Legislature(1999 - 2000)

04/13/1999 02:30 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           HOUSE FINANCE COMMITTEE                                                                                              
              April 13, 1999                                                                                                    
                 2:30 P.M.                                                                                                      
                                                                                                                                
TAPE HFC 99 - 78, Side 1                                                                                                        
TAPE HFC 99 - 78, Side 2                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Co-Chair Mulder called the House Finance Committee meeting                                                                      
to order at 2:30 p.m.                                                                                                           
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Co-Chair Therriault   Representative Foster                                                                                     
Co-Chair Mulder    Representative Grussendorf                                                                                   
Vice-Chair Bunde    Representative Kohring                                                                                      
Representative Austerman   Representative Moses                                                                                 
Representative J. Davies   Representative Williams                                                                              
Representative G. Davis                                                                                                         
                                                                                                                                
ALSO PRESENT                                                                                                                    
                                                                                                                                
Mike Tibbles, Staff, Representative Therriault; Kurt Parkan,                                                                    
Deputy Commissioner, Department of Transportation and Public                                                                    
Facilities; Deven Mitchel, Acting Debt Manager, Department                                                                      
of Revenue.                                                                                                                     
                                                                                                                                
TESTIFIED VIA THE TELECONFERENCE NETWORK                                                                                        
                                                                                                                                
Cliff Arque, Alaska Airlines, Seattle.                                                                                          
                                                                                                                                
SUMMARY                                                                                                                         
                                                                                                                                
HB 84 "An Act relating to international airports revenue                                                                        
bonds; and providing for an effective date."                                                                                    
                                                                                                                                
 HB 84 was REPORTED out of Committee with "no                                                                                   
recommendation" and with a fiscal note by the                                                                                   
Office of the Governor, 2/10/99.                                                                                                
                                                                                                                                
HB 96 "An Act relating to deposits to the Alaska                                                                                
permanent fund."                                                                                                                
                                                                                                                                
CSHB 96 (FIN) was REPORTED out of Committee with                                                                                
"no recommendation" and with a zero fiscal note by                                                                              
the Department of Revenue, 3/24/99.                                                                                             
HOUSE BILL NO. 96                                                                                                               
                                                                                                                                
"An Act relating to deposits to the Alaska permanent                                                                            
fund."                                                                                                                          
                                                                                                                                
Co-Chair Therriault noted that the Committee discussed                                                                          
tightening the title of HB 96 during the April 12, 1999                                                                         
hearing. He provided members with Amendment 1 (copy on                                                                          
file). Amendment 1 tightens the title. He added that the 25                                                                     
percent deposit would be made in the front section of the                                                                       
budget and would not be counted as general funds or as                                                                          
legislative action.                                                                                                             
                                                                                                                                
MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT noted that                                                                       
Dan Spencer, Office of Management and Budget indicated that                                                                     
the 25 percent deposit would not be counted as general                                                                          
funds. Mr. Spencer stated that only special appropriations                                                                      
are counted when calculating amounts of "legislative                                                                            
deposits: to the principle of the permanent fund. Mr.                                                                           
Tibbles verified this with Jim Kelly, Legislative Liaison,                                                                      
Alaska Permanent Fund Corporation. Mr. Kelly explained that                                                                     
inflation proofing is also counted with special                                                                                 
appropriations but that the statutory 25 percent deposit                                                                        
would not be counted.                                                                                                           
                                                                                                                                
Representative J. Davies questioned if there should be a                                                                        
change to the manner it is counted.                                                                                             
                                                                                                                                
In response to a question by Vice-Chair Bunde, Co-Chair                                                                         
Therriault clarified that money not deposited into the                                                                          
permanent fund would lapse to the general fund. Money that                                                                      
is deposited into the permanent fund would not show as a                                                                        
general fund appropriation.                                                                                                     
                                                                                                                                
Vice-Chair Bunde observed that there is a zero fiscal note.                                                                     
He questioned if the additional money in the general fund                                                                       
should be shown.                                                                                                                
                                                                                                                                
Co-Chair Therriault MOVED to ADOPT Amendment 1.                                                                                 
                                                                                                                                
Representative J. Davies asked what would be included under                                                                     
the new title. Co-Chair Therriault reiterated that according                                                                    
to the Legislative Affairs Agency legal counsel it includes                                                                     
all the deposits that go into the permanent fund and limits                                                                     
it to the 25 percent that is mandated by the Constitution.                                                                      
The intent of the amendment is to prevent the scope of the                                                                      
legislation from growing under a broad title. He maintained                                                                     
that concerns that the legislation would turn into a general                                                                    
appropriation to the principal are not justified because it                                                                     
is not an appropriation bill. It is statutory change                                                                            
legislation.                                                                                                                    
                                                                                                                                
Representative J. Davies wondered why the 25 percent was not                                                                    
referenced in the amendment as the constitutionally mandated                                                                    
amount.                                                                                                                         
                                                                                                                                
Representative J. Davies MOVED to AMEND Amendment 1 by                                                                          
adding a conceptional amendment to clarify that the 25                                                                          
percent referenced is the amount mandated under Article 9                                                                       
section 15. There being NO OBJECTION, it was so ordered.                                                                        
There being NO OBJECTION, Amendment 1 as amended was                                                                            
adopted.                                                                                                                        
                                                                                                                                
Representative Foster MOVED to report CSHB 96 (FIN) out of                                                                      
Committee with the accompanying fiscal note. Representative                                                                     
J. Davies expressed reservations regarding how this bill and                                                                    
the other pieces of the budget plan would fit together.                                                                         
Representative Grussendorf echoed his concerns. He asked if                                                                     
an overall budget package would be developed.                                                                                   
                                                                                                                                
Co-Chair Therriault stated that the legislation would be                                                                        
brought into discussions regarding an overall long-range                                                                        
plan.                                                                                                                           
                                                                                                                                
Representative Norman Rokeberg emphasized that the                                                                              
legislation is a statutory change and would therefore need                                                                      
time to go through both bodies. He anticipated that it would                                                                    
be a tool for inclusion in the broader picture.                                                                                 
                                                                                                                                
CSHB 96 (FIN) was REPORTED out of Committee with "no                                                                            
recommendation" and with a zero fiscal note by the                                                                              
Department of Revenue, 3/24/99.                                                                                                 
HOUSE BILL NO. 84                                                                                                               
                                                                                                                                
"An Act relating to international airports revenue                                                                              
bonds; and providing for an effective date."                                                                                    
                                                                                                                                
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF                                                                                 
TRANSPORTATION AND PUBLIC FACILITIES testified in support of                                                                    
HB 84. House Bill 84 would give the Department of                                                                               
Transportation and Public Facilities $25 million dollars in                                                                     
bonding authority needed to complete the Anchorage                                                                              
International Airport terminal project. He gave a brief                                                                         
history of the project. He noted that the airport terminal                                                                      
project was presented to the airlines for a vote in 1994.                                                                       
The airlines voted to authorize up to $235 million dollars                                                                      
in bond authority. The department presented the Legislature                                                                     
with a request for $204 million dollars in bond authority.                                                                      
The Legislature reduced the request from $204 million                                                                           
dollars to $179 million dollars and directed the Department                                                                     
of Transportation and Public Facilities to seek the                                                                             
additional $25 million dollars through federal funds. The                                                                       
department was successful in receiving and additional $25                                                                       
million dollars in federal funding through a letter of                                                                          
intent (LOI) with the FAA. The federal dollars will be                                                                          
received over a ten-year period. The LOI is a commitment of                                                                     
the federal government to appropriate the money over the                                                                        
next ten years. The money is needed to finish the project                                                                       
within four years. House Bill 84 would authorize the                                                                            
department to sell bonds to borrow money and allow the                                                                          
project to be done on time. The bonds would be paid by the                                                                      
airlines and the federal money would go into the revenue                                                                        
account to reimburse the airlines for the bonds.                                                                                
                                                                                                                                
In response to a question by Co-Chair Therriault, Mr. Parkan                                                                    
stated that some portions of the project would qualify for                                                                      
the one percent for art program. He noted that it is                                                                            
difficult to count design aspects as art. Representative J.                                                                     
Davies stated that it is clear that wall and floor finishing                                                                    
would be part of the industrial design and not count toward                                                                     
the one percent for art program.                                                                                                
                                                                                                                                
Vice-Chair Bunde noted that the Committee has received                                                                          
assurances that the project would not go over budget. Mr.                                                                       
Parkan stated that the project is on schedule and on budget.                                                                    
He did not anticipate that the project would be over-budget,                                                                    
but acknowledged that they are only 3 percent into the                                                                          
project. He emphasized that the management team has handled                                                                     
larger projects.                                                                                                                
                                                                                                                                
Co-Chair Therriault questioned if continuation of the                                                                           
project is contingent on the extra bonding. He observed that                                                                    
the current appropriation is not exhausted. Mr. Parkan                                                                          
clarified that the construction schedule is contingent on                                                                       
receiving the bonding authority. The design phase is nearly                                                                     
completed. If the bonding were not approved by the                                                                              
legislature the project would probably be stopped and the                                                                       
project reviewed. He reiterated that it his intent to stay                                                                      
on budget.                                                                                                                      
                                                                                                                                
Representative Foster referred to the fiscal note and the                                                                       
size of the debt service. He asked what would be paid back                                                                      
on the loan.                                                                                                                    
                                                                                                                                
DEVEN MITCHELL, ACTING DEBT MANAGER, DEPARTMENT OF REVENUE                                                                      
discussed the fiscal note. He noted that there would be a                                                                       
total of $350 million dollars in debt service for all                                                                           
international airport revenue bonds. This includes all of                                                                       
the issuances over the last 31 years. Each issuance                                                                             
increases the authorized amount. He noted that the payback                                                                      
would be more than the bond amount. Page 5 of the fiscal                                                                        
note demonstrates the capitalized interest costs of $3.5                                                                        
million dollars. The total payback would be $51,483,183                                                                         
dollars.                                                                                                                        
                                                                                                                                
Representative Foster questioned how much the improvements                                                                      
would cost persons traveling from rural areas of the state.                                                                     
Mr. Parkan stated that the department has not received                                                                          
opposition from any airlines. He stressed that overall costs                                                                    
are reduced by the addition of federal funds.                                                                                   
                                                                                                                                
Co-Chair Therriault noted that the debt service would be                                                                        
paid from the International Airport Revenue Fund. Mr. Parkan                                                                    
noted that the funds from FAA discretionary dollars would be                                                                    
deposited into the International Airport Revenue Fund.                                                                          
                                                                                                                                
Representative Austerman questioned the relationship of                                                                         
passenger facility charge fees. Mr. Parkan noted that the                                                                       
department is in the process of putting in an application                                                                       
for passenger facility charges for the Anchorage and                                                                            
Fairbanks International airports. The first application                                                                         
would be put toward the terminal project to reduce debt                                                                         
service payments. This could reduce debt service paid by an                                                                     
additional $15 million dollars.                                                                                                 
                                                                                                                                
Representative Austerman asked if the department is                                                                             
requesting any exemptions. Mr. Parkan noted that the                                                                            
department is asking for an exemption for communities of                                                                        
less than 10,000 that are not connected to the road system.                                                                     
This would include Bethel, Nome, Kotzebue, and many of the                                                                      
small communities around the state. The application process                                                                     
is proceeding. The intent is to have the plan reviewed by                                                                       
the airlines in May. If it is approved it would be submitted                                                                    
to the FAA.                                                                                                                     
                                                                                                                                
Representative G. Davis asked the rationale for the                                                                             
exemption. He asked if Kodiak could charge a passenger                                                                          
facility charge. Mr. Parkan noted that Kodiak is a state                                                                        
owned airport. The state could charge a passenger facility                                                                      
charge, but there is no intent to implement one in Kodiak.                                                                      
                                                                                                                                
Mr. Parkan noted that opposition to the passenger facility                                                                      
charge in Fairbanks came from carriers that serve the rural                                                                     
areas. The rationale for the exemption is that these                                                                            
communities can only be served by air.                                                                                          
                                                                                                                                
Representative Foster noted remarks in opposition to the                                                                        
project by small air carriers.                                                                                                  
                                                                                                                                
Vice-Chair Bunde asked if the marine highway system would be                                                                    
considered as part of the road system. Mr. Parkan noted that                                                                    
the exemption would be based on the hard road system.                                                                           
                                                                                                                                
Vice-Chair Bunde questioned why the payoff would be over 25                                                                     
years. Mr. Mitchell explained that the 25-year pay back                                                                         
period is designed to protect the airlines. He noted that                                                                       
the bonds are based on federal discretionary dollars. If                                                                        
funding did not come through there would be an undue burden                                                                     
on the airport to have debt service based on a 10-year                                                                          
payback.                                                                                                                        
                                                                                                                                
Mr. Parkan explained that the LIO is a letter of intent from                                                                    
the FAA stating that they intend to give the state the money                                                                    
over 10 years. He acknowledged that it is subject to                                                                            
appropriation by Congress. He stressed that this is a                                                                           
standard procedure used by other airports in other states.                                                                      
                                                                                                                                
CLIFF ARQUE, STAFF VICE-PRESIDENT, PROPERTIES AND                                                                               
FACILITIES, ALASKA AIRLINES, SEATTLE AND CHAIRMAN, ANCHORAGE                                                                    
AND FAIRBANKS AIRLINES AIRPORT AUTHORITY COMMITTEE testified                                                                    
via teleconference in support of HB 84. He noted that the                                                                       
Airlines Airport Authority Committee is an organization of                                                                      
25 airlines that have signed operating agreements at the two                                                                    
airports. He clarified that comments referenced by                                                                              
Representative Foster were in relationship to concerns about                                                                    
potential cost overruns and the need to proceed with                                                                            
passenger facility charges. He stated that he did not know                                                                      
of any airlines that are opposed to HB 84. He observed that                                                                     
the legislation would not require additional money. The                                                                         
request is for a bond issuance that would allow the project                                                                     
to be completed on schedule and the bonds to be paid back.                                                                      
The payback would be through federal discretionary money                                                                        
that has been promised in a LIO that would be paid over a                                                                       
10-year period.                                                                                                                 
                                                                                                                                
Representative Foster asked the connection between passenger                                                                    
facility charges and HB 84. Mr. Arque stated that there is                                                                      
no connection between passenger facility charges and the                                                                        
legislation. He noted that passenger facility charges would                                                                     
supply additional funds to reduce the direct payments from                                                                      
the airlines. House Bill 84 would only supply the cash                                                                          
needed to bid the project. The cash must be in hand before                                                                      
the project can be bid. For the project to stay on schedule                                                                     
the bid must occur in the spring.                                                                                               
                                                                                                                                
Mr. Arque stated that the increase in the cost would be                                                                         
modest. He did not know if the cost of the project would be                                                                     
factored into the cost of tickets.                                                                                              
                                                                                                                                
Representative Foster asserted that carriers must pass on                                                                       
costs to the consumers. Representative Austerman agreed that                                                                    
airfares would go up as a result of the project. He                                                                             
referenced concerns by Senator Pearce.                                                                                          
                                                                                                                                
(Tape Change, HFC 99 - 78, Side 2)                                                                                              
                                                                                                                                
Mr. Parkan acknowledged that Senator Pearce had expressed                                                                       
concerns regarding baggage handling. He stated that he had                                                                      
spoken to Senator Pearce and the department had addressed                                                                       
her concerns. He observed that Senator Pearce's concerns                                                                        
were separate to the issue of the bond authority needed to                                                                      
capture federal funds.                                                                                                          
                                                                                                                                
In response to a question by Co-Chair Mulder, Mr. Parkan                                                                        
explained that the first LIO payment would be received this                                                                     
year. Payments until 2002 would go to the non-terminal                                                                          
project. The remaining funds would go to the terminal                                                                           
project. The payment amount varies. The payment for 1999 is                                                                     
$3.9 million dollars. The department has also pledged a                                                                         
portion of its entitlement funds to the project. The total                                                                      
funds for the project would be between $4 and $5 million                                                                        
dollars per year.                                                                                                               
                                                                                                                                
Co-Chair Mulder observed that the department would receive                                                                      
more funds in the near years than the debt service would                                                                        
cost. Mr. Mitchell noted that the funds would be deposited                                                                      
into the Airport Revenue Fund and used to pay debt service.                                                                     
He agreed that funds would be received prior to the debt                                                                        
service. There would be a 4.95 interest rate on the bonds.                                                                      
                                                                                                                                
Co-Chair Mulder noted that Senator Pearce was concerned with                                                                    
issues surrounding baggage. He stated that Mr. Plum assured                                                                     
him that modifications to resolve baggage issues would be                                                                       
made without cost overruns.                                                                                                     
                                                                                                                                
Representative Foster reiterated concerns that costs would                                                                      
be passed to rural residents.                                                                                                   
                                                                                                                                
Co-Chair Therriault asked if the payment schedule is based                                                                      
on an increase in passenger deplanements.                                                                                       
                                                                                                                                
Mr. Parkan stated that the project was based on a 3 percent                                                                     
increase over time. He observed that the estimate was                                                                           
conservative. Other projections used a 4 percent growth                                                                         
rate. He acknowledged that there was a dip in the last year,                                                                    
but pointed out that the rating agencies and feasibility                                                                        
analysts did not show concern.                                                                                                  
                                                                                                                                
Co-Chair Mulder observed that the price of fuel has a larger                                                                    
impact on the cost of airplane tickets. He acknowledged that                                                                    
there would be some impact from the project. He pointed out                                                                     
that the legislature decided to advance the project and                                                                         
requested that the department obtain additional federal                                                                         
funding. The department was successful in obtaining a LIO                                                                       
for $25 million dollars. He emphasized that a delay would                                                                       
deny an opportunity to capture a favorable interest rate.                                                                       
                                                                                                                                
Co-Chair Mulder MOVED to report HB 84 out of Committee with                                                                     
the accompanying fiscal notes. Representative Williams                                                                          
OBJECTED.                                                                                                                       
                                                                                                                                
Vice-Chair Bunde noted that he was formerly employed by                                                                         
Northern Air Cargo. He expressed concern that the                                                                               
expenditure is coming during a time of fiscal deficits.                                                                         
                                                                                                                                
Representative Williams Withdrew his objection. He noted                                                                        
that some air carriers preferred that the project proceed in                                                                    
stages.                                                                                                                         
                                                                                                                                
Representative J. Davies clarified that the project has not                                                                     
increased in cost. A portion of the cost is being replaced                                                                      
with federal money. Mr. Parkan added that the airlines would                                                                    
make the debt payments. Their payments would be reduced by                                                                      
the federal funds.                                                                                                              
                                                                                                                                
Vice-Chair Bunde maintained that passengers would pay for                                                                       
the debt service.                                                                                                               
                                                                                                                                
HB 84 was REPORTED out of Committee with "no recommendation"                                                                    
and with a fiscal note by the Office of the Governor,                                                                           
2/10/99.                                                                                                                        
 ADJOURNMENT                                                                                                                    
                                                                                                                                
The meeting adjourned at 3:35 p.m.                                                                                              
House Finance Committee 8 4/13/99                                                                                               

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