Legislature(1997 - 1998)
03/24/1998 04:09 PM 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
March 24, 1998
4:09 p.m.
MEMBERS PRESENT
Representative John Cowdery, Chairman
Representative Eldon Mulder
Representative Pete Kott
Representative Kim Elton
Representative Reggie Joule
Representative Joe Ryan
MEMBERS ABSENT
Representative Gail Phillips
COMMITTEE CALENDAR
HOUSE BILL NO. 432
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date."
- PASSED CSHB 432(ITT) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 432
SHORT TITLE: AIRPORT REVENUE BONDS
SPONSOR(S): REPRESENTATIVES(S) COWDERY
Jrn-Date Jrn-Page Action
2/18/98 2353 (H) READ THE FIRST TIME - REFERRAL(S)
2/18/98 2353 (H) ITT, TRANSPORTATION, FINANCE
2/24/98 (H) ITT AT 5:00 PM BUTROVICH RM 205
2/24/98 (H) MINUTE(ITT)
2/25/98 (H) ITT AT 5:00 PM BELTZ ROOM 211
2/25/98 (H) MINUTE(ITT)
3/05/98 (H) ITT AT 4:00 PM BUTROVICH RM 205
3/05/98 (H) MINUTE(ITT)
3/19/98 (H) ITT AT 4:00 PM BUTROVICH RM 205
3/19/98 (H) MINUTE(ITT)
3/24/98 (H) ITT AT 4:00 PM BUTROVICH RM 205
WITNESS REGISTER
DAVE EBERLE, Director
Design and Construction, Central Region
Department of Transportation & Public Facilities
P.O. Box 196900
Anchorage, Alaska 99519-6900
Telephone: (907) 269-0780
POSITION STATEMENT: Clarified previous testimony on HB 432.
MARCO PIGNALBERI, Legislative Assistant
to Representative John Cowdery
Alaska State Legislature
Capitol Building, Room 416
Juneau, Alaska 99801-1182
Telephone: (907) 465-3879
POSITION STATEMENT: Explained amendments to HB 432.
KURT PARKAN, Deputy Commissioner
Department of Transportation & Public Facilities
3132 Channel Drive
Juneau, Alaska 99801-7898
Telephone: (907) 465-6977
POSITION STATEMENT: Commented on HB 432.
ROSS KINNEY, Deputy Commissioner
Treasury Division
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811-0405
Telephone: (907) 465-4880
POSITION STATEMENT: Commented on HB 432.
ACTION NARRATIVE
TAPE 98-8, SIDE A
Number 0001
CHAIRMAN JOHN COWDERY called the House Special Committee on
International Trade and Tourism meeting to order at 4:09 p.m.
Members present at the call to order were Representatives Cowdery,
Kott, Joule, Elton, Ryan and Mulder. Representative Phillips was
absent.
HB 432 - AIRPORT REVENUE BONDS
Number 0018
CHAIRMAN COWDERY announced the first order of business was HB 432,
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date." It
was his intention to address a couple of amendments, but first he
asked Dave Eberle to clarify testimony given at a previous meeting.
He asked Mr. Eberle to explain his view of the sources and uses of
funds for this project.
Number 0024
DAVE EBERLE, Director, Design and Construction, Central Region,
Department of Transportation & Public Facilities, testified via
teleconference from Anchorage, stating the total project cost for
the terminal redevelopment project as proposed, including the cost
of financing, is $230 million. Under HB 432, the anticipated
funding sources for the project would be revenue bonds in the
amount of $180 million, federal highway funds in the amount of $26
million and Federal Aviation Administration (FAA) funding in the
amount of $24 million; totaling $230 million. Assuming all sources
of these funds come to pass, he said this would be sufficient to
construct the project as proposed.
Number 0041
CHAIRMAN COWDERY explained that his request for clarification was
based on a misquote in the funding in an earlier meeting. He
thanked Mr. Eberle for clarifying this for the committee. At this
time he asked his legislative assistant, Marco Pignalberi, to
explain the amendments.
Number 0053
REPRESENTATIVE ELDON MULDER made a motion to adopt Amendment 1
which was labeled A.3.
REPRESENTATIVE REGGIE JOULE objected for discussion purposes.
CHAIRMAN COWDERY asked Mr. Pignalberi to explain the purpose of the
amendment.
Number 0065
MARCO PIGNALBERI, Legislative Assistant to Representative John
Cowdery, explained Amendment 1 concerns passenger facility charges
(PFC). He said in the event that passenger facility charges become
part of the mechanism to pay down the bonded indebtedness, the
passenger facility charges must first be used for that purpose.
Currently, passenger facility charges are not part of the
mechanism, but it is expected that next year the Administration or
perhaps the legislature, will invoke passenger facility charges as
recommended by the FAA. The purpose of Amendment 1 is to require
that to the extent allowed by federal regulations, passenger
facility charges be used to pay down the debt for all eligible
parts of the project.
Number 0082
REPRESENTATIVE MULDER asked if it was anticipated that the
passenger facility charges would go away once the revenue bonds are
retired?
MR. PIGNALBERI said that would be an independent program that would
go on until the legislature took separate action.
Number 0090
REPRESENTATIVE JOE RYAN voiced his opposition to Amendment 1. He
believes it is unfair for everyone in Alaska who travels to be
charged $6.00 for two landings in order to help pay off
improvements for the Anchorage airport.
MR. PIGNALBERI explained that Amendment 1 does not invoke passenger
facility charges; it only says that if and when the legislature
does invoke passenger facility charges, the income would be used to
pay down the debt.
Number 0115
REPRESENTATIVE KIM ELTON requested that someone refresh his memory
about the process inasmuch as he doesn't have a state facility
airport in his community. For example, if a passenger fee is
charged, who determines the use of the receipts from the fee? Is
it the state, the airport users group or who?
MR. PIGNALBERI explained there are only certain types of projects
that can be paid for with passenger facility charges and FAA
governs that determination.
REPRESENTATIVE ELTON remarked that only half answers the question.
He wanted to know which entity picks which of the FAA allowable
expenses can be used.
CHAIRMAN COWDERY noted that Kurt Parkan from the Department of
Transportation & Public Facilities was present and could probably
answer Representative Elton's question.
Number 0138
KURT PARKAN, Deputy Commissioner, Department of Transportation &
Public Facilities, explained "In brief the way the program works,
the sponsor of the airport - in our case it would be the state of
Alaska for Anchorage. For your community, the sponsor for the
Juneau airport which has proceeded forward with passenger facility
charges, would be the municipality. So the sponsor of the airport
would work with the FAA to get approval to collect passenger
facility charges for a specific purpose - a specific project - and
money from the PFC could only go for that specific project. The
process that the sponsor goes through in getting the PFCs collected
for that project involves a review by the airlines serving at the
airport as well as a whole public community process. So a project
that is proposed would go to the airlines for their review and then
it would go out for public comment and then ultimately get approved
or rejected by the FAA. And then once it's approved by the FAA,
then you start collecting the fees."
Number 0156
REPRESENTATIVE ELTON inquired as to the department's position on an
amendment that restricts the department's latitude in the use of
receipts from the passenger facility charges to only paying off
revenue bonds.
MR. PARKAN confirmed this was the same draft he had reviewed
earlier and said the only concern he has with regard to the
amendment is placing in statute an absolute on how the PFCs could
be spent in the event that a PFC was invoked. He added there are
some federal requirements in how the money can be spent and his
concern with the amendment as currently written, is that more PFCs
may be collected than is actually needed to pay off the bonds and
there is no mechanism to store those funds for other purposes
because the purpose of the PFC is to spend the PFC for a specific
project.
Number 0175
REPRESENTATIVE ELTON said what bothers him about Amendment 1 is
that it appears to be creating a situation in which the airport
users could essentially say, "one of the ways that we get beyond
having to pay for these improvements ourselves is we can shift the
burden back to our passengers rather than ..." He questioned the
value of an amendment that is so restrictive and takes away other
options that may be available not only to the state, but to the
airport as well.
Number 0188
MR. PIGNALBERI reiterated this would only come in to play if the
legislature decides to invoke passenger facility charges. It has
no effect because right now there are no passenger facility
charges. But in the event that legislation is passed in the
future, then this would come in to play and at that time the
legislature could place whatever restrictions that are allowable
under federal law. He added, "I think one thing that we're
overlooking here is that the way this is drafted now, this money is
to be used for redeeming before they're fixed maturities; in other
words, it's to be used for paying down the debt early for those
eligible portions of the project and then the project will be paid
off in the natural amortization period. A passenger facility
charge money when it becomes available would go for early debt
retirement. That's all this would do, but again, it's only after
the legislature decides to adopt a PFC."
REPRESENTATIVE RYAN commented he understood this to be an insurance
policy because this project will not "fly" without the passenger
facility charge. He said the landing fees aren't there and nothing
has been done about starting the letters of intent on renegotiating
agreements with the carriers that will expire in two years. So,
implementing the passenger facility charge will be the easiest way
to go when the crunch comes.
Number 0229
CHAIRMAN COWDERY pointed out that a letter requesting a waiver
from the passenger facility fee for rural Alaska had been sent to
Senator Stevens.
MR. PIGNALBERI clarified that the draft amendment Mr. Parkan was
working from was not the same language they had discussed earlier.
He said, "I need to make a clarification because when he was in our
office and we spoke about allowing the PFC charges to be used for
early debt retirement and then anything that's allowable after
that, the language was changed so maybe I need to let you read --
I'm sorry, this came in just 20 minutes ago, so you haven't really
seen this language. It is what we talked about and the language is
changed since the earlier version you saw and now it reads so that
all the uses in the statute -- those paragraphs you may be familiar
with -- are subject to being paid for by PFCs."
Number 0248
MR. PARKAN commented that he didn't know how the concerns he had
previously expressed would apply to the proposed amendment inasmuch
as he had not had the opportunity to review it. However, he did
point out the passenger facility charge would be $3.00 not $6.00 as
Representative Ryan had previously indicated because the collection
is based on an enplanement.
REPRESENTATIVE RYAN replied it had been explained to him that there
was a $3.00 charge which could be applied to two landings during a
trip.
MR. PARKAN said that was correct - it's up to two enplanements -
two airports can collect it; not twice at one airport. In other
words in the instance of an individual traveling from Anchorage to
Seattle to another destination, Anchorage if it had PFCs could
collect it and Seattle could collect it, but no airport beyond
would be able to collect it. And on the return, it's the last two
enplanement areas, so Seattle would be able to collect it, but not
Anchorage because it's a deplanement spot on the return.
CHAIRMAN COWDERY noted that Ross Kinney from the Department of
Revenue wished to make some comments.
Number 0272
ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of
Revenue, commented, "Just listening to the discussion, one thing
comes to mind I think the committee certainly ought to be aware of
and that simply is the fact that where we talk about the purpose of
redeeming before they're fixed maturities on these bonds, there are
a couple of things you need to know. With language like this
included in the statute, it would require that we not have a no
call period in this bond issue for what we would normally consider
a period of ten years which would give the investor an assurance
that we're not going to call in the bonds early. Because if we
don't give that assurance, the interest rates go up because the
investor looks at it from a risk/reward situation and say the risk
is, this thing is going to be jerked out from under me; it's going
to be called and paid early and therefore, I want a premium for
that. So my preference would be with the facilities charge that we
not mention about calling early - that we just say it applies to
the debt service. And then based on interest rate situations, it
would dictate whether or not we want to pay it off early or whether
we can earn more money with the facility charge by sitting in that
fund and apply it to some other thing. If we're borrowing money at
3 and 4 percent, the rates change and go to 6 and this is not
arbitrage because it's a fee and we're not restricted on that kind
of a limitation, then we could take those interest earnings, apply
it to the debt or whatever. So, I just caution you about that.
This would give a potential investor some concern - we will pay a
premium on the rates as a result of that."
Number 0293
REPRESENTATIVE MULDER asked what Mr. Kinney's guesstimate is of the
premium we've paid? He noted this could be a significant factor in
driving the cost up, but he didn't know what that translates to in
bases points.
MR. KINNEY said inasmuch as he really didn't know, he was hesitant
to respond, but agreed that Representative Mulder was correct in
that it could be a substantial number and it's certainly based on
what the risk is perceived to be. He remarked he could do some
work on it and probably get a number.
REPRESENTATIVE MULDER said, "It's an easy concept to understand in
the sense that it's very difficult to get somebody to buy an
instrument knowing you're only going to get a 3.5 percent or 3.8
percent return, but you'll do it if you know there's some security
for longevity. But if we take that security away, obviously the
value of that instrument is diminished."
Number 0307
MR. KINNEY noted this is a tax exempt mortgage, so there may be
income tax consequences for some individuals if they can't reinvest
this in the same kind of a vehicle.
Number 0314
CHAIRMAN COWDERY suggested that Amendment 1 be withdrawn and allow
the Finance Committee could address this issue.
Number 0320
REPRESENTATIVE MULDER withdrew Amendment 1. There being no
objection, Amendment 1 was withdrawn.
Number 0322
REPRESENTATIVE MULDER made a motion to adopt Amendment 2.
CHAIRMAN COWDERY asked Mr. Pignalberi to explain Amendment 2.
Number 0324
MR. PIGNALBERI said Amendment 2 requires the department to submit
a spending plan to the legislature. If the bonds are sold in the
aggregate amount of $180 million, the department will have that
much money to spend with no further oversight necessarily by the
legislature. This amendment will require that each year the
department simply present their spending plan for the following
year to the legislature; not for appropriation-type approval, but
simply for the matter of accountability so the legislature can see
during the course of the four-year construction period how much
work is going to be done and how much money would be spent.
Number 0335
REPRESENTATIVE MULDER said even though this is done annually, it's
easy for it to get lost in the department's overall budget and
thought this was a smart approach. Additionally, he said it
addresses one of the concerns expressed in terms of it being a
concept as opposed to a real plan.
Number 0343
REPRESENTATIVE RYAN agreed this was a good idea, but said his only
concern was in terms of what action would be taken when the
department indicated that inflation had eaten up the original cost
and additional funds were needed to finish the project.
MR. PIGNALBERI commented that could happen with or without this
amendment.
CHAIRMAN COWDERY asked if there was objection to Amendment 2.
There being none, Amendment 2 was adopted.
Number 0354
REPRESENTATIVE MULDER made a motion to move HCSHB 432(ITT) from
committee with individual recommendations and attached fiscal
notes.
Number 0357
REPRESENTATIVE RYAN objected.
REPRESENTATIVE PETE KOTT pointed out the motion should be amended
because the committee was not moving a house committee substitute,
but rather a house bill, as amended.
REPRESENTATIVE MULDER amended the motion to move HB 432, as amended
with individual recommendations and attached fiscal notes.
Number 0363
REPRESENTATIVE RYAN said based on the testimony that's been given,
the questions asked about the source of revenue, where the
passengers will come from to pay for this and the pro forma which
showed the money the international fund has made, he suggested this
go back to the drawing board for additional thought and
consideration.
Number 0377
REPRESENTATIVE ELTON expressed his support for the legislation. He
said this legislation is for revenue bonds, it's passed the
ultimate market test and it was taken to the users of the facility
who are actually going to pay off the facility that is constructed.
He was reminded of the debate in Southeast Alaska some 30 years ago
in which some people believed that airports were not needed in
Petersburg, Wrangell and Sitka because the PBY aircraft was
satisfactorily serving those communities. The investment made in
those airports made a significant difference in the economy of
those communities and he was of the opinion that reinvestment
should be made in some of those assets. He said his only question
is whether new authority or new capacity of $180 million is enough.
Number 0390
REPRESENTATIVE REGGIE JOULE commented he would vote to move this
bill from committee knowing that it would get further work in the
Finance Committee. It is his observation that when there are big
issues that need to get taken care of outside of the urban areas,
a task force or a commission is created, while the big projects for
urban areas receive an appropriation. There is no question in his
mind that the work needs to get done at the Anchorage International
Airport, but there's also no question about the needs of some of
the other projects outside urban areas.
Number 0403
REPRESENTATIVE KOTT expressed his appreciation to Chairman Cowdery
and his staff for their work on HB 432. He believed much of the
ground work had been covered that other committees will be
interested in and encouraged the other committees to review the
minutes of this committee.
CHAIRMAN COWDERY stated it was his intention to draft a
comprehensive report for the next committee of referral.
Number 0413
CHAIRMAN COWDERY asked for a roll call vote. Representatives
Elton, Joule, Kott, Mulder and Cowdery voted in favor of moving the
bill. Representative Ryan voted against it. Representative
Phillips was absent. Therefore, CSHB 432(ITT) moved from the House
Special Committee on International Trade and Tourism by a vote of
5-1.
ADJOURNMENT
Number 0416
CHAIRMAN COWDERY adjourned the House Special Committee on
International Trade and Tourism at 4:38 p.m.
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