Legislature(1997 - 1998)
04/28/1997 01:15 PM House TRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE TRANSPORTATION STANDING COMMITTEE
April 28, 1997
1:15 p.m.
MEMBERS PRESENT
Representative Bill Williams, Chairman
Representative Beverly Masek, Vice Chairman
Representative John Cowdery
Representative Jerry Sanders
Representative Kim Elton
Representative Al Kookesh
OTHER HOUSE MEMBERS PRESENT
Representative Tom Brice
MEMBERS ABSENT
Representative Bill Hudson
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 25
Supporting enhancement of visitor access to Denali National Park
and Preserve through development of a northern railroad route
corridor access to the vicinity of Wonder Lake.
- MOVED SJR 25 OUT OF COMMITTEE
*HOUSE BILL NO. 210
"An Act relating to the extension of contracts for the sale and
delivery of inbound merchandise at international airports."
- MOVED HB 210 OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: SJR 25
SHORT TITLE: SUPPORT ACCESS TO DENALI/WONDER LAKE
SPONSOR(S): SENATOR(S) WILKEN, Sharp, Miller, Taylor, Pearce;
REPRESENTATIVE(S) Brice
JRN-DATE JRN-PG ACTION
04/01/97 917 (S) READ THE FIRST TIME - REFERRAL(S)
04/01/97 917 (S) TRA
04/10/97 (S) TRA AT 1:30 PM BUTROVICH ROOM 205
04/10/97 (S) MINUTE(TRA)
04/15/97 (S) TRA AT 1:30 PM BUTROVICH ROOM 205
04/15/97 (S) MINUTE(TRA)
04/15/97 (S) MINUTE(TRA)
04/16/97 1160 (S) TRA RPT 3DP
04/16/97 1160 (S) DP: WARD, GREEN, WILKEN
04/16/97 1160 (S) ZERO FISCAL NOTE (TRA)
04/22/97 (S) RLS AT 10:45 AM FAHRENKAMP RM 203
04/22/97 1384 (S) RULES TO CALENDAR 4/22/97
04/22/97 1427 (S) READ THE SECOND TIME
04/22/97 1427 (S) ADVANCED TO THIRD READING UNAN CONSENT
04/22/97 1428 (S) READ THE THIRD TIME SJR 25
04/22/97 1428 (S) COSPONSOR(S): TAYLOR, PEARCE
04/22/97 1428 (S) PASSED Y18 N1 A1
04/22/97 1432 (S) TRANSMITTED TO (H)
04/23/97 1284 (H) READ THE FIRST TIME - REFERRAL(S)
04/23/97 1284 (H) TRANSPORTATION
04/23/97 1309 (H) CROSS SPONSOR(S): BRICE
04/28/97 (H) TRA AT 1:45 PM CAPITOL 17
BILL: HB 210
SHORT TITLE: AIRPORT DUTY-FREE CONCESSIONS
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG
JRN-DATE JRN-PG ACTION
03/25/97 827 (H) READ THE FIRST TIME - REFERRAL(S)
03/25/97 827 (H) TRANSPORTATION, L&C
04/28/97 (H) TRA AT 1:45 PM CAPITOL 17
WITNESS REGISTER
SENATOR GARY WILKEN
Alaska State Legislature
State Capitol, Room 510
Juneau Alaska 99801-1182
Telephone: (907) 465-3709
POSITION STATEMENT: Sponsor testimony on SJR 25.
BILL PERHACH
P.O. Box 34
Fairbanks, Alaska 99755
Telephone: (907) 683-1373
POSITION STATEMENT: Testified against SJR 25.
JOSEPH FIELDS
P.O.Box 71047
Fairbanks, Alaska 99707
Telephone: (907) 451-7906
POSITION STATEMENT:
REPRESENTATIVE NORMAN ROKEBERG
Alaska State Legislature
State Capitol, Room 24
Juneau, Alaska 99801-1182
Telephone: (907) 465-4954
POSITION STATEMENT: Sponsor testimony on HB 210.
SAM S. KITO III, Legislative Liaison/Special Assistant
Office of the Commissioner
Department of Transportation and Public Facilities
3132 Channel Drive
Juneau, Alaska 99801-7898
Telephone: (907) 465-3904
POSITION STATEMENT: Testified neither in favor nor against HB 210.
LYNN KLASSERT, General Manager
David Green Group
P.O. Box 220687
Anchorage, Alaska 99522-0687
Telephone: (907) 249-7229
POSITION STATEMENT: Testified in favor of HB 210.
RICK BENEDETTI, Representative
David Green Group
P.O. Box 200687
Anchorage, Alaska 99522-0687
Telephone: (907) 249-7228
POSITION STATEMENT: Testified in favor of HB 210.
ELIZABETH HICKERSON, Assistant Attorney General
Transportation Section
Civil Division
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage Alaska 99501
Telephone: (907) 269-5100
POSITION STATEMENT: Provided testimony on HB 210.
ASHLEY REED, Lobbyist
David Green Group
360 West Benson Boulevard, Suite 200
Anchorage, Alaska 99503
Telephone: (907) 562-2560 or 321-2449
POSITION STATEMENT: Provided testimony in support of HB 210.
ACTION NARRATIVE
TAPE 97-25, SIDE A
Number 0001
CHAIRMAN BILL WILLIAMS called the House Transportation Standing
Committee to order at 2:15 p.m. Members present at the call to
order were Representatives Williams, Sanders, Elton and Kookesh.
Representative Masek arrived at 2:11 p.m.; and Representative
Cowdery at 2:30 p.m. Representative Hudson was absent.
SJR 25 - SUPPORT ACCESS TO DENALI/WONDER LAKE
Number 23
CHAIRMAN WILLIAMS announced the first order of business to be SJR
25, "Supporting enhancement of visitor access to Denali National
Park and Preserve through development of a northern railroad route
corridor access to the vicinity of Wonder Lake." He asked Senator
Wilken to present the bill.
Number 71
SENATOR GARY WILKEN, Alaska State Legislature, stated: "That as a
40 year plus Alaskan resident, one of the things that has
embarrassed me terribly is that when we ask people to come to
Alaska and we ask them to see our natural beauty and we promise
them Mt. Mckinley, they come with a promise of a mountain and what
we show them is a canyon. We show them a six hour bus ride - a
school bus ride - and the chances are one of three that they'll see
the most grand mountain on the North American Continent." The
northern railway would bring people in an environmentally friendly
way to Wonder Lake and to the best viewing place for Mt. McKinley.
There were 16 different organizations that had endorsed this
concept as a northern viewpoint and access to Mt. McKinley. He
encouraged full support of this legislation.
Number 323
BILL PERHACH was the first person to testify in Juneau. He was a
resident of the community adjacent to Denali Park, had lived there
since 1977, and had worked in the tourism industry since that time.
For fourteen years he had worked with the package tour cruise ship
industry and for the last six years he had been working with the
eco-tourism market. He was against the railroad.
Number 378
MR. PERHACH referred to page 1, line 6, "chance to encounter
wildlife". There was not much "watchable" wildlife there. The
park and the original wildness designated portion traverses a
series of valleys and the road was intended to be a tourist draw.
Trains did not lend itself to watching wildlife because they could
not be stopped at every turn. The train proposed was a high speed
train - 40 to 45 miles per hour - to move the people into the area
to see the mountain. The mountain was more visible on the south
side of the range; the weather was less harsh, so that would be the
place for development.
Number 565
MR. PERHACH referred to page 1, line 12-13, "lack of facilities at
these areas are major obstacles to enhancing the wilderness
experience". There was a wilderness designated portion of the park
that did not have many facilities to give a wilderness experience.
The plan for the south side development project was going to
address the idea of development. Mt. Mckinley was more visible
from the area of Petersville Road.
MR. PERHACH referred to page 2, line 5-line 6, "taking advantage of
a long-established and historic transportation route previously
used by the mining industry". the Stampede Trail was used by Earl
Pilgrim but only in the winter time to move ore out on sleds. He
put a road in there in the 1960's but felt that the road in the
summertime would not hold up under his usage. Consequently, he
never transported in the summertime. The road now had gone back to
nature.
Number 756
MR. PERHACH further stated that the project would cost between $280
million to $350 million, having two 300 room hotels. At $100 per
ticket there would not be enough business on the railroad for the
debt service let alone to make a profit.
Number 828
REPRESENTATIVE KIM ELTON stated that he was thinking of this in
terms of the White Pass Railway in Skagway. The experience was not
quantified by the number of animals that was seen but by the
spectacular country that otherwise would not have been seen. He
asked Mr. Perhach who made the decision of what was financially
viable or not; and, did the numbers include the cost of the right-
of-way?
Number 904
MR. PERHACH replied they were asking for the right-of-way and for
the building site at the wonder lake station. They were willing to
work on a concession but they were not buying the right-of-way;
they were asking for it to be given to them.
REPRESENTATIVE ELTON stated that cost of $50 million was just for
the construction of the rail line.
MR. PERHACH stated that it was the construction of the rail line,
rolling stock, hotels, and infrastructure to maintain the products.
If something was build on the south side of Denali, there would be
access to the road system and power and to the existing railroad
which was not being used to its maximum capacity. The package tour
market did not think that they were going to be able to supply the
500,000 additional guests that the railroad was going to depend on.
The package cruise ships industry was not trying to sell Denali
Park; they were selling time on a ship.
Number 1081
SENATOR WILKEN stated that the meteorological viewing days from the
north side of the mountain were double the meteorological viewing
days from the south side. He asked Mr. Perhach what was an eco-
tourism operator?
Number 1130
MR. PERHACH replied that it could be defined in terms of the
clientele. People that came here on eco-tours had already been to
Alaska once and now they wanted to see a lot of a little rather
than a little of a lot. Eco-tourists were more interested in the
hands-on experience of participating in the environment.
Number 1157
SENATOR WILKEN asked Mr. Perhach if it would be possible to develop
both the south-side and the north-side?
Number 1200
MR. PERHACH replied, "Yes." But Denali Park to him was not just a
way to make a living. In addition, over the years, there had been
a gradual decline in viewing wildlife. If the south side was
developed, the wilderness designated portion of the park would have
to be left alone.
Number 1277
JOE FIELDS testified next via teleconference in Fairbanks. The
mayors of Denali, Fairbanks-North Star, Haines, city of Fairbanks,
Seward, municipality of Anchorage, city of North Pole, and Matsu-
Susitna had all signed resolutions of endorsement of the north-side
access to the park and to the Denali railway concept. The
determined cost was at about $185 million for the rail system and
$60 million for the two hotels. The market projections were about
525,000 people into the park on a yearly basis. There would not be
any development inside the wilderness portion of the park. The
cost for the south-side was proposed as publicly funded
development. The rail line was a plan to take a large number of
people in a comfortable and safe form of visitation into the
interior of the park to the area by wonder lake - a good stable
area that could be developed without having a great impact. The
area was already developed with cabins and forest ranger stations.
Number 1591
SENATOR WILKEN asked Mr. Fields if he would speak to Healy being
the terminus of the plan in regards to its proximity to the
railroad, parks highway, and electric power?
Number 1602
MR. FIELDS stated that it was a little bit north of Healy, about
two miles from the new power plant - 300 feet vertical from the
parks highway. It was all outside the wilderness area. The Healy
area had good access from two different roads, one which was
proposed to be built along side the right-of way to the rail
junction.
Number 1692
REPRESENTATIVE JERRY SANDERS moved that SJR 25 move from the
committee with individual recommendations and the attached zero
fiscal note. There was no objection, SJR 25 was so moved from the
House Transportation Standing Committee.
HB 210 - AIRPORT DUTY-FREE CONCESSIONS
Number 1697
CHAIRMAN WILLIAMS announced the next order of business to come
before the House Transportation Standing Committee was HB 210, "An
Act relating to the extension of contracts for the sale and
delivery of inbound merchandise at international airports."
Number 1729
REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, explained
HB 210 would give the authority to the Department of Transportation
and Public Facilities (DOT/PF) to grant a lease extension to a
lease holder for areas which were for sale and delivery of inbound
merchandise. At one point as much as $100,000 million in gross
revenues were produced by the duty free ports at the Anchorage
International Airport, with annual receipts back to the state in
excess of $19 million. However, because of the change in air
traffic, there was a period when Anchorage was skipped as part of
the passenger refueling and servicing destinations for the
international traffic between Europe and the Orient. The traffic
was picking up again and it was to the benefit of the state of
Alaska to enhance the revenues of the Alaska International Airports
Systems - Anchorage and Fairbanks. It was necessary for the
concessionaires to make substantial lease holding improvements to
the premises in the international terminal in Anchorage in order to
merchandize some of the world-class merchandise. As a result, they
were asking for an extension of their lease to enable them to
amortize the cost of several millions of dollars worth of
improvements. Anchorage was in the middle of the flight patterns
competing with New York City, Hong Kong, and Seoul - all with vast
duty free shops. The bill would enhance the revenues to the state
and it was critical that the best interest of the state be served.
Number 1948
REPRESENTATIVE ELTON asked Representative Rokeberg what had been
the practice of time for the contracts?
REPRESENTATIVE ROKEBERG replied that it had been for four years and
eleven months. There was a Federal Aviation Agency (FAA)
regulation that mandated certain activities at international
airports be limited to five years because the federal government
wished to have economic opportunity or consideration of minority
participation in lease hold interests at these types of
concessions. The Alaska group did have substantial ownership by
minority people. Renewal options were common but they depended on
market conditions.
Number 2071
SAM S. KITO III, Legislative Liaison/Special Assistant, Office of
the Commissioner, Department of Transportation and Public
Facilities, was the next person to testify in Juneau. The
department had submitted a zero fiscal note for this piece of
legislation. The department's position was neither in favor nor in
opposition to the legislation. It was his understanding that the
bill was not retroactive.
Number 2122
REPRESENTATIVE ROKEBERG asked Mr. Kito III if his prospective
opinion was based on a legal opinion?
Number 2130
MR. KITO III replied he would defer it to the Department of Law.
Number 2140
LYNN KLASSERT, General Manager, David Green Group, testified next
via teleconference in Anchorage. The Alaska location competes for
a market share with many Asian Airports. The group took over the
concession in 1995, when revenues were at $17 million verses $100
million in 1988. The group had invested $1.5 million in trying to
find out the needs of their customers - mostly Korean and Chinese.
The facility needed to be improved and the group was willing to
spend the money to bring it up to recapture the market share.
However, to invest the money, the group needs a longer period to
receive the investment back. The group had increased its staff
from 25 to over 80 employees, but the growth would not come without
enhancements to the assets. The group would like an extension that
would meet the needs of the capital improvement so everyone could
benefit.
Number 2386
RICK BENEDETTI, Representative, David Green Group, testified next
via teleconference in Anchorage. The contract exemption should
apply to the existing contract. This type business was competitive
and moved forward quickly. Waiting could cause a missed
opportunity.
Number 2421
REPRESENTATIVE ROKEBERG asked Mr. Klassert if the transition
situation of being recruited by the state to take over could be
addressed?
Number 2432
MR. KLASSERT replied that Mr. Benedetti and himself prepared the
business plan to try and qualify themselves and to find investors
to work with them. They were both employed by the former operator
- Duty Free Shoppers Limited. The state had put it up for bid and
they qualified on the fourth go around.
TAPE 97-25, SIDE B
Number 0008
ELIZABETH HICKERSON, Assistant Attorney General, Transportation
Section, Civil Division, Department of Law, testified next via
teleconference in Fairbanks. She was concerned how the bill
applied to the existing contract and the retroactivity. It was an
exclusive contract for a competitive situation. There were two
other bidders that did bid on the contract. The airport
regulations required that the terms and conditions of all
competitive bids be publicly noted. The invitation to bid provided
that the contract terms were not negotiable. There was a major
section on disclaimer. There would be litigation, if there was an
attempt to extend the existing contract. The last bid was in fact
litigated up to the supreme court. Today, there were six
interested parties including the existing concessionaire. The
interest was there and the market place was watching. She was
concerned about legislation that would only apply to the David
Green Group contract. She was also concerned about the issue of
competitive principles. Today, she was asking that the legislature
be very cautious when applying the bill to the existing contract
because it would break the non-negotiable terms promise that the
state made in 1995 when it offered the bid to the public.
Number 125
REPRESENTATIVE ELTON stated, according to AS Sec. 02.15.091 (d),
one of the factors of consideration was the character and
improvements of the proposed facilities. He asked Ms. Hickerson if
that would apply to improvements made by the old lease holder; or,
to prospective improvements that any lease holder would plan on
making?
MS. HICKERSON replied the state could structure a bid that was
based on future improvements. The David Green Group took existing
fixtures left by the previous concessionaire.
Number 185
REPRESENTATIVE ELTON stated the provision in the bill would give
the Department of Law the ability to say that any extension of the
existing contract could be questionable and that the it could be
denied based on advise from the department in regards to her
concern of retroactivity.
MS. HICKERSON stated she saw an extension awarded after a bid to be
inconsistent with the principles of competitive bidding.
Number 240
REPRESENTATIVE ROKEBERG asked Ms. Hickerson, in light of the North
Star activity in the Nineteenth Alaska State Legislature, wasn't it
the right of the legislature to set the policy of the state? For
example, HB 210 would give the department the latitude to
renegotiate an existing lease or concession.
Number 253
MS. HICKERSON replied the department had looked at the North Star
lease and had concerns about the position of the state. There were
many differences between the North Star lease and the duty free
lease, however. The duty free lease was a short-term concession
contract based on a percentage of revenue. It was very different
from the development of state resources.
Number 295
REPRESENTATIVE ROKEBERG asked Ms. Hickerson if the bill would give
authority to the department to renegotiate the existing lease? In
other words, the intention of the bill.
Number 304
MS. HICKERSON replied the wording would give the state the ability
to provide an extension to the duty free contract. The provision
did not contain a retrospective section. The state could provide
for an extension in a new bid packet such as a three year term with
options.
Number 363
ASHLEY REED, Lobbyist, David Green Group, was the next person to
testify in Juneau. He also served as the lobbyist for Duty Free
Shoppers Limited - the previous concessionaire. It was ironic that
the state was pleased that it had 6 people interested in the up and
coming bid package when the last time there were 23 people
interested and it could not get anybody to bid the first two times.
It was also ironic that at one time the concession produced about
$19 million for the state when retail sales did not even approach
that amount now. The bill offered a very valuable economic
development tool to stay competitive. As Ms. Hickerson indicated,
you could write options in a bid, but it was such a rapidly
changing business that nobody had a perspective into the future.
The David Green Group felt that if it was allowed to make this type
of investment, and to make its case to the state, that the state
would find it to be in its best interest. Right now, the group had
surpassed the minimum payments required and were paying on a
percentage. The concession was a state asset and its value should
be of concern to the state and to the legislature. The big
companies were not interested in the concession because it did not
hit their revenue threshold. But, if we could increase revenues
and the active participation of the bid process, it would be in the
best interest of the state ultimately. Some lawyers argued that HB
210 was not needed to move forward but it would provide a tool for
the state whether it was looked at retroactively or perspectively.
Number 504
REPRESENTATIVE ROKEBERG announced that he respectfully disagreed
with the opinion of Ms. Hickerson. It was deja vu in regards to
the airport leasing regulations.
Number 525
REPRESENTATIVE ALBERT KOOKESH stated he was comfortable with the
bill because of the language "may" and "determines". Ms. Hickerson
was looking into the bill a little bit more than she should. It
was a tool.
REPRESENTATIVE KOOKESH moved that HB 210 move from the committee
with individual recommendations and the attached fiscal note.
There was no objection, HB 210 was so moved from the House
Transportation Standing Committee.
ADJOURNMENT
Number 0563
CHAIRMAN WILLIAMS adjourned the House Transportation Standing
Committee meeting at 3:15 p.m.
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