Legislature(1993 - 1994)

04/05/1993 08:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                          April 5, 1993                                        
                            8:10 a.m.                                          
  TAPES                                                                        
                                                                               
  SFC-93, #47, Side 1 (000-end)                                                
  SFC-93, #47, Side 2 (000-end)                                                
  SFC-93, #49, Side 1 (000-end)                                                
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator Drue  Pearce,  Co-chair,  convened  the  meeting  at                 
  approximately 8:10 a.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  In addition to  Co-chairs Pearce  and Frank, Senators  Kelly                 
  and Sharp were present.  Senators Jacko and Kerttula arrived                 
  soon after the meeting began.   Senator Rieger arrived as it                 
  was in progress.                                                             
                                                                               
  ALSO ATTENDING:   Senator Duncan; Senator Ellis;  Don Moore,                 
  Manager,  Matanuska-Susitna  Borough;   Jim  Ayers,   System                 
  Director,   Alaska   Marine   Highway   System,   Dept.   of                 
  Transportation   and   Public  Facilities;   Harold  Moeser,                 
  Construction Engineer,  Alaska Marine Highway  System, Dept.                 
  of Transportation and  Public Facilities; Richard Ploss,  M.                 
  Rosenblatt &  Sons, Inc.;  Riley Snell, Executive  Director,                 
  Alaska  Industrial Development  and  Export Authority;  John                 
  Olson, Deputy Director,  Development, AIDEA; Greg  Branning,                 
  Marketing Specialist, Midrex  Direct Reduction  Corporation;                 
  Harold M. Benedict, President,  Alaska Seafood Center (ASC);                 
  D.S. Moon, Public Affairs Manager,  MAPCO; Bonnie J. Garner,                 
  Aviation  Fuel   Sales  Manager,   MAPCO;  Fred   Ketzeback,                 
  Director,   Fuel   Administration,   Alaska  Airlines,   and                 
  Chairman,  Alaska  Fuel  Service  Center  (AFSC); Thomas  J.                 
  Mushovic, Partner,  Signature Flight  Support; Bert  Wagnon,                 
  Director  of Projects  and  Finance, MarkAir;  Judy  Knight,                 
  Director, Administrative Services Division,  Dept. of Labor;                 
  Sally   Saddler,   Employment   Services  Program   Manager,                 
  Administrative  Services, Dept.  of  Labor; Bruce  Geraghty,                 
  Deputy  Commissioner,  Dept.   of  Community  and   Regional                 
  Affairs; Mark Mickelson, JTPA/SDA Program Manager,  Dept. of                 
  Community and Regional Affairs;  aides to committee members;                 
  and aides to other members of the legislature.                               
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
                                                                               
  SB 16     -    Act  relating to  the financing  authority of                 
  the            Alaska  Industrial  Development   and  Export                 
                 Authority and giving approval of the issuance                 
                 of  bonds for  an  Anchorage airport  seafood                 
                                                                               
                                                                               
                 facility;  and  providing  for  an  effective                 
                 date.                                                         
                                                                               
                 Testimony  was  provided  by  Senator  Ellis,                 
                 Riley Snell,  and Mr.  Howard Benedict.   The                 
                 bill was  subsequently HELD in  committee for                 
                 further discussion.                                           
                                                                               
  SB 50     -    Act   making   appropriations   for   capital                 
  projects; and            providing for an effective date.                    
                                                                               
                 Discussion  was had  with  Jim Ayers,  Harold                 
                 Moeser,  and  Richard Ploss  regarding ALASKA                 
                 MARINE  HIGHWAY  SYSTEM capital  projects and                 
                 the proposed replacement vessel.                              
                                                                               
  SB 57     -    Act relating to employment  contributions and                 
  to             extending  the pilot  project  for the  state                 
                 training   and   employment    program;   and                 
                 providing for an effective date.                              
                                                                               
                 Teleconferenced  discussion  of the  bill was                 
                 rescheduled  to April 6,  1993, from  8:30 to                 
                 9:30 a.m.                                                     
                                                                               
  SB 58     -    Act relating to the longevity bonus program.                  
                                                                               
                 The bill was HELD for arrival of HB 81.                       
                                                                               
  SB 102    -    Act  relating  to   municipal  property   tax                 
  exemptions               for  certain   residences  and   to                 
                           property  tax equivalency  payments                 
                           for    certain    residents;    and                 
                           providing for an effective date.                    
                                                                               
                 The bill was HELD for arrival of HB 66.                       
                                                                               
  SB 171    -    Act relating to the contracting and financing                 
                 authority    of    the    Alaska   Industrial                 
                 Development  and  Export   Authority,  giving                 
                 approval of  the issuance of  the authority's                 
                 revenue bonds, and  delaying the  termination                 
                 date of the  authority's business  assistance                 
                 program; and providing for an effective date.                 
                                                                               
                 Testimony was presented by  Riley Snell, John                 
                 Olson, Tom Mushovic, Fred Ketzeback, and  Don                 
                 Moore.  Revised Amendment No. 1 and Amendment                 
                 No. 2 were  distributed and  discussed.   The                 
                 bill was  subsequently HELD in  committee for                 
                 further review.                                               
                                                                               
                                                                               
  SENATE BILL NO. 102                                                          
                                                                               
       An Act  relating to municipal  property tax  exemptions                 
       for certain residences and  to property tax equivalency                 
       payments  for certain  residents; and providing  for an                 
       effective date.                                                         
                                                                               
  Upon calling the meeting to order, Co-chair Pearce announced                 
  that SB 102 would be HELD in committee for the arrival of HB
  66  since the  House  version of  the  legislation has  been                 
  transmitted for Senate consideration.                                        
                                                                               
                                                                               
  SENATE BILL NO. 58                                                           
                                                                               
       An Act relating to the longevity bonus program.                         
                                                                               
  Co-chair Pearce made a similar announcement regarding SB 58,                 
  advising that HB  81 would soon  be arriving in the  Senate.                 
  She then directed that SB 58 be HELD for that arrival.                       
                                                                               
                                                                               
  SENATE BILL NO. 57                                                           
                                                                               
       An  Act  relating to  employment  contributions  and to                 
       extending the pilot project for  the state training and                 
       employment  program;  and  providing for  an  effective                 
       date.                                                                   
                                                                               
  Later  in  the  meeting,   Co-chair  Pearce  announced  that                 
  teleconference testimony  on SB  57 would  be taken  between                 
  8:30 and 9:30 a.m., April 6, 1993.                                           
                                                                               
                                                                               
  SENATE BILL NO. 50                                                           
                                                                               
       An  Act making appropriations for capital projects; and                 
       providing for an effective date.                                        
                                                                               
                                                                               
  Cross-reference to HCS CSSB 183  (Finance), the 1994 capital                 
  budget.                                                                      
                                                                               
  Co-chair Pearce next directed that  the committee proceed to                 
  discussion of the proposed  new ferry for the ALASKA  MARINE                 
  HIGHWAY SYSTEM as  well as financing proposals  to cover the                 
  cost of construction.                                                        
                                                                               
  JIM  AYERS, System  Manager, Alaska  Marine Highway  System,                 
                                                                               
                                                                               
  Dept. of Transportation and  Public Facilities, came  before                 
  committee.  As  background information, he advised  that the                 
  department conducted both an economic  impact analysis and a                 
  "condition  survey of  the entire fleet"   to  determine the                 
  condition of  all vessels  and what  would  be necessary  to                 
  maintain the fleet into the  next century.  Approximately 25                 
  hearing were had regarding the  Alaska Marine Highway System                 
  and its importance to the state economy and the economic and                 
  social stability of communities.  From that information, the                 
  department developed a master plan  to refurbish all vessels                 
  but the MALASPINA.   Since that vessel is 30  years old, and                 
  no work had been done on it aside from the stretching in the                 
  mid   1970s,   the  estimated   cost   for  repowering   and                 
  refurbishing was $50 to $62 million.  A comparative analysis                 
  determined it was more viable to build a new vessel.                         
                                                                               
  The  state has, on several occasions  (most recently for the                 
  EXXON  VALDEZ  oil  spill), used  the  ferries  in emergency                 
  situations.  Emergency response  plans for fire, earthquake,                 
  tsunami, etc. involve and  include use of one of  the marine                 
  highway system  vessels.   It was  thus clear  that the  new                 
  vessel  needed  to  be  ocean-going  and have  both  command                 
  capability and ability  to provide  assistance to a  smaller                 
  fleet of vessels (fishing vessels).                                          
                                                                               
  A design contract was let through the RFP process to Glosten                 
  Associates in Seattle.  Mr. Ayers  noted the presence of Mr.                 
  Van  Slyke, an  engineer with  Glosten.   Mr.  Ayers further                 
  spoke to the advisability of having a project manager follow                 
  the  project through construction  and manage  both shipyard                 
  activity as well as  design.  The system contracted  with M.                 
  Rosenblatt & Sons,  Inc. for that  service.  Mr. Ayers  next                 
  introduced Mr. Richard Ploss, an  engineer with Rosenblatt &                 
  Sons.                                                                        
                                                                               
  The conceptual  design stage  has now been  completed.   Mr.                 
  Ayers referenced a  video outlining the proposed  new vessel                 
  and asked  that Mr.  Ploss provide  a narrative.   Prior  to                 
  commencing the video,  Mr. Ayers  explained that the  vessel                 
  would serve southeast.   Since it  would be ocean going,  it                 
  could also fill in for the TUSTUMENA, allowing the system to                 
  provide service  to Kodiak  and the  Aleutian Chain  through                 
  fall and early winter.                                                       
                                                                               
  (Senator Kerttula arrived at the meeting at this time.)                      
                                                                               
  RICHARD  PLOSS, Project  Manager,  M.  Rosenblatt and  Sons,                 
  Inc.,  came  before committee  and  directed attention  to a                 
  video utilizing virtual imaging to characterize the proposed                 
  vessel.  The  new ferry would be  85 feet wide and  380 feet                 
  long.   It would  have a helicopter pad,  and a car elevator                 
  for  southwest   operation.    Vehicle  capacity   would  be                 
  approximately 120 cars.  There would be 98 to 104 cabins for                 
  passengers.  The vessel would  include  extensive electronic                 
                                                                               
                                                                               
  communication capability via  satellite, ability to  convert                 
  to necessary work  stations to monitor  an oil spill, and  a                 
  modular float.                                                               
                                                                               
  Brief  discussion followed  between  Mr.  Ayers and  Senator                 
  Kelly regarding lack  of establishment of depots  by the oil                 
  spill  response  advisory team  and the  coast guard.   Boom                 
  needed to contain a spill is  to be located at depots.   The                 
  vessel would  have loading  capability.   DEC modulars  with                 
  needed equipment (diving equipment, computers, refrigeration                 
  facilities ) would also  be located at specific sites.   The                 
  new vessel would be pre-wired for  plug in of this equipment                 
  when needed.                                                                 
                                                                               
  Discussion followed between  Co-chair Pearce, Senator Kelly,                 
  and  Mr.  Ayers pertaining  to  the cost  of  DEC equipment.                 
  Further   comments   followed   by   Mr.   Ploss   regarding                 
  refrigeration capabilities  and the number  of cars  carried                 
  when the ferry is in use  in southwest rather than southeast                 
  Alaska.                                                                      
                                                                               
  In response to  a question from  Co-chair Pearce, Mr.  Ploss                 
  advised that the  new ferry  would have an  ice-strengthened                 
  bow but no ice breaking hull.  It will not be able to  serve                 
  as an ice  breaker.  In response to  a further question from                 
  the Co-chair, Mr.  Ploss said  that the new  ferry would  be                 
  able to come into Cook Inlet during the winter.                              
                                                                               
  Co-chair  Pearce inquired  concerning the  most  recent cost                 
  estimate.   Mr. Ayers  said that at  conceptual design stage                 
  the estimate is  $85 million.   Co-chair Frank asked when  a                 
  fixed dollar contract would issue.  Mr. Ayers said the state                 
  has been working  with the federal government  to avoid need                 
  to solicit a low-cost  bid which allows a  shipyard, through                 
  changes  orders, to  drive  up the  price.   The preliminary                 
  design  will be completed  with as much  detail as possible.                 
  Bids will be sought from  three qualified shipyards.     The                 
  project will then be managed so  that it is neither low-cost                 
  bid nor cost plus.  Those two items cause shipyard prices to                 
  vary radically.                                                              
                                                                               
  In response  to a  question from  Co-chair Frank,  Mr. Ayers                 
  explained  that  the project  would  require use  of federal                 
  highway  dollars.  The  federal highway  regulations bidding                 
  process thus governs.  Further discussion followed regarding                 
  pre-qualification of shipyards and  evaluation of proposals.                 
  Co-chair  Pearce  raised  concern  regarding  the  financial                 
  capability   of   shipyards.     Mr.   Ploss  advised   that                 
  approximately 17 yards  are interested in  the project.   He                 
  stressed that the pre-qualification procedure is designed to                 
  ensure financial qualification.   Mr.  Ploss advised of  his                 
  belief that 10  to 12 yards  could handle a project  of this                 
  size.                                                                        
                                                                               
                                                                               
  Senator   Sharp   raised  a   question   concerning  federal                 
  participation in cost overruns.  HAROLD MOESER, Construction                 
  Engineer,   Alaska   Marine   Highway   System,   Dept.   of                 
  Transportation and Public Facilities, came before committee.                 
  He  said  that   once  the  federal  government   agrees  to                 
  participate in a project  with the state, it also  agrees to                 
  participate in change orders.  The only exception is a gross                 
  blunder or negligence.                                                       
                                                                               
  Discussion  followed between  Senator  Sharp  and Mr.  Ploss                 
  regarding normal bid and construction procedures versus  the                 
  innovative  process proposed for  the new ferry.   Mr. Ploss                 
  said that  the federal government is most  interested in the                 
  project because it has not  previously found an organization                 
  interested in  pursuing this type  of detail ahead  of time.                 
  These procedures are utilized by European and Oriental yards                 
  to bring  in quality  vessels at  cost.   The procedure  has                 
  twice been used successfully in the United States.                           
                                                                               
  In response  to a question  from Co-chair Pearce,  Mr. Ayers                 
  explained that the governor's budget  contains a request for                 
  "$60  million of  authorization."    Obligation  of  federal                 
  dollars would be over  a two-year period.  Authorization  is                 
  sought this year so that the project may go to bid.  Senator                 
  Kelly  voiced his  understanding  that the  total represents                 
  "all  the  discretionary  funding  in  ISTEA."    Mr.  Ayers                 
  responded negatively.  Mr. Moeser  advised that ISTEA allows                 
  approximately $70 million a year in discretionary moneys for                 
  ferry transportation.  That competition  is nationwide.  The                 
  department has dedicated approximately $100 million in ISTEA                 
  moneys for port  programs.  The  $30 million over two  years                 
  would  be  set  aside out  of  ISTEA  for  system expansion.                 
  Senator Kelly voiced his understanding that under percentage                 
  distribution of ISTEA funding for core roads (50%), boroughs                 
  (35%), and discretionary projects (15%), the new ferry would                 
  utilize  all state discretionary  moneys for two  years.  He                 
  further voiced his  belief that $85  million sounds soft  in                 
  terms of total construction cost.                                            
                                                                               
  Discussion of state and federal  fiscal years and obligation                 
  of  funds  over  a three-year  rather  than  two-year period                 
  followed between Senator Frank and Mr. Moeser.                               
                                                                               
  End, SFC-93, #47, Side 1                                                     
  Begin, SFC-93, #47, Side 2                                                   
                                                                               
  In response to a question  from Senator Kelly concerning how                 
  the  department  intends  to fund  construction  of  the new                 
  ferry, Mr.  Ayers explained that a combination  of state and                 
  federal funds would  be used.   The system has been  working                 
  with  the  state's  Washington,  D.C.,  office  as  well  as                 
  attempting to  work with  the legislature.   The  department                 
  hopes to obtain additional funds from Congress for the ferry                 
  as a demonstration project.                                                  
                                                                               
                                                                               
  Co-chair  Pearce inquired concerning  the actual  number for                 
  the federal  match  in the  governor's  budget.   She  noted                 
  funding of $54.6 million in one  document and $60 million in                 
  another.    Mr.  Ayers  voiced  his understanding  that  the                 
  governor's   budget   requests   $60  million   in   federal                 
  authorization.    Backup  speaks to  $27.3  million  for two                 
  years--FY 94 and 95.  There  is a general pool match of  $23                 
  million for the approximate $200 million in federal dollars.                 
  The system would  get a proportion  of that required  match,                 
  approximately $6 million.  Mr.  Ayers further advised of $15                 
  million in transfers.  These are not general fund moneys.  A                 
  portion  of  the  $15 (approximately  $8.5)  derives  from a                 
  previous transfer, and $7 million is  set forth in the front                 
  section of the operating budget.                                             
                                                                               
  Senator Kelly inquired concerning the governor's  commitment                 
  to the new ferry versus other projects throughout the state.                 
  Mr. Ayers advised that he could not respond.                                 
                                                                               
  Co-chair  Pearce  inquired  regarding  the $6.4  million  in                 
  funding from the  vessel replacement fund  set forth in  the                 
  governor's  capital  budget.   Mr.  Ayers explained  that it                 
  relates to  the $15 million  in transfers.   Co-chair Pearce                 
  further  pointed to  information  listing $54.6  million  in                 
  federal moneys as the cost  of the multi-purpose replacement                 
  vessel.  Information further shows  funding at $27.3 million                 
  in FY 94  and a like amount  in 95 rather than  $30 and $30.                 
  Mr. Ayers voiced  his understanding  that the listed  figure                 
  are "as much as we were prepared to commit as coming  out of                 
  the ISTEA funds for  those two years."  The  system hopes to                 
  get authorization for  those amount  and then "hopefully  we                 
  would get the additional federal  money somehow or we'd take                 
  it into 96."  Co-chair Pearce  voiced her understanding that                 
  under the scenario described by Mr. Ayers, the project would                 
  still be  short federal  obligation.  Mr.  Ayers pointed  to                 
  authorization to  utilize  other moneys,  possible  need  to                 
  extend  the  project to  FY  96,  or receipt  of  additional                 
  discretionary funds from Washington, D. C.                                   
                                                                               
  In  response to  a request  from Co-chair Pearce,  Mr. Ayers                 
  advised that the  balance of the vessel  replacement fund is                 
  approximately  $4.5   million.    The  legislature  has  not                 
  authorized  expenditure of those funds.   The system has not                 
  requested an  appropriation from  the fund  in the  upcoming                 
  budget.                                                                      
                                                                               
  Senator  Kelly inquired  concerning the  amount appropriated                 
  for  the  replacement vessel  up  to this  time,  noting the                 
  $500.0 and the  $7.5 million  in general funds.   Mr.  Ayers                 
  concurred in  the amounts  and advised  that they  represent                 
  appropriations from the 470 fund.   Senator Kelly then asked                 
  how  much of  the  $8 million  had  been spent.    Mr. Ayers                 
  answered approximately  $850.0.   He further  explained that                 
                                                                               
                                                                               
  while  the department  has  authorization  to  proceed,  the                 
  system  told  the   legislature  it  would  return   with  a                 
  conceptual design  prior to  proceeding.   The Senator  next                 
  asked how far  the project could proceed  without additional                 
  appropriations.   Mr.  Ayers that  he had personally  made a                 
  decision to stop the project  until "Everyone is comfortable                 
  that  we know what  it costs  and where  we're going."   The                 
  design  phase  has  been   stopped  until  the   legislature                 
  indicates it wishes to proceed.                                              
                                                                               
  Further discussion followed between Co-chair Pearce and  Mr.                 
  Ayers regarding the $5 to  $5.5 million general fund  match.                 
  Co-chair Pearce voiced her understanding that the $5 million                 
  designated as  "other money"  is presently  in EXXON  VALDEZ                 
  settlement  legislation  introduced  in both  the  House and                 
  Senate.  The $5  million is general fund money  returning to                 
  the state as reimbursement rather than mitigation moneys for                 
  expenditures made by the  state after the spill.   Mr. Ayers                 
  answered, "As far as I know,  Madam Chair."  Co-chair Pearce                 
  then noted that of the $15  million transfer, the system has                 
  already received $8  million.   There is thus  a $7  million                 
  gap.  Mr. Ayers concurred.                                                   
                                                                               
  Senator  Kelly  advised that  he was  sold  on the  ship but                 
  questioned the financing plan.   He voiced concern regarding                 
  utilization of all ISTEA discretionary funding for two years                 
  and  possible need from the mitigation account.  The Senator                 
  also   advised   of  need   for   an  indication   from  the                 
  administration  that the  proposed replacement  vessel  is a                 
  priority  in  terms  of  general  funds.   Senator  Kerttula                 
  concurred in need for endorsement from the Governor.                         
                                                                               
                                                                               
  SENATE BILL NO. 16                                                           
                                                                               
       An  Act  relating  to the  financing  authority  of the                 
       Alaska Industrial Development and Export Authority  and                 
       giving  approval  of  the  issuance  of  bonds  for  an                 
       Anchorage airport seafood  facility; and providing  for                 
       an effective date.                                                      
                                                                               
  Co-chair  Pearce  directed  that SB  16  be  brought on  for                 
  discussion.                                                                  
                                                                               
  SENATOR JOHNNY  ELLIS and RILEY  SNELL, Executive  Director,                 
  AIDEA (Alaska  Industrial Development  Authority), Dept.  of                 
  Commerce  and Economic  Development, came  before committee.                 
  Senator Ellis voiced need to  foster private sector economic                 
  development meeting three tests:                                             
                                                                               
       1.   Create jobs for resident Alaskans                                  
       2.   Leveridge significant private sector investment by                 
                 drawing outside dollars into the state.                       
                                                                               
                                                                               
       3.   Add value to state resources prior to export.                      
                                                                               
  Alaska's export of  raw resources  also means that  refining                 
  jobs are exported.                                                           
                                                                               
  The proposed Alaska  Seafood Center  meets the above  tests.                 
  The  project is not  new.   It was  included in  last year's                 
  AIDEA bond bill but was dropped during special  session when                 
  it was determined  that a  stripped down bill  had a  better                 
  chance  of passage.  Necessary  plans and financing were not                 
  in place  at that time, and  the decision was made  to delay                 
  until this year.                                                             
                                                                               
  The  Center  would  provide  450  year-round  jobs  and  750                 
  indirect jobs outside of Anchorage.   Approximately 200 jobs                 
  in  the  construction phase  would  be created  in  the near                 
  future, once authorization  is provided.   Between $100  and                 
  $115 million in new, outside,  private investment would flow                 
  to Alaska for  the Center.   The Alaska Seafood Center  will                 
  not compete with existing primary processors or contract any                 
  of its own fishing.  The Center would make major, year-round                 
  product purchases from Alaska's  primary processors for  use                 
  in  secondary,   value-added  processing.     Following  the                 
  secondary  processing,  the  product   will  be  shipped  to                 
  domestic and international markets.  The Center will make 45                 
  million  pounds   of  cold   storage  available   to  Alaska                 
  processors  and other Alaskan  businesses.  That  has been a                 
  great need  in Alaska for some  time.  The Center  will also                 
  provide reliable  and economical transportation  services to                 
  primary  processors.  The  volume involved will  be of great                 
  benefit.    Money  will  flow  through  Alaska  rather  than                 
  directly to Seattle.                                                         
                                                                               
  Anchorage will provide  the transportation link  for product                 
  coming to and leaving from a central point.                                  
                                                                               
  Senator Ellis  said that  the ultimate  test of the  project                 
  lies in the $15  million in revenue bonds.  If the economics                 
  of the  project  are not  favorable,  it will  not  proceed.                 
  Financiers would match the bonds with $100 to $115  million.                 
                                                                               
                                                                               
  Further, the project is ready to  proceed in that it is  not                 
  tied up in mental health issues  nor are there protests from                 
  interest groups.  Local  government is extremely supportive.                 
                                                                               
                                                                               
  Co-chair  Pearce referenced  accompanying zero  fiscal notes                 
  from  AIDEA  and  the  Dept.  of Transportation  and  Public                 
  Facilities as well as  a supportive position paper from  the                 
  Dept.  of  Commerce and  Economic  Development.   A position                 
  paper from the Dept. of Transportation and Public Facilities                 
  states support but also raises concern regarding location of                 
  the facility near the airport because of a possible increase                 
                                                                               
                                                                               
  in  the  number of  birds in  the  vicinity.   Senator Ellis                 
  explained that  the Center would  not be located  on airport                 
  property.   The airport  intends to  reserve that  for other                 
  uses.  There are suitable locations  for the Center in close                 
  proximity to  the airport.  The processing undertaken by the                 
  Center is not  the type  that would produce  fish waste  and                 
  attract birds that might interfere with aircraft.                            
                                                                               
  Riley Snell  briefly  spoke before  committee,  advising  of                 
  AIDEA belief that significant advancements have been made in                 
  both the financing plan and marketing since last session.                    
                                                                               
  HOWARD  M.  BENEDICT,   President  ASC,  next   came  before                 
  committee.  He  explained that  he first came  to Alaska  in                 
  1976 and  moved to the state in 1981.   Prior to applying to                 
  AIDEA, Mr. Benedict said that he and his family invested $ 6                 
  million in the project.   Feasibility and marketability have                 
  been  determined.    Additional  marketing  since  the  last                 
  session has produced  significant results.  A market for all                 
  of the Center's product appears to be available.                             
                                                                               
  The  Center will  be the first,  value-added facility.   The                 
  high  technology operation will  bring new infrastructure to                 
  Alaska.    There  is   presently  no  substantial  secondary                 
  processing occurring in the state.                                           
                                                                               
  Speaking to human  resources, Mr. Benedict advised  that the                 
  center intends to provide profit sharing to all employees as                 
  well as child care.                                                          
                                                                               
  Last Week, lenders in New York indicated they could increase                 
  the amount of cash available and  decrease the amount of the                 
  mortgage.  Mr.  Benedict reiterated  that the project  would                 
  bring $100 to $115 million in outside money into Alaska.  No                 
  subsidy is being sought.  The Center will repay AIDEA  as it                 
  does commercial lenders.                                                     
                                                                               
  Senator Sharp referred to the  position paper from the Dept.                 
  of Commerce and Economic Development and inquired  regarding                 
  contracts with primary  processors as well as  contracts for                 
  sale of the  product.   Discussion followed between  Senator                 
  Sharp and Mr. Snell regarding the type of analysis conducted                 
  by AIDEA prior to commencement of a project.                                 
                                                                               
  Co-chair Pearce advised of concern by Senator Jacko relating                 
  to  location  of  the  facility  in  Anchorage  rather  than                 
  Dillingham or Dutch Harbor.  Mr. Benedict said that location                 
  had  been  studied  in  great detail.    The  facility would                 
  experience  a  $2.5 million  disadvantage  per year  per 100                 
  million pounds of  production for  being located in  Alaska.                 
  That disadvantage is caused by the fact that product will be                 
  brought  to  Anchorage at  2.1  cent  a pound  and  taken to                 
  Seattle  for  approximately 8  cents.   That  is a  2.5 cent                 
  disadvantage.   Practical  methods of  overcoming that  have                 
                                                                               
                                                                               
  been  developed.   Construction  elsewhere  would  lose  the                 
  transportation advantage provided by the Anchorage  Airport.                 
  Power  is another factor.   The  facility must  compete with                 
  Seattle's power costs.   The proposed  facility will be  the                 
  "largest,  single,  private  power user  in  the  city"--a 4                 
  megawatt power consumer.   A  location other than  Anchorage                 
  would  put  the  cost  of  electricity totally  out  of  the                 
  economic picture.  Seattle power  currently costs 3.81 cents                 
  per kilowatt hour.  The agreement with the City of Anchorage                 
  for an interrupted demand rate is  2.76 cents.  That is  38%                 
  below the Seattle cost.                                                      
                                                                               
  End, SFC-93, #47, Side 2                                                     
  Begin, SFC-93, #49, Side 1                                                   
                                                                               
  In response to an inquiry from  Co-chair Frank, Mr. Benedict                 
  said he  had hired "one  of the finest  secondary processing                 
  people."    He has  resided in  Anchorage  for the  past two                 
  years.  He previously built a plant the same size as the one                 
  proposed for Anchorage and  brought it in on time  and under                 
  budget.    Mr.  Benedict  said  that  the  hire  effectively                 
  eliminated financial  institution concern  that the  project                 
  was starting  something that  had not  been  done in  Alaska                 
  before.                                                                      
                                                                               
  Mr. Benedict  explained that  secondary processing  involves                 
  taking frozen blocks  of seafood, cutting them  into serving                 
  pieces, and breading,  or battering, or topping  with sauce.                 
  This work is now being done in Seattle or on the East Coast.                 
  Frozen fish does not have much  odor.  The concern regarding                 
  additional birds at the airport is not a great one since the                 
  plant will "only do 15 or 20% primary."                                      
                                                                               
  Mr.  Benedict advised  that only top  management positions--                 
  four  or  five  individuals--that  must  possess   necessary                 
  background and knowledge  of this  type of processing  would                 
  not be local hire.  The intent is to hire Alaskans.                          
                                                                               
  In  response to a  further inquiry from  Co-chair Frank, Mr.                 
  Benedict  said the end  product will not  have a  brand.  It                 
  will be produced for other companies.  He further advised of                 
  his intent that the  quality of the product would  be higher                 
  than currently available.                                                    
                                                                               
  Responding  to   a  further  question   regarding  financial                 
  arrangements aside  from AIDEA,  Mr. Benedict  said "In  the                 
  overall picture, our project is  $165 million."  Between $35                 
  and  $50  million  will  be cash,  equity  in  the project--                 
  provided by  an investment  banking firm  in New  York.   In                 
  addition, there will  be approximately  $80 million in  bank                 
  financing as a first mortgage.  The foregoing is in addition                 
  to the $50 million request to AIDEA.                                         
                                                                               
  Co-chair Frank sought  assurance that  AIDEA funds would  be                 
                                                                               
                                                                               
  the  last dollars  rather than  the first  committed  to the                 
  project.  Both Mr.  Benedict and Mr. Snell assured  that all                 
  other commitments would have to be made  prior to commitment                 
  from AIDEA.  Mr. Snell said that he had been in contact with                 
  the New York investment banking firm and the bank that would                 
  raise the  balance of the funds.   Everything is now  in the                 
  working stage.   Nothing is  yet firm.   Mr. Benedict  noted                 
  that part of the  reason the project remains in  the working                 
  stage is that  it "lost  a great deal  of credibility"  when                 
  legislation for the project did not pass last year.  As soon                 
  as  there  is  a  commitment   from  the  state,  the  other                 
  arrangements will be  finalized.  Mr. Benedict  advised that                 
  his investment  banking firm  raised over  $1.5 billion  for                 
  internal projects over the last six weeks.  The proposed $35                 
  million request is small by comparison.                                      
                                                                               
  Discussion followed between Co-chair  Frank and Mr. Benedict                 
  regarding the means utilized to overcome cost  differentials                 
  between Anchorage and Seattle.  Mr. Benedict cited decreased                 
  electrical  costs, an adequate labor supply, and manufacture                 
  of  "extremely  efficient" equipment.    Many  existing East                 
  Coast manufacturers have not upgraded their equipment.  They                 
  thus do far  too much hand labor.  A total of nine different                 
  elements not only overcome the  differential but overcome it                 
  substantially.  Mr. Benedict voiced his assumption that once                 
   the  proposed plant  is operational  and successful,  others                
  will follow.  Someone must break ground first.                               
                                                                               
  In  response  to  a  question  from  Senator  Kerttula,  Mr.                 
  Benedict  said  that eighty  percent  of production  will be                 
  committed to  the "Lower  Forty-eight."   The remaining  20%                 
  will either  be sold within  the United States  or overseas,                 
  which ever  is best in terms  of the strength of  the dollar                 
  and other financial considerations.  Mr. Benedict noted that                 
  Americans eat  little seafood compared  to the  rest of  the                 
  world.  The  average in the U.S. is  14.9 pounds per person.                 
  Europeans average 50  to 60 pounds, and the Japanese average                 
  150 pounds.                                                                  
                                                                               
  Responding  to questions  from Senator  Kelly, Mr.  Benedict                 
  noted that  fish sticks  will comprise  the low  end of  the                 
  product  line.    Packaging  will  include family  packs  in                 
  addition  to  single dinners.    The Center  will  also work                 
  directly with the food service industry to serve restaurants                 
  and  cruise  ships.   Both have  expressed  need for  a high                 
  quality product that is not now available.                                   
                                                                               
  In reply  to  a further  question from  Co-chair Frank,  Mr.                 
  Benedict indicated that interest rates  are presently so low                 
  that  AIDEA's  interest  component  will  not  be  of  great                 
  assistance.   The project  needs a  strong demonstration  of                 
  state  support.   During  further  discussion, Mr.  Benedict                 
  spoke to outside perception that Alaska has more  money than                 
  it knows what  to do with.  Investment banking firms seek to                 
                                                                               
                                                                               
  utilize funding  in areas  evidencing demonstrated need  and                 
  strong local support.                                                        
                                                                               
                                                                               
  SENATE BILL NO. 171                                                          
                                                                               
       An  Act  relating  to  the  contracting  and  financing                 
       authority  of  the  Alaska Industrial  Development  and                 
       Export Authority,  giving approval  of the  issuance of                 
       the  authority's   revenue  bonds,  and   delaying  the                 
       termination date of the authority's business assistance                 
       program; and providing for an effective date.                           
                                                                               
  Co-chair  Pearce  directed  attention to  SB  171  which she                 
  explained  contains  AIDEA  authorization  for an  Anchorage                 
  International Airport fueling  facility and  reauthorization                 
  and delay  of sunset  for the  business assistance  program.                 
  She  then  directed attention  to  revised amendment  no. 1,                 
  advising  that  it  would add  the  Mat-Su,  Port MacKenzie,                 
  Midrex project.   The Co-chair further referenced  amendment                 
  no. 2 to  delete the word  "revenue" from authorization  for                 
  the fueling facility.                                                        
                                                                               
  Senator Kerttula requested a brief recess.                                   
                                                                               
                       RECESS - 9:50 a.m.                                      
                     RECONVENE - 10:05 a.m.                                    
                                                                               
  RILEY  SNELL, Executive Director,  AIDEA, Dept.  of Commerce                 
  and Economic  Development, came before committee.   Co-chair                 
  Pearce observed that she had spoken to both amendments 1 and                 
  2 while  the bill was in  Senate Labor and Commerce,  but no                 
  changes were made in the legislation at that time.                           
                                                                               
  Mr. Snell  explained that  the first provision  of the  bill                 
  relates to  the  Anchorage Fueling  and  Service  Company--a                 
  consortium of airlines  operating the fueling system  at the                 
  Anchorage Airport.    He noted  that a  large contingent  of                 
  airline officials and a representative of MAPCO were present                 
  to speak to the project.                                                     
  He then introduced members of that contingent.                               
                                                                               
  JOHN  OLSON, Deputy Director,  Development, AIDEA,  Dept. of                 
  Commerce  and Economic  Development, came  before committee.                 
  He explained  that the  consortium contains  a "wide  cross-                 
  section  of  principal  users  of  Anchorage   International                 
  Airport, including foreign flag carriers, domestic and . . .                 
  even some air taxi operators . . . ."                                        
                                                                               
  In response  to a  question from  Co-chair Pearce  regarding                 
  international carriers  that have  pulled out  of Anchorage,                 
  Mr.  Snell   explained  that  "they   are  still   obligated                 
  financially to meet some of the  debt of the company."   The                 
                                                                               
                                                                               
  existing  agreement  also  contains  a step-up  requirement.                 
  Should a carrier fail or cease  to operate in Anchorage, the                 
  carrier  would  be  obligated  by  two  or three  times  its                 
  commitment to  satisfy financial requirements.   AIDEA would                 
  negotiate that type of  arrangement in the new financing  as                 
  well.                                                                        
                                                                               
  Mr.  Olson   directed  attention   to  charts  and   packets                 
  containing  background information  and letters  of support.                 
  He then asked  that TOM MUSHOVIC, Partner,  Signature Flight                 
  Support,  explain  the  various  components.    Mr. Mushovic                 
  pointed out that fuel presently  flows to Anchorage via  one                 
  of three methods:                                                            
                                                                               
       1.   Rail car from North Pole--MAPCO                                    
            fuel coming to the Anchorage area.                                 
                                                                               
       2.   The Nikiski pipeline containing Chevron and                        
            TESORO products.                                                   
                                                                               
       3.   Marine shipment via barge or tanker from                           
            anywhere in the world.                                             
                                                                               
  All commercial  jet aviation  fuel reaching  Anchorage comes                 
  via one of the  above means.  Within the city,  fuel flow to                 
  the airport is by one of two methods:                                        
                                                                               
       1.   The Alaska Railroad from the downtown core.                        
       2.   The AFSC cross-town pipeline from the Port of                      
            Anchorage.                                                         
                                                                               
  One of the  benefits of the  proposed project is that,  once                 
  constructed,  the new  terminal will  allow interception  of                 
  product from the Nikiski  line.  That will free  up capacity                 
  on the cross-town line and allow for a more equitable supply                 
  of fuel  to the airport.  There are  times when rail car and                 
  cross-town delivery barely  meets needs.   The new  terminal                 
  and interception from  the Nikiski  pipeline will allow  the                 
  cross-town pipeline to satisfy demand.   Need for rail  cars                 
  from  the   Port  of  Anchorage  to  the   airport  will  be                 
  diminished.                                                                  
                                                                               
  The present airport facility  is a combination of  three old                 
  tank  farms.    The  site  now  occupied  by  AFSC  will  be                 
  demobilized  and a  new  operation  and maintenance  station                 
  located thereon.  That  is the second phase of  the proposed                 
  project.   The primary phase  consists of construction  of a                 
  new tank farm,  consisting of  three, 100,000 barrel  tanks.                 
  That effectively increases supply from two to twelve days of                 
  fuel.   Other  components  (control  building,  pump  house,                 
  filter building etc.) would also be part of the project.                     
                                                                               
  Co-chair Pearce asked if the project includes reconstruction                 
  of the existing cross-town pipeline.   Mr. Mushovic answered                 
                                                                               
                                                                               
  that  the  only pipeline  cost  included in  the  request is                 
  extension of the  six-inch line  to the new  facility.   The                 
  cost of the  tie in from the  Nikiski line will be  borne by                 
  TESORO.                                                                      
                                                                               
  Senator Sharp commented that  while the cost to be  borne by                 
  TESORO might be a minor part of the project, it could give a                 
  competitive  advantage  to one  refiner  over another.   Mr.                 
  Mushovic  assured  that  the  project  does  not  provide  a                 
  competitive advantage to anyone.  It "opens up the supply of                 
  fuel to  the airport."   At  the present  time, all  fuel is                 
  passed through the Port of Anchorage and subsequently turned                 
  around and  brought out  to  the airport.   Interception  of                 
  product from  the Nikiski line  will not give  a competitive                 
  advantage to either  TESORO or  Chevron.  That  interception                 
  merely opens up  the cross-town pipeline, allowing  MAPCO to                 
  more freely increase delivery.                                               
                                                                               
  Co-chair Pearce asked if TESORO provided a letter of support                 
  for the project.   Mr.  Snell explained that  he had  talked                 
  with TESORO representatives who indicated support.  A letter                 
  will be forthcoming.                                                         
                                                                               
  Senator   Sharp  recalled   testimony   in  previous   years                 
  indicating that the cross-town pipeline is in disrepair.  He                 
  then inquired  concerning the  remaining life  of the  line.                 
  Mr. Mushovic said that  the line from the Port  of Anchorage                 
  to the airport is in excellent  condition and is expected to                 
  last 25 to 30 years.  It was constructed in the early 1960s.                 
  Co-chair Pearce echoed statements by Senator Sharp, advising                 
  that current  testimony on the pipeline is  a departure from                 
  that  of the  past.   Prior testimony from  the municipality                 
  indicated that the pipeline had environmental problems.  Mr.                 
  Mushovic acknowledged a  situation in 1988-89 when  the line                 
  developed a leak  near Chester Creek.   The leak was  caused                 
  when construction on C Street relocated the line and damaged                 
  it with construction  equipment.  That is the only situation                 
  that has caused concern.                                                     
                                                                               
  In  response to  a question from  Senator Rieger  asking who                 
  would manage the tank  farm, Mr. Mushovic said that  if AFSC                 
  remains the  operator, it  would also  manage the  facility.                 
  Senator Rieger next asked what arrangements would be made to                 
  protect  the  state investment.    Mr. Snell  explained that                 
  while   design   and   construction  oversight,   operation,                 
  maintenance, and liability  are vested  in AFSC, AIDEA  will                 
  conduct annual  maintenance  and  operating  budget  review.                 
  AIDEA  also   reserves  the   right   to  conduct   periodic                 
  inspections  to ensure  that  the  facility  is kept  up  to                 
  standard.                                                                    
                                                                               
  Senator Rieger asked if all partners in the consortium would                 
  jointly  and  severally  guarantee  the  debt.    Mr.  Snell                 
  responded negatively.   He then reiterated  earlier comments                 
                                                                               
                                                                               
  regarding step-up provisions, requiring that a member of the                 
  consortium  assume  two or  three  times  the ratio  of  the                 
  member's investment should the member  airline fail or leave                 
  the area.                                                                    
                                                                               
  In response to  an additional question from  Senator Rieger,                 
  Mr.  Snell  indicated that  AIDEA's  operating  budget would                 
  cover the  cost of staff  assigned to  oversee the  project.                 
  Any third-party  costs  for independent  analysis  would  be                 
  borne by the developer.                                                      
                                                                               
  Co-chairman Frank asked why AIDEA would  be the owner on the                 
  proposed projects  rather than  merely the  financier.   Mr.                 
  Snell  explained  that  the  principal  reason  is  to  take                 
  advantage  of IRS  tax-exempt bond  issues  for governmental                 
  entities that provide infrastructure  development for ports,                 
  harbors,  or airports.    In order  to obtain  that benefit,                 
  ownership must be vested in the governmental entity.                         
                                                                               
  Senator Sharp asked who would be responsible for clean up of                 
  the old  tank farm.  Mr. Snell said  that AIDEA would not be                 
  responsible.   AIDEA  will seek  indemnification  from prior                 
  existing conditions.  Senator Rieger then asked who would be                 
  responsible for  environmental issues relating to  the three                 
  new tanks.  Mr.  Snell said that responsibility  would inure                 
  to  the  fueling  consortium  through  contract  provisions.                 
  Senator Rieger  suggested  that  strict  liability  law  may                 
  prohibit  that.   Mr. Snell  acknowledged the  concern.   He                 
  explained that for that reason the consortium is responsible                 
  for design, construction, maintenance, and operation.  There                 
  will  thus be only one  party liable over  the course of the                 
  project.   Contract provisions will  fix responsibility  for                 
  spills, cleanup, etc. with the  consortium.  The airport, as                 
  the  land  owner,  would  also  come into  play  should  the                 
  consortium  have  difficulty  in  meeting  its   obligation.                 
  Senator  Rieger  asked   if  harm  would  be  done   to  the                 
  legislation if indemnification from environmental issues was                 
  added.  Mr.  Snell reiterated  that responsibility would  be                 
  fixed  in  contract.    If  AIDEA  does   not  receive  that                 
  assurance, it will not proceed with the project.                             
                                                                               
  Discussion followed between  Co-chair Pearce  and Mr.  Snell                 
  regarding possible  environmental problems  at the  existing                 
  facility.    Mr. Snell  stressed  that the  proposed project                 
  would  be  located on  new  land  which  would be  base-line                 
  studied   to   determine   that   there   is   no   existing                 
  contamination.   Ongoing  monitoring  programs would  ensure                 
  that no contamination  occurs.  Further  discussion followed                 
  regarding demobilization efforts at the existing facility.                   
  Senator Kerttula commented  on past efforts relating  to the                 
  right-of-way leasing  act.   Experts  testified  that  well-                 
  written contracts are more powerful  instruments in terms of                 
  giving direction than are state statutes.                                    
                                                                               
                                                                               
  Discussion followed regarding planned demolition of existing                 
  facilities and use of the land thereafter.                                   
                                                                               
  Co-chair Pearce next  directed attention to amendment  no. 2                 
  which she explained was  requested by AIDEA.  The  amendment                 
  would delete  the word "revenue"  on page  1, line 12.   Mr.                 
  Snell explained that  use of the  word "revenue" limits  the                 
  ability  of  the  authority to  use  its  general obligation                 
  powers  to  finance projects.    Revenue financing  is based                 
  strictly upon the credit of the participants in the project.                 
  AIDEA seeks the flexibility to deliver "the cheapest capital                 
  cost to the project."  Providing that AIDEA gets the type of                 
  security it seeks  from developers, the authority  wants the                 
  ability to  use its general  obligation powers.   Under that                 
  arrangement,  the  faith  and  credit  of the  authority  is                 
  obligated by issuance of the bonds.  Senator Kelly expressed                 
  a  preference  for issuance  of  revenue bonds  over general                 
  obligation bonds.   Senator Rieger voiced his  discomfort as                 
  well, advising that  a $40  million obligation represents  a                 
  substantial portion of AIDEA's net worth.                                    
                                                                               
  Senator Kelly  asked if  AFSC  could finance  a $40  million                 
  project without AIDEA backing.                                               
                                                                               
  End, SFC-93, #49, Side 1                                                     
  Begin, SFC-93, #49, Side 2                                                   
                                                                               
  Mr. Snell  advised that  while it  could be  done, it  would                 
  require a joint and severable relationship with the airlines                 
  to  obtain    financing.    FRED KETZEBACK,  Director,  Fuel                 
  Administration, Alaska  Airlines, and  Chairman, AFSC,  came                 
  before committee.   He explained  that the consortium  could                 
  obtain financing but  it would  not be as  favorable as  the                 
  tax-exempt arrangement through  AIDEA.  Increased  financing                 
  charges would be passed along to the airlines in fuel costs,                 
  etc.  Mr. Snell observed that  since revenue bonds are based                 
  on  the  credit  of  the   developer,  they  entail  greater                 
  financing  costs  than  do general  obligation  bonds.   The                 
  difference  between  the  two  depends  upon  weekly  market                 
  conditions, but  it could  range 25  to 50  basis points  in                 
  interest rates  (a quarter  to one-half  percent).   Senator                 
  Frank  voiced  his  understanding  that in  issuing  general                 
  obligation bonds,  AIDEA was,  in effect,  taking a  greater                 
  risk and passing the benefit on  to the borrower.  Mr. Snell                 
  observed that AIDEA would charge the developer a higher rate                 
  for  use  of general  obligation  bond authority.    While a                 
  higher  fee  would be  paid,  the  developer would  get  the                 
  overall  benefit  of cheaper  money.   Senator  Frank voiced                 
  concern regarding the additional risk.  He then asked if the                 
  authority had proceeded  in this  manner on other  projects.                 
  Mr. Snell told  members that general obligation  powers were                 
  used at Unalaska and the Skagway Ore Terminal.  The  Red Dog                 
  Mine at Kotzebue  was a revenue  bond issue.  Senator  Frank                 
  questioned  whether  such  use of  general  obligation  bond                 
                                                                               
                                                                               
  authority was good policy.                                                   
                                                                               
  Co-chair Pearce  asked why the international  airport system                 
  did  not  seek to  utilize  federal funds  for  the project,                 
  retaining ownership  within the  airport while  allowing the                 
  consortium to  operate it.  Mr.  Snell said that he  was not                 
  aware that the project would be eligible for such funding.                   
                                                                               
  Discussion followed  between  Senator Rieger  and Mr.  Snell                 
  concerning  AIDEA  charges  on   general  obligation  versus                 
  revenue  bonds.   Mr.  Snell  said  that costs  are  usually                 
  negotiated.  For  issuance of  general obligation bonds  for                 
  Federal Express, AIDEA  charged 85  basis points beyond  the                 
  cost  of   money.    Ownership  was  also  retained  by  the                 
  authority.     Senator   Kelly   asked   if   the   original                 
  recommendation  from  AIDEA  was  for  issuance  of  general                 
  obligation  bonds.  Mr. Snell concurred.   He suggested that                 
  use of the word "revenue" was  most likely a drafting error.                 
  In response  to a  question from  Senator Rieger, Mr.  Snell                 
  explained that under  a revenue bond issue  AIDEA would have                 
  to retain ownership to keep tax-exempt financing in place.                   
                                                                               
  Senator  Frank voiced his  understanding that  regardless of                 
  whether  the  project  proceeds  as  a  revenue  or  general                 
  obligation  bond issue,  should  default occur,  AIDEA would                 
  assume  financial  responsibility.    Mr.  Snell  concurred,                 
  advising that if the authority did  not do so its reputation                 
  in the marketplace would be severely damaged.  He added that                 
  because  the proposed  project  involves  both  foreign  and                 
  domestic  carriers as well  as Federal  Express and  UPS, it                 
  collectively has good credit.                                                
                                                                               
  Co-chair Pearce  next directed attention to  bill provisions                 
  relating  to extension  of the business  assistance program.                 
  Mr. Snell explained  that the  provision extends the  sunset                 
  date to 1996.   Material  changes in the  program were  made                 
  last session at  the request of banking institutions and the                 
  authority to make the  program more usable and to  fulfill a                 
  need for small loans in rural  Alaska.  Mr. Snell urged that                 
  the sunset extension be approved.                                            
                                                                               
  Co-chair Pearce directed attention to  revised amendment no.                 
  1.  She  explained that the  amendment would place both  the                 
  amount of aircraft  fueling facility bonds and  the proposed                 
  Midrex bonds in  the title.   It would  further authorize  a                 
  facility for use by  Midrex Corporation.                                     
                                                                               
  DON MOORE, Borough  Manager, Matanuska-Susitna Borough, came                 
  before  committee.   He  explained  that the  Midrex project                 
  would  be located  in upper  Cook Inlet at  Point MacKenzie.                 
  Midrex Corporation is  an American corporation and  a wholly                 
  owned subsidiary of Japan's  Kobe Steel.  Midrex  utilizes a                 
  process  by  which  iron  ore  is  directly  reduced into  a                 
  metallized   product   for    steel   making   and   foundry                 
                                                                               
                                                                               
  applications.   The process  uses large  amounts of  natural                 
  gas.    Approximately 92%  of the  natural gas  is used  for                 
  chemical  feedstock.  Only  8% is used  as combustible fuel.                 
  That is important in  light of the pending federal  BTU tax.                 
  Senator  Kelly  asked  if the  plant  could  be  operated by                 
  another energy  source.  Mr.  Moore said that  while another                 
  energy  source  could be  used  to operate  the  system, the                 
  process  requires the carbon and hydrogen  in natural gas as                 
  the chemical reductant.   The resulting product  is marketed                 
  in the Pacific  Rim.  Although  there are 42 similar  plants                 
  throughout the world, there  are none "on the west  coast of                 
  either  of the Americas."   As the  third world electrifies,                 
  the Pacific Rim market will grow larger.  The Midrex process                 
  creates  feed stock  for electric  arc furnaces and  will be                 
  shipped to other parts of  the world.  The product  does not                 
  compete with scrap  metal.  It  assists the scrap  industry.                 
  With increasing metal standards for steel, reprocessed scrap                 
  metal is not of sufficient  quality for modern construction.                 
  Feed  stock  is thus  added  to the  scrap  to  bring it  to                 
  standard.                                                                    
                                                                               
  The   capital   investment   for  the   proposed   plant  is                 
  approximately $200 million.   The facility would  employ 120                 
  full-time employees.   During construction, employment would                 
  be  considerably  higher than  that.   The stability  of the                 
  United States and  the Alaskan  labor market are  attractive                 
  features for  investment.   There are  currently only  three                 
  such plants located in North America.                                        
                                                                               
  The borough has 5,000 acres of land at the site and has made                 
  a commitment of that  land.  The product is  compatible with                 
  coal.    Coal from  the Wish  Bone  Hill project,  should it                 
  commence operation, could be loaded and transported from the                 
  same site.                                                                   
                                                                               
  Mr. Moore  described the  effort as  "authentically a  free-                 
  trade-zone  project."  Iron ore  from outside the state (the                 
  West  Coast  and  South  America)  would  be  processed  for                 
  shipment to Japan.  Co-chair Pearce voiced her understanding                 
  that  the  Municipality  of  Anchorage  refused  the  Mat-Su                 
  Borough request to be  part of the proposed Anchorage  free-                 
  trade  zone.   She  then  asked  if Mat-Su  had  submitted a                 
  federal application for  a separate  zone.   Mr. Moore  said                 
  that Mat-Su has not yet  applied for free-trade-zone status.                 
  In  response  to comments  by  the Co-chair  indicating that                 
  establishment  of such  zones  takes considerable  time, Mr.                 
  Moore said that  the zone was not  "absolutely necessary" to                 
  the project.   Mr. Snell added that time needed to bring the                 
  proposed  plant  into   service  would  be  sufficient   for                 
  processing a free-trade-zone application.                                    
                                                                               
  Mr.  Moore  stressed  the  advantage  of locating  at  Point                 
  MacKenzie:                                                                   
                                                                               
                                                                               
       1.   A close supply of natural gas.                                     
                                                                               
       2.   Available low-cost industrial land.                                
                                                                               
       3.   Deep-water port site with a Corps of Engineers                     
            404 permit.                                                        
                                                                               
       4.   Strategically positioned for emerging  Pacific Rim                 
            markets.                                                           
                                                                               
       5.   Stable politics and labor force.                                   
                                                                               
  He next directed  attention to the  proposed budget for  the                 
  $50 million project.   In  response to a  question from  Co-                 
  chair  Pearce,  Mr.  Moore explained  that  the  $50 million                 
  represents   only   the   "public   loan   portion  of   the                 
  infrastructure."   The  Midrex plant  would involve  private                 
  enterprise investment.  AIDEA backed bonds would provide for                 
  the dock and conveying  system.  Senator Kelly asked  if the                 
  bonds would cover  a boat  loading facility or  a dock  that                 
  could be expanded  for other uses  such as the Alaska  State                 
  Ferry, passenger  ships, etc.  Mr. Snell  explained that the                 
  concept at this time is to  design something for the client.                 
  Funding above and beyond Midrex debt service would require a                 
  clear demonstration that  there were other sources  of funds                 
  to cover that portion.                                                       
                                                                               
  Responding  to  an additional  question  from  Senator Kelly                 
  regarding land  arrangements, Mr.  Moore explained that  the                 
  arrangement would not be entirely cost free.  A lease, which                 
  is yet to be  negotiated, would be involved.   Senator Kelly                 
  voiced  reluctance  to  approve  financing  for  the project                 
  without a firm lease in place.  Mr. Snell observed, "This is                 
  a positioning effort . . .  to demonstrate to private sector                 
  participants  that  we   are  prepared  to  participate   in                 
  infrastructure  development."    The  authority  would  only                 
  commit  funds  after   review  of  a  financing   plan  that                 
  identifies all costs and  all sources of funds.   That would                 
  include land use and the lease with the borough.                             
                                                                               
  When  questioned  further by  Senator  Kelly, asking  if the                 
  proposed  legislation  represents  a commitment,  Mr.  Snell                 
  answered:                                                                    
                                                                               
       I look  at it, Senator, certainly,  as legislative                      
       authorization to  proceed with the  project.  But,                      
       certainly, it's  not an indication that  there's a                      
       done deal.                                                              
                                                                               
  AIDEA will examine the financial feasibility of the project,                 
  the economics,  the risk, etc.,  and assure that  Midrex has                 
  the ability to repay the debt prior to commitment.                           
                                                                               
  Senator  Rieger   asked  if   the  remaining   $150  million                 
                                                                               
                                                                               
  investment would be made before  or after dock construction.                 
  Mr.  Snell  said  that  there  would  probably  be  parallel                 
  construction  efforts.   Site  development  is likely  to be                 
  ongoing as port development commences.                                       
                                                                               
  Senator Rieger next  inquired concerning  the extent of  the                 
  guarantee from Kobe Steel.  Mr. Snell acknowledged that that                 
  had not yet been negotiated.                                                 
                                                                               
  Discussion followed concerning the triangular shipping route                 
  for raw and processed materials.                                             
                                                                               
  Co-chair  Pearce inquired regarding a resolution from Midrex                 
  Corporation.   Mr.  Snell advised  of a board  of directors'                 
  resolution authorizing development of  the project with  the                 
  Mat-Su Borough and Midrex.                                                   
                                                                               
  In response  to a  question from  Senator Rieger  concerning                 
  ownership of the  dock and loading facility, Mr. Snell noted                 
  IRS  code advantages  for tax-exempt financing  under public                 
  ownership.   Public ownership  also makes sense  in terms of                 
  possible multiple users.                                                     
                                                                               
  Further discussion  followed regarding  1986 changes  in the                 
  Internal Revenue Service  Code.  Mr. Snell  observed, "About                 
  the only thing that remains for tax-exempt financing anymore                 
  are ports and harbors and airports."                                         
                                                                               
  Additional  comments   followed  by  Mr.   Snell  concerning                 
  possible share costs under a multiple use arrangement.                       
                                                                               
  Co-chair Pearce voiced her intention to  move both SB 16 and                 
  SB 171 from  committee at the same time.   She then directed                 
  attention to SB  171 and  inquired regarding disposition  of                 
  revised amendment no. 1, relating to Midrex.                                 
                                                                               
  Senator  Kelly  inquired concerning  the  tax status  of the                 
  proposed airport fueling facility.  Mr. Snell explained that                 
  if the  project is owned by  AIDEA, it would be  exempt from                 
  municipal  taxation.    If owned  by  Anchorage  Fueling and                 
  Service Company, it would  be subject to taxation.   Senator                 
  Kelly  expressed  a  preference  for   adoption  of  revised                 
  amendment  no.  1  but not  amendment  no.  2--pertaining to                 
  deletion of language  concerning "revenue  bonds."  He  then                 
  formally  MOVED  for  adoption of  revised  amendment  no. 1                 
  relating to  Midrex.   Senator Rieger  OBJECTED.  He  voiced                 
  support for the  concept of the  project, but noted lack  of                 
  supporting  information, questioning whether it was ready to                 
  proceed.  Senator Kerttula said that if the project does not                 
  meet all  criteria, it  will not  proceed under  AIDEA.   He                 
  expressed concern that delay of authority might mean loss of                 
  "this year" in terms of timing   as well as ultimate loss of                 
  the opportunity.  Mr. Snell concurred in comments by Senator                 
  Kerttula.   The legislation represents a  positioning effort                 
                                                                               
                                                                               
  whereby Alaska may  compete for the project  and demonstrate                 
  AIDEA's   willingness   to  participate   in  infrastructure                 
  development.  That development poses  a major cost component                 
  to the developer.                                                            
                                                                               
  Senator Rieger reiterated support for the project, but again                 
  suggested that authorization  appears to  be premature.   He                 
  voiced reluctance to  vote on a  $50 million issue based  on                 
  little information.  Co-chair Frank indicated need to review                 
  terms and conditions that would have  to be met before AIDEA                 
  would proceed.   Co-chair Pearce  pointed to the  fact sheet                 
  from AIDEA and limitations built into AIDEA statutes.                        
                                                                               
  Senator Kelly raised  concern regarding lack of  information                 
  on Mat-Su  Borough involvement.   He asked what  the borough                 
  would be devoting to the project.   Mr. Moore explained that                 
  borough  ordinances establish  set  rates  and maximums  for                 
  lease of borough land.  The borough could both forgive lease                 
  payments and levy  a property  tax on the  development.   It                 
  seeks the development  on behalf of  the state and the  jobs                 
  for the local economy.                                                       
                                                                               
  Co-chair  Pearce requested that  Senator Kelly  withdraw his                 
  motion for  adoption of  revised amendment  no. 1  and asked                 
  that Mr. Snell  obtain a  copy of the  resolution passed  by                 
  AIDEA as  well as  additional information  concerning action                 
  intended  to be  taken by  the  board once  authorization is                 
  provided.                                                                    
                                                                               
  Co-chair Frank voiced his understanding that bonds issued by                 
  AIDEA would be repaid by revenue from the Midrex  operation.                 
  Aside from  the tax-exempt  benefit of  the  bonds for  port                 
  construction,  no  subsidy  would  be  involved.    He  then                 
  registered his  support for  the project,  saying that  such                 
  capital development should be encouraged.                                    
                                                                               
  Senator Kelly WITHDREW  his motion  for adoption of  revised                 
  amendment no. 1 and reiterated  need for further information                 
  on Mat-Su Borough involvement.                                               
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting was adjourned at approximately 11:25 a.m.                        
                                                                               

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