Legislature(1997 - 1998)
01/28/1997 10:21 AM House ITT
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON INTERNATIONAL TRADE
AND TOURISM
January 28, 1997
10:21 a.m.
MEMBERS PRESENT
Representative John Cowdery, Chairman
Representative Eldon Mulder
Representative Pete Kott
Representative Gail Phillips
Representative Kim Elton
MEMBERS ABSENT
Representative Ramona Barnes
Representative Reggie Joule
COMMITTEE CALENDAR
OVERSIGHT HEARING ON STATE-FUNDED INTERNATIONAL TRADE ACTIVITIES
PREVIOUS ACTION
No previous action to record.
WITNESS REGISTER
MARCO PIGNALBERI, Legislative Assistant
to Representative Cowdery
Alaska State Legislature
Capitol Building, Room 416
Juneau, Alaska 99801
Telephone: (907) 465-3879
POSITION STATEMENT: Provided oversight on the committee's
history.
CHARLES NEFF, Director
University of Alaska Anchorage,
Alaska Center for International Business;
Director, American Russian Center
Address not provided
Telephone: Not provided
POSITION STATEMENT: Provided oversight on state-funded
international activities.
JAMES McMILLAN, Deputy Director of Credit
Alaska Industrial Development and Export Authority
Address not provided
Telephone: Not provided
POSITION STATEMENT: Provided oversight on state-funded
international activities.
JOSEPH L. PERKINS, Commissioner
Department of Transportation and Public Facilities
3132 Channel Drive
Juneau, Alaska 99801-7898
Telephone: (907) 465-3900
POSITION STATEMENT: Provided oversight on state-funded
international trade activities.
KURT PARKAN, Deputy Commissioner
Office of the Commissioner
Department of Transportation
and Public Facilities
3132 Channel Drive
Juneau, Alaska 99801-7898
Telephone: (907) 465-3900
POSITION STATEMENT: Provided oversight on state-funded
international trade activities.
MORTON PLUMB, Director
Anchorage International Airport
Department of Transportation
and Public Facilities
P.O. Box 196990
Anchorage, Alaska 99519-6960
Telephone: (907) 266-2525
POSITION STATEMENT: Provided oversight on state-funded
international trade activities.
DOYLE RUFF, Manager
Fairbanks International Airport
Department of Transportation
and Public Facilities
P.O. Box 60369
Fairbanks, Alaska 99706-0369
Telephone: (907) 474-2500
POSITION STATEMENT: Provided oversight on state-funded
international trade activities.
ACTION NARRATIVE
TAPE 97-1, SIDE A
Number 0001
CHAIRMAN JOHN COWDERY called the meeting of the House Special
Committee on International Trade and Tourism to order at 10:21 a.m.
Members present at the call to order were Representatives Cowdery,
Kott, Phillips, and Elton. Representative Mulder arrived at 11:00
a.m. Members absent were Representatives Barnes and Joule. This
meeting was teleconferenced to Seward and Anchorage.
OVERSIGHT HEARING ON STATE-FUNDED INTERNATIONAL TRADE ACTIVITIES
CHAIRMAN COWDERY said this meeting would continue the oversight
hearings began in the last legislature. He said Marco Pignalberi,
Legislative Assistant, would provide some historical background to
show where the committee is at today.
Number 0095
MARCO PIGNALBERI, Legislative Assistant to Representative Cowdery,
said that preliminary to this hearing we gathered historical files
from the past chairperson, Legislative Research, House Records, and
the House/Senate majority staff. He added that Speaker Phillips
was gracious enough to loan the committee her personal files which
were very helpful.
MR. PIGNALBERI said the retro-view was still incomplete, but it
would be filled in by the witnesses over the next two days of
hearings. He said a patched together chronological history would
be given to provide a context to today's oversight hearing.
MR. PIGNALBERI said in the 19th Legislature, March 1995, the Senate
President and the House Speaker wrote to Governor Knowles urging
him to convene a strategic planning group to formulate a
coordinated international trade policy. They recommended that the
Governor's Office of Management and Budget (OMB) take charge of
this effort. They laid out the goals and participants for a
coordinated plan.
MR. PIGNALBERI said that later in March, the Director of the United
States Department of Commerce, International Trade Administration
wrote to Governor Knowles endorsing the legislative suggestion,
saying, "A strategic assessment of...Alaska's trade policies is
overdue."
MR. PIGNALBERI said in April of 1995, Governor Knowles replied to
President Pearce and Speaker Phillips. He said his multi-agency
group called Marketing Alaska, headed by Commissioner Hensley,
would provide the strategy to coordinate the state's activity in
international trade. He suggested that he would work with the
legislature during the 1995 interim. He said, "Alaska's ability to
promote our resources in international markets was compromised by
the House Majority actions in the Finance Committee."
MR. PIGNALBERI said that absent any concrete action by the
Governor, the legislature in July of 1995, funded an "Evaluation of
State Agencies Engaged in International Trade," and a "Needs
Assessment of Private Agencies Involved in International Trade."
The needs assessment was contracted to the World Trade Center. It
was conducted as a widespread cooperative effort involving
participants from Fairbanks, Anchorage, Kenai and Juneau. Both
parts of the evaluation, that is the public an private sector, were
carried out by use of an extensive survey questionnaire about
international trade activities. The Governor was asked to support
this effort.
Number 0299
MR. PIGNALBERI said in August of 1995, the Governor replied to the
invitation by explaining that his Marketing Alaska program has 125
Alaskans participating in seven task forces to promote Alaskan
products. He noted that neither Speaker Phillips nor President
Pearce personally attended any task force meetings and urged their
more active participation.
MR. PIGNALBERI said the record became clear at this point that the
Governor's office confused or choose to confuse the legislature's
initiative to analyze the effectiveness of state resources spent on
international trade, with the doing of the activities that we
wanted to have analyzed. The Governor noted budget cuts to the
Office of International Trade (OIT) and said, "I am skeptical of
funding additional studies of how we are doing."
Number 0363
MR. PIGNALBERI said the legislature and the World Trade Center
completed their work during the interim of 1995. A summary report
of the "Private Sector Business Needs Assessment" was published by
the World Trade Center.
MR. PIGNALBERI said the files do not contain a summary report for
the "Evaluation of State Agencies." He said it is believed that
a copy has been located in Anchorage which is being forwarded to
the committee. There are copies of the state agency responses for
the committee to review.
MR. PIGNALBERI said that during the 1996 session, the legislature
conducted hearings on the results of the needs assessment and the
state agency evaluations. A resolution was proposed to implement
the results, it was not formally submitted.
Number 0408
MR. PIGNALBERI said the next step is based on what this committee
and the 20th Legislature shall decide.
Number 0419
REPRESENTATIVE GAIL PHILLIPS requested a copy of the historical
analysis.
Number 0475
CHARLES NEFF, Director, the University of Alaska Anchorage, Alaska
Center for International Business (ACIB); and Director, American
Russian Center, was next to testify. He said he would try to
explain the groups in a way that would elaborate on information he
already submitted to the committee.
MR. NEFF said the ACIB is dedicated to practical work that is
responsive to business and industry. He said ACIB does not conduct
academic, abstract research. He said there is a bit of a
misunderstanding that because ACIB is at the university, it is like
another university department. He said it is not.
MR. NEFF said ACIB is part of a statewide group of agencies that
the committee will hear from today and Thursday. He said these
groups are very much working together. He said there is a feeling
that there is a lot of overlap, lack of coordination with groups
that are essentially going their own way. He said that the
contrary is true. He said the main groups working on international
trade and international issues meet monthly as a round table group
with the intent to inform each other of what they are doing and to
use each other's resources in order to reinforce their own efforts.
He said a kind of division of labor has been formed.
Number 0641
MR. NEFF said the university's goal, in all of its activities, is
to get businesses and individuals ready to enter the international
markets. He said this might begin with educational programs at the
university, research on how to develop a business plan, direct
services provided to member groups by the World Trade Center, or it
might mean providing opportunities for Alaska businesses to get to
Russia to check out possibilities for new business there. He said
all of these things are preparatory. He said Assistant
Commissioner Sedwick will discuss how the state is largely involved
with a representative function and with developing Alaska's ability
to enter specific markets. He said there is kind of a rough
dividing line with a little healthy overlap. He said he wanted to
emphasize the fact that we are basically talking about groups who
are doing different things and supporting each other.
Number 0696
MR. NEFF said he would call to the committee's attention a brochure
put out by the university that illustrates the activities of the
ACIB, the World Trade Center and the American Russian Center. He
said one is involved with practical research and information, one
is primarily involved with training and one is primarily involved
in providing direct business services. He said if we were to start
out with nothing and were to talk about what we needed for a good
support of international business, we would end up with just those
things; research, information, training and direct services.
Number 0757
MR. NEFF said the ACIB was founded as a university activity in 1984
and officially sanctioned as a state of Alaska activity by the
legislature in 1987. He said the legislation gave a mandate to
ACIB; to promote Alaska's involvement in international trade, to do
market research, to promote an understanding of other cultures, to
set up public service programs relating to international trade and
international activities and gave it the right to charge fees. He
said the mandate also established a seven person advisory board
which continues to function today. He said the board members are
approved by the Governor and by the Board of Regents at the
University of Alaska. He said the legislation also established an
endowment. He said ACIB currently operates its activities at
approximately 50 percent draw from the endowment and 50 percent
draw from state general funds.
Number 0845
MR. NEFF said, as director of ACIB, he coordinates all of these
programs. He said the World Trade Center, the ACIB and the
American Russian Center all report through him to the chancellor.
So, from an administrative point of view there is coordination to
make sure the resources of each of these organizations is spent
wisely.
MR. NEFF said the ACIB like any dynamic organization, tried out
just about everything that was allowed under the mandate; public
conferences, quasi-academic programs which were non-credit, longer
term programs dealing with international trade, as well as other
things. He said the ACIB staff is smaller, focused in its
activities. It includes nine and a half persons focused on four
professionals with a strong emphasis on research and services in
fisheries, forestry, coal, hard rock minerals and the flow of
international trade itself. He said ACIB is probably the premier
place, in Alaska now, for collecting and disseminating information
on international trade.
MR. NEFF said ACIB has added other organizations under its
umbrella. He said the World Trade Center originally started at
Alaska Pacific University and came over to the University of Alaska
Anchorage (UAA) in 1988. He said World Trade Center receives about
50 percent of its general operating funds from the university under
the ACIB budget. The rest of its budget comes from membership
fees. He said when you see the total that goes to the ACIB, a
portion of that, $120,000 a year, goes over to the World Trade
Center Alaska to support its basic operations.
Number 0957
MR. NEFF said resources have been concentrated on specific industry
research, on public information and specific industry information.
He said ACIB has provided information to its users through
traditional means. He said people have called up, wanted a report,
things were taken out a data base and faxed. He said this system
has worked quite well, and they have always been responsive to
individual requests. He said ACIB now has a means by which anyone
in and out of the state of Alaska can get information in a
customized form. He said ACIB is not completely finished in
putting all the data into their Web site. He said it is now
possible to go into the internet and ask how many cans of red
salmon went to Japan in 1994, or in what form did the salmon go
there or how many tons of salmon went to Korea. He said you can
ask the same questions of coal, timber and the flow of goods going
through the Anchorage International Airport. He said a business
can go in, get that data, download it into a spread sheet and
create their own reports.
Number 1131
MR. NEFF said ACIB has also converted one of their positions from
purely research to a public services manager, who handles all major
request. He said that person is trained as to what is available at
ACIB, but what ACIB is providing throughout the state of Alaska.
Number 1160
MR. NEFF said the ACIB is doing research that is largely industry
driven. He said ACIB provided examples to the committee of reports
that have been done for both the Taiwan and Chinese markets for
Alaska Seafood. He said this is not just an economist report that
says this is a possible market providing that so many people will
eat this much salmon. The report says that if you want to sell
salmon in China today these are the people who are importing it,
this is how you get an import license, this is where you can find
the freezer facilities. The report is practically developed to
help that market develop.
Number 1205
MR. NEFF said a kind of a salmon summit was being held today in
Juneau. He said when the ACIB heard about it, the first thing they
did was to collect information about it dealing with those issues,
send it to them and tell them not to forget that ACIB is an
information resource which can be used as strategies for the future
are developed.
Number 1225
MR. NEFF said all of these data sources are available somewhere
else, in Russia, China or in the U.S. Department of Commerce. He
said the ACIB effort is different because it takes the data into a
form that is usable for Alaska, by Alaskan businesses and by
businesses who want to do business in Alaska. He said the data is
value added data because the way the form is displayed. He said
when the U.S. Department of Commerce office reports back to
Washington on many international trade activities, they use the
data that ACIB has redone.
Number 1279
MR. NEFF said the ACIB is involved in a broad public information
project. The ACIB puts out regular publications that have become
sort of standards for the industry; the Pacific Rim Fisheries
Report which has 200 subscribers, the Russian Far East News which
is considered by some to be the premier source. It has only one
real rival on what is going on, particularly the developments on
Sakhalin Island which will be important for the Alaska oil and gas
industry. The International Trade Directory the other publication
is a combined effort between he ACIB and a private business.
Number 1325
MR. NEFF displayed a brochure for the North Pacific Rim Fisheries
Conference and said he has never seen an activity started by a
university that has become an international conference in such a
short time. He said eight years ago ACIB brought together, for the
first time, representatives of government, fishers and fish
processing people and provided a chance for them to talk. The
fourth conference was bid on heavily by Korea and Japan. He said
when a planning conference was held in Seattle there were
representatives from each of the six governments involved around
the Pacific Rim. He said the conference will be attended by 250
people with ten different nations participating. The conference is
now being sponsored by the government of Japan and the ACIB.
Number 1412
MR. NEFF said he would now talk about the American Russian Center
which is funded entirely by federal monies. He said the American
Russian Center received its fourth grant from the Agency for
International Development. Through those grants the American
Russian Center has; founded and operated four small business
training centers in the Russian Far East in Khabarovsk, Magadan,
Yakutsk and Yuzhno-Sakhalinsk which put them as the first people on
Sakhalin Island and a valuable resource as that develops, provided
small business training programs for Russians and brought some of
the best graduates to Alaska for additional training, provided
internships with Alaskan businesses, sent Alaskan businesses to the
Russian Far East to provide training on airport management,
banking, road rebuilding, single family home construction and hair
dressing. He said the center has increasingly brought Russian
delegations to Alaska to find out more about what Alaska has to
offer the Russian Far East. He said it is important to note that
the Russian contribution to those trips has gone up and up, with
about $400,000 a year being contributed now from the Russian side
and growing each year.
Number 1475
MR. NEFF said about $15 million in federal source grants have been
received including two grants from the U.S. information agency
which has sponsored 33 separate cultural exchange programs,
training about 10,000 Russians.
MR. NEFF said the center also had a program under the U.S. Agency
for International Development called the partnership program that
which linked universities together. He said this might be one of
the most important contributions to Alaska. He said there have
been direct linkages between Anchorage and Magadan in developing
new business curricula. He said the UAA had the largest number of
Russian students of any university in the United States. He said
over the years the UAA will have an alumni association in the
Russian Far East which will become the equivalent of those people
who come through the Fulbright Program over the years.
MR. NEFF said the university in Khabarovsk asked to be a part of
this exchange. He said eventually, 20 Russians a year will have
two summers in Alaska, taught the first three years of their
programs with their fourth year in Anchorage and will receive
American business degrees with the entire cost of that program
being paid for by the Russians. He said the center has enough
funding to continue through the middle of 1998 and hopes, via
contractual arrangements, to continue after that.
Number 1567
REPRESENTATIVE PHILLIPS asked if other states have business centers
in the same communities that the Alaska Russian Center has.
Number 1573
MR. NEFF said they do not in Yakutsk, Magadan. He said there have
been attempts off and on, both in Khabarovsk and Yuzhno-Sakhalinsk,
particularly Portland State University. He said the University of
Maryland is active in Vladivostok and in Irkutsk and the University
of Washington in Krasnoyarsk. He said the American Russian Center
is the strongest and, in many ways, the only real continuing
presence in the Russian Far East.
Number 1599
REPRESENTATIVE PHILLIPS said people were bringing the Russian
people to the Kenai Peninsula to do mine training and asked if this
is done through the center.
Number 1608
MR. NEFF said he would have to check that specific program as there
have been so many groups. The center acts both as a facilitator
and as a sponsor. He said his guess was that it is probably
associated with the center in some way and he could look into it.
The center sent a number of groups to the Kenai working with people
down there, particularly on oil and gas technical training. He
said Alaska's main export to the Russian Far East is going to be
its expertise in oil and gas training and other areas. He said in
the (indiscernible) training program which are being submitted to
AIDEA, basic business training with infrastructure training
focusing on oil and gas, transportation and communications to try
to train Russian sectors to the point that they will be more
capable of hiring Alaska businesses.
Number 1689
REPRESENTATIVE PHILLIPS said this training is all well and good if
we're getting paid for doing the training, that we are not
supplying the training. She said she appreciated his comment that
the American Russian Center is funded totally by grants and that by
1998 the Russians will be paying most of the portion of the
training.
Number 1679
MR. NEFF said that is the intent. He said infrastructure training
is all based on the assumption that a high percentage of that cost
will be paid for by Russian sources.
Number 1687
REPRESENTATIVE PHILLIPS asked if this was our assumption and
whether or not it was their assumption as well.
Number 1689
MR. NEFF said it is their assumption because we are telling them
that is the only basis on which we can operate.
Number 1693
REPRESENTATIVE PHILLIPS questioned that if we don't give them the
training for free and other states do, whether we will we lose out.
Number 1699
MR. NEFF said this was not necessarily the case. He said the
Russians are quite prepared to pay for the training, but want to be
in on the planning of what it is. He said there are significant
cultural negotiations that have to go on before you can have
effective training. An example is that the Russians are still
based on a full employment model. They would like to train lots
and lots of workers, have five shifts instead of two. He said a
compromise will have to be reached. It will not be as employment
efficient as Prudhoe Bay right away, but the center will try to get
them away from some of the inefficiencies that have characterized
the previous system.
Number 1728
REPRESENTATIVE PHILLIPS asked if the Russians feel that they have
a closer cultural connection to Alaska than they do to other
states.
Number 1733
MR. NEFF said this is absolutely true. He said it is changing a
bit, it is not the exclusive cache that Alaska used to have. He
said when you introduce yourself as an American you get a different
reaction than when you introduce yourself as an Alaskan because of
the historic connections and because Alaska has had different
experiences than they have had. He said he tells new Russians
coming to Anchorage two things; it was founded the
same year as the Russian Revolution and it was 70 percent destroyed
in 1964. He said the Russians look around and see nothing
comparable in the Russian Far East.
Number 1770
REPRESENTATIVE KIM ELTON requested the budget data that was
referenced by Mr. Neff. He said if he has a question on freezer
space in Taiwan why couldn't he call OIT, why would he call ACIB.
Number 1809
MR. NEFF said the two groups have different strengths and sometimes
they will have more specific information on a few areas. He said
ACIB works off what they already know, they get their information
because they are asked by the industries to do a particular in-
depth study. If ACIB has done it, then it is not necessary for OIT
to do it. He said OIT will know of the existence of that report
and it will become part of their information base. He said OIT is
not set up to do the same kind of detailed analysis of market
possibilities that ACIB does. He said ACIB is a research and
information agency, whereas OIT is focused on developing market
possibilities for particular businesses.
Number 1847
REPRESENTATIVE ELTON asked if it was the mission of ACIB to develop
market possibilities for individual businesses and industries.
Number 1852
MR. NEFF said when ACIB works with a group such as a small niche
market like reindeer sausage and antlers, where no one else was
working with them, they become more deeply involved then they
usually do. He said normally, aside from providing information
about the possibilities, ACIB does not take the business and help
them get into the market.
Number 1874
REPRESENTATIVE ELTON said he has always been intrigued by the idea
that budgets can provide a kind of market test for policy makers
because the more receipts you receive from fee programs tends to
indicate the value of your program to those who are willing to pay
the fees. He asked how much of the program is based upon fees that
are charged to people who use the services, how much is received
vis a vis the endowment and how much from the general fund.
Number 1903
MR. NEFF said he would not discuss how much is passed on to the
World Trade Center, as that is separate. He said ACIB received
approximately $330,000 from the general fund, $310,000 from the
endowment and $247,000 from grants and other sources. He said most
of what ACIB calls grants are in fact contracts for particular
kinds of research services. He said these contracts come from the
Alaska Seafood Marketing Institute or from reindeer herders in
Kugarak. Part of it is a contract with the Institute for Social
and Economic Research to do the Salmon Market Survey. He said
these are funds coming in from outside sources, essentially fee for
service.
Number 1958
REPRESENTATIVE ELTON said he is more interested in how much Alaskan
businesses and industries fund and pay for ACIB, not funded from
other state or university organizations.
Number 1978
MR. NEFF said the bulk of it comes to ACIB through the medium of
organizations like the Alaska Seafood Marketing Institute.
Number 1987
REPRESENTATIVE ELTON asked what groups are involved in the monthly
round table discussions.
Number 2010
MR. NEFF said it is the Alaska Center for International Business,
the World Trade Center, American Russian Center, Division of Trade
and Development of the Department of Commerce, the representative
from the U.S. Department of Commerce, and AIDEA. He said there
were others, but those groups were the principal participators.
Number 2018
REPRESENTATIVE ELTON asked if there were any representative from
coal and timber trade associations.
MR. NEFF said that currently no one represents those groups in the
discussions.
Number 2027
REPRESENTATIVE ELTON clarified that OIT is the Division of Trade.
Number 2033
CHAIRMAN COWDERY asked how many people work in the American Russian
Center and if they are contract or state employees.
Number 2041
MR. NEFF said they are paid through the university on contracts
that make it clear they don't get any money unless the grants
continue. He said, currently, there are seven people in Anchorage,
six Americans in the Russian Far East and approximately 16 Russians
in the Russian Far East.
Number 2059
CHAIRMAN COWDERY referred to the recent contract and said,
"Sakhalin that we have to represent that the Governor proposed to
represent us -- what is -- our role or, or do you think that the
background of this company is also representing other states maybe,
would have been, in your opinion, better suited to have an Alaskan
firm or company to represent us there."
MR. NEFF said there are several alternatives and a decision has
been made for the short run, only a few months. He said he
expressed concern, before the decision was made, that we need to
look out for Alaska interests first. He said these might be well
served under this arrangement, but since it is an organization that
receives its funding from elsewhere and has other obligations it is
important to keep a close eye on it.
Number 2107
CHAIRMAN COWDERY asked for the procedure to disperse funds to
subcontract grants to the American Russian Center and others.
Number 2125
MR. NEFF said ACIB does not do much subcontracting. He said he
could only think of one instance where the American Russian House
subcontracted in 1993 with a bank in Oregon. He said now there are
banks in Alaska that will work with them. By and large the center
works through programs which are operated 80 percent by center
staff. He said, otherwise, they will have the participation of
Alaskan businesses or government officials in Alaska who are
providing training for airport managers or in banking. He said
banks, primarily the National Bank of Alaska, will participate, at
least to a certain extent, at their own expense.
Number 2181
CHAIRMAN COWDERY asked, at the height of the training and travel,
how companies were selected between Russia and Alaska.
Number 2186
MR. NEFF said companies are not selected in the sense that the
American Russian Center is not sponsoring a company for a business
activity. He said the center will often have representatives from
different companies go to a training situation. The center is
almost exclusively involved with training. If the center is trying
to help someone understand single family construction, companies
who are involved with that type of activity are approached. He
said the center typically calls different companies, tells them
about the opportunity, ask them if they are interested and go with
those companies interested enough to expend some money to do a
training situation.
Number 2223
CHAIRMAN COWDERY asked what percentage of ACIB's total public
service and market research activities were conducted by the World
Trade Center Alaska.
Number 2231
MR. NEFF said the World Trade Center has had an agreement with ACIB
to do some of its short term instructional activities such as;
short term seminars, how to get an export license in Russia,
obtaining a visa, or what opportunities for trade are available in
Taiwan. He said this used to be a separate line item budget which
is not the case anymore. The World Trade Center receives, from the
general funds ACIB receives, approximately one-third of their
money.
Number 2279
CHAIRMAN COWDERY referred to a booklet titled, "State of Alaska
Private Sector International Business Needs Assessment, dated July-
October 1995," and read that, "ninety percent of Alaska exporters
don't need or want government assistance for their export
programs." He said if this is the case, why is the state spending
money on export assistance and who is ACIB actually helping in
this.
Number 2290
MR. NEFF said he would have to reread that information.
CHAIRMAN COWDERY said that also in the booklet, that the exporters
that would seek help; 33 percent would seek private sector help, 23
percent would use the World Trade Center, 16 percent would use U.S.
Commercial Service, 10 percent would use ACIB, and 6 percent would
use the University of Alaska. He asked why the OIT and UAA have
such a low public reliance factor.
Number 2350
MR. NEFF said part of this might be due to confusion on the part of
companies and individuals that their received information ultimate
source is the university. He said a great deal of information ACIB
generates is provided through the Alaska Seafood Marketing
Institute. He said their data is the data that ACIB collects. He
said there has not been enough of an attempt to allow the public,
as a whole, to know everything that UAA has been doing. He said
the World Wide Web site will do a lot to correct that. He said
ACIB receives 1,600 inquiries a year which include walk-in people
and telephone calls to which they provide direct assistance.
Number 2391
CHAIRMAN COWDERY said back in the 13th Legislature he was co-
sponsor of the legislation that created trade offices in Seoul and
Taiwan. He said he has been over there many times. When he worked
for the municipality in Anchorage, he received several calls from
people who were looking for small businesses in the Pacific Rim or
find out about small businesses. He said he put them in touch with
some. He said it appeared that a lot of people are unaware of
where to ask. He asked what the states role should be in
international trade.
Number 2444
MR. NEFF said the state needs a combination of interlocking
services, similar to what it has now. He emphasized that he is not
saying that it is the perfect mix or that the balance of support is
the right one. He said the state does need some selective
representation in certain markets. He said, because he has not
studied it, he would not say whether what the state has now are
right ones in the right proportion. He said Seoul and Taiwan, with
their portions of the Alaska trade market, are places where Alaska
ought to be represented. He said moving towards some type of
representation in the Russian Far East makes sense because Sakhalin
shows every indication of being a good market.
TAPE 97-1, SIDE B
Number 0000
MR. NEFF said it is important to help the connections between large
scale sectors of Alaska business and their opportunities abroad.
He said the university has a responsibility to bring people along
to be ready to participate in the international market, partly in
indirect ways through information, research and directly through
individuals. He said the World Trade Center is part of that. It
is specifically involved in trying to bring a kind of micro
training and services to its members which will help them in the
final stages of getting into the markets. He said, beyond that,
there is an importance for Alaska to harness its financial
resources through AIDEA, a combination between AIDEA and banks to
get some development capital that has an Alaskan name on it in
these particular markets.
MR. NEFF said ACIB has tried, in the Russian Far East through a
lending organization set at the national level by the United States
government to get rather small amounts of money out on the street
for those people to get into new entrepreneurial situations. he
said this program is not going very well. He said there have been
numerous conversations with various Alaska banks.
Number 0031
CHAIRMAN COWDERY said Alaska has very few people and lots of
resources and the Pacific Rim area has just the opposite. He said
it is logical that we are a natural trading partner with those
countries. He said the companies involved with the bigger
resources; oil and gas, hard rock minerals deal directly with
companies abroad. He said there are just as many smaller
businesses in the Pacific Rim and that this is an area to develop.
He said businesses need and want business information.
Number 0079
MR. NEFF said he would call disseminating information a form of
assistance. He said it is necessary to get the word out there
about what information and resources are already available. He
said when a business does come to the World Trade Center or to the
Alaska Center for International Business they are helped to find
that niche market which will allow them to sell those goods.
Number 0110
CHAIRMAN COWDERY asked approximately what percentage of ACIB is
conducted in response to a companies request. He asked if ACIB
maintained a staff specifically for these requests.
Number 0118
MR. NEFF said two and a half people are involved with research.
One staff person is working almost exclusively in the fisheries
area, another is a specialist in SouthEast Asia in timber and one
is a kind of generalist. He said ACIB is close to 100 percent in
responding to industry or government agency needs for research in
these areas.
CHAIRMAN COWDERY asked if it was industry that makes these
requests.
MR. NEFF said it is primarily industry.
Number 0162
REPRESENTATIVE PHILLIPS referred to Mr. Neff's testimony that ACIB
does not conduct basic research and asked him about his comments
that he has people involved in research.
Number 0170
MR. NEFF said the research they are doing is not academic research
which identifies a broad problem.
Number 0181
CHAIRMAN COWDERY asked how many investment proposals were completed
last year and what methods were used to track the success rate.
Number 0191
MR. NEFF said he would get the exact number to the committee. He
said an informal system is used. Once a company gets talking with
ACIB, they are asked if they have used the research and how its
been helpful to them. He said ACIB uses this information in doing
the next round of research.
Number 0221
JAMES McMILLAN, Deputy Director of Credit, Alaska Industrial
Development and Export Authority (AIDEA), was next to testify. He
said he has been with AIDEA since July of 1996. His primary
responsibility is management an oversight of AIDEA's credit
programs (indiscernible due to papers over the microphone) revenue
bond program are tax exempt and taxable, umbrella bond program,
business assistance program and export assistance program.
MR. McMILLAN said AIDEA has had an export assistance program in
place since 1987. That program provides a guarantee to banks who
extend both pre-export and post-export financing. To date it has
not issued any guarantees under this program and to the best of his
knowledge there have not been any requests to do so.
Number 0315
REPRESENTATIVE PHILLIPS clarified that he said there have been no
requests or money given out since 1987.
Number 0324
MR. McMILLAN said AIDEA is well aware of the lack of success of
this program and are attacking it on three different fronts in
attempts to find solutions. Before he talked about these attempts,
he discussed reasons why the program has not been successful. One
reason is timing. While Alaska has been exporting for many years,
AIDEA thinks the majority of those exports have been accomplished
by large companies, sometimes national firms, who are experience
exporters that either don't need financial assistance or have
established relationships with outside banks that can meet that
need. He said AIDEA also thinks, to some degree, that there has
been a reluctance on the part of the banking community to get
involved with export financing, although there is beginning to be
a change in that area. The rising interest in the Russian Far East
has in itself been a problem for the program. The lack of
political and economic stability in Russia has led to a hesitancy
to commit financial resources to that area. For example, the
Export-Import Bank of the United States (Ex-Im Bank) publishes a
Country Limitation Schedule indicating which countries and which
sectors in those countries are open for business with Ex-Im Bank.
This business of Ex-Im Bank includes export credit insurance which
is a requirement of AIDEA's current export assistance program.
Until November of last year, all business in the private sector was
closed to the Ex-Im Bank. Businesses in the public sector was open
only if the transaction had the full faith and credit of the
Russian government behind it. Once again, that is beginning to
change. He said AIDEA is now finding more of an interest on the
part of the banking community to provide export assistance and the
Ex-Im Bank is now open for business in the private sector in
Russia.
MR. McMILLAN said as he mentioned earlier, AIDEA is taking steps to
find solutions to their problem. First, AIDEA has met with the
banking community to seek their input on what changes they think
need to be made in order for the export assistance program to
become more viable. Second, AIDEA has sought alternative programs
which meet the financing need of exporters. Specifically, late
last year AIDEA completed the necessary training to become a
city/state partner of the Ex-Im Bank. As a city/state partner
AIDEA provides local access to the Ex-Im Bank programs which
include among others; export credit insurance and working capital
guarantees. Finally, AIDEA is in the process of reviewing
successful export finance programs already established in other
states. By utilizing that information, along with the input AIDEA
has received from the banking community, it will be prepared to
recommend changes to our export assistance program in order to make
it a more viable program. He said AIDEA is confident that this
approach will be successful.
MR. McMILLAN said two personnel within AIDEA, including himself,
dedicate a portion of their time to export assistance. The other
individual, Katelyn Ohmer, is the Economic Development Specialist
who dedicates a good portion of her time to the area of export
assistance. The remainder of her duties include marketing and
public relations, responding to inquiries about AIDEA's mission and
programs, legislative liaison and monitoring budgets for projects
and assigned programs.
MR. McMILLAN said AIDEA is also pursuing other means to become a
more visible player in the export arena. He said AIDEA fully
realizes that visibility and education are important ingredients to
their success. Along these lines, AIDEA is an active member of the
International Business Round Table.
MR. McMILLAN said, through the assistance of the Department of
Commerce and Economic Development (DCED) Deputy Commissioner,
Debbie Sedwick, this group recently executed a "Memorandum of
Understanding" which took place in October of 1996. He said this
really sets the path for a cooperative and unified effort to
provide export assistance and develop programs and projects which
will help each member to achieve their goals. Currently, AIDEA is
working on development of a series of seminars for the banking
community and exporters which would outline the various financing
programs available through the Ex-Im Bank. This program should get
off the ground this spring.
MR. McMILLAN said he was invited to become a member of the Finance,
Insurance and Taxation Subcommittee of the Alaska-Sakhalin Working
Group and will be speaking at the groups next meeting on January
31, about the Ex-Im Bank programs.
MR. McMILLAN said that while AIDEA is confident that all these
efforts will lead to a more successful and well rounded export
assistance program, they are actively working with a couple of
banks and exporters on projects to assist them in their exporting
needs. One involves a business which exports goods to the Russian
Far East and is in need of export credit insurance to finance their
receivables. The other project involves a guarantee of a line of
credit extended by a local bank to a bank in the Russian Far East.
The line is used to confirm letters of credit issued by the Russian
bank to their customers who would become buyers of goods and
services exported from Alaska. The letter of credit has been the
most used means of financing up to this point. In addition, AIDEA
is working with a large company in the petroleum industry to assist
them with export financing through the Ex-Im Bank.
MR. McMILLAN said in summary, AIDEA's short term goal was to
emphasize the Ex-Im Bank programs for financing of Alaska's
exporters. He said AIDEA believes these programs provide the means
and flexibility to assist Alaskan Exporters. He said the long term
goal is to review and revise AIDEA's program to better serve the
needs of the banking community and Alaska's exporters. As part of
this goal, AIDEA is looking to establish co-guarantee programs with
the Small Business Administration and the Ex-Im Bank. A co-
guarantee program would allow AIDEA to leverage their program and
reduce the risk. It would also provide better flexibility with
their financing program.
Number 0661
REPRESENTATIVE PHILLIPS asked if any previous legislative body
examined this program or has the management of AIDEA looked at this
program. She asked why nothing had been done.
Number 0683
MR. McMILLAN said as far as the management of the authority is
concerned they have examined it. They met with the banking
community and with some of the organizations to try and find out
why the program was not being used. He said there are some
problems with the program structure.
Number 0702
REPRESENTATIVE PHILLIPS asked if any attempts were made to correct
those problems so that it could be a program that people could use.
Number 0704
MR. McMILLAN said, looking back in the history of the files, it
appears that this effort took place around the beginning of 1994.
He said, to the best of his knowledge, other than some of the
things mentioned such as forming alliances with other groups, there
doesn't appear to have been any direct effort at changing the
program yet.
Number 0731
REPRESENTATIVE PHILLIPS asked if a major oil industry company went
to the Ex-Im Bank for financing if they were fitting under this
program or were they fitting under a different authority guarantee
are ...
Number 0740
MR. McMILLAN said, no, as a city/state partner AIDEA is somewhat
like an agent of Ex-Im Bank and can provide local access. He said
AIDEA will be working with the company to utilize the Ex-Im Bank
programs. He said especially now that the Russian Far East is open
for business in the private sector, he believes that Ex-Im Bank
programs will serve the majority of the Alaskan exporter's needs,
both small and large. He said the program, as it is currently
structured, has a maximum guarantee of $1 million.
Number 0783
REPRESENTATIVE PHILLIPS questioned whether a program that was in
place that nobody could, would, was required or is was going to
utilize would it be his recommendation to just get rid of the
program.
Number 0793
MR. McMILLAN said no he would not. He said AIDEA is in the process
of conducting a survey to find out specifically what the financing
needs are of Alaskan exporters.
REPRESENTATIVE PHILLIPS asked if this was identified in the report
done last year.
MR. PIGNALBERI said it was addressed, but not comprehensively.
REPRESENTATIVE PHILLIPS asked if Mr. McMillan was involved in that
report.
MR. McMILLAN said no he was not. He reiterated that he just began
working for AIDEA in July of 1996. He said he has read through
that report. He said it does address the area of financing, but he
did not believe it provided some of the information that AIDEA was
looking for in order to provide the education needed for exporters
and the banking community.
MR. McMILLAN returned to the earlier question and said the bottom
line should be that we give financing assistance to Alaskan
exporters. He said if this can be done through utilization of the
Ex-Im Bank and if it really serves all the needs of both the
banking community and the exporters, then he would suggest that the
state utilize that program. He said if AIDEA can create or revise
their program so that it filled in some of the holes that are not
being covered by the Ex-Im Bank program then he would suggest that
AIDEA do that. He said a duplicate program should not be kept for
the sake of having a program.
Number 0878
REPRESENTATIVE PHILLIPS asked when he anticipated having an answer
to that question.
MR. McMILLAN said he hoped to come to a conclusion by the middle of
this year. He said he is looking at programs in other states to
try and find out what the differences are between their programs,
our programs, how they are leveraging Ex-Im Bank, and what they
find. He said he realized that the needs of exporters from other
states are much different than those of Alaskans.
Number 0903
REPRESENTATIVE PHILLIPS recommended that sometime during the middle
of the interim the committee follow-up on this issue by getting an
answer. She said if we have a state program in place that isn't
workable, no one has used it in the past ten years, then let's look
at getting rid of it.
Number 0921
CHAIRMAN COWDERY said that is the basic purpose of these committee
meetings.
Number 0925
REPRESENTATIVE ELDON MULDER said he believed that Senator Kelly
sponsored legislation changing the name of AIDEA to include the
export authority. He said he would look into why the export
program was needed in the first place. He said he believed
Commissioner Tony Smith was advocating it. At that time Alaska was
in a recessionary period and the commissioner might have been
looking to stimulate exports. He said he did not feel that the
export program is not such a big problem as not much time or
resources have been spent on it. He said the bigger question is
how can we revise it to actually make it workable.
REPRESENTATIVE PHILLIPS said if we have state employees identified
in that program with their salaries being paid for by that program
and the program is not doing anything.
MR. McMILLAN said he and one other staff person have a portion of
their time dedicated to export assistance.
REPRESENTATIVE MULDER said the staff works in a multitude of areas,
without an export specialist per se. He said a statute might need
to be revised, to make it more applicable and user friendly if it
is not possible to do this then at that point we should discard the
program.
MR. McMILLAN said he did not want to diminish the fact that for
whatever reason the program has not been successful. He said the
program has not been utilized. He said, in his opinion, the
program is directed towards small businesses and when the program
was created there was not a lot of small businesses exporting. He
said there might have been a lot of businesses that had an idea
that they might want to get into business and export, but neither
this program or the Ex-Im Bank program is for the total novice. He
said there is a higher degree of risk when you start doing business
in a foreign country as compared with doing business within the
United States. He said this is part of the problem. He said
timing is also an issue.
MR. McMILLAN said AIDEA has looked at the statutes, at the
regulations and at this point, without making any commitment, if
AIDEA feels it can create a program that will compliment Ex-Im Bank
it will take some legislative change.
REPRESENTATIVE MULDER said at the time of implementation of the
program, the banking industry was struggling with only two
institutions on solid ground. Those two banks were not lending to
anybody without 70 percent equity.
MR. McMILLAN referred to his 20 years experience in the Alaskan
banking industry and said that when someone came in and said they
wanted financing to export goods or services overseas you did
everything you could to shift the subject. He said sometimes when
banks did financing for businesses that were exporting, it was
treated like it was a loan for business done in Alaska. He said
some of it is just misunderstanding on the part of the banking
community. He said this is why we need to educate the banking
community and the exporter.
MR. McMILLAN said that when you look at the changes in the banking
community, with kudos to the National Bank of Alaska because of
their support for export assistance, some smaller banks were not
geared up for export assistance, others have offices outside which
provide assistance but refer the customer to their Seattle office.
Number 1205
REPRESENTATIVE PHILLIPS requested a copy of Mr. McMillan's
comments.
Number 1208
CHAIRMAN COWDERY asked when the comparison with other state
programs will be done.
Number 1218
MR. McMILLAN said he was in the process of drafting a letter that
will go out to the different states that have some type of export
authority or export assistance program. He said the timing
involves getting the letter out and getting the responses back. He
said the letter will be very specific in what AIDEA is requesting
so that it could be a comparison of apples to apples. He said he
would hope to complete this around the mid-year.
Number 1250
CHAIRMAN COWDERY referred to an example of when he worked for the
municipality of Anchorage. He said a company asked for export
assistance for some water products to Korea. He said the answer
they received was to let a bank package their proposal and then
AIDEA would see if they could help. He said this was a small
company and would have liked to have had some assurance before they
did the paperwork.
Number 1295
MR. McMILLAN said it is a fine line that the export authority
walks. They try not to confuse the private sector, primarily the
banking community. He said the last thing the program wants is to
move in front of the banks and take away their customers. He said
the authority is always receptive to questions and inquiries from
perspective business people who need assistance from AIDEA. He
said AIDEA always offers them the caveat that they are not in the
business to do direct lending. The program can provide them
assistance, help them along, make them feel like there is something
there that they have got to work with and then ask them to contact
their local bank.
MR. McMILLAN said as a certified city/state partner, the authority
has the obligation to directly provide those services to the
banking community and the exporters. He said hopefully you will
not find an incident like the one mentioned in the future.
Number 1412
JOSEPH L. PERKINS, Commissioner, Department of Transportation and
Public Facilities (DOT/PF), was next to testify. He said most
trade matters require some type of transportation and his
department provides and operates the infrastructure in the state of
Alaska to make this possible. He said this is particularly true of
the Alaska Marine Highway System which is delivering people to the
state every day and with the international airports.
Number 1494
KURT PARKAN, Deputy Commissioner, Office of the Commissioner,
Department of Transportation and Public Facilities, said he had
some brief comments and provided handouts to the committee. He
said part of the mission of the airports, which include both the
Fairbanks and Anchorage airports, is to promote cargo, passenger
air service and related activity to the economic benefit of the
state of Alaska. He said the airport marketing strategy is to
identify and promote air service development opportunities on both
a carrier by carrier and on an industry wide basis. He said
generating cargo related activity is aimed at capturing the trans-
Pacific as well as the European business, a rapidly growing sector.
The activity is also aimed at competing on a world wide basis.
Number 1578
MR. PARKAN said airport funding is through the International
Airport Revenue Fund which is an enterprise fund of the state of
Alaska, established in 1961. He said the airports are
independently funded from the general funds, but the general fund
does not contribute to the operations of the airport. He said all
capital debt service costs are generated through the International
Airport Revenue Fund in addition to what is received from the
Federal Aviation Administration (FAA) in terms of capital
improvement projects.
Number 1610
MR. PARKAN said the marketing budgets, for the past several years
and proposed for this year, are $400,000 for Anchorage and $100,000
for Fairbanks. He said approximately 50 percent of the Anchorage
budget and 70 percent of the Fairbanks marketing budgets are for
ongoing international projects. He said, in terms of personnel
dealing with marketing, there are two positions at Anchorage under
the development manager. One is currently filled and one is to be
filled. Both of the efforts in Anchorage and Fairbanks are
combined with the economic development corporations of those
respective cities. He said, in Fairbanks, the full amount of the
marketing money goes to the Fairbanks Industrial Development
Corporation. In Anchorage a portion of the budget goes to the
Anchorage Economic Development Corporation (AEDC) for specific
projects, approximately $100,000 to $120,000. Projects that they
are currently working on pertain to international markets.
Number 1705
MR. PARKAN said the state is seeing a growth in both international
cargo and passenger trends at the airports. Anchorage is number
two in the United States in terms of gross landed weight and
Fairbanks is number seven. The state has received from the United
States Department of Transportation (US DOT) expanded cargo
transfer rights last fall for increased traffic rights for foreign
carriers. He said this will generate a considerable amount of
growth at the international airports. It will allow international
cargo carriers to do more than just land and fuel, they will also
be able to fuel, transfer cargo to other carriers, to hub, and to
continue flying through to the lower 48 from the Asian markets. He
said these traffic rights exclude Japan and United Kingdom carriers
for now, but the state is hoping to get them included. He said
those countries are currently excluded as there are bilateral
negotiations going on that are much bigger and broader than what
the state's specific request was for. He said these rights are for
one year at a time, but the state will apply for an extension.
Number 1852
MR. PARKAN said this decision of the US DOT has created a
considerable amount of interest in third party developments. He
said there are people who are clamoring to come to the airport and
set up warehousing operations and hubbing operations.
MR. PARKAN said DOT/PF is participating in the Governor's Pioneer
Incentive Program which is attempting to get direct passenger
flights from Japan to Anchorage or Fairbanks. He said this effort
involves the Department of Commerce as well as AEDC, the Anchorage
and Fairbanks Visitor and Convention Bureau, AIDEA is also involved
because of their financing view of the world. Hopefully they will
package some type of an incentive to bring a carrier on at least a
weekly basis to Alaska from Japan. He said the commissioner is
chairing the committee with Debbie Sedwick from the Department of
Commerce and Economic Development.
Number 1923
REPRESENTATIVE MULDER asked if any carriers have expressed
interest.
Number 1937
MR. PARKAN said DOT/PF has identified a couple of carriers that
have some potential. He said subcommittees are working to get that
interest increased. He said hopefully within the next year there
will be announcement from somebody to come here. He said right now
the focus is on Nippon Airways and NorthWest. He said it is
unclear which city out of Japan will be able to provide the direct
flights, Tokyo is pretty tied up.
Number 2003
REPRESENTATIVE PHILLIPS repeated that the Pioneer Incentive is
offering $1 million to an airline company willing to come from the
Orient and asked where that money was coming from.
Number 2033
COMMISSIONER PERKINS said the committee is looking at several
sources of revenue, with at least half of the money coming from the
private sector from such organizations as the Anchorage Visitors
and Convention. He said another source that is being sought for
the other half of the money. He said the committee might ask the
state, but it has not been decided. The subcommittee will exhaust
all other possibilities before doing so. He said AIDEA is on the
committee and they are the financial people working to get the
incentive money.
Number 2082
COMMISSIONER PERKINS said this incentive money is not cash
payments. What is being discussed is a marketing effort for the
airline to come to Alaska.
Number 2116
REPRESENTATIVE PHILLIPS clarified that it is not a direct cash
payment and you are looking at marketing and asked if it would be
price reductions on marketing efforts or what other kinds of things
are they looking at.
Number 2138
COMMISSIONER PERKINS said the money would be directed to marketing
that flight. Another thing being looked at is people who are
beneficiaries of this service. For instance, the potential of
Alyeska blocking off so many seats. He said there are several ways
that these incentives can be formed.
Number 2195
MR. PARKAN said the subcommittee working on that feels that more
than $1 million could be generated, particularly in the private
sector. He said $1 million was not the magic number, it was the
minimum.
Number 2229
CHAIRMAN COWDERY asked if there would be any ripple effects from
other airlines that did not receive incentives to come to Alaska.
Number 2243
COMMISSIONER PERKINS said the committee has not received any
comments as this is a special circumstance, it is for international
flights and currently Alaska does not have any international
flights.
Number 2266
REPRESENTATIVE PHILLIPS asked if there was a stipulation that the
flight had to go to Anchorage, or if it could go to Fairbanks.
Number 2284
COMMISSIONER PERKINS said it could go to Fairbanks, but
realistically it would probably go to Anchorage. He said Fairbanks
is heavily involved with the task force because many of the
passengers that come in from Japan go to Fairbanks, especially in
winter to see the Northern Lights and visit the hot springs. He
said there are benefits to Fairbanks even if the flight terminates
in Anchorage.
Number 2372
CHAIRMAN COWDERY said the airport is proposing a 3 percent head tax
on passengers to pay for a new terminal building and asked if this
was correct.
MR. PARKAN said the airports had proposed to Legislative Budget and
Audit (LB&A) the approval of a passenger facility charge. He said
if it looks, feels and smells like a tax you can call it a tax, but
Congress specifically said that it wasn't a tax but a user fee. He
said the passenger facility charge would be $3.00 for deplaned
passengers at Anchorage and Fairbanks. That money would be used to
fund identified capital improvement projects.
TAPE 97-2, SIDE A
Number 0000
MR. PARKAN said there were very good discussion comments from the
public with concerns expressed by people who felt that it would
place a burden on them. He said the subcommittee would put out a
report to the full committee with recommendations. He said they
felt it would be more appropriate for this discussion to take place
before the full legislature, so DOT/PF decided to withdraw the
request for LB&A to do the fund source shift from FAA funds to
Passenger Facility Charges (PFC) and wait for the report to come
out from LB&A. At that point, take a look at what the report said
and then decide at that point whether or not to go forward. He
said no decision has been made to continue with PFCs. He said,
when the report comes out, DOT/PF can discuss with the legislature
what the mutual interest is in PFCs.
MR. PARKAN said PFCs are used throughout the country, they are
charged every time you go through Seattle or through most of the
major airports in the U.S. He said it is a fund source that helps
diversify the revenue the airports receives to meet their capital
needs. He said the capital needs, especially at the international
airports when they are expanding, far exceed the ability to pay for
them with revenues. He said the federal AIP program makes it
difficult. He said DOT/PF has recently been notified that the
Administration is proposing a $1 billion AIP program for next year,
currently it is $1.46 billion. He said this would make a 30
percent reduction in funding for capital programs. He said right
now almost all of the capital projects are funded through Airport
Improvement Plan (AIP) with match and some smaller projects funded
through the revenue source.
MR. PARKAN said the alternative to PFCs would be to not do the
projects or finding some other revenue source such as bonds or
increasing airport fees which could have a rippling effect on
passengers.
Number 0251
COMMISSIONER PERKINS said any of us that fly out of state are
paying this fee anyway. He said the additional charge would be for
intra-state travel.
Number 0302
REPRESENTATIVE PHILLIPS said she would like to get back to the
issue of airports and their role and in international business.
She said she wanted to commend the Anchorage airport on the
briefing given to the legislators. She said it was good to see the
growth that was occurring and the development plans.
Number 0347
REPRESENTATIVE PHILLIPS asked if there was a direct relationship
with the World Trade Center, the Center for International Business,
the American Russian Center or if the airports worked just with the
DOT/PF. She asked how they were tying in international business
expansion at the airports with what we see as international trade
in Alaska.
Number 0396
MR. PARKAN thanked her for her comments.
Number 0437
MORTON PLUMB, Director, Anchorage International Airport, Department
of Transportation and Public Facilities, was next to testify. He
said the airport deals directly with the World Trade Center on
trade information. He said, as far as the overall business picture
in Anchorage is concerned, the airport works very closely with the
municipality, AEDC, and AIDEA. He said the airport has formed sort
of a troika with AIDEA and AEDC for their marketing effort. He
said, in that regard, the airport works directly with other
agencies that are promoting business.
MR. PLUMB said the Anchorage airport has what they call their
personal shopper who assists perspective customers work their way
through the bureaucratic process of trying to find out information
in case they choose to develop there. He said, in addition, the
municipality has committed themselves to a similar process and the
airport tries to link up so that the airport is user friendly to
the customer. He said the airport coordinates very well between
the various organizations.
Number 0535
REPRESENTATIVE MULDER referred to a DOT/PF subcommittee which
talked about re-evaluating the international concourse as it was
not being utilized to its full capacity. He said it was felt there
was growth at the national market and to adding the concourse to
the domestic terminal. He asked what the future was for the
international concourse.
Number 0594
MR. PLUMB said there was an effort a few years ago to convert some
of the international terminal. He said once you spend capital to
reduce capability you then limit what you can attract there. He
said many people in Anchorage do not have the opportunity to see
how busy the international terminal is. He said at 1:00 a.m. there
is no room to park any more airplanes. He said what is indicative
of that is the duty free concession which provided somewhere
between $108 million and $117 million gross which provided
(indiscernible due to coughing) a year. He said this had a sharp
decline bottoming out somewhere in the 1994 time frame to where the
gross is $7 million and probably less than $1 million to the
airport.
Number 0643
MR. PLUMB said last year the duty free grossed close to $14
million, almost $6 million greater than the initial bid came in.
He said he believed the international traffic is on the upswing.
He felt it would probably be a mistake to spend capital to change
that. He said the airport might get a synergy as they see more
cargo coming. He said 60 percent of cargo is carried in the belly
of passenger airplanes. As the airport sees with EVA airlines,
they are currently flying what they call 747 COMBIs with passengers
in the front and the cargo in the back.
Number 0708
MR. PLUMB said this might become more lucrative as the hub concept
is developed. He said as a result of the relief received from the
U.S. DOT, not only was more cargo flexibility but the opportunity
to do what they call change a gage and starburst. Effectively,
what that will do is it has the potential to increase the yield and
that is the bottom line. The airlines will be able to hub and sort
internationally which is very similar to what UPS and FedEx does
today on the domestic market.
MR. PLUMB said this might allow someone like Korean Airlines, to
stop at Anchorage and then go over to Frankfurt on a large airplane
such as a 747 which could hub smaller airplanes such as a 727 as
long as they had traffic rights to go down to Seattle, Los Angeles,
or San Francisco. While the larger aircraft heads over to
Fairbanks with its cargo, takes the fee from the other three small
airplanes that came up, loads up the 747 and goes back to Korea.
As the airport sees it that area might become very attractive to
other airlines such as KLM which also has COMBIs. They might start
bringing cargo in and put some passengers in the front end. If
passengers come, then there will need to be a place for them to
disembark.
MR. PLUMB said Representative Mulder was correct but he hoped the
airport would increase their traffic. He said they were up 20
percent which he said is easy to do when you have a very small
number. He said the airport feels there is a better alternative
then converting that space.
Number 0810
REPRESENTATIVE MULDER commented that the airport had sunk to a very
low point on the international level. He asked at what point in
time you pull the plug and say that the long range plans, the
efficiencies and the routes are not going to produce a direct route
between Japan and Alaska.
Number 0878
MR. PLUMB said the Anchorage airport has been working that effort
for some time and said it appears that they are getting pretty
close, it is a matter of the bottom line. He said the airport
knows for a fact because they have done the studies, that the route
analysis will show a positive in the black revenue. He said the
issue is airframe availability. For example a company such as
NorthWest with a DC 10 has a revenue flow between Los Angeles and
Heathrow that is greater than it would be between Norito and
Anchorage. Therefore, they have done the route analysis and that
the Norito/Anchorage route would not make as much money. He said
as the economy grows, as we get greater airframe availability then
the airport will get them as customers. He said the airport
watches to see what companies are buying large aircraft.
MR. PLUMB said he feels that NorthWest will start summer air
traffic between May and September, 13 flights occurring once a
week. He said the Pioneer Incentive would ask for a period of two
years which would bring the amount offered $500,000 a year and it
would not be spent until someone commits to that route. He said
the airport would not pull the plug on the effort because they are
not paying any interest on the money and are receiving advertising
as a result of it. He said the airport would continue offering the
incentive for at least another three years before pulling the plug.
He said this is just the airport's side of it and it would also
depend on what DOT/PF and Fairbanks want to do.
Number 0997
CHAIRMAN COWDERY asked what the benefit dollars were of a jumbo jet
landing.
Number 1011
DOYLE RUFF, Manager, Fairbanks International Airport, Department of
Transportation and Public Facilities, was next to testify. He said
a detailed analysis was done to determine economic impact. He said
one 747 landing once a week for one year is just a hair under $1
million direct spending in Fairbanks. He said the bulk of that is
to the fuel supplier. The rest of it is in fees to the airports
with the direct fee being $1,400 per landing between the fuel
flowage fee and the landing fee based on the gross weight of the
aircraft. He said the other direct spending income is to the
ground handlers, the food suppliers, hotels and the other dragon's
tail of support services. He clarified that he is talking about
cargo traffic as there is no international passenger traffic that
is occurring now.
Number 1084
REPRESENTATIVE PHILLIPS asked how many cargo flights on a weekly
basis are landing in Fairbanks.
Number 1090
MR. RUFF said there are 23 to 25 flights on a scheduled basis.
Number 1098
REPRESENTATIVE PETE KOTT referred to the Pioneer Incentive Program
and asked if any firm commitment had been given to the $500,000
trying to be raised by the private sector.
Number 1121
COMMISSIONER PERKINS said there appeared to be a firm commitment
with the Anchorage Convention and Visitors Bureau. He said others
are close to being committed. He said that nothing will be
committed until the deal is signed for two years.
Number 1169
MR. PARKAN said the folks that are going to be committing money
will be sitting down at the table during negotiations with the
carrier to decide what their commitment is going to be. He said it
is hard to say how much until we sit down with the carriers.
Number 1185
REPRESENTATIVE KOTT asked if there were competing interests out
there in some of the other Western states that offer the same type
of incentive program.
Number 1195
MR. PLUMB said Memphis spent a considerable amount of money, as
much as $5 million to try to get KLM in there by putting up a
couple of international gates. He said the Port of Seattle spent
approximately $10 million to buy some buildings from NorthWest,
NorthWest in turn leased them back for around $70,000 a year. He
said eventually the port is going to need that. He said some large
expenditures are spent just trying to attract carriers in there.
He said, in Seattle, the deal was to start a Hong Kong twice weekly
flight, going up to three times a week. He said there is a
reasonable precedent to set up some sort of incentive.
Number 1253
MR. PLUMB said the airport is getting the byproduct of this as they
have been in Aviation Week and other publications. He said it has
just been marketed around the world and they haven't spent that
much. He said this has not been the intent, but have gotten more
out of this proposal then has been spent so far. He said,
realistically, no one is going to make a deal for $500,000 a year.
Japan Airlines was bleeding to the tune of $1 million a day and
$500,000 can be lost over two flights. He said no one is going to
make a deal to fly here for two years for $1 million, the economics
do not work that way.
Number 1300
REPRESENTATIVE KOTT asked if the airlines were required to stop
over in Alaska or if it was the final destination.
Number 1311
MR. PLUMB said if it is a domestic carrier that can come from
Norito to Anchorage unload, pick up passengers and continue on to
Minneapolis. He said this is the probable scenario as this is the
closest deal right now. He said if Japan Airlines or ANA coming
out of Norito, Osaka, Nagoya or Chitose and stopped at Anchorage
and could not pick up passengers, there would not be much incentive
because they would in fact be losing revenue as that seat would be
vacant. He said for internationals it would have to be a turn
around and for domestics it did not matter.
Number 1366
REPRESENTATIVE KOTT asked if there was an dialogue occurring with
the state's federal delegation to perhaps open up the opportunity
for those foreign carriers to pick up traffic here on their
destination to wherever. He also asked if there was an ongoing
dialogue that would offer some type of relief concerning visas. He
said those passengers coming over could get off and spend four or
five days benefitting the small mom and pop shops in the Anchorage
or the Fairbanks area.
Number 1399
MR. PLUMB said there has been a considerable effort for the visa
waiver program, especially with Korea. He said the Administration
here in Alaska as well as the delegation in Washington has been
supportive of this. He said there have been some strong opponents
of this, people who are fearful of having people come over and stay
longer than they should. He said there is not a great potential
that this will happen in Alaska, but is would be a potential down
in the Lower 48. He said, "with the other area, I'm not sure if
the delegation's been contacted or not. I yield to Deputy
Commissioner Parkan."
Number 1445
MR. PARKAN said in terms of contacts with the delegation concerning
opening up rights for international carriers, he knows that there
has been an expressed interest by the delegation regarding
bilateral negotiations. He said a lot of this centers on the
Department of State negotiating a deal with Japan. He said the
state is interested in, but not at the table concerning, the
negotiations of the bilaterals.
Number 1493
MR. PLUMB said this is a very technical area and right now they are
seeing a lot of bilaterals. He predicted that it will go into a
more multi-lateral and eventually open skies. He said if they go
to open skies then they won't have to go through all of these
negotiations. He said there is so much with regard to quid pro quo
as we go through these bilateral negotiations. He said they start
very close to those on a weekly basis. He was just talking
yesterday with Ed Oppler, a chief negotiator with the U.S.
Department of Transportation who just informed him that Singapore
will probably have open skies in the near future.
MR. PLUMB said the airports make their intentions known to them
through telephone contact and through the Airports Counsel
International. He said everyone has the same objective, but the
U.S. doesn't want to give away something that would reduce the
negotiating position with regard to leverage with a country holding
the U.S. hostage either by not permitting one of our carriers to
operate freely there or by charging them what could be considered
an exorbitant amount. He said this area of negotiation usually
stays on the U.S. DOT and State Department side as opposed to
getting tied in the legislative side.
Number 1564
REPRESENTATIVE MULDER asked how the state compares with other
airports along the West Coast. He asked if the route decision was
based on money or were other factors considered regarding both
cargo and passenger service.
Number 1585
MR. RUFF asked if he was primarily speaking to what it costs a
carrier, whether it was are passenger or cargo carrier, to operate
in Alaskan airports as compared to airports on the West Coast.
Number 1604
REPRESENTATIVE MULDER asked how the state was competing, are we at
an advantageous position.
Number 1612
MR. PARKAN said Alaska has an ideal location so the state competes
very well, particularly in terms of cargo traffic but also
international passengers to a certain extent. He said location is
a considerable factor. He said the landing fees are comparable to
other West Coast airports.
Number 1641
MR. PLUMB said location is important, but not everything and
pointed to the fact where passenger traffic technology can change.
He said it is imperative that the state take this opportunity to
capitalize on the globalization of the aviation industry. He said
there is an emerging market in the Pacific. As we see that grow
there is going to be a great thirst to go ahead, locate, build
infrastructure and do things. He said it is like water seeking a
level, if the state does not exercise the opportunity at this time
or take advantage then other markets will be found such as
Petropavlovsk, Khabarovsk, Vancouver or Edmonton. He said while
the economics might not be exactly right, the state must take
advantage of it at this time. Certainly we must do this in the
cargo area.
MR. PLUMB said the reason for the advantageous position is because
of location. He said the cargo carriers work on very, very small
margins. He said you have the next day products such as overnight
mail which yield $16 to $17 a pound. He said when you start to get
to what is considered the "bottom feeders" you might be getting
down to .60 cents, .70 cents or even $1 a pound which creates
margins that are very close. He said if you can stop in Anchorage
with 68,000 pounds and save 68,000 pounds of fuel, that means you
can upload 68,000 pounds of cargo. He said, done on a daily basis,
this adds up to millions of millions of dollars in the long run.
Number 1729
MR. PLUMB said the passenger side is different because the load is
not as important. He said when we travel we like to get from Point
A to Point B with very little interruptions. He said it is going
to be very tough to get into the passenger market. He said if it
can be tied into the cargo side, Alaska will become more
attractive.
Number 1777
MR. RUFF said the rates and charges to the air carriers are very
favorable, be they passenger or cargo, be they international or
domestic, compared to other major airports such as Vancouver or
airports on the West Coast. He said for all cargo the Anchorage
airport ranks number one and Fairbanks then moves down to number
37. He said those positions tell us how we are doing in those
areas. He said during the heyday of the duty free concession the
state was guaranteed an income of $14 million. He said the
international traffic went to zero, but it is now slowly building
back up.
MR. RUFF said, on the domestic passenger side, Alaskans enjoy being
a heavily targeted tourist destination with steadily climbing
passenger traffic. He said the state must cover every base to the
time that Russia might be a competitor with Alaska. He said that
is why the runway extension projects at both airports are so
important, to keep this international business. He said we must
continue to pursue these areas to continue to do well into the
future.
Number 1900
MR. RUFF said everything about servicing in Russia, from the
tarmacs to the quality of the fuel, is not there and a will be a
long time in coming. He said, by that time, Alaska wants to be so
solidified that this is the Text-Stop hub.
Number 1926
MR. RUFF referred to the incentive program and said it is important
that we know what the role of the airport is, that we don't
misidentify ourselves. He said this happened in Portland when they
attempted to compete with Sea-Tac. He said when they shifted gears
and focused more on cargo development they did well. He said the
role for both airports in Alaska is clearly defined.
Number 1982
ADJOURNMENT
There being no further business to conduct, CHAIRMAN COWDERY
adjourned the meeting of the House Special Committee on
International Trade and Tourism at 12:30 p.m.
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