Legislature(2001 - 2002)
03/05/2002 09:12 AM Senate FIN
| 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
MINUTES
SENATE FINANCE COMMITTEE
March 05, 2002
9:12 AM
TAPES
SFC-02 # 27, Side A
SFC 02 # 27, Side B
CALL TO ORDER
Co-Chair Pete Kelly convened the meeting at approximately 9:12 AM.
PRESENT
Senator Dave Donley, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Jerry Ward, Vice-Chair
Senator Loren Leman
Senator Lyda Green
Senator Gary Wilken
Senator Lyman Hoffman
Senator Donald Olson
Also Attending: DON SMITH, Staff to Senator Cowdery; JOE SPRAGUE,
Director, Alaska Sales, Alaska Airlines; PAT GAMBELL, President and
Chief Executive Officer, Alaska Railroad Corporation; BILL O'LEARY,
Chief Financial Officer, and Vice President, Alaska Railroad
Corporation;
Attending via Teleconference: From an Off-Net Site: IRV BERTRAM,
Associate General Council, Alaska Airlines; From Anchorage: DOUG
GRIFFIN, Director, Alcohol Beverage Control Board;
SUMMARY INFORMATION
SCR 28-JOINT LEGIS SALMON INDUSTRY TASK FORCE
The bill moved from Committee without further discussion.
SB 215-COMMON CARRIER LIQUOR LICENSE
The Committee heard from the sponsor, Alaska Airlines and the
Alcohol Beverage Control Board. An amendment was adopted and the
bill moved from Committee.
CS FOR SENATE CONCURRENT RESOLUTION NO. 28(RES)
Establishing the Joint Legislative Salmon Industry Task Force.
This was the second hearing for this resolution in the Senate
Finance Committee.
Co-Chair Kelly noted concerns voiced at the first hearing have been
addressed.
Senator Leman offered a motion to move CS SCR 28 (RES) from
Committee with $475,000 fiscal note from the Legislative Council.
There was no objection and the bill MOVED from Committee.
CS FOR SENATE BILL NO. 215(TRA)
"An Act relating to licensing common carriers to dispense
alcoholic beverages; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
DON SMITH, Staff to Senator Cowdery, testified the intent of this
legislation is to streamline the licensing procedure for common
carrier licenses, which includes airlines and the Alaska Railroad.
He explained this bill consolidates the licensing to a single
effective date, as there is currently confusion, especially with
Alaska Airlines, which has over 100 licenses, many with different
renewal dates.
Mr. Smith continued the bill would impose a $700 fee for each of
the first ten licenses and $100 for each additional license. He
projected this would annually produce approximately $16,000,
pointing out this is approximately eight times the amount charged
in the State of Virginia.
AT EASE 9:15 AM / 9:16 AM
[Note: Audio equipment malfunction. Portion of the meeting is not
recorded on master tape, but alternate recording is available
although of poor quality.]
IRV BERTRAM, Associate General Council, Alaska Airlines, testified
via teleconference from an off-net site about his legal credentials
in Alaska. He stated he oversees the application process for the
airlines as well as providing legal advice relating to acquiring
and financing aircraft.
Mr. Bertram informed that each time an aircraft is added to the
company's fleet, the extensive application process of "posting,
publishing and then waiting for the approval," must be undertaken.
He furthered that the Alcohol Beverage Control (ABC) Board must
also undertake a significant amount of work for each license issued
or renewed. He noted the licenses are effective for two years,
which results in some of the airline's licenses for 102 aircraft
expiring each year. He informed the number of licenses required
would increase as the company acquires new routes and new aircraft,
all of which rotate into the state. He stated the advertising and
public comment process is unnecessary for each license as there has
never been objection to granting the airlines licenses.
Mr. Bertram also expressed the high fee imposed to obtain these
licenses are "out of character with the fees that we pay in any
other state." As a result, he said the airlines has requested this
legislation to streamline the process once a common carrier
acquires a standard license for its first vessel, to allow licenses
for other vessels owned and operated by that carrier could be
easily obtained. He also pointed out this bill reduces the license
fees for multiple vessels.
Senator Olson noted this legislation would result in reduced
revenues for the state. He asked how other states streamline the
process of multiple common carrier liquor licenses.
Mr. Bertram replied that other states require the carrier to obtain
a single license for the company, with copies obtained for each
aircraft. He defined this as a fleet license. He listed the cost of
the master license in the State of Washington is $750, and the
license cost for each aircraft is $5.
DOUG GRIFFIN, Director, Alcohol Beverage Control Board, testified
via teleconference from Anchorage and agreed the procedure of
multiple common carrier liquor licenses in Alaska is more
cumbersome and expensive. He stated the biannual license system has
generally been successful in allowing renewal every other year,
however it does create confusion when multiple licenses are
involved.
Mr. Griffin explained this legislation would provide licenses for
new vessels to be issued on the same cycle. He stressed this would
benefit the ABC licensing staff as well as Alaska Airlines and
another corporation: West Tours.
Mr. Griffin informed this legislation would result in lost revenue
to the state of $53,500 every other year. He noted the ABC Board
currently generates approximately $1.8 million annually from
license fees, penalties and fines.
Co-Chair Kelly asked for an explanation of language inserted in
Section 2(c) of the Senate Transportation committee substitute on
page 2, lines 1 through 5, which reads as follows.
Upon request of the common carrier and payment of the
proportionate prorated applicable fee, the board shall change
the license period of a license for a vehicle, boat, aircraft,
or railroad buffet car to allow registration to occur in the
biennial period of the balance of the licensee's common
carrier licenses.
Mr. Griffin detailed the current biannual process whereby each
license is renewed every other year. He stated Alaska Airlines has
licenses for approximately 12 of its aircraft that expire in even
numbered years and the balance expire in odd numbered years. He
expressed this causes confusion in tracking which aircraft licenses
are in what status. He explained this provision would allow Alaska
Airlines to renew the 12 licenses for one year, rather than two, so
those licenses would be converted to the same cycle as the majority
of the fleet. This, he said, would result in all aircraft due for
license renewal in the same year. He furthered, licenses for new
aircraft acquired "mid-cycle" would be prorated so that they would
eventually become on the same cycle as the remainder of the
aircraft.
Co-Chair Kelly next referenced the fiscal note, which indicates a
revenue reduction of $37,000 rather than the $53,500 the witness
stated.
Mr. Griffin clarified additional review was conducted after that
fiscal note was submitted resulting in the higher amount. He said a
revised fiscal note had been submitted.
Co-Chair Kelly established the revised fiscal note had not yet been
received.
Senator Olson asked the reason this process was not adopted when it
was discussed a couple years ago.
Mr. Griffin responded statutory changes are required and enabling
legislation at that time did not complete the legislative process
before the end of that legislative session.
Co-Chair Donley noted the biannual fee contained in this
legislation is $700 and asked if this is the same amount as the
existing fee.
Mr. Griffin affirmed.
Co-Chair Donley asked the date of the last increase.
Mr. Griffin responded none of the license fees have increased since
approximately 1980. He qualified the fees doubled when the process
changed from an annual renewal to biannual, although the overall
cost did not increase and there was no net affect on revenue.
Co-Chair Kelly commented this legislation "brings us in line with
other states" regarding licensing fees, which he noted are "far far
less" than Alaska. He noted total license fees in the state of
Illinois are $2,000.
Mr. Griffin calculated Alaska Airlines currently pays $700 every
two years plus a $200 application fee for each aircraft, averaging
over $45,000 per year. He noted the $200 application fee would not
change under this legislation.
Co-Chair Kelly clarified that although all 102 aircraft in the
Alaska Airlines fleet does not constantly service Alaska, the state
charges licensing fees for every one.
JOE SPRAGUE, Director, Alaska Sales, Alaska Airlines, affirmed and
detailed the process of aircraft rotating routes through the state,
although the number of planes operating in the state at a given
time is considerably less than 102.
Co-Chair Kelly listed the approximate licensing fees of other
states: Arizona, $550; California, $1600; Illinois, $1200; Oregon,
$200; Virginia $1800; Washington State $1200.
AT EASE 9:33 AM / 9:41 AM
Co-Chair Kelly announced the revised fiscal note had arrived and he
asked for an explanation of the differences.
Mr. Griffin explained a calculation error.
Amendment #1: This amendment increases the biennial fee for a
common carrier dispensary license from $700 to $1,000 for each of
the first ten licenses. This language is on page 1, lines 13 and 14
of the bill.
Co-Chair Donley moved for adoption noting inflation has increased
although this fee has not since 1980. He expressed, "there would
still be considerable savings" to the industry.
Senator Green requested comment from the industry.
Mr. Sprague relayed that Alaska Airlines has no objection to this
amendment.
The amendment was ADOPTED without objection.
Senator Olson commented other tourism businesses would be affected
by this legislation and the amendment and asked if any
representatives from the industry or the Alaska Railroad wanted to
testify.
Co-Chair Kelly established no representatives of these businesses
were present.
Senator Wilken offered a motion to moved CS SB 215 (FIN) from
Committee with a new zero fiscal note from the Department of
Revenue.
There was no objection and the bill MOVED from Committee.
AT EASE 9:44 AM
Co-Chair Donley chaired the remainder of the meeting.
The Alaska Railroad
PAT GAMBELL, President and Chief Executive Officer, Alaska Railroad
Corporation, gave a summary of the activities of the Railroad in
the year 2001. He read a statement as follows.
Presentation to the Senate Finance Committee
March 6, 2002
The Alaska Railroad spent 2001 demonstrating the kind of
partnership the State, communities, and businesses can depend
on to support growth and development across Alaska.
We enhanced safety, responsiveness, capacity, and fiscal
stewardship. We brought new services online. We improved
environmental protection measures, coordinated community
planning, and commenced construction on many capital projects.
In light of September 11, the Railroad also took steps to
assess and address security risks along the Railbelt.
Customers and revenue: With total revenues of $104.6
million and total expenses of $97.5 million, the Alaska
Railroad netted $7.1 million in 2001. This was 9% better
than forecast. Real estate once again proved to be a
strong performer with gross revenues reaching $10.5
million - up from $9.28 million last year. Freight
revenue also set a record, reaching nearly $80 million.
Gravel was up and oil field freight exceeded
expectations. A record number of fuel cars were hauled
from North Pole, exceeding several daily, weekly and even
monthly thresholds. Passenger revenue was up.
Collectively, these revenue streams continue to provide
the cash flow for our work force and our Railroad
services.
Environmental measures: The Railroad significantly
enhanced emergency and spill response through the
purchase of new equipment, extensive employee training,
and an overhaul of our spill response plan. Crafted to
meet new state regulations, the plan has been filed with
the Department of Environmental Conservation and is
available for public review. ARRC also joined Alaska
Chadux Corporation, a primary spill response co-op whose
considerable experience in Alaska will contribute
significantly to our spill response capability.
Community involvement and planning: Our people have
worked hard this year to better coordinate railroad
planning efforts with the communities we serve. ARRC was
named as a participant in the Anchorage Metropolitan Area
Transportation Study (AMATS) Technical Advisory Committee
(TAC) and member of the Fairbanks Metropolitan Area
Transportation Study (FMATS) TAC. We are working with
several other groups, including the Anchorage and
Fairbanks Chambers of Commerce, Anchorage Economic
Development Corporation, Seward Centennial Committee,
Resource Development Council, and the Alaska 20/20 effort
to ensure the Railroad's vision complements and supports
the overall plans and strategies developed by our State,
municipalities and community groups.
The Alaska Railroad's continued commitment to safety paid
further dividends in 2001.
Low Train Accident Rate - For the second consecutive year
train accident rates fell well below the national average
of 3.8 accidents per million train miles. ARRC's 1.5
accidents per million train miles in 2001 compares with
2000's 1.49 average. Both were well below our historical
average of over 4 accidents per million train miles.
Success can be attributed to significant investments in
infrastructure and employee dedication.
[Note: Recording resumes on master audiocassette.]
Spill Contingency Plan - The Alaska Railroad submitted a
revised, improved Spill Contingency Plan to the Alaska
Department of Environmental Conservation in the fall of
2001. After an extensive public comment and review
process, we hope to have the plan finalized by mid-2002.
Track Improvements - The Maintenance of Way (MOW)
department focused on track repair to improve safety. MOW
replaced 30,600 crossties, 350 switch ties and 58,000
feet of worn rail. They built nearly 40,000 feet of new
track, and resurfaced another 242 track miles. Surfacing
is the equivalent of grading a road, accomplished by
equipment that lifts the rails and redistributes ballast
to smooth out the rail. About 1,800 cars of ballast rock
were unloaded in the effort.
Traffic Flow - Other track improvements included major
new sidings at Bear Creek (about 15 miles north of Healy)
and Pittman (just north of Wasilla) which, along with
improvements at existing sidings, helped smooth traffic
flow along the track. This improved efficiency played an
important part in increasing the number of units moved by
23% - to over 96,000 units - and increasing tonnage by
26%.
Reliability - During 2001, the mechanical department
enhanced reliability of the Railroad's locomotive fleet.
Their preventative maintenance efforts have resulted in
an incredible jump from 65% reliability to 97%
reliability, translating into better, safer customer
service.
In 2001 transportation of commodities generated freight
revenues of $79.5 million, an average sustained growth of
about nine percent per year over the past six years. Products
moved by the Railroad include petroleum products, coal,
gravel, oilfield and mining supplies, chemicals and some
consumer goods.
Coal shipments, which move south from Usibelli Coal Mine in
Healy to Seward for export to Korea and north to Fairbanks,
were steady until December, when the Koreans began
renegotiating their contract.
The Passenger Services and Marketing & Logistics departments
merged in July 2001 to enhance coordination of marketing,
transportation services, and sales efforts.
The new division saw passenger travel levels on the Alaska
Railroad remain comparable to 2000. Passenger revenues were up
slightly. Given the fact that tourism dropped across the state
in 2001, that the Railroad did not experience a significant
passenger reduction was an accomplishment.
The Real Estate department continued as a strong performer
exceeding 2001 projected revenue by $300,000, generating $10.5
million - thus breaking the $10 million revenue mark for the
first time. A number of activities along the Railbelt have
contributed to the continuing growth of real estate income.
In order to more accurately reflect the scope of work
conducted by the Capital Projects division, it was renamed
Projects, Engineering, Technology & Signals (PETS) in July
2001.
The year 2001 was full of accomplishments. On the projects
front, the Seward Dock, Whittier Underpass, South Anchorage
Double Track, Anchorage Airport Rail Depot, Anchorage-Wasilla
line changes, Southcentral Commuter Rail study, and Fairbanks-
North Pole reconnaissance study all saw significant progress
or completion. (Descriptions of the 2001 Program of Projects
follow in the next section). The 2002 construction season
promises to be at least as busy as we continue to invest in
infrastructure in order to provide safer, more reliable
service to customers.
The engineering staff managed many challenges this year posed
by everything from meeting complex federal grant regulations
to the rigors posed by Alaska's extreme weather. Our engineers
are taking lead roles in working directly with communities to
resolve road-rail, trail-rail, and rail-river conflicts.
The technology staff made significant progress on upgrading
infrastructure. They commenced upon a three-year plan to
upgrade Railroad computer systems, and they tapped new
technology to move trains more efficiently through use of a
computer aided dispatch system.
More sophisticated signalization was installed during the
second of a five-year effort by the Railroad to more clearly
mark road-rail crossings, and to install numerous powered
switches. Both efforts, which will continue in 2002, improve
safety and increase efficiency.
2001 Capital Improvements Program Review
Seward
Freight Dock - In 2001, the Railroad finished
constructing a new freight dock located just east
of the existing dock. The 640-by-200-foot bulkhead
fill dock features a low maintenance ship fendering
system, a mooring dolphin, and catwalk at the
seaward end. The $7.7 million project was funded by
FRA, FHWA and the Railroad.
Passenger Dock - In conjunction with the freight
dock project in 2001, the Railroad began
overhauling the existing dock to serve as a
passenger-only facility. This will greatly improve
safety and efficiency, and bring the existing
facility into compliance with State and Federal
regulations. Funded by FRA, FHWA and the Railroad,
the project included $2] million spent to improve
the passenger dock, including connection to the
city sewer service. Another $3.5 million (80% FTA
funds, 20% ARRC funds) is budgeted to complete the
renovation in 2002-2004.
Roundhouse - The Seward roundhouse (engine house)
was upgraded to accommodate maintenance and
custodial services for cruise trains operating
between Seward and Anchorage. The project included
installation of potable water stations, upgrade of
electrical systems, a new office facility, and a
train-washing apparatus with wash water collection,
cleaning and recirculation. Completed in 2001, the
project was funded 80% by FTA and 20% by the
Railroad.
Whittier
Whittier Intermodal Planning Study - The Railroad
commissioned an Intermodal Planning Study on
improving passenger-related amenities to facilitate
tourism growth in Whittier. Goals include better
passenger and pedestrian safety, increased
passenger service, segregated passenger and freight
operations and construction of new passenger and
maintenance facilities. Due for completion in 2002,
the $282,500 study and conceptual design is funded
80% by FTA and 20% by the Railroad.
Pedestrian Underpass - Part of the Whittier master
plan called for a pedestrian underpass that would
provide safe passage across the rail yard, which
lies between the town and the waterfront.
Construction on the 300-foot-long, 10-foot-diameter
underpass began in spring 2001. Funded 80% by FTA
and 20% by the Railroad, the $2.285 million project
will be completed in spring 2002.
Equipment Maintenance Facility - Design was
accomplished on a new equipment maintenance
building in Whittier to be located in the southeast
corner of the railyard. The 4,793-square-foot
building will store and maintain heavy equipment,
such as graders and bulldozers. Funded 80% by the
FTA and 20% by the Railroad, the $2.225 million
project will be constructed in 2002.
Barge Dock - Design was also completed on a project
to accommodate unloading from the side of the
Railroad's existing barge dock. Construction of two
34-by-60-foot elevated platforms is scheduled to
begin in spring 2002. Funded 100% by the Railroad,
the $1.6 million project will significantly improve
safety and efficiency of barge operations.
Anchorage
Anchorage Airport Rail Station - Construction is
well underway on a new rail terminal at the Ted
Stevens Anchorage International Airport. The $28
million project includes construction of an
elevated track leading to a 17,300-square-foot
depot building. Funded 100% by FRA, the project is
scheduled for completion by October 2002.
Anchorage Airport Spur/South Leg of the Wye -
Construction began on a new "south leg of the wye,"
at the Airport Spur junction, which will allow
southbound travel from the new airport rail
station. The project improves the spur leading from
Minnesota Drive to the airport. Funded by FRA, the
$970,000 project will be complete by summer 2002.
South Anchorage Double Track - Construction began
on a project to add about five miles of new
mainline track between lAvenue (near Klatt
20~~~
Road) and the Minnesota Drive overpass, within the
Railroad's right-of-way. The second track will
improve efficiency and safety along the currently
congested mainline through Anchorage. Funded 80% by
FTA and 20% by the Railroad the $1 1.5 million
project, which includes signalization, will be
complete in winter 2003.
North Ship Creek Rail Yard Expansion - The Railroad
began excavating about 770,000 cubic yards from the
North Ship Creek bluff to make room for new and
realigned Anchorage Yard tracks. Much of the
material was used to fill about 8.5 acres of
Railroad-owned tideland at the Port of Anchorage to
permit construction of the Williams fuel facility
loop track. Funded by the Railroad, phase one of
the yard expansion project will be complete in
2003.
Anchorage Yard Passenger Car Shop - Preliminary
design began on a new passenger car shop in the
Anchorage Yard. The facility will accommodate the
Railroad's expanded fleet of passenger trains.
Funded 80% by FTA and 20% by the Railroad, the
$2.32 million design and engineering effort will be
complete in 2002.
Ship Creek Intermodal Planning got underway to
conceptualize a Ship Creek area intermodal
transportation hub that provides bus and rail
facilities, pedestrian improvements, new rail
platforms, bus/van stops, retail development,
airport accommodations and visitor information. In
2002, the Railroad plans to pursue preliminary
concept work, organize public and agency scoping
meetings, and conduct pre-NEPA studies and
documentation. The $4.5 million budget for the
concept stage is funded 80% by FTA and 20% by the
Railroad.
Anchorage Ship Creek Pedestrian Amenities - Design
was complete and construction began on a pedestrian
plaza at the corner of Ship Creek Avenue and C
Streets. Funded by the Municipality of Anchorage
and the Railroad, the $254,000 plaza project will
be complete in spring 2002.
Anchorage to the Mat-Su Valley
Anchorage to Wasilla Track Realignment - Efforts to
straighten the track from Anchorage to Wasilla got
underway in 2001, with the stretch from the
Anchorage Yard through Elmendorf completed. When
the entire project is done, the project will
increase train speed, and improve efficiency and
safety along this stretch. Funded by FRA, the $54
million Anchorage to Eagle River phase started
construction in 2001 and should be complete in
2004. Funded 80% by FTA and 20% by the Railroad,
the $23.8 million Eagle River to Wasilla phase
should enter construction in 2002, with completion
in 2004.
Commuter Study - The Railroad commissioned the
Southcentral Rail Network Commuter Study and
Operation Plan in 2000. Completed in 200t the study
creates a blueprint for potential further actions
by local and state officials to establish a viable
and operational commuter rail system. The $200,000
project was 80% funded by the FTA and 20% by ARRC.
The plan, along with public comments, has been
forwarded to FTA.
Interior Alaska
Denali National Park Rail Station - Design and
engineering are underway to improve the passenger
depot and surrounding facilities at Denali National
Park. Construction of the $4.5 million project
begins in spring 2002, with completion expected in
2004 Funding is 80% FTA and 20% Railroad.
Fairbanks Intermodal Facility and Depot -
Preliminary design and engineering was completed on
an intermodal facility and depot in Fairbanks.
Proposed plans are to locate the new facility on a
32-acre site adjacent to the Railroad operations
yard, near the intersection of Johansen Expressway
and Danby Road. Funded 80% by FTA and 20% by the
Railroad, the $11.5 million project will begin
construction in 2002, with completion in 2003.
Fairbanks/North Pole Rail Relocation Study - The
Railroad commissioned a reconnaissance study on
relocating the track in Fairbanks and North Pole to
eliminate up to 48 rail/road crossings within the
two communities. Public meetings to discuss
proposed phased options are ongoing in 2002. Funded
by FRA, the $250,000 conceptual study will be
complete in 2002. Project construction will depend
on the options selected and funding availability.
Systemwide Service & Equipment
Passenger Locomotives and Car Upgrades - Major
upgrades to passenger locomotives and cars began in
1999 and continue as funding becomes available.
Typical upgrade projects include the repainting and
interior restoration of coaches, refurbishment of
power generation cars, rehabilitation of railcar
trucks, and a $2.325 million effort in 2001 to
rebuild three passenger locomotives About $800,000
is budgeted in 2002, funded 80% by FTA and 20% by
the Railroad.
Passenger Reservation System - In 2001, the Alaska
Railroad acquired and installed a computer-based
passenger reservations management system that
provides integrated, flexible, cost-effective, and
automated means of supporting and managing
passenger travel. Funded 80% by FTA and 20% by the
Railroad, the $820,000 project can accommodate
current and projected needs, and capitalizes on
consumer demand for Internet information and
transactions System modifications and personnel
training will continue in 2002.
Avalanche Program - In 2001, the Railroad initiated
a three-year program to improve existing avalanche
risk management tools and create new control
systems. The $2.5 million project involves
integrated capital projects to upgrade: (a) state-
of-the-art detection and data acquisition and
management systems, (b) explosive delivery systems,
(c) equipment, and (d) joint operations with the
Alaska Department of Transportation & Public
Facilities. The Avalanche Program is funded in part
by a congressional earmark through the U.S. Forest
Service.
Yard and Terminal Plans - During 2001, the Railroad
commissioned TransSystems and California-based
Woodside Consulting Group to update the yard and
terminal plans. This built on a 1999 Woodside
comprehensive plan to improve efficiency, capacity
and safety within Anchorage and Fairbanks yards, as
well as the main track between the two terminals.
Out of this analysis came a prioritized list of
capital projects to be undertaken through the year
2005. The plan update is funded by the Railroad and
is expected to be complete in 2002.
Systemwide Infrastructure
Siding Improvements - In 2001, the Railroad
continued a five-year Siding Access Plan to place
remote control power switches and heaters at about
40 sidings between Seward and Fairbanks, to extend
13 existing sidings and to build seven new sidings.
In 2001, FRA grant funds were used to build two new
sidings. One was at Pittman - MP 166, just north of
Wasilla. The other was at Bear Creek, MP 274, about
15 miles north of Healy.
Bridge Program - The Alaska Railroad's 500-plus
miles of mainline track includes 169 bridges that
cross barriers ranging from trickling streams to
plunging gulches. Funded by FRA. the Railroad's
2001 Bridge Program included major maintenance,
overhaul and replacement projects needed to
maintain Railroad integrity, safety and efficiency.
Senator Ward was pleased that passenger travel has not decreased
since September 11, 2001. He asked for the cause of the projected
reduction in freight travel.
Mr. Gamble replied the revenue reduction in the year 2003 would
primarily be due to gravel transport. He stated it is difficult to
predict beyond 2003 because "our customers hold some of that
information fairly close to the vest". He qualified such a
reduction was projected for the year 2001; however, funding for
Department of Transportation and Public Facilities construction
projects were approved, resulting in "a pretty good gravel year".
Senator Ward asked if the Department of Transportation and Public
Facilities is unable to make predictions of gravel usage for the
year 2003.
Mr. Gamble clarified the Department of Transportation and Public
Facilities is only one of the railroad's customers.
Senator Ward asked if the freight revenue increase projected
following 2003 is attributed to commodities other than gravel.
BILL O'LEARY, Chief Financial Officer, and Vice President, Alaska
Railroad Corporation, affirmed. He explained the corporation also
projects a decrease in 2003 of revenues from its interline service,
i.e., barge service. He attributed this projection to an
anticipated reduction of "pipe shipping" for production and
drilling on the North Slope. He noted a "slight rebound" in gravel
transport, as well as a rebound in the interline service, is
expected in the year 2004.
Mr. Gamble added these projections are based on historical analysis
and trends. He explained if performance has been following a trend,
the corporation makes conservative projections continuing that
trend, with details incorporated as more information becomes
available.
Senator Ward found this interesting because projections in the
construction industry indicate no decline in the need and use of
gravel. He asked if the Corporation projections are based on
specific large projects.
Mr. Gamble replied this projection was made in December 2001 using
the best available information at the time.
Senator Ward asked whether there have been passenger decreases
since the events of September 19, 2001.
Mr. Gamble informed the Railroad does not normally haul many
passengers after mid-September.
Senator Ward asked about reservations for future travel.
Mr. Gamble responded that bookings have increased significantly
from one year ago. He clarified these reservations are for Alaskan
passengers traveling between Anchorage and Fairbanks and that data
is not yet available for cruise ship passengers traveling on the
Alaska Railroad as part of their package vacation.
Senator Leman asked if the approximately eight miles of new rail is
primarily associated with the realignment between the Ship Creek
depot, Eagle River and the South Anchorage "double track".
Mr. Gamble detailed there are two major projects involving new
track, one being the Ship Creek, Eagle River and South Anchorage
project. He noted the Corporation is also replacing 70-pound rail
with heavier 115-pound rail and is in the final stages of this
process.
Senator Leman asked if the Corporation has also been installing
continuous rail, which rides smoother.
Mr. Gamble affirmed and described the continuously welded rail that
is used extensively in most of the country but has been too cost
prohibitive for the Alaska Railroad until recently. He told of the
use of this product in Alaska in areas where communities have grown
close to the Railroad right-of-way to reduce sound and eliminate
"the clack, clack, clack".
Senator Leman informed of some of his constituents concerned about
small transfers of property in downtown Anchorage and asked the
status of these matters.
Mr. Gamble responded that because there are "many such issues" the
specifics of the projects must be addressed individually to avoid
generalizing. He commented some are more contentious and difficult
than others, but assured the Corporation has "a fairly good success
rate with those kind of issues". He offered to detail specific
projects with Senator Leman at a later time.
Senator Leman next referenced pending legislation to increase the
leasing period from 35 to 55 years for the Alaska Railroad. He
asked if there are any specific proposed projects that would be
affected by this legislation in the near future.
Mr. Gamble knew of no specific projects, but qualified that
companies occasionally request such negotiations be held
confidential in their early stages. However, he told of one project
that did not occur because of the 35-year lease limit, which may
have been approved if the longer 55-year lease provision were in
place.
Senator Hoffman asked if the Anchorage airport rail station would
be completed on October 2, 2002 as scheduled. He also wanted to
know the "target user groups" for this facility.
Mr. Gamble answered the projected completion date is fairly
accurate and the facility could be finished earlier. He told of
"intensive discussions" with the cruise industry and airport
officials to determine implementation of new federal security
regulations. He stressed this would determine passenger and baggage
transfer and he detailed the passengers disembarking cruise ships
and traveling north, along with those passengers returning from
Fairbanks and boarding planes. He stated the cruise industry would
begin using the terminal in the summer of 2003. He predicted that
once people get used to the idea that the service is available, the
demand would increase from other user groups.
Mr. Gamble also noted the plans to construct a new convention
center in Anchorage, with one proposed location in the Ship Creek
area. He stated if this location were selected, another route would
be added to the railroad service between Ship Creek and the
airport.
Senator Hoffman asked the primary function of the planned Ship
Creek Plaza.
Mr. Gamble described the proposed pedestrian park setting of
approximately one acre across the street from the company
headquarters. He stated this would be part of the overall Ship
Creek development designed to entice more pedestrian traffic into
the area.
Senator Wilken spoke to the state's fiscal situation, commenting
"some have even been so bold as to think we're going to fix it from
taking money away from the working families and the small business
people of Alaska," which concerned him. He hoped the Alaska
Railroad would consider contributing a "franchise fee" to the
general fund in the future. He pointed out the Railroad would
transfer 400,000 visitors in 2002 and calculated the Railroad could
pay the state $10 for each passenger for a total of $4 million. He
noted if "the lady from Kansas" paid this amount to the state, it
would be money that the people he represents would not have to pay.
He asserted the Board of Directors should discuss the matter as he
predicted that in the future, the Legislature would expect a
contribution from the Railroad.
Mr. Gamble responded he would present the matter to the Board, and
that he predicted the Board would direct him to research the issue.
Senator Olson referred to talk of construction of a natural gas
pipeline with involvement of the Alaska Railroad, with its tax-
exempt status and right-of-way access. He wanted to know if this
matter has been seriously discussed.
Mr. Gamble replied the only serious discussions have been about the
possibility of utilizing the Alaska Railroad's ability to sell tax-
free revenue bonds to finance the project. He said other
conversations have occurred about other options but that the bond
issue is the only topic to receive formal attention.
Senator Ward commented that if the Railroad bonds occurred, "this
would be quite a contribution to the state." He asked if the plan
would be that the Alaska Railroad would issue the bonds and that
another entity, such as the Alaska Housing Finance Corporation
(AHFC) would manage them.
Mr. Gamble affirmed and stressed that bond management is not a
"competency of the Railroad" and that outside expertise would be
advisable.
Senator Wilken asked the status of the Suneel contract regarding
transportation of coal from the Usibelli Coal Mine in Healy,
Alaska.
Mr. Gamble informed, "Unfortunately, the news so far is not good."
He told of the corporate reorganization of the Korean customer,
resulting in five smaller corporations rather than one, each
attempting to earn a profit individually. He stated these
corporations are considering purchasing coal from Indonesia at a
lower price then they currently receive in Alaska. He was unsure
whether this is a "negotiating tactic", or whether the decision has
been made. He informed the Railroad is continuing to transport coal
that has already been sold, but would stop unless the contract is
renewed.
Co-Chair Donley commented that second to the permanent fund, the
Alaska Railroad is one of the state's largest assets and that "when
you have assets you hope for a return on your investment". He noted
the Railroad is not paying returns to the state treasury. He
pointed out the Railroad receives "considerable" federal funding
for infrastructure and track upgrades, the Railroad pays no state
taxes, earns revenue from real estate holdings, which offsets an
operating loss for passenger transportation. He remarked if not for
the real estate revenue, the Railroad would operate at a loss.
Co-Chair Donley expressed the public might question why the state
owns a railroad if it pays no dividend to the state. He asked the
witness' suggestion of an appropriate response.
Mr. Gamble stated the issue is "a very large dynamic". He noted the
Railroad does not require state subsidy and therefore does not
contribute to the state's fiscal problem. He also asserted there is
a positive "economic trickle effect", although a study indicating
the extent of this has never been undertaken. He exampled airline
fuel transported from the fuel refinery in North Pole by rail to
the Ted Stevens Anchorage International Airport, pointing out that
an adequate amount could not be transported via truck. He compared
the economic impacts of services such as this and the subsequent
jobs resulting from these activities and determined this is a
better method than providing a dividend to the state.
Mr. Gamble hypothesized if rather than investing in the purchase of
the Alaska Railroad 17 years ago, the state had invested the same
amount of money in a "conservative fund" the state would have
earned approximately $44 million interest. He furthered the state
could have utilized ten-percent of those earnings, which would be
equal to the $4 million average annual net earnings of the Railroad
and resulted in "a wash". He explained the net earnings are
currently used to pay operation expenses and payroll. Therefore, he
asserted that if the Railroad were required to pay the state a $4
million annual dividend, it would be unable to undertake internal
capital projects, provide pay increases, or provide matching funds
to secure federal appropriations, i.e., "the things that keep the
Railroad healthy and viable".
Mr. Gamble admitted that including indirect overhead expenses, the
operating ratio of the "train operations" is almost 100 percent, or
"about a one-for-one dollar earned-dollar spent". However, he
asserted the Railroad operations allow other companies, including,
construction, gravel, coal and fuel, to transport their products.
He stressed these products "bring in outside money to the state; it
isn't recirculating state money inside, there's a lot of it brought
in outside".
Mr. Gamble also informed that the Railroad solicits additional
business resulting in increased net earnings, which benefits the
state through the "economic trickle down effect". He summarized the
Railroad benefits the state "by being that railroad entity that
does thing that nobody else in the state can do economically to
provide for our customers."
Mr. Gamble stated that interest earnings from the real estate
holdings provide the Railroad with net earnings, which he
emphasized "is exactly how the framers of the legislation intended
for it to be." He remarked this income allows the Railroad to be
profitable and to be a "stand-alone entity". He elaborated the
Railroad does not depend on the state for financial assistance and
yet has expanded to meet the needs of additional customers.
Mr. Gamble underscored "passenger responsibility" explaining that
in the Lower 48, commuter lines are subsidized, but freight lines
receive no federal subsidies and are leveraged by considerable
debt. In contrast, he stated, the Alaska Railroad is not leveraged
by significant debt. He noted the only debt was acquired recently
with the purchase of new engines, and that the new engines have
improved efficiency. He gave a history of railroads in the
contiguous United States informing that because railroad companies
were unable to earn a profit transporting passengers, they
converted to freight only transport. He predicted this would never
occur in Alaska and because of this, the Alaska Railroad would
"sub-optimize our capability to earn as much as we can earn," as
expected by the state.
Mr. Gamble surmised if the Railroad only transported freight and
increased net earnings to allow it to buy down capital investment
needs and provide all pay raises and "fix leaky roofs", etc., until
all needs were accomplished, and if net earnings remained, he
agreed a return should be paid to the state. However, he predicted
it would be considerable time before that point is reached given
the future investments that are still necessary.
Mr. Gamble cautioned that if federal subsidies were discontinued,
there would be increased demand to utilize "internal" assets and
net earnings to maintain existing services. He intended to position
the Railroad so it could adapt in the event federal assistance
ended.
Co-Chair Donley asked if market surveys indicate strong resistance
against increases to passenger fares and freight charges. He
commented that it is difficult to understand why the Corporation
could not charge rates necessary to earn a profit from rail
operations.
Mr. Gamble responded the Alaska Railroad is competitive and told of
the passengers traveling with three cruise companies riding the
train to Denali National Park. He stated that if the rates offered
by the Railroad for independent travelers were increased, the
cruise industries would advertise lower rates for their unreserved
seats. As a result, he warned, the Railroad could lose customers to
other cars on the same train.
Co-Chair Donley countered this would depend on how contracts with
the cruise industries are negotiated.
Mr. Gamble informed the contracts were negotiated for 12 to 13
years and it would be some time before they could be renegotiated.
Co-Chair Donley compared this situation to airport landing fees.
Co-Chair Donley referenced the legislation that provided for the
state's purchase of the Railroad and asked the status of provisions
in that legislation relating to review of the possible sale of the
Railroad.
Mr. Gamble understood the intent of the provision focused on the
first ten years after the purchase of the Railroad was completed,
as it was thought it could be possible to sell the Railroad to a
private entity. However, he assumed the State would not grant a
private buyer 36,000 acres of Alaska land nor extend the tax
exemption. Under these circumstances, he did not foresee how a
private entity could succeed. He stressed that because the Railroad
has a low debt ratio and significant cash flow, it would be
attractive to a private corporation. He warned, however, that if
this were to occur and the Railroad proved unprofitable, the parent
corporation would "pull cash from the company", sell assets and
"pull out and leave it," at which time the Railroad would become a
"ward of the State".
Senator Ward clarified the sales provision in the original
legislation was for the first five years after the purchase of the
Railroad by the State. He remarked this provision was "a very large
part" of the legislation and that it secured the seven votes
necessary to pass the Legislature. He noted the provision was
amended at a later date.
Senator Ward remarked that although the Railroad is owned by the
State, the public does not know whether the corporation is operated
"like a railroad" or used "as a tool to go on junkets". He noted
this is a "natural conflict" that would always be present, and that
the framers of the enabling legislation were aware of this.
Senator Ward informed his grandfather retired from working for the
Alaska Railroad and that his family had ridden the trains. He was
"bothered" that tourists travel on the Railroad and have better
access and better passenger cars to ride than residents traveling
between different locations.
Senator Ward applauded U.S. Senator Frank Murkowski for his efforts
to extend the Railroad to the Lower 48 through Canada, which he
said was a major reason the State purchased the Railroad. Senator
Ward recalled he served on the Senate Finance Committee at the time
the purchase was considered and that his was the deciding vote,
which was based on assurances that the Railroad would be linked to
Canada. He asked the status of these efforts. He also mentioned the
Governor's proposed bonding measures.
Mr. Gamble stressed, "access in Alaska is primary in terms of
development in Alaska" and the Railroad has historically provided
access. He stated that expanding the rail system to the Canadian
border would continue to provide for the State in terms of
development and growth. He assured if the State makes the political
decision to issue bonds to undertake this effort, "our best
technical advice would be called upon" to enable that decision.
Mr. Gamble expressed, "I happen to believe there is a strong 'build
it and they will come' element to this particular initiative." He
assured this has always occurred along railbelts in the United
States and in Alaska. He pointed out 70 percent of Alaskans live
along the Alaska Railbelt and that they live there because of the
Railbelt.
Mr. Gamble cautioned of the initial capital investment and the
increased operating costs that would be incurred that must be
accounted for. He reiterated the real estate holdings allow the
Railroad to remain profitable and would be an important component
to an expansion. He assumed additional land grants would accompany
this expansion, but emphasized real estate could not fully support
the Corporation. Therefore, he stated, trains must operate on the
new track in order to generate revenue.
SFC 02 # 27, Side B 10:35 AM
Mr. Gamble continued that the additional operating expenses would
accrue beginning the day the new track was completed. He stated if
the Railroad failed to make a profit in the first year the new
track was operational because too few or no trains were operating
on the new track, there would be "significant expenses" that must
be paid before revenue is generated again. He remarked the question
is how long would it take to recover.
Mr. Gamble noted Alaska trains as well as trains from Canada and
the Lower 48 must utilize the new track, thus requiring the
purchase of additional engines and cars. Therefore, he stressed the
capital investment would not only include construction and track,
but also new trains to operate on the line.
Mr. Gamble asserted that if potential customers in Canada and the
Lower 48 could "see our commitment" they would "start coming out of
the woodwork" and offering ideas and suggestions. He stated these
potential customers investigate resources within the new route,
such as minerals and opportunities for tourism activities. He
commented, "There is where business begins to grow and develop and
the State becomes richer for it."
Mr. Gamble informed he personally supports the expansion, but
cautioned the need to understand the "whole dynamic".
Senator Ward informed the land component "was very much a part of
the purchase". He relayed testimony heard by the earlier Senate
Finance Committee emphasized the necessity for a land grant because
a railroad without a land base would not be profitable. He
commented, "some feel" the state is subsidizing some companies and
tourism at the expense of Alaskans through this method.
Senator Ward asked the additional amount of acreage necessary to
offset the future operating costs. He clarified the capital costs
would be paid "in the form of strategic minerals" that would be
sold. He did not expect an answer at this time but requested the
witness consider the matter. He noted this issue was discussed at
the time of the original purchase of the Railroad and tabled
because it was argued that twenty years would pass before the land
was developed to a point where income could be derived from it.
However, he stressed, twenty years has passed and no progress has
been made. He expressed the issue should be planned "generation to
generation" rather than "week to week".
Mr. Gamble offered to continue the discussion at a later time. He
stated that although he had not researched the issue in detail, the
matter of determining which land is valuable has been considered.
He shared that historically land that is determined to be valuable
is land that could be developed. He furthered the land granted to
railroad companies in the contiguous United States was located
along the railroad right-of-ways, and was valuable because of the
access the rail lines provided. Therefore, he noted the location of
the land is as important as the number of acres that would be
granted for the new project.
Co-Chair Donley spoke to a study conducted by the Railroad that
determined the cost of commuter service between Anchorage and the
Matanuska Valley would be approximately $40 round trip. He
furthered the study also surveyed the amount travelers would be
willing to pay for the service, which amounted to approximately $8.
He understood federal funds based on anticipation of commuter
service but he asserted, "I want to send a very very strong message
here that the State is not in the position to subsidize $32 per
round trip for passenger service between the Mat Valley and
Anchorage."
Senator Green recalled six years ago federal railroad
transportation representatives first addressed the subject of a
commuter rail program. She stressed this suggestion was offered
from a higher governmental level, to reduce traffic and parking
needs primarily at airports. She surmised this proposal was more
appropriate for large cities, although she was told the Anchorage
plan would include the Mat-Su area and Girdwood. She stressed this
request did not originate in Palmer, Wasilla or Girdwood.
Co-Chair Donley asserted support for a passenger rail system also
came from "anti-road groups in the Anchorage area" and "has been
the baby of the Center for the Environment and Conservation Voters
for the last five years; this has been their mantra." He continued
this has delayed road construction and necessary infrastructure. He
pointed out that a light rail system has not been successful in any
community in the nation with a population less than two million. He
wanted to ensure that the Railroad "didn't fall into this trap" and
suggest there would be state subsidies for a light rail system. He
warned against providing "false hope" for such a project that would
come at the expense of road projects.
Senator Green clarified that Mr. Gamble has stressed that the
Railroad would not undertake a project that "the communities are
not willing to buy into". She remarked, "Believe me, there is no
mass outcry in the Mat-Su Valley to come in and raise Borough or
city or local taxes" for this effort.
Co-Chair Donley reiterated the idea was raised by "radical
environmental groups in the Anchorage area," who do not want to
address transportation projects in Anchorage and instead "make the
roads as bad as possible so people can't drive essentially." As a
result of this effort, he again stated, transportation projects
have been blocked for over a decade, partially using the "myth of
light rail and passenger rail."
Senator Ward added the same groups also attempted to remove the
land grant provision from the original legislation to purchase the
Railroad. He stated this opposition to the land grant was because
that land would be developed.
Co-Chair Donley furthered his concern is that once a proposal, such
as a light rail or passenger system, is determined unviable it
should not be utilized to prevent other viable projects from
proceeding.
Mr. Gamble attested the message was received "loud and clear". He
affirmed Senator Green's statement that the Railroad would not
support projects opposed by communities.
Mr. Gamble spoke to expanded service, which Co-Chair Donley
indicated he would support, and Mr. Gamble expressed would be
considered as the Railroad continues to develop. He clarified this
is different than commuter travel.
ADJOURNMENT
Co-Chair Pete Kelly adjourned the meeting at 10:50 AM
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