Legislature(1997 - 1998)
04/01/1998 01:15 PM House TRA
| Audio | Topic |
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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
April 1, 1998
1:15 p.m.
MEMBERS PRESENT
Representative William K. (Bill) Williams, Chairman
Representative John Cowdery
Representative Bill Hudson
Representative Jerry Sanders
Representative Kim Elton
Representative Albert Kookesh
MEMBERS ABSENT
Representative Beverly Masek, Vice Chair
COMMITTEE CALENDAR
HOUSE BILL 432
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date."
- HEARD AND HELD
* HOUSE BILL 278
"An Act imposing a reporting requirement on certain sales,
transfers, and consumption or uses of motor fuel, increasing the
motor fuel tax on motor fuel used in and on watercraft, and
authorizing payment of a portion of that tax as refunds to
municipalities; and providing for an effective date."
- HEARD AND HELD
(* 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
3/24/98 (H) MINUTE(ITT)
3/25/98 2734 (H) ITT RPT CS(ITT) NT 2DP 1DNP 3NR
3/25/98 2734 (H) DP: MULDER, COWDERY; DNP: RYAN;
3/25/98 2734 (H) NR: KOTT, JOULE, ELTON
3/25/98 2734 (H) FISCAL NOTE (REV)
3/25/98 2734 (H) ZERO FISCAL NOTE (DOT)
4/01/98 (H) TRA AT 1:00 PM CAPITOL 17
BILL: HB 278
SHORT TITLE: MARINE MOTOR FUEL TAX
SPONSOR(S): REPRESENTATIVES(S) MOSES
Jrn-Date Jrn-Page Action
5/09/97 1717 (H) READ THE FIRST TIME - REFERRAL(S)
5/09/97 1717 (H) TRANSPORTATION, FINANCE
4/01/98 (H) TRA AT 1:00 PM CAPITOL 17
WITNESS REGISTER
RON LANCE, General Manager
United Airlines
P.O. Box 190756
Anchorage, Alaska 99519
Telephone: (907) 218-2625
POSITION STATEMENT: Testified in support of HB 432.
EDWARD MERLIS, Senior Vice President
Air Transport Association
of America
1301 Pennsylvania Avenue, North West
Washington, D.C. 20004
Telephone: (202) 626-4182
POSITION STATEMENT: Testified in support of 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: Provided information on HB 432.
REPRESENTATIVE CARL MOSES
Alaska State Legislature
Capitol Building, Room 521
Juneau, Alaska 99801
Telephone: (907) 465-4451
POSITION STATEMENT: Sponsor of HB 278.
BRYCE EDGEMON, Legislative Assistant
to Representative Moses
Alaska State Legislature
Capitol Building, Room 521
Juneau, Alaska 99801
Telephone: (907) 465-4451
POSITION STATEMENT: Testified on HB 278.
LARRY MEYERS, Director
Income and Excise Audit Division
Department of Revenue
550 West Seventh Avenue, Suite 560
Anchorage, Alaska 99501
Telephone: (907) 269-6620
POSITION STATEMENT: Provided information on HB 278.
DENNIS POSHARD, Legislative Liaison
Office of the Commissioner
Department of Transportation
and Public Facilities
3132 Channel Drive
Juneau, Alaska 99801
Telephone: (907) 465-3904
POSITION STATEMENT: Testified on HB 278.
MORT PLUMB, Director
Anchorage International Airport
Department of Transportation
and Public Facilities
P.O. Box 196960
Anchorage, Alaska 99519-6960
Telephone: (907) 266-2525
POSITION STATEMENT: Testified in support of HB 432.
DAVE EBERLE, Director
Design and Construction, Central Region
Department of Transportation
and Public Facilities
P.O. Box 196900
Anchorage, Alaska 99519-6900
Telephone: (907) 269-0780
POSITION STATEMENT: Testified in support of HB 432.
ACTION NARRATIVE
TAPE 98-15, SIDE A
Number 0001
CHAIRMAN WILLIAM K. (BILL) WILLIAMS called the House Transportation
Standing Committee meeting to order at 1:15 p.m. Members present
at the call to order were Representatives Williams, Cowdery, and
Sanders. Representatives Kookesh and Hudson arrived at an
undetermined time. Representative Elton arrived at 2:55 p.m.
HB 432 - AIRPORT REVENUE BONDS
CHAIRMAN WILLIAMS announced the first order of business is HB 432,
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date."
REPRESENTATIVE JOHN COWDERY sponsor, said, "...authorizing the
International Airport to sell revenue bonds for the expansion of
the Anchorage International Airport to around $179-plus million for
terminal improvements. We've had this bill, we've heard it I think
in five different hearings. ... In Anchorage town, where I'm from,
I think 10 percent of the population of the workforce jobs are
airport-related, it's a very very important bill for not only
Anchorage but all of the Interior of Alaska. ... I would like to
mention that this bill is about a couple of points -- the Governor
had a proposed plan for about $204 million expansion, but during
the hearings one of the questions was asked that if the interest
rate and the bonds fluctuated say 100-points, what would the impact
on the project be in dollars, and I think it came back it would be
about $32 million impact. And then later on another question was
asked that basically said that if the -- fact did that there was a
100-point spread -- went up would there be downsized airport and
the answer was basically, it said that they wouldn't that they had
enough, they felt that they could build the plan with this amount
of funding. And, of course, there's federal highway funds
available to this project as well as I believe some FAA (Federal
Aviation Administration) funds will be available."
Number 0028
RON LANCE, General Manager, United Airlines, came before the
committee and read the following testimony:
"Last year at this time United Airlines had 45 employees in Alaska,
as of today we now have a total of 225 employees living mostly in
Anchorage. This represents a significant investment in the Alaskan
economy as well as our confidence in the State to support our
growth.
"Our present operations are approximately 25 percent passenger-
related and 75 percent cargo-related. It is our intent to expand
our cargo operations in the near future. The present facilities
are inadequate to support further expansion in both areas and needs
to be corrected. From United's perspective, it would have been
helpful if the proposed Anchorage International Airport expansion
plan, which this bill before you today supports, had been passed
three years ago with the facilities coming on-line today.
"Others will testify about the need for the facilities. There is
no question about this need from United's point of view. The
facility at this point simply does not fit the size of the
passenger and cargo traffic going through Anchorage International
Airport.
"It is important to stress the fairness of the process by which the
expansion plans were decided. United is an employee-owned airline
which, as a policy matter, attempts to move decisions down to the
lowest possible level. That same type of policy was followed here.
All of the airlines that were involved had a chance to participate
in the decision-making process.
"The Airport Affairs Technical Committee reviewed the plans and
reduced them from as many as 15 concepts down to one. There was a
lot of give and take during that process and more give and take to
come up with the final plan. In short, everyone hade a say and a
compromised-solution was reached by the airlines that will
ultimately pay for the project.
"This bill needs to move this year. Financial markets could not be
better for the type of proposal we were making. More delay will
result in more triple-parking around gates and problems for
passengers and cargo customers as well. United strongly urges that
the committee move this bill as soon as possible."
Number 0049
REPRESENTATIVE COWDERY asked how many employees do you currently
have.
MR. LANCE replied approximately 225.
REPRESENTATIVE COWDERY asked if he has projections for two, five
and ten years.
MR. LANCE responded United Airlines' plan, as a company, is to
continue to expand in cargo operation. He said if they add another
airplane, you're talking about another 35 pilots in addition to his
ground-personnel which could be 20 or 30 people. The company is
currently looking at that.
REPRESENTATIVE COWDERY asked if he was expanding mostly cargo
business.
MR. LANCE replied primarily cargo. He mentioned they expand their
passenger schedule in the summer and are continuing to evaluate
that. He said everything's pretty maxed out right now.
Number 0058
CHAIRMAN WILLIAMS referred to the consensus among the carriers. He
asked if they all agreed that this should proceed.
MR. LANCE responded that it's not necessarily the case where
everyone agreed. He said he thinks there's certain parts of the
project that some agreed, some disagreed, but as a group, according
to their operating agreement, we agreed to the project. Mr. Lance
noted the carriers that are responsible for 85 percent of the
revenue to the airport supported the project and we're the ones
that have to pay for it.
CHAIRMAN WILLIAMS stated, whether the other carriers like it or not
that's what they're getting.
MR. LANCE remarked that's democracy.
CHAIRMAN WILLIAMS asked how did the vote on the expansion evolve.
MR. LANCE responded he is not as familiar with the voting system as
the people that are on the committee. He said it's his
understanding that nine airlines voted for the project, United was
one of them, there has to be a majority of no-votes for the project
to be pulled, in this cased that did not occur.
REPRESENTATIVE COWDERY reiterated the majority was in favor of an
expansion, some we not in favor of a large expansion.
MR. LANCE replied true.
CHAIRMAN WILLIAMS noted for the record Representatives Kookesh and
Hudson are present.
Number 0081
REPRESENTATIVE JERRY SANDERS asked Mr. Lance if the expansion would
be paid for out of past profits, or are you going to raise prices.
MR. LANCE explained it will come out of their landing fees and
total rent fees that they currently pay to the airport.
REPRESENTATIVE SANDERS asked, future or past.
MR. LANCE replied future.
REPRESENTATIVE SANDERS indicated there would be price raises.
MR. LANCE agreed there are increases in the airlines costs. But
the pricing is still a separate issue because it's strictly supply
on demand. United Airlines costs are going to up but they can't
necessarily meet those costs if the price of the product goes down.
Number 0092
EDWARD MERLIS, Senior Vice President, Air Transport Association of
America, testified in support of HB 432 via teleconference. He
said, "Air Transport Association (ATA) is the principal trade and
service organization of the U.S. Airlines. Our member-carriers
transport approximately 95 percent of the passengers and cargo
flown on U.S. flag carriers. And specifically, our members are
responsible for about 85 percent of the traffic at Anchorage
International Airport. On their behalf I want to express our
strong support for the proposed expansion of Anchorage
International Airport's domestic terminal and urge your favorable
consideration of HB 432."
MR. MERLIS continued, "Airports serve as economic engines for
communities throughout the country and the situation in Anchorage
is no different. By making the kinds of improvements necessary to
bring concourse C up to today's standards, the airport will better
serve the needs of the traveling public and enhance the economic
well-being of Anchorage and Alaska. On March 17 the letter of
endorsement for this legislation was sent to you, Mr. Chairman,
signed by the nine ATA member carriers serving Alaska expressing
their specific support for the legislation in the strongest
possible terms. Let me note, that while this project is not
inexpensive, it is fiscally prudent. Airport capital projects are
subject to a give-and-take between the airport proprietors and the
airlines which use them throughout the country. That results in
scrubbing these projects to pass a business-case type analysis. We
believe that this project certainly passes that test."
MR. MERLIS explained the bonding authorized by the bill will
ultimately be repaid by airport-users, no general fund
appropriations will be necessary for the terminal improvements and
expansion. Mr. Merlis urged the members move expeditiously in
light of the fact that certain federal monies will be more likely
available if the project gets the green light this year than in
future years, what with the continuing constraints on the federal
budget.
Number 0118
CHAIRMAN WILLIAMS asked what happens if the airport is unable to
pay for the bonds.
MR. MERLIS responded, "We believe, as we have seen in other
airports throughout the country, that if an airline were to drop
out, for whatever economic reasons, other airlines would fill the
gap and those revenues brought on by the other airlines would
accommodate the kinds of costs necessary to repay the bonds."
CHAIRMAN WILLIAMS asked, if this drops down to only one airline,
who pays for it.
MR. MERLIS replied they believe Anchorage is not a case of that
kind, it has many airlines serving it because service to Anchorage
is good business. He mentioned Trans. World Airlines is also going
to enter that market, Reno Airlines and America West have entered
the market. Future economics for the industry is bright in Alaska.
REPRESENTATIVE COWDERY said, "I guess the question to you would be
that, if the project wasn't a prudent project, and the bond
community didn't confidence in the ability to pay it back, they
certainly couldn't sell the bonds."
MR. MERLIS replied, certainly, clearly the bond community puts a
kind of due diligence on these things which is very strict, in a
way that's the ultimate test. He said, if the bond community
believes that this can be repaid, we believe that it can be repaid,
that's sort of a safety belt of sorts for you to bear in mind.
CHAIRMAN WILLIAMS stated the worse case scenario would be if the
oil market stayed where it is and we couldn't afford to pump any
more oil, the economy dropped, the airlines will still be here to
pay the bill.
Number 0142
REPRESENTATIVE BILL HUDSON asked is there an economic risk to the
state, out of the general fund.
REPRESENTATIVE COWDERY deferred to the Department of Revenue.
Number 0148
ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of
Revenue, came before the committee to answer questions on the
issuance of bonds. He explained one of the situations that they
will look at, with the respect to the issuance of these bonds, is
credit enhancement. The Department of Revenue will be looking at
the possibility - a high probability that they will be able to
insure this bond issue, take it up to a triple A rating which will
guarantee to the bondholder that payments will be made either by
revenues from the airport, in the event that we don't have an
airport, then the insurance company would pay the bondholders. Mr.
Kinney said they will determine whether or not that's feasible when
they go to market and if the cost of the premium allows them to
reduce the interest rate to the extent that they have a small
profit. Then, in all probability, they will credit-enhance this
particular issue that will provide insurance to make those
payments.
REPRESENTATIVE HUDSON asked if the payment for the bond will be
paid from revenues from the airport, there will be no general fund
monies required.
ROSS KINNEY replied that's absolutely correct. He stated, "One of
the features of the operating agreement of the airport pledges the
revenues derived from landing fees and space rentals within the
terminal, and allows the airport personnel to establish the rates
necessary to meet not only the bond payment to provide bond debt
service coverage at a ratio of 130 percent after all expenses are
paid. And we believe that based on not only the passenger traffic
and the carriers through the airport but the freight as well will
allow us to do that with rates that are extremely competitive with
other airports throughout the country and the world."
REPRESENTATIVE COWDERY referred to Chairman Williams scenario
regarding the collapse of oil prices. He said he believes tourists
will end up paying the largest percentage of the bonds and that
economy is protected growth.
Number 0174
CHAIRMAN WILLIAMS remarked that's a debatable issue. He announced
the committee will come back to HB 432.
HB 278 - MARINE MOTOR FUEL TAX
Number 0181
CHAIRMAN WILLIAMS announced HB 278, "An Act imposing a reporting
requirement on certain sales, transfers, and consumption or uses of
motor fuel, increasing the motor fuel tax on motor fuel used in and
on watercraft, and authorizing payment of a portion of that tax as
refunds to municipalities; and providing for an effective date," is
before the committee.
Number 0186
REPRESENTATIVE CARL MOSES, Alaska State Legislature, presented HB
278. He stated, "HB 278 is almost identical to a bill we passed a
couple years ago, and subsequently the Governor, through probably
poor information, vetoed. It's badly needed, and I don't consider
it a tax, I consider it a user fee. It's designed to help maintain
and build boat harbors that the state badly needs. It never seems
that we get enough money for boat harbors every year. Alone in my
district, we have eight boat harbors and a various status of them
being built, being surveyed, and onto three different projects or
have federal money available now. It's probably still over 50
percent of it is collected in my district, and I maintain over 50
percent of it is paid by nonresident interest. In fact I feel so
strongly that it's needed, I don't mind imposing the user-fee, 50
percent of it which is my constituents. That little raise cost me
$4.5 million, the total we take in now, the five-cent a gallon tax
has been varying from $8 million to $9 million. I might say that
at the present five-cent a gallon tax, in comparison to the overall
cost of fuel to a fisherman or the vessel operator, it's about one-
fifth of the overall cost that it was 30 years ago. In other
words, they're paying less in percentage of their overall cost
today in a tax, it's by one-fifth of what they paid 30-40 years ago
because the price has increased, but the tax has remained the
same."
REPRESENTATIVE MOSES stated, "It's estimated, two years ago, that
our deferred maintenance on boat harbors was $250 million, that's
probably more like $350 million or $400 million today. So, that is
a considerable portion of our deferred maintenance that we're faced
with. And, of course, that's mainly because we haven't budgeted
for it. I think the user-fee, as I call it, is highly justified.
When I was first in the Legislature in 1965, it was standard
practice to appropriate all the money that was taken in with the
marine fuel tax to boats and harbors. And, that's when a lot of
money was provided for boat harbors. We happen to be at the end of
the line, we only have two actual boat harbors that are fully
fledged boat harbors and there isn't any pleasure craft in any of
them. Those two communities now are doubling the size of their
boat harbors, and the federal money is available. In those two
communities, and I don't mind mentioning at Sand Point and King
Cove. They have taken over full title and maintenance to their
boat harbors. That speaks well for them, but they need help to
double the size of theirs. And, of course, you won't see any
yachts or pleasure craft in their boat harbors, they're all fishing
vessels. But they need to double the size because there is a long
waiting list for additional moorage."
REPRESENTATIVE COWDERY said, as he understands it, Representative
Moses wants to refund part of this tax, or all the tax to the
municipalities. He asked would that be through revenue sharing.
REPRESENTATIVE MOSES replied they would have to come up with a
specific plan for a boat harbor facility, or a maintenance plan,
which is approved by the Department of Transportation and Public
Facilities (DOT/PF).
Number 0232
BRYCE EDGEMON, Legislative Assistant to Representative Moses,
pointed out representatives from the Department of Revenue and
DOT/PF are present and can address that in more detail.
REPRESENTATIVE COWDERY asked how do you get around the dedication
of funds, would it have to go into the general fund and then be
allocated to this?
REPRESENTATIVE MOSES replied yes.
REPRESENTATIVE COWDERY asked why did the Governor veto the previous
legislation.
REPRESENTATIVE MOSES stated he is maintaining the Governor must
have had poor information or advice. He stressed that it was badly
needed then and gets worse every year. He said he has no qualms
about changing it. Representative Moses added that he even thought
of having a matching deal, if they raised so much money on a two-
cent a gallon tax, locally through a special ordinance or sales
tax, to having something there where the State would match it.
REPRESENTATIVE MOSES said he believes one way to get around the
dedicated tax, is where it states that the Legislature "may." He
pointed out that back in the 60's it was understood that the amount
of taxes collected will go back toward boats and harbors, but we
slipped away from that and now less than half of it goes to that
purpose. He stressed that the situation gets worse every year.
CHAIRMAN WILLIAMS remarked, but we are paying for it today.
REPRESENTATIVE MOSES replied that's correct.
Number 0246
REPRESENTATIVE HUDSON agreed that the current nickel a gallon was
pledged to the improvements of our ports and harbors years back.
He said, "I don't know how we're going to do it, because I know we
can't go into dedicated funding. But that would be a major step in
the right direction if we could just get the Legislature back to
their pledge of putting that money back into the ports and harbors.
That's where it's collected and that's what it was for. And I know
were just using it for wherever we want to. I also know that the
condition on a statewide basis of our ports and harbors weren't
additional funding consideration. I applaud your bringing this
forward."
REPRESENTATIVE HUDSON asked Representative Moses, in our statute
this is clearly separated from all other fuel taxes, isn't it.
This has no other application except for the marine motor fuel tax.
REPRESENTATIVE MOSES replied that's correct.
REPRESENTATIVE HUDSON asked how does that flow into the general
fund, where is it collected.
REPRESENTATIVE MOSES replied on a wholesale level from the
distributors.
CHAIRMAN WILLIAMS said the committee will be working on this and
hopefully will get help from the department to make it work for
everyone.
Number 0263
LARRY MEYERS, Director, Income and Excise Audit Division,
Department of Revenue, came before the committee. He reiterated
that HB 278 raises the tax on motor fuel from a nickel a gallon to
eight cents. He explained the Department of Revenue will be the
one responsible for collecting it. Currently these motor fuel
returns are filed on a monthly basis and the provision of this bill
requires the department to track where the motor fuel is sold or
eventually used. He indicated that's something that' unique in the
provision. Generally, as was mentioned earlier, the department
collects it once at the wholesale level and is not concerned as to
where it ends up being used.
MR. MEYERS noted additional reporting requirements will be required
on the wholesale, eventually the user. If there are resales, the
department will have to track it through the system as far as how
it's going to be accounted for. Addition paper work will also be
required by the user as well as the Department of Revenue.
MR. MEYERS said they believe they can make it work. He reiterated
that there will be additional reporting requirements. The bill
also provides for a new reporting section that talks about exempt
users, that's something that's unique now, the department hasn't
dealt with that in the past. Mr. Meyers said they think it would
be cumbersome. The people filing the reports on a monthly basis
would have to list whom they sold to on an individual basis for
exemptions. The Department hasn't gone into that much detail in
the past and they don't know if that's the direction they we want
to go in right now, they think that could be a problem. Over all,
other than determining the sites of where the money is going to be
allocated back, this is something that's doable. He concluded that
they're just trying to find a way that makes it most convenient for
both the department and the taxpayer.
REPRESENTATIVE HUDSON asked what percentage of the marine fuel tax
comes from, say the large fisheries' operation out of Dutch Harbor.
Are the larger ships, Seattle-based ships, paying much of the tax?
MR. MEYERS responded he doesn't have that information. He
explained it generally comes in at the wholesale level and is
disbursed throughout the state. If it happens to be consumed at
the locality of where the wholesaler was, then that would be the
department's only estimate.
REPRESENTATIVE HUDSON said because we do collect it from the
wholesaler.
MR. MEYERS replied that's correct.
Number 0289
DENNIS POSHARD, Legislative Liaison, Office of the Commissioner,
Department of Transportation and Public Facilities, came before the
committee. He stated DOT/PF has taken a neutral position on HB
278. The department is supportive of a means of funding harbors
and thinks this is worth looking into. He encouraged the committee
to consider tieing a transfer of the facility ownership in with the
funding, or the refund of the fuel tax, that could possibly reduce
the State's maintenance operations burden as DOT/PF is responsible
for the maintenance and operations and own 79 out of the 95 ports
and harbors in the state.
MR. POSHARD also suggested another consideration might be taking a
look at the allocating of fuel tax revenues to the harbor
facilities that they're prorated in proportion to other things like
replacement values of the facility, the age of the facility, and
other considerations. He said the department is looking at need
versus just usage of the fuel and the allocation methods. He
reiterated they're neutral on the bill and thinks there's other
considerations the committee might want to look at.
CHAIRMAN WILLIAMS asked Mr. Poshard if he knows why it was vetoed
a few years ago.
MR. POSHARD said he believes the Governor vetoed the bill because
there was a long-range financial planning commission looking at
taxes as a whole and the report hadn't come out yet. He indicated
the Governor wanted to look at any new taxes as part of the
comprehensive plan which was stated clearly in his veto letter of
June 30, 1995.
CHAIRMAN WILLIAMS asked DOT/PF to work with his office on the
suggested changes.
MR. POSHARD agreed to.
CHAIRMAN WILLIAMS asked if anyone else wanted to testify.
Number 0314
CHAIRMAN WILLIAMS announced HB 278 will be held for further
consideration.
HB 432 - AIRPORT REVENUE BONDS
Number 0317
CHAIRMAN WILLIAMS announced the committee will continue taking
testimony on HB 432.
Number 0322
MORT PLUMB, Director, Anchorage International Airport, Department
of Transportation and Public Facilities, came before the committee
in support of HB 432. He stated the terminal's existing
deficiencies-need is substantial, and has been carefully documented
by a team of experts who have worked closely with the airlines in
developing solutions to serious problems. The growth of aviation
and related industries is huge on a national and global scale.
MR. PLUMB explained what they're presenting is only a small example
of the challenges facing airports everywhere, updating outdated
facilities and meeting increased need. The plan they are
presenting is conservative in the planning assessments, t's a
phased-approach, planning to the year 2015 but building to the need
of 2005. Mr. Plumb said, "It's fiscally responsible with a plan of
finance that requires no general fund money other than the highway
match. This plan is the product of a close working relationship
with the airlines which resulted in a positive vote for the
project, including, among the domestic carriers - that accounted
for greater than 84 percent of the passengers, and providing more
than 89 percent of the revenue."
MR. PLUMB said Anchorage International Airport is the entry and
exit point for most of the traveling Alaskans, tourists, and
business travelers. The airport is woefully out of balance. The
terminal facilities are unable to support growing air side
activity. He stated we must avoid the continued piecemeal approach
to the airport's needs because it's too expensive and we are losing
valuable ground each year as we fall further and further behind in
meeting our increasing facility needs. He explained the C
concourse is the original facility that was approved by the 80th
Congress in 1948 and construction was in late 1949, and early
1950's. Mr. Plum indicated the airport is currently three airports
in one, over 5,000,000 people past through the airport last year,
it's also a large cargo hub, and arguably it's the international
crossroads of the world, more than 470 airplanes currently land
daily. There is a large general aviation sector including the
world's largest float-plane base.
MR. PLUMB pointed out in the late 80's and early 90's there were
many changes forced on the Anchorage International Airport. He
said they had advanced notice of the long-range aircraft such as
the 747-400, but one of the things that probably caught them
somewhat off guard was in 1989 when the Berlin Wall came down and
the opening up of the former Soviet Union airspace. As a result of
that the international activity that had transited through
Anchorage International Airport, which totaled up to 1.5 million
international passengers and provided over a $118 million in duty-
free gross revenue, which resulted in approximately $17 million to
$18 million net to the airport, declined by 1993 to less than $8
million gross and less than $1 million to the airport, as well as
less than 396,000 passengers. He said that particular event gave
them a chance to look over their assets and challenges.
Number 0356
MR. PLUMB reported Anchorage has an excellent airfield with three
long runways, they provide the home for a lot of tech stops. One
of the challenges they were faced with was how to convert some of
these tech stops into providing more revenue. In 1996 they
received relief from the U.S. Department of Transportation for
cargo transfer flexibilities. Since then, the private-public
partnership has resulted in over $160 million being invested in the
Anchorage International Airport. He noted they were fortunate,
they reported double-digit growth at that time in the cargo sector,
and last month they experienced 110 percent, and account for 6
percent growth in cargo. In 1997 their (indisc.) increase was
about 7 percent with a corresponding 5 percent increase in
landings, in 1998 that has somewhat been flat, but as they see from
1990 to 1997 they have this sawtooth and the mean average of that
has been at least 4 percent over the last seven years.
MR. PLUMB said the reason for giving a little bit of the background
on the international side is that some people today look to the
international terminal as a place where we may want to convert some
of the existing space. He noted they currently have between 50 to
75 international flights going through there a week. In the summer
the charters are increased substantially. About 90 percent of the
space in the terminal is leased today by the cargo ground handlers,
and in the summer it's a home for the tour bags.
Number 0374
MR. PLUMB distributed density pictures that show the use of the
international terminal in the summer. He pointed out the only
external bag area is fairly full, if you can imagine trying to
increase that density in the summer you would have quite a problem.
CHAIRMAN WILLIAMS mentioned Ketchikan has a similar problem, but
it's with fish boxes.
MR. PLUMB mentioned the international terminal was build under $26
million and it's provided over $100 million in revenue to date.
Its primary customer was duty-free and it was built more or less as
a shopping center with eight gates as opposed a domestic passenger
terminal. The innards of that particular building are set up for
customs and immigration, not for bag makeup and bag claims. He
said they looked at that and concluded it is not the proper place
to renovate.
MR. PLUMB indicated domestic passenger increases about a million
every five years. So, if you start out with 1995 at 5 million by
the time you get to the year 2015 your almost up to 10 million, it
was obvious that the passenger demand exceeded the current
facilities. He referred to the current boiler system to the
committee, without any redevelopment and with the taking down of C
concourse, the current space is only 75 percent of the need. By
the time we get to the year 2000 that reduces to 60 percent and by
2005 we're down to 52 percent. He added that the gates are also
insufficient. Alaska Airlines is forced to triple-park in the
mornings during the summer. He noted the ticketing area is
probably about 40 percent of what is currently needed under today's
airport standards. He also mentioned the bag-claim area is
insufficient.
TAPE 98-15, SIDE B
Number 0001
MR. PLUMB continued, "...together, and with the airlines it was
determined that we had to do a needs assessment. This was a very
thorough process, as you've from Mr. Merlis, it may be known as the
process second-to-none." He reiterated that they have worked
closely with the airlines for the last 18 months. He said, while
there's a lot of ways to slice this cake, they thought it was
important to plan for the future so they set their goals, at a 20-
year to, for the year 2015. After consultation with the airlines,
they made the determination that 2005 gave them a phased approach,
it let them take care of the current deficiencies of the terminal
and it also included the modest increase in passengers up through
the year 2005. Mr. Plumb pointed out they wanted to ensure that
this new terminal reflected Alaska, they wanted to resolve the
long-term major deficiencies, they wanted to maximize passenger
convenience, and take advantage of new technology. The most
important thing is they wanted to minimize the cost to the
airlines, they also had to incorporate the peak in the summer.
MR. PLUMB explained they went through the process, it was a lot of
give and take, and as was mentioned, it's difficult to find a
solution that pleases everyone, but the solution that they arrived
at, through the process, in accordance with the agreement, was put
forth to the airlines, it was voted on and approved by the
necessary amount of people. There were 25 signatories, 12-people
voted against it, 10-supported it and 3-abstained, which count as
yes votes. It takes two-thirds to vote a project down, which in
this case it would have been 17.
MR. PLUMB concluded they are providing five additional jet gates,
seven additional regional parking positions which include a cross-
utilization of three of those jet gates, and remote parking for
overnighting aircraft, as well as parking for the cargo aircraft
that will be displaced by this new building.
CHAIRMAN WILLIAMS announced he will adjourn at 3:00 p.m., there is
another meeting scheduled to take place in this room.
Number 0033
CHAIRMAN WILLIAMS stated the bonds that are proposed to be paid the
airport users. The current operating agreement is due to expire
June 2000. He asked what guarantee will the bondholders have that
the fees will continue to be collected.
MR. PLUMB deferred the question to Mr. Kenny. He added that the
Anchorage airport doesn't have a particular airline that provides
greater than 17 percent of their revenue. He said he believes, in
the industry and the bonding community, that will be looked upon
very favorably.
CHAIRMAN WILLIAMS asked what guarantees do the airport users have
that their fees won't change, absent of an agreement through...
MR. PLUMB interjected he doesn't think anyone has guarantees. As
Mr. Lance mentioned, the ticket price is driven more by a demand
and what the market will bear. They can determine what the cost
will be to the airline. Mr. Plumb said he believes Alaska Airlines
estimated their costs at about a dollar-fifty, whether that dollar-
fifty is passed onto the passenger through a ticket price would be
determined by the market, not necessarily by the cost.
CHAIRMAN WILLIAMS stated someone from the department will be
addressing the bond issues.
MR. PLUMB replied yes, if we do not fully explain it, we will get
back to you in writing.
Number 0059
CHAIRMAN WILLIAMS asked how are we going to make the other 12
members a little bit more comfortable.
MR. PLUMB replied, "I think each one of the 12 members probably had
their own reasons for that and I wouldn't want to speak for them.
Certainly there was a preponderance of international cargo
carriers, which is we know they're having some tough times now. We
had a couple of the regional carriers since the vote, one of the
regional carriers signed on with the ATA letter supporting the
project - Reeve. And I believe we've also received a letter from
Peninsula Air that said they do not oppose the project, so we have
had some additional comment on the vote since November."
CHAIRMAN WILLIAMS asked, how much is the highway match fund.
MR. PLUMB deferred that question to Mr. Eberle.
CHAIRMAN WILLIAMS made reference to the Soviet air space that was
opened up. He asked is it currently opened. Can an airline from
Japan...
MR. PLUMB interjected it is not fully opened but some of the jet
routes, which previously we were not able to utilize prior to 1989
- or probably they opened up in the early 90's, today we could.
Essentially this allowed planes to use the polar route and not make
the stop in Anchorage.
Number 0075
CHAIRMAN WILLIAMS asked Mr. Plumb if he foresees the Soviet
airspace opening up, and how will it affect Anchorage.
MR. PLUMB replied it certainly could happen. He said, "We did an
analysis and discounting the growth-factor it would impact, and
this was a 1996 figure I believe, but I would have to get back to
you to make sure, that 6 percent of the traffic that currently
comes into Anchorage, and that's on the cargo side, it was not
domestic it was cargo, possibly could be impacted."
CHAIRMAN WILLIAMS reiterated 6 percent.
MR. PLUMB replied that was the figure that was given to him.
CHAIRMAN WILLIAMS asked Mr. Plumb for a better figure on that.
MR. PLUMB responded, "I will try, but if we used, and lets say
we're up to 500 -- you know 30 aircraft..."
CHAIRMAN WILLIAMS remarked, you know better than I the cost of fuel
versus stopping in Anchorage, it will be nothing like, "build it
and they will come."
Number 0085
MR. PLUMB said they certainly are not into the field of dreams.
The cost of fuel is very important, as the cost of fuel comes down
it becomes less expensive to operate the aircraft. He clarified
the Soviet airspace is only going to affect the cargo, not the
domestic.
CHAIRMAN WILLIAMS asked how can we say that.
MR. PLUMB responded, because we aren't getting passenger stops that
are utilizing that, that's what they're trying to get. In fact,
there are some that vision Anchorage could in the future become a
hub. Mr. Plum noted that's visionary and there is nothing that
would indicate that's on the near horizon.
Number 0097
REPRESENTATIVE COWDERY asked Mr. Plum what his expectations are for
employment in future years.
MR. PLUMB reiterated their study showed approximately one in ten
was associated with the airport, but he didn't want to speculate.
He said, "Our indications are that we will continue to grow. What
percentage that will be of the total development I don't know, I'm
not an economist. But I think the airport growth will be healthy,
and I would expect it to be commensurate as it has been in the
past. There are some I think, that we hear in some sectors that
think it may slightly outgrow, and again some of the economists, I
think they look in the one to two percent. Our growth for the next
three years, we feel comfortable certainly in the 5 percent in the
cargo area, and our passenger area is at the 4 percent, plus-or-
minus depending on which forecast you look at."
REPRESENTATIVE COWDERY asked will landing-fees increase.
MR. PLUMB replied he has not seen anything personally that would
show an increase greater than nine-three cents. Most of the
figures they used were based on seventy-two cents, as a result of
many things, those have temporarily come down. He said he thinks
they're down to 46 which blends out to about a yearly of 54, but
the analysis was done at 72 and the information he has, provided by
the consultants, would indicate that it would not exceed 93 cents
and that would be for one year. And then from then on it would
start to come down to average around seventy-nine cents.
REPRESENTATIVE COWDERY asked how do the landing-fees compare to
other airports such as Portland, Seattle or San Francisco.
Number 0127
MR. PLUMB responded they compare favorably. He mentioned one
airline that was considering overflying one location to land in
Anchorage because of the operating expense. He reported Seattle
has a $3,000 landing-fee in comparison to $1,240 in Anchorage. Mr.
Plum stated, "One of the things that we have to look at is how we
count the fuel tax versus the fuel flowage fee and so forth. But
the pieces that we put together, and the information we brought you
I believe has an analysis of exactly what went into that price."
REPRESENTATIVE COWDERY noted the landing-fee has to do with the
size of the airplane.
MR. PLUMB responded, yes, it's per thousand pounds of gross take
off weight, they don't weigh the aircraft, therefore, it's not the
exact weight.
REPRESENTATIVE COWDERY reiterated it doesn't matter that the
airplane is full.
MR. PLUMB replied it doesn't matter if it's empty or full to the
brim, they pay the same price.
REPRESENTATIVE HUDSON asked what is the cost of the curbside
improvements.
MR. PLUMB replied the roadside is approximately $33 million.
REPRESENTATIVE HUDSON asked is that ISTEA (Intermodal Surface
Transportation Efficiency Act) or airport money.
MR. PLUMB explained they had requested $26.3 million of federal
highway funds, and that there would be the match for that. He
mentioned that did not include all the roadside improvements but
that's what was requested.
REPRESENTATIVE HUDSON indicated the matched moneys would be general
fund monies.
MR. PLUMB replied, that's his understanding.
Number 0150
REPRESENTATIVE HUDSON asked what this might have on the overall
bonding capacity effect of the State. He said he thinks that's
important to note.
CHAIRMAN WILLIAMS stated someone from the Department of Revenue
will address that.
REPRESENTATIVE HUDSON asked if this also affects the Fairbanks
Airport.
MR. PLUMB replied this in an Anchorage project. He added they do
share revenues because they are an international airport system.
REPRESENTATIVE HUDSON asked do you also share debt. For example,
if necessary, would Fairbanks rates increase in order to amortize
that debt.
MR. PLUMB stated Anchorage and Fairbanks International Airport
rates are the same. The landing-fees, terminal rents and so forth
are the same. He noted that they share in revenue and in debt.
Number 0166
REPRESENTATIVE KIM ELTON asked, if you share the debt, did the
Fairbanks carriers vote on this project.
MR. PLUMB responded, yes, the Fairbanks carriers vote on this
project.
REPRESENTATIVE ELTON asked, when you're talking about those figures
(89 percent and 85 percent) applying to the system and not just to
Anchorage.
MR. PLUMB replied no. He explained, "The 84-plus and the 89-plus,
they were the carriers that operate out of the domestic terminal at
Anchorage International Airport. As I recollect, from a total
revenue standpoint of all the carriers, at Anchorage and Fairbanks,
those carriers that provide 60 percent of the revenue voted for the
project. And I believe 4-percent abstained... The vote itself,
twelve people voted against the project out of a total of 25. As
I recall, at Fairbanks, there was 1-for, 1-against and 1-
abstention, I think it went across the board like that."
CHAIRMAN WILLIAMS asked, "Do you know anything about the insurance,
that payments would go into effect when the payment aren't being
made, and what conditions they would go into effect."
MR. PLUMB deferred the question on the bond insurance to Mr.
Kinney. He added that it's his understanding that it would be
paid.
Number 0189
DAVE EBERLE, Director, Design and Construction, Central Region,
Department of Transportation and Public Facilities was before the
committee, he said was appointed Program Director for the Gateway
Alaska project which includes the terminal redevelopment project
primarily because of his experience in large capital projects.
MR. EBERLE stated he would go through the scope of the project and
will also address the schedule and the cost. One of the main
features associated with the project is the demolition of the
existing concourse C and the replacement of that with the new
concourse C terminal. He explained they would first have to move
tenants out the existing concourse, move some airlines around on a
temporary basis and do preliminary work with respect to the
utilities. The total cost of the concourse C portion is roughly
$84 million. The construction of that would start in the fall of
1999. Mr. Eberle said their current plans are to demolish the
concourse C late this year/early next year.
MR. EBERLE said, once concourse C has been completed (construction
period is about two years) they'll begin the remodeling and
expansion of the exiting terminal facilities. He referred to the
west area on the display stating it will be expanded about 40 feet
to the air-side which will allow them to move the ticket counters
back, and to give more (indisc.) Space. It will also increase the
baggage handling capacity down below. That portion of the project
which is related to the expansion of the existing terminal is about
$43 million. That will not take place until concourse C is
basically open and functional to minimize disruption to the
traveling public as well as the airlines.
MR. EBERLE further explained there will be air-side improvements
that total approximately $38 million. Those consist of a remote
fueling apron, overnight parking areas for aircraft and also
include the gates and the ramp area improvements. In addition to
that, there are the roadside improvements which total roughly $33.8
million. He referred the committee members to a graphic explaining
the double-deck curb side area will be extended along the 300-foot
face of the new terminal that will increase about 75 percent the
total area available to on-load passengers as well load passengers.
Mr. Eberle continued his deliberation on roadway improvements.
Number 0233
MR. EBERLE stated the schedule depicts more or less the contract
packaging they are anticipating. He mentioned back in 1996 they
started the needs assessment, went through the concept design and
airlines approval. He said we're now in the schematic design phase
of the project. The schematic design phase will continue through
about November, at which point they want to start the final design
for the permanent facilities. Part of this interim schematic
design work will also include a small amount of work to relocate
the existing tenants. Relocating Delta Airlines is a small amount
of money, relocating the existing tenants is also a relatively
small amount of money. The demolition will take place at the end
of this year/early next year, followed by a site preparation
contract to make the site ready for the new concourse C, and also
start the ramp expansion. Mr. Eberle noted, once that preliminary
work is out of the way, they will award the terminal C replacement
contract itself. Once the terminal is complete, they will begin
the west core renovation of the existing terminal, followed by the
east terminal renovation, they will do both of those renovations
during the off-season, during the winter months to minimize
inconvenience to the airlines as well as the passengers. He
indicated the construction schedule is spread out over a four-year
period.
MR. EBERLE noted, in current with the terminal work, they will also
have the refueling apron work being done out on the air side as
well as the C apron gates and overnight parking aprons, that's
about two years of work. Another parallel to that is the roadwork
itself. The access roadwork will begin early 2000, which will take
two summers to complete it, which is about a year and a half
construction period. After the bulk of the roadway work is done,
they will then reconfigure the parking lots and the internal
circulation access.
MR. EBERLE stated they developed a management plan for the project
and part of that management plan has to do with the bulk of this
work by consultants. They will have design engineers that will be
responsible for the design. He said they are also going to hire a
construction management firm that specializes just in construction
management to oversee the construction effort. They will also have
a project management support contractor on board to provide project
management support on an as needed basis. The road portion of the
project, with respect to the gateway, and some of the minor
roadwork will be done through DOT/PF, and that's part of the STIP
process.
Number 0261
MR. EBERLE referred the project cost graph. He said the overall
project cost is estimated in the alternative's program. The needs
assessment was roughly $190 million in 1997. When you escalate
that to the midpoint of the current construction schedule it
increases that number to about $205 million. You add to the $205
million the anticipated capitalized interest and issuance costs
associated with the bonds, which brings you up to a total project
cost of $230 million. The funding sources for the $230 million, as
anticipated by HB 432 is $179.2 million in airport revenue bonds,
$26.3 million in federal highway funds, and $24.5 roughly out of
FAA (Federal Aviation Administration) funds. He said they recently
submitted a letter intent for those and the indications are
favorable, and won't know for sure until July.
CHAIRMAN WILLIAMS asked when was this project begin and how much
money was that.
MR. EBERLE replied Mr. Plumb can speak to what transpired since he
wasn't really involved much at this phase. Back at that point the
airlines and the airport were concerned about the piecemeal
approach that was being used for concourse C and other work, and
they launched a need's assessment to find out where they go in the
long-term.
CHAIRMAN WILLIAMS stated he wants to know when the project got as
big as is today.
Number 0281
MR. PLUMB said, "The project was larger when it was first
envisioned, it was - and I would have to get the exact figure
because we never put the fidelity to it, it was actually in the
neighborhood of around $260 and actually came back down. There
never was a smaller complete project, there were pieces of projects
that people had identified. But, from the airlines perspective,
that once we had gone through the committee there was not a smaller
portion."
CHAIRMAN WILLIAMS indicated, according to this it's $280 million.
MR. PLUMB replied, "No. Mr. Chairman, I think that may be what the
bonding was going up to. The project is not $280 million."
CHAIRMAN WILLIAMS asked Mr. Plumb if it could be worked into
phases.
MR. PLUMB replied it is a phased-project. The plan was to the year
2015, which was designed to go to the north, which would also
include another pier that would have eight gates. He said, "We
wanted to have a footprint that we could use for the future. What
was determined is there was a point where we need to take care of
the current deficiencies and the current needs, and also
accommodate the modest increase in passenger traffic, and that
point was picked as 2005 and that's how we came up with this
particular point. The rest of the increases, those which are the
parking garages and the other pier and things like that will be
programmatic and the design will be triggered as our forecast
levels reach the points where we would go into the design phase."
CHAIRMAN WILLIAMS pointed out people who voted against it were very
concerned because it become so large. He mentioned he didn't see
a problem with C terminal when it was approximately $48 million to
$100 million, or something to that effect, but not as big as it is
today. Chairman Williams asked Mr. Plumb if there any safety
valves. And we don't know what is going to happen to the economy
here in the next ten years. And if we did, we'd bid on it.
MR. PLUMB referred to the needs assessment which was done by
qualified professionals. He said this process identified this need
looking at what the current deficiencies were and they also looked
at what the forecast was going to be. He reiterated the design was
to go out to the year 2015. Without the C Concourse they would
only have 75 percent of what they should have to date to serve the
traveling pubic, the people who pay the bills in a long run. Mr.
Plumb stated, "While you may have received information certainly
that indicated there were pieces of particular interest to specific
customers, the people that were charged with the responsibility at
looking at the total need of the airport did not have a small
piece."
Number 0315
CHAIRMAN WILLIAMS asked if this could be phased down to a 10-year
phase. He noted this is a concern that he is hearing from some
people in Anchorage.
MR. PLUMB stated the people, that carry 85 percent of the people
and provide 90 percent of the revenue, have agreed to what they
have presented to the Legislature as what's needed at the current
time.
CHAIRMAN WILLIAMS referred to the operating agreement, how we get
that paid back and the insurance. He asked how will all the users
feel comfortable in the year 2000, when it' up, or whatever date
that is.
MR. PLUMB commented, "That the process that we are going through,
the agreement coming to termination and having to go through, no
agreement is uncommon in the industry." To give a more credible
answer from the user perspective such as an airline, he deferred to
Mr. Argue who is the Chairman of the Airline Affairs Committee.
CHAIRMAN WILLIAMS said he is very concerned about the operating
agreement that is due to expire in June 2000 and how that's going
to be handled. He asked if there were any other questions.
REPRESENTATIVE ELTON said Mr. Plumb mentioned contracting out for
project management. He asked what other contracts did he mention.
MR. PLUMB repled construction management and the design work
itself.
REPRESENTATIVE ELTON asked what percentage of the $230 million is
going to be project management type fees.
MR. PLUMB responded, of the $205 million of the construction
budget, the rest of it is financing cost, about 76 percent of that
is anticipated to go into construction dollars itself. Twenty-four
percent of it is design and construction management and
administrative cost.
REPRESENTATIVE ELTON asked, for the department and for your
contract.
MR. PLUMB responded, yes all of the contractors' management cost.
He added that 24 percent includes the 10 percent overall project
contingency.
REPRESENTATIVE ELTON understood it's about $48 million.
MR. PLUMB replied right.
Number 0337
REPRESENTATIVE COWDERY asked is parking space going to be lost due
to this expansion.
MR. PLUMB said the net result will be about the same amount of
total parking area. All the parking area will now be encompassed
within the loop itself. Right now it's split, half on one side,
half within the area.
REPRESENTATIVE COWDERY asked, "And the plan, the existing parking
is going to be adequate."
UNIDENTIFIED SPEAKER noted there isn't going to be a new parking
garage added as part of this project. If one is needed that
remains to be seen. He deferred to Mr. Plumb.
MR. PLUMB asked Representative Cowdery are you speaking about
employee parking or...
REPRESENTATIVE COWDERY stated he is speaking of the public short-
term parking garage. Is that facility going to be adequate to take
care of the projected growth?
MR. PLUMB replied, "In the phased approach that we talked about, up
to the year 2015, we had identified an additional parking garage
adjacent to the current garage. At the current time the load
factor did not appear to warrant that in the current design to
2005. Once that trigger point is reached, and we would go into the
design phase, but we would not go into the design phase until it
had a positive present net value and we had done a cost benefit
analysis as required by the FAA. So, in short it would have to pay
for itself before we would start the project or at least it would
certainly have to indicate it would pay for itself."
REPRESENTATIVE COWDERY referred a previous statement that there
would probably be 15 to 20 contracts left for local contractors to
participate in this. He asked was that a ballpark figure.
MR. EBERLE replied the schedule he showed, showed 12 contracts
which are consistent with the submission that Commissioner Perkins
made a week or two ago. He said those are DOT/PF's anticipated
contract packaging right now.
Number 0359
REPRESENTATIVE COWDERY said, "And you're going to try to make sure
that all of our local contractors that have the bonding ability to
put in the range of their ability to (indisc.)"
MR. EBERLE responded yes, with the exception of Concourse C itself,
all of those contracts are well within the range of most
contractors in Alaska and there are at least four, if not a half a
dozen contracts that could bond and bid the main Concourse C
itself.
REPRESENTATIVE COWDERY stated, "I don't think it's ever been
mentioned before, once a bonds sales are made, until the money is
spent, is any calculation of the interest that's going to be earned
on that funds."
MR. EBERLE replied there were calculations that were worked in the
overall plan of finance. He said he didn't have that information
but there's significant interest earnings as well as interest
expense and hopefully they'll offset themselves to the great
extent.
REPRESENTATIVE HUDSON asked if they have an Alaska hire provision.
MR. EBERLE explained because of the use of federal funds they are
not allowed to put in an Alaska hire provision.
REPRESENTATIVE HUDSON said he presumed they would have a policy of
trying to hire Alaskans.
MR. EBERLE stated he believes they have a very good success rate on
these type of construction projects. He pointed out the Bradley
Lake project had over 90 percent.
REPRESENTATIVE HUDSON commented that he would support that.
MR. EBERLE said that's a big advantage of the contract - packaging,
trying to keep it for Alaskan contractors because they will use
Alaskan hire.
Number 0379
MR. EBERLE responded to Representative Hudson's question regarding
the match for the highway portion. He explained the $26 million
highway portion that's anticipated is part of FHWA (Federal Highway
Administration) funding, through their normal annual STIP
(Statewide Transportation Improvement Program), the match on that
would be roughly 10 percent, that's about $2.6 million.
CHAIRMAN WILLIAMS asked when did this get into STIP.
MR. EBERLE deferred to Deputy Commissioner Kurt Parkan. He added
that he believes it's this year.
CHAIRMAN WILLIAMS indicated HB 432 will be heard again and will
hear his testimony then.
Number 0395
ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of
Revenue, appeared before the committee on HB 432. He said, "One of
the questions as I understood it dealt with the amount that's in
the bill talking about the $280 (million). In current statute the
provision allows for the issuance of $100,825,000 for the revenue
bonds for airport improvements. Those bonds have previously been
issued and what we're asking through this legislation is to
increase that authorization from the $100 to the $280 which in
affect would give us the $180 million that Representative Cowdery
is proposing."
MR. KINNEY addressed bonding debt on behalf of the State of Alaska
and the airport as we know it today. He said, "The numbers that
I'm going to give you are through June 30, 1997 so they going to be
almost a year old, but we're still in this current fiscal year and
these numbers have not been updated. But as of June 30, 1997 the
amount of..."
TAPE 98-16, SIDE A
Number 0001
CHAIRMAN WILLIAMS asked Mr. Kinney to continue.
MR. KINNEY stated, "With respect to the airport as of June 30, 1997
there was $39 million of outstanding debt. October 1 of 1999 we
will have retired at least $7.8 million of that based on the fact
that 'series H' would be completely retired, that leaves about $30
million of outstanding debt on the airport that will be retired by
October of 2015. That sort of gives you a thumbnail sketch of
what's out there in the way of actual debt that the State has
responsibilities for. There is some moral obligation debt dealing
with things like the Bond Bank and Alaska Housing Finance and those
kinds of corporations, but really not one of any concern that we
need to think about. I think that answered the question on the
existing airport debt, certainly this debt would be added on top of
that."
MR. KINNEY explained the international airport system really
comprises the two airports, on in Fairbanks and one in Anchorage.
That is looked at as one enterprise, so all of the revenues and all
of the expenses for both operations are paid out of the same
enterprise fund, landing fees, rental rates, all of those things
would go to any outstanding debt. He indicated Anchorage helps
Fairbanks more than Fairbanks helps Anchorage. But the carriers
that land in Fairbanks would also be a party to this expense
incurred by the Anchorage Airport. He reiterated that they look at
it as one fund.
MR. KINNEY addressed the insurance question by Chairman Williams.
He said basically what they do in a situation like this, as he
mentioned before, they will look at what they can save in the form
of interest rates when they look at insurance. He stated,
"Essentially insurance, we'll take a bond issue for an entity such
as the airport, and increase it's rating from a credit (indisc.)
standpoint. In other words to say if the rating on the airport for
the issuance of this debt is rated A which is a credit rating
provided by the three credit agencies that dictate the credit
(indisc.) or the ability to pay of the entity. And we look at the
fact that perhaps we can buy an insurance policy that will enhance
that credit and raise it to a triple A rated credit which is the
highest credit rating available for the issuance of debt. If the
cost of the premium is less than what we can save in terms of the
interest rates, we will make that decision to purchase. So, out of
the proceeds of the sale we anticipate that, based on all of the
costs associated with this for financial advisors, bond attorneys,
underwriters, discounts, costs of insurance, printing of official
statements, and all of the marketing that has to go into a project
like this, including rating agencies, reviews based on the document
that was put out by the consultant of the airport, that anticipated
cost is about $4.7 million which actually includes the premium on
the insurance. A lot of that will be dictated by market conditions
and interest rates at the time and we'll certainly have to look at
that to see whether or not the value is there to ensure that we do
that."
MR. KINNEY continued, "But let me also assure you that when
bondholders review this project, and rating agencies stamp their
rating of approval on it, they will look at the airport's ability
to pay because what we are in fact pledging are the airport
revenues, derived from an enterprise, for the retirement of this
debt, it's not going to have an impact on the State's bonding
capability because it is an enterprise fund and that's all we have
told the bondholders that they really are entitled to revenues that
are generated form the facility itself. One of the things that
will have to be stated as part of the official statement that we
talk about is simply the fact that we do have an operating
agreement, the commissioner of Transportation and Public Facilities
is in a position to establish rates that are necessary to meet the
debt service payments as well as the coverage that's required on a
special revenue bond. Usually that coverage will be in the amount
of 130 percent of the annual payment, so in other words we'll have
to have 130 percent of that money set aside for next years payment
so that the bondholder has an assurance it's there, if in fact we
haven't got it, we haven't generated it, they have a comfort factor
that at least we've got one year there and we've got a year to work
on getting it there for the next payment that's due. So there are
a number of safeguards from an inventor's perspective and as we all
know they will be rewarded based on the risk, real or perceived
that they take in being paid. We believe the airport credit is a
good one, we believe we will be able to get the insurance at a good
rate, we believe that the rates on the bonds are going to be some
of the best that we've seen. And we believe that it's an
investment - there will be a lot of interest (indisc.)."
Number 0057
CHAIRMAN WILLIAMS announced HB 432 will be brought up again at a
later date.
ADJOURNMENT
CHAIRMAN WILLIAMS adjourned the House Transportation Standing
Committee at 3:00 p.m.
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