR. MILLS deferred to Captain Falvey.
CAPTAIN FALVEY responded that he has served AMHS for 18 years,
but never encountered this issue. He tended to believe Ms.
Wolstad was correct.
2:18:15 PM
SENATOR MICCICHE asked whether this would create a gap. He
suggested the corporation might decide to acquire another
terminal or use an alternative power source, but a utility might
not have the right-of-way. He surmised AMHC also would not have
the ability to create or secure their right-of-way or easements.
CAPTAIN FALVEY answered that AMHS has 36 ports of call and the
state owns 13 terminals. He reported that AMHS uses the
remainder of the terminals via memorandums of understanding
(MOUs) with cities, municipalities, and privately-owned
facilities.
2:19:44 PM
CHAIR MYERS stated that if AMHS currently wanted to expand to
another port of call, AMHS would likely enter into an MOU rather
than purchasing or leasing the land.
CAPTAIN FALVEY answered yes; that would be the most direct way
to accomplish it.
2:20:25 PM
SENATOR MICCICHE expressed concern about not providing AMHC with
this authority. He acknowledged that the committee could clarify
eminent domain in the bill. He offered his belief that the
authority to secure rights-of-way or easements is a typical
authority provided to independent corporations. He suggested
that this might need some research.
2:21:30 PM
MS. WOLSTAD referred to page 23, to [Article 5. Corporation
Property]. This article has sections related to property leases,
easements, permits, disposals, property acquisition, and public
use of corporation land. She stated that the bill gives AMHC the
authority to own property in the corporation's name. The
corporation can control the property as a state agency and work
with other corporations. In addition, the corporation can
acquire property owned by or located in another state or foreign
country. It would allow the corporation to work with Washington
state and Canada.
SENATOR MICCICHE replied that it does not answer the question
since the corporation would need to find something existing that
fits its purpose.
2:22:57 PM
SENATOR MICCICHE wondered about the bonding requirements. He
said it takes legislative approval for AAC, AIDEA, and ARRC. The
only corporation on the list that does not require approval for
bonding is Alaska Housing Finance Corporation. He said AMHC is
more like the others. He characterized it as a check and
balance, so the corporation doesn't expand debt, even though the
state is not liable. He offered his belief that it would allow
the legislature to review bond requests, where the funding would
be spent, and flesh out the details for the bonds. He stated
that AMHC could issue bonds independently, without limits, and
without legislative approval, which seemed broad.
2:24:06 PM
CHAIR MYERS stated the concept was to make the corporate powers
broad and rein it in later. He said he would be open to the
committee establishing some limits, but he cautioned against
hamstringing the corporation at the start.
2:24:37 PM
MS. WOLSTAD referred to page 23 of SB 170. She related that the
corporation would have the ability to obtain a fidelity bond as
determined by the board. She explained the bill focused on
providing the board with authority.
SENATOR MICCICHE agreed that is how he understood it. He
expressed concern that the corporation could issue bonds without
review.
2:25:30 PM
SENATOR KIEHL said he shared the same concern, noting the
corporation would have the ability to pledge almost any
corporate asset against those bonds. He asked whether there were
any limitations to bonds in terms of dollar amounts or
percentage of revenues or asset values.
2:26:25 PM
MS. WOLSTAD deferred to Mr. Milks.
2:26:38 PM
CHAIR MYERS asked Mr. Milks for the limitations on AMHC's
bonding.
2:26:59 PM
MR. MILKS referred to page 26 of SB 170, Article 7. Bonds. Sec.
42.50.600. General provisions. He explained that the authority
for early bonding for Alaska's public corporation date back to
the predecessor for the Alaska Housing Finance Corporation
(AHFC). He related that Senator Micciche identified the nature
of the corporate bonding and why the legislature is not "hands-
on" on the bonding authority. Public corporations only appear in
Alaska Constitution in art IX, sec. 11 on bonds. It states that
public corporations can issue revenue bonds. The early cases
were revenue bonds for housing and industrial development by the
predecessors of AHFC and AIDEA. The concept is that corporations
would repay debt service through revenues. The state would be
protected and is not responsible for the bonds or repayment. He
was unsure if Ms. Wolstad was ready to speak to bond limitations
in SB 170. He said he is inferring from the question that there
are no restrictions on the amount of bonds with some of the
other public corporations. He characterized this issue as a
policy call for the legislature.
MS. WOLSTAD responded that she does not see a specific limit,
but she agreed it was an option to discuss further. She said the
bill established limits for bonding by the board. Still, it does
not provide the authority that prevents the corporation from
bonding at a certain level or having it approved by the governor
or the legislature. She suggested that was an area that could be
modeled after other corporations. She deferred to Ms. Bannister.
2:30:07 PM
SENATOR KIEHL referred to ARRC bonding, stating ARRC bonds are
issued for an essential public and governmental purpose. He
noted there is not a comparable section in SB 170. He asked what
purpose that section serves for ARRC and why it was not included
in the bill. He suggested that perhaps ARRC could respond at a
later date.
CHAIR MYERS responded that that provision was not explicitly
listed in the bond section. However, the finding and purposes
section of the bill finds that the Alaska marine highway system
is an essential part of the state transportation system and
warrants continued and predictable state support. Thus, that
embodies the overall attitude of the bill, that AMHS does
provide a central government function.
2:31:45 PM
MS. WOLSTAD commented that knowledge about ARRC bonding was
somewhat limited. She paraphrased the general powers that ARRC
has under Article 4, Sec. 42.40.250.
(21) issue its bonds upon approval of the legislature
and provide for and secure their payment, provide for
the rights of their holders and hold or dispose of
them;
(22) purchase the corporation's bonds at a price not
more than the principal amount of them plus interest;
(23) cancel bonds of the corporation purchased by the
corporation;
(24) secure the payment of its bonds by pledge,
mortgage, or other lien on its contracts, revenues,
income, or property;
MS. WOLSTAD suggested she may acquire more detailed information
directly from ARRC regarding their bonding approval structure.
She offered to research this and report to the committee.
2:33:09 PM
SENATOR KIEHL said he noticed that the corporation is authorized
to create subsidiaries. The chart Ms. Wolstad provided shows
that AIDEA and AHFC can do so, but entities engage in project
financing with private developers and ownership of specific
projects. Those entities don't directly provide service or
operate a system. He noted AAC and ARRC operate systems, but
they do not have that subsidiary power. He asked why the marine
highway system would need subsidiaries.
CHAIR MYERS stated that he noticed that the ferry system in
Southeast Alaska operates in one way, but Southwest and
Southcentral operates differently. He suggested a subsidiary
corporation could be established to manage the Southwest and
Southcentral portions of the system. The intention was not to
require it but to offer AMHC a possibility. He stated that the
intention was to initially provide AMHC broad power but to limit
it when needed. He highlighted that was the initial policy
decision.
2:35:11 PM
MS. WOLSTAD agreed that was the intent. She emphasized that what
works in Southeast Alaska might not work in Southcentral or
Southwest Alaska. The subsidiary could allow the corporation to
customize its services.
2:35:44 PM
SENATOR KIEHL wondered if the vision was to have regional
systems, such as the Southwest Alaska Marine Highway System and
the Prince William Sound Marine Highway System, which would fall
under one umbrella.
CHAIR MYERS answered that would be one possibility.
SENATOR KIEHL remarked that it struck him that the rest of the
bill gives significant power and opportunity for the corporation
to partner with a local port authority, for example, if the
Prince William Sound communities wanted to partner with AMHC. He
noted that the bill explicitly provides AMHC the ability to
contract with municipalities. He stated that it was an
interesting dynamic to consider providing AMHC broad authority
and subsidiary authority. He asked whether the bill was written
tightly enough so the strictures for the corporation would apply
fully to the subsidiaries.
MR. MILKS responded that Senator Kiehl identified that it is
more common to have subsidiaries for public corporations, such
as AIDEA, AHFC, and the Alaska Gas Development Corporation
(AGDC), involved in project financing. He related that AMHC
could have sound business reasons to create a subsidiary. The
committee may wish to carefully study the language for the
marine highway system if the committee decides to allow for
subsidiaries. The committee could compare it to other public
corporations. More generally, he stated that the only model for
transportation in Alaska is ARRC, but it's not unusual in other
states to create a transportation entity with other branches. He
suggested that the committee could benefit by researching other
states with transportation subsidiaries and modeling AHFC's
structure on their language. He commented that the committee
might wish to study that issue a little more.
2:39:13 PM
MS. BANNISTER stated that the committee might want to clarify
the powers of the corporation. She opined that the primary
corporation could not give a subsidiary corporation any more
powers than it has since the corporation would totally own any
subsidiaries. Thus, subsidiaries could not go beyond AMHC's
power and authority.
2:40:00 PM
SENATOR KIEHL related a scenario and then stated he misspoke. He
said his primary lines of inquiry related to the broad strokes
of power and authority for AMHC. He noted that he would have
plenty of other questions on the bill.
2:42:10 PM
CHAIR MYERS held SB 170 in committee.
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