Legislature(1997 - 1998)
02/24/1997 01:08 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE TRANSPORTATION STANDING COMMITTEE
February 24, 1997
1:27 p.m.
MEMBERS PRESENT
Representative Bill Williams, Chairman
Representative Beverly Masek, Vice Chairman
Representative Jerry Sanders
Representative Kim Elton
Representative John Cowdery
Representative Bill Hudson
MEMBERS ABSENT
Representative Al Kookesh
COMMITTEE CALENDAR
HOUSE BILL NO. 55
"An Act relating to the fiscal operations of the Alaska Railroad
Corporation and to land acquired by the State of Alaska under the
Alaska Railroad Transfer Act of 1982 or otherwise acquired for
railroad purposes; and providing for an effective date."
- MOVED CSHB 55(TRA) OUT OF COMMITTEE
HOUSE BILL NO. 63
"An Act extending the motor fuel tax exemption for fuel sold for
use in jet propulsion aircraft to fuel used in those aircraft for
flights that continue from a foreign country; and providing for an
effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 55
SHORT TITLE: ALASKA RR BUDGET AND LAND
SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT
JRN-DATE JRN-PG ACTION
01/13/97 42 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 42 (H) TRANSPORTATION, FINANCE
01/15/97 78 (H) STA REFERRAL ADDED
02/05/97 (H) TRA AT 1:00 PM CAPITOL 17
02/05/97 (H) MINUTE(TRA)
02/10/97 (H) TRA AT 1:00 PM CAPITOL 17
02/10/97 (H) MINUTE(TRA)
02/17/97 (H) TRA AT 1:00 PM CAPITOL 17
02/17/97 (H) MINUTE(TRA)
02/19/97 (H) TRA AT 1:00 PM CAPITOL 17
02/19/97 (H) MINUTE(TRA)
02/24/97 (H) TRA AT 1:00 PM CAPITOL 17
BILL: HB 63
SHORT TITLE: AVIATION FUEL TAX EXEMPTION
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT, Davies, Kelly, Brice
JRN-DATE JRN-PG ACTION
01/13/97 48 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 48 (H) TRANSPORTATION, FINANCE
01/22/97 126 (H) COSPONSOR(S): DAVIES
02/12/97 (H) TRA AT 1:00 PM CAPITOL 17
02/12/97 (H) MINUTE(TRA)
02/12/97 325 (H) COSPONSOR(S): KELLY
02/17/97 (H) TRA AT 1:00 PM CAPITOL 17
02/17/97 (H) MINUTE(TRA)
02/18/97 388 (H) COSPONSOR(S): BRICE
02/24/97 (H) TRA AT 1:00 PM CAPITOL 17
WITNESS REGISTER
BILL SHEFFIELD, Former Governor
Chairman, Board of Directors
Alaska Railroad Corporation
P.O. Box 107500
Anchorage, Alaska 99510
Telephone: (907) 265-2414
POSITION STATEMENT: Testified against HB 55.
PATRICIA DUNN, Vice President
Finance and Administration
Alaska Railroad Corporation
P.O. Box 107500
Anchorage, Alaska 99510
Telephone: (907) 265-2516
POSITION STATEMENT: Testified on HB 55.
RICHARD CURTIN, General Counsel
Petrostar, Inc.
201 Arctic Slope Avenue
Anchorage, Alaska 99518
Telephone: (907) 344-2661
POSITION STATEMENT: Testified on HB 63.
TRENT CARBAUGH, Director
Aviation Marketing
Petrostar, Inc.
201 Arctic Slope Avenue
Anchorage, Alaska 99518
Telephone: (907) 344-2661
POSITION STATEMENT: Testified on HB 63.
ACTION NARRATIVE
TAPE 97-11, SIDE A
Number 001
CHAIRMAN BILL WILLIAMS called the House Transportation Standing
Committee to order at 1:27 p.m. Members present at the call to
order were Representatives Masek, Hudson, Elton, Sanders and
Williams. Representative Cowdery arrived at 1:35 p.m.
Representative Kookesh was absent.
HB 55 - THE ALASKA RAILROAD AND THE EXECUTIVE BUDGET ACT
Number 025
CHAIRMAN WILLIAMS announced the committee would hear House Bill No.
55, "An Act relating to the fiscal operations of the Alaska
Railroad Corporation and to land acquired by the State of Alaska
under the Alaska Railroad Transfer Act of 1982 or otherwise
acquired for railroad purposes; and providing for an effective
date." The committee has heard HB 55 three times now. Chairman
Williams stated it was his intent to adopt and move the bill out of
committee.
Number 099
FORMER GOVERNOR BILL SHEFFIELD, Chairman, Board of Directors,
Alaska Railroad Corporation, testified via teleconference from
Anchorage. Governor Sheffield stated that he had already testified
in the first committee meeting on why the railroad should not be
under the Executive Budget Act (EBA), and why they should not take
half the railroad lands away. Either one of these would cause the
railroad to lose money and would eventually go broke. To put
railroad under the EBA would limit its ability to run the business
for profit. To take away the land which the railroad uses in its
profit picture would be just a way to start to lose money, go
broke, and lose your value of your asset. In addition, Governor
Sheffield wanted to address a couple of things brought up at the
last meeting by Representative Cowdery, regarding the issue of
liability to the state or to the railroad. He stated that the
railroad has a $5 million deductible policy insurance for liability
to third parties with $75 million in coverage after the deductible
is met. The railroad is self-insured up to $5 million for
liabilities to third parties. He stated that there is insurance
for damage to railroad property, $10 million deductible, self-
insured with $5 million in coverage after the deductible. The
deductibles are covered by a $10 million line of credit carried at
the Alaska Bank, and renewed annually. He stated that the limit of
liability is in AS 42.40.500: "A liability incurred by the
corporation shall be satisfied exclusively from the assets or
revenue of the corporation and no creditor or other person has a
right of action against the state because of a debt, obligation, or
liability of its corporation." Governor Sheffield stated that it
is not true that without the $10 million subsidy grant, that the
railroad received from the federal government, the railroad would
have lost money last year. The $10 million goes in and is expensed
right out and has nothing to do with the balance sheet of the
railroad operation. He referred to a letter to Representative
Martin from Pat Dunn, Chief Financial Officer of the railroad
corporation explaining that very position. Governor Sheffield
requested that Ms. Dunn be allowed to testify on the accounting of
the railroad.
Number 548
PATRICIA DUNN, Vice President, Finance and Administration, Alaska
Railroad Corporation testified via teleconference from Anchorage,
at the request of Governor Sheffield. She said, "We receive the
funds and it's initially recorded as cash and deferred revenue. We
have not earned that money yet. As we incur expenses that are
related to that revenue, we incur an equal amount of revenue. So,
in the first year, we had over a million dollars worth of expense
and we had depreciation related to capital assets, which is also
expense, and we had an equal amount of revenue that offset that, so
the net effect, the net income is zero. The $8 million that you
saw as net income on the financials this year, is as a result
purely of the railroad and real estate operation."
Number 632
GOVERNOR SHEFFIELD restated that to put the railroad under the EBA
would be bad for business. He stated that both Alaska Housing
Finance Corporation (AHFC) and Alaska Industrial Development and
Export Authority (AIDEA) were placed under the EBA, but the
railroad is different. The railroad is "rolling company and we're
moving freight." The railroad needs to be flexible enough to run
a business and be responsive to the customers. He stated that the
other part of the bill was to take away the land which would take
away half the profit. In the five year projection, the income is
projected to increase every year from freight and passenger revenue
on the transportation side as well as the real estate. He stated
that they work hand and hand, without one you don't have the other.
The railroad needs all the land to make this work and all the land
is not being used right now. He stated that although the railroad
has an aggressive program to lease out the land not all of it is
leased. We have about $700,000 worth of income to municipalities
of land yet to lease out. He said we have some land up around
Hurricane, up north about 10,000 acres which may not be leased for
a long time because there is not a lot going on up there. The
railroad needs to protect itself regarding these lands. He stated
that the railroad is very benevolent to municipalities. Governor
Sheffield spoke further of the status of the land and the fact that
the railroad is able to give land away for $1 a year to parks and
do things with it that the private sector is not able to do. The
railroad is not subsidized by state government. A month ago, in a
joint meeting of the House Transportation Standing Committee and
the Senate Finance Standing Committee, the Speaker of the House
stated that the Railroad is subsidized because the railroad does
not pay corporate taxes, doesn't pay property taxes on land, and
doesn't pay for the licenses. He stated that the railroad does pay
for half the licenses. Governor Sheffield stated that the railroad
does a lot of benevolent things around the state. The railroad has
a strategic outlook and he will bring copies after being approved
by the board of directors. The railroad is regulated by
performance audits yearly, financial audits yearly, annual
statements, five year capital budget, five year operational budget,
and projections. All of this is reported to the board. He stated
that the railroad is run well and is responsive to Alaskans and
will continue to improve the asset. The railroad put over $120
million back into the assets since it was purchased by state. He
stated that the railroad has made money 9 years out of the last 12
years and is now making record earnings. He stated that there is
a long range plan to buy locomotives. A couple years ago the
railroad bought and paid off hopper cars and passenger cars.
Governor Sheffield stated that the railroad has remodeled and
rehabilitated locomotives. He stated that this year, the railroad
is putting in state of art communications systems with Global
Positioning System (GPS), a new microwave relay which helps the
state in its communication efforts on the railbelt from Anchorage
to Fairbanks. The railroad will be the first railroad in the
country to be upgraded to the new standards of the Federal Railroad
Administration (FRA). He stated that the railroad has good
management people, 500 employees, is not state subsidized, does not
have state employees, and is not under the state retirement
program. The legislature and the administration in 1984 and 1985
went to a lot of trouble and money to make sure the railroad would
turn a profit and be responsible to Alaskans and keep it state
owned. He stated that the railroad is run like a business and is
profitable. The railroad is able to respond to customer needs.
The railroad is a real part of the economic picture of the state.
Governor Sheffield then asked how the railroad could be more
responsive to the legislature without putting the railroad under
the EBA or without taking away its land.
Number 1246
REPRESENTATIVE KIM ELTON referred to page 2, line 3, which deletes
the word "exclusively". He asked if the state would incur
liabilities by moving the railroad corporation under the EBA by
eliminating the word exclusively.
Number 1285
GOVERNOR SHEFFIELD replied yes, more control equals more liability,
in a general sense.
Number 1339
REPRESENTATIVE BILL HUDSON made a motion to adopt CSHB 55(TRA)
dated 2/12/97, H version, officially before this committee.
Number 1359
CHAIRMAN WILLIAMS asked if there were any objections, hearing none,
CSHB 55(TRA) was adopted.
Number 1371
REPRESENTATIVE HUDSON stated his belief that the railroad is a more
dynamic system than is normally handled within the EBA. He
believes that this bill is wrong headed because the railroad unlike
the Marine Highway System is a far more dynamic system and he
stated that he is convinced that the EBA could drag the railroad
system down to the point where it wouldn't be able to operate
efficiently. Representative Hudson wondered if there wasn't some
way to make certain that the legislature has a better handle on the
total expenditures without putting this entity within the EBA.
Number 1458
GOVERNOR SHEFFIELD answered a question posed at an earlier meeting
regarding the contractual obligation for freight to the tune of
$200 million for new barges and tugs. He stated that this is not
true, the railroad currently contracts with Crowley to haul freight
from Seattle to Whittier every seven days. The contract with
Crowley will expire next year and the railroad is contemplating a
new contract with a new company. He stated that as Representative
Hudson just pointed out we wouldn't be flexible to do this under
the EBA. The railroad contracts with Crowley now and if we started
with a new company we would have to contract for 5, 10 or 12 years
to get the proper price. That would essentially be obligating the
railroad for $130 million over a 12 year period but the railroad
would make about $60 million. Governor Sheffield stated that these
are the kind of things the railroad does and under the EBA this
type of contract would be hard to do. If the railroad went to
borrow money Governor Sheffield was doubtful the bank would loan
them money. These are the kind of comparisons that are part of the
reason the EBA wouldn't work for the railroad.
Number 1585
REPRESENTATIVE HUDSON made a motion to move CSHB 55(TRA), H
version, out of committee, with individual recommendations, with
zero fiscal notes and asked unanimous consent.
Number 1597
CHAIRMAN WILLIAMS asked if there were any objections.
Number 1606
REPRESENTATIVE ELTON objected and stated that the hottest political
theory of the last decade has been reinventing government. He
stated that the bill "takes away flexibility of the managers, the
bureaucratic equivalent of the medical term "hardening of the
arteries. Its makes accomplishing the mission much much more
difficult. And what I find even more frightening is the impetus
for this isn't from the people that are being served, it is not
from the private sector people that are being served, it is not
from the communities that are being served, what I find frightening
about this is that the impetus is from the politicians. And the
more we mix politics into this operation, I think the more
dangerous the operation becomes so I encourage people to do what I
am going to do and just say no.
Number 1664
REPRESENTATIVE MASEK stated it is important to scrutinize agencies
such as the railroad. She stated that "it is all through public
funding and of course gets federal dollars but currently the way
its set up there is no real across the board scrutiny where you can
get in to have a check and balance system and basically I believe
this bill here is just trying to get that, get more direction as to
where the railroad is going and if they're not doing anything
terribly wrong then they shouldn't be so worried about this bill
because we all talk about accountability and credibility and that's
exactly what I see this bill is doing."
Number 1705
CHAIRMAN WILLIAMS hearing no other comments asked for a roll call
vote. Representative Elton voted against the motion.
Representatives Cowdery, Hudson, Sanders, Masek and Williams voted
in favor of the motion. Chairman Williams stated that the motion
carried. CSHB 55(TRA), H version, was moved out of the House
Transportation Standing Committee, with zero fiscal notes.
HB 63 - AVIATION FUEL TAX EXEMPTION
Number 1743
CHAIRMAN WILLIAMS said the committee would hear HB 63, "An Act
extending the motor fuel tax exemption for fuel sold for use in jet
propulsion aircraft to fuel used in those aircraft for flights that
continue from a foreign country; and providing for an effective
date." He stated that it was not his intention to move this bill
out of committee today.
Number 1763
RICHARD CURTIN, General Counsel, Petrostar, Inc., stated that
probably the committee is familiar with the issues that this bill
seeks to address. There are major changes from last year. The
first and most important was that last year, Trent Carbaugh, the
Director of Jet Fuel Sales, forecast that there would be a steady
and significant movement from air carriers towards buying foreign
manufactured fuel and away from buying fuel manufactured in Alaska.
Half a year later, he stated they are in a position to see that
this has happened and approximately one-half of the fuel that's
being sold to these foreign originated continuing flights is
refined outside of the United States. He stated that the source of
the problem, the Foreign Trade Zone (FTZ), established in
Anchorage, made it possible for carriers to buy fuel tax free.
This action created a choice that hadn't existed before. Fuel can
be bought that doesn't have a tax on it or fuel can be bought that
does have a 3.2 cent tax on it. He stated that this is the
discrimination that Petrostar is fighting against because as things
stand now and as they will stand in the future, fuel made in the
United States is subject to the tax, while fuel not made in the
United States is not. He stated that this is discrimination. It's
discrimination that's unfair and unwise, as a matter of policy, for
a state to discriminate against its own industry. The second part
of the equation is that, besides being unfair, it is unwise, but
also pointless. Its only impact is that people will go elsewhere
and all three of the Alaskan refiners will be seriously injured.
He indicated his belief that everybody in Alaska, save for a few,
are optimistic about the future of the Anchorage airport developing
as an industrial hub. He stated that the market for foreign
originated fuel is going to grow. Leaving this tax on the books
discriminates against Alaskan industry. It means that the industry
will grow but that we as Alaskan refiners will be shut out from the
growth.
Number 1963
REPRESENTATIVE COWDERY asked who they look at as the other
suppliers of jet fuel in the state as major competitors.
Number 1983
TRENT CARBAUGH, Director, Aviation Marketing, Petrostar, Inc.
stated major competitors are Mapco and Tesoro.
Number 1994
REPRESENTATIVE COWDERY asked if it was his opinion that MAPCO and
Tesoro would want this market without the forgiveness of the tax.
Number 2024
MR. CARBAUGH stated that he couldn't speak for other refineries but
for Petrostar he stated that the tax was something they couldn't
pass through because it is an immense expense from their point of
view.
Number 2040
REPRESENTATIVE COWDERY asked if the shipping fees of the foreign
refiners are comparable to Petrostar's shipping fees from Fairbanks
down.
Number 2063
MR. CARBAUGH replied that with all of their costs including
shipping, refining costs, labor costs, capital costs of building
their plants, crude oil costs that they are able to beat Petrostar
out of the market with this tax in place. Because that is what's
happened.
Number 2076
REPRESENTATIVE COWDERY asked about the costs of crude oil and the
theory that crude costs the same all over the world.
MR. CARBAUGH stated that there has been no answer even in
litigation to that question.
Number 2083
REPRESENTATIVE COWDERY asked what impact would this have on the
landing fees if the state decided to forgive the tax.
Number 2104
MR. CARBAUGH explained that it was his understanding that it would
have no affect. Mr. Carbaugh stated that his hope was the same and
that Petrostar would be willing to stand shoulder to shoulder with
the Alaska Air Carriers Association to fight it. There shouldn't
be any affect. If there is going to be one it should occur just by
the revenue going away which is going to happen in any event. He
stated that it would be total injustice to penalize the air
carriers as we are being penalized because of the existence of the
FTZ.
Number 2127
REPRESENTATIVE HUDSON asked if we took no action and didn't
consider this at all, would we see a continued growth of the
importation of foreign produced oil, in their capacity, in their
production, in jobs and wherever they're coming from. He stated
that since this is such a large part of Petrostar's market, no
action, would portend less production but not only no growth in
your operations but perhaps a decline, affecting jobs and
associated transport jobs and things of that nature.
Representative Hudson asked is this was a fair assessment.
Number 2158
MR. CARBAUGH stated yes, that was true.
Number 2163
REPRESENTATIVE HUDSON further asked if we do agree to the
elimination or the reduction of a tax we may be encouraging
expanded growth, because you may have a greater share of the market
and maybe stem some of the foreign oil, you may be able to compete
effectively with the foreign produced oil. He asked if that was a
fair assessment.
Number 2178
MR. CARBAUGH stated yes, what that would mean is that as the
market grows, we, rather than the foreign refiners, would
participate in that growth.
Number 2184
REPRESENTATIVE HUDSON then stated that he assumed that it probably
would have some bearing on jobs, the economy and money washed into
the Alaska economy.
Number 2189
MR. CARBAUGH agreed.
Number 2192
CHAIRMAN WILLIAMS asked how many tankers had Petrostar brought into
the FTZ last year and this year.
Number 2203
MR. CARBAUGH responded that Petrostar has not brought in tankers
with foreign fuel. Petrostar's barge arrives at the port of
Anchorage at least twice every month. Sometimes, they, as well as
Mapco and Tesoro, in order to meet the influx, do bring in product
from outside the state, many times from the lower 48. He stated
that at this time, Petrostar does not participate in bringing in
foreign fuel into the port of Anchorage.
ADJOURNMENT
CHAIRMAN WILLIAMS adjourned the House Transportation Standing
Committee meeting at 2:10 p.m.
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