Legislature(1993 - 1994)
03/11/1993 03:38 PM Senate TRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE TRANSPORTATION COMMITTEE
March 11, 1993
3:38 p.m.
MEMBERS PRESENT
Senator Bert Sharp, Chairman
Senator Randy Phillips, Vice Chairman
Senator Tim Kelly
Senator Georgianna Lincoln
Senator Jay Kerttula
MEMBERS ABSENT
All present
COMMITTEE CALENDAR
SENATE BILL NO. 148
"An Act relating to the Alaska Railroad Corporation (ARRC);
and providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SB 148 - No previous action to record.
WITNESS REGISTER
Senator Steve Frank
Alaska State Legislature
State Capitol Building
Juneau, Alaska 99801-1182
POSITION STATEMENT: Gave sponsor statement for SB 148.
Senator Drew Pearce
Alaska State Legislature
State Capitol Building
Juneau, Alaska 99801-1182
POSITION STATEMENT: Gave sponsor statement for SB 148.
Bob Hatfield, Chief Executive Officer
Alaska Railroad Corporation
P.O. Box 107500
Anchorage, Alaska
POSITION STATEMENT: Commented on SB 148.
Bob Poe, Legislative Staff
to Senator Pearce
Alaska State Legislature
State Capitol Building
Juneau, Alaska 99801-1182
POSITION STATEMENT: Commented on SB 148.
Cathy Shultz
Fairbanks Hotel/Motel Association
1717 University Avenue
Fairbanks, Alaska 99709
POSITION STATEMENT: Testified in support of SB 148.
Dennis Lavey
Days Inn Motel
321 East Fifth
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on SB 148.
Ralph Nogal, President
Alaska Hotel/Motel Association
General Manager, Anchorage Hilton
500 West Third
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of SB 148.
Vernon Miller
1455 Skyline Drive
Fairbanks, Alaska 99712
POSITION STATEMENT: Testified on SB 148.
Leicha Welton
Fairbanks Association of Bed and Breakfasts
P.O. Box 80488
Fairbanks, Alaska 99708
POSITION STATEMENT: Testified in support of SB 148.
Paul Welton
Alaska Seven Gables Bed and Breakfast
P.O. Box 80890
Fairbanks, Alaska 99708
POSITION STATEMENT: Testified on SB 148.
Jim Bruckman, Member
United Transportation Union
13001 Foster Road
Anchorage, Alaska
POSITION STATEMENT: Testified against SB 148.
Jerry McCutcheon
Anchorage, Alaska
POSITION STATEMENT: Made comments regarding the ARRC.
ACTION NARRATIVE
TAPE 93-13, SIDE A
Number 001
CHAIRMAN SHARP called the Senate Transportation Committee to
order at 3:38 p.m.
The only order of business to come before the committee was
SB 148 (ALASKA RAILROAD CORPORATION), sponsored by the
Senate Finance Committee. Senator Sharp noted that Senator
Frank and Senator Pearce, Co-Chairs of the Senate Finance
Committee, were in attendance.
Number 027
SENATOR FRANK was first to testify on SB 148. He explained
that his particular concern with the Alaska Railroad
Corporation (ARRC) is that while they are doing a good job
of operating the rail road, they are in competition with the
private sector in the real estate area, particularly hotels.
He said it is fine for the railroad to lease property to
hotel developers or perspective hotel developers, but a
distinction should be made in the area of equity
participation by the railroad and guaranteeing of debt,
participating in the debt obligation, and obligating the
railroad. That puts them at an unfair advantage against the
private sector and places the railroad in a position of risk
that isn't necessarily appropriate. Senator Frank said the
purpose of the legislation is to more fully define the
proper role of the railroad in Alaska. The legislature
speaks for the people of Alaska and they own the railroad.
He said Senator Pearce has other concerns that she will
speak to.
SENATOR KERTTULA asked Senator Frank if he has checked into
the legislative confirmation of the directors for the ARRC.
Senator Frank said he hasn't checked into it, but noted it
is a very valid issue and is completely logical. It is
appropriate for the legislature to confirm boards of major
corporations, including the railroad, AHFC, and other major
assets of the State of Alaska. If it could be done within
the context of SB 148, he would be receptive to it.
Senator Frank said the ARRC has done a good job of running
the railroad. The intention is not to thwart their ability
to run a good railroad. Some would argue that railroads
down south are doing all these things. The railroad has
proven that they don't need to operate hotels and other
kinds of non-transportation related businesses to be
successful. He said he wants it to be clear that his intent
is not to impact the railroad's ability to be successful or
to cause undue hardships.
Senator Kerttula said one thing of concern to him is that if
the state is going to reduce the railroad's capacity to earn
from its ancillary resource income, than we should not
subsidize any competition of the railroad either. He said
there is legislation to subsidize competition of the
railroad such as with the transport of oil. If we are going
to allow for those types of competitive programs to continue
with any type of state support, then the railroad should be
given broad latitude if we expect it to be able to continue.
Senator Frank said Senator Kerttula's comments are well
taken.
Number 183
SENATOR PEARCE, Co Chair, Senate Finance Committee, said she
believes that the railroad has been doing a good job at
being a railroad. However, one thing that concerns her is
that she thinks that the railroad should be treated much
like how other treat other private appropriations of the
state, including AIDA, Aero Space Authority, Permanent Fund,
etc., are treated. The railroad board should be acting
under the open meetings law. She said she also believes
that the members of the board should comply with the Alaska
Public Offices Commission (APOC) reporting. Senator Pearce
said when the original legislation was passed, while clearly
by statute it is allowable for the chief operating officer
to also be a board member, she doesn't expect that it was
intended or expected that the person would also fill the
statutory position that one member of the board shall be or
have been an exempted official of the U.S. Railroad and
shall be selected in accordance with any requirements
imposed under the Interstate Commerce Act. She said that
she believes what was intended was that outside expertise
would be brought in for the railroad to use on their board.
Senator Pearce said one of the provisions in the bill
changes that. She said over the years, the Municipal League
has time and time again asked that the legislature deal with
the property tax situation of the railroad. SB 148 does
take a step towards that. Under the bill, land that has
been leased to an agency or person for fair value, would be
subject to real property taxes. That tax goes to the
municipalities in which that property is to the extent of
that interest. The businesses on the railroad property
should be wanting a level playing field and not have tax
relief. Senator Pearce thanked the committee for scheduling
the bill.
Number 240
BOB HATFIELD, Chief Executive Officer (CEO), Alaska Railroad
Corporation, said the issues in the bill aren't new to the
railroad and he looks forward to the opportunity of
discussing them. Ms. Hatfield referred to page 2, line 28
"(D) the real property of the ARRC that is leased for fair
value to a municipal, state, or federal agency or a person
is taxable," and said that isn't something that disturbs him
greatly. What needs to be researched is whether the current
leases call for a pass through of the tax income. The
railroad's property is appraised based on the type leasing
activity that is currently being undertaken. Mr. Hatfield
said he would be happy to discuss the tax issue as it has
the potential of solving a lot of problems. The railroad
could take a significant revenue hit if the lessees do not
now recognize a tax expense. He said he hasn't any idea how
much it would be but probably several hundreds of thousands
of dollars. There is no vehicle to get that money back.
SENATOR KERTTULA said as user of the railroad and railroad
services, if you can't pass the tax on the overhead of the
railroad and its costs are going to be passed on to freight
users. The facilities existed before there was a town of
Anchorage. There may be some historic rights. He said he
isn't as sympathetic to adding to the cost of the services
for that area. Senator Kerttula said unless the tax can be
passed on to the renters without absorbing them or taking a
big hit in the reduction of rents, it isn't in his
constituent's interest in providing for a tax on the
facilities. He noted he will be opposed to it.
Mr. Hatfield said they would have to find a place to make up
that revenue. There are many leases that are $1 a year.
One of the reasons that can be done is because it is used as
an offset. If we can find a good way to make this work, it
may solve a lot of discussion the railroad gets involved in.
Mr. Hatfield noted the leases are thirty-five year leases
with five year renewals built in.
Mr. Hatfield referred to the part of the legislation that
refers to the composition of the board and those who should
be appointed to it. He said he thinks the composition issue
is a governor's issue.
Mr. Hatfield said there is a portion of the bill that would
subject the railroad to municipal building codes. That is
something that the railroad currently does as a matter of
course. He said if that needs to be clarified more, he
would be willing to work on it.
Another portion of the bill deals with incurring debt and
leases. He showed the committee a chart he had brought and
referred to it to illustrate the competitive issues they are
subject to and why the financing relationships are
important.
Number 387
SENATOR LINCOLN referred to page 3, line 24 "A municipality
bring an action in the superior court to compel payment of
property taxes due from the state, municipal, or federal
entity if the entity does not pay the amount due within six
months after the date. In this section, "state entity"
includes the Alaska Railroad Corporation. She asked if the
state is responsible or if it is responsibility of the ARRC.
BOB POE, legislative staff to Senator Pearce, said that
particular provision relates to municipal taxation. The
bill puts the Alaska Railroad under that provision. It does
mean that if a municipality is not being paid property tax
by the Alaska Railroad, the municipality could go after the
railroad. Since the railroad is owned by the State of
Alaska and if the railroad is unable to pay, they could keep
going. Senator Lincoln said she thought that there were
provisions where the state is held harmless with the
railroad. MR. HATFIELD said as he understands the enactment
legislation, the ARRC is legally and financially independent
from the state. Mr. Poe said his understanding is that the
improved value of the land is taxed. When the land is
leased in an improved situation, then the full value, the
land and the improvement, would be subject to the taxation.
Senator Lincoln suggested looking at the issue in more
depth.
Senator Lincoln asked what the composition is of Alaska
Railroad Corporation Board. Mr. Hatfield said one member is
a representative of organized labor, the commissioner of the
Department of Transportation and Public Facilities, the
commissioner of the Department of Commerce and Economic
Development, and three members are representatives of the
judicial districts along the railbelt. He said there is a
seventh position on the board that is to be occupied by a
person with at least ten years of experience on a class one
railroad in the lower 48. He noted that is the position he
currently holds as he meets that criteria. All of the
appointments are made by the governor and are five year
terms.
There was general discussion regarding developing resources
in Alaska.
SENATOR KERTTULA said most chief executive directors are
members of the board. He said he would hate to remove the
CEO from the board of directors unless there are some really
good policy reasons for doing it. CHAIRMAN SHARP indicated
that he concurs.
Number 559
CATHY SHULTZ, Fairbanks Hotel/Motel Association, said they
acknowledge the success the ARRC has achieved. However, her
organization feels strongly that it is not possible for a
corporation of the state to compete equally against the
private sector. If the corporation is allowed to continue
with their plans to diversify and develop hotels throughout
Alaska without restrictions, the private sector will suffer
and jobs will be lost and not gained. She referred to plans
that the ARRC has to construct a hotel in Fairbanks this
year and said over 450 hotel rooms are vacant for nine
winter months every year. Ms. Shultz said the plan for
additional hotel space in Fairbanks is a plan without merit.
She said it is her organization's opinion that the ARRC
should be limited to leasing or selling property at fair
market value. Ms. Shultz encouraged the passage of SB 148.
DENNIS LAVEY informed the committee he is a partner in the
Days Inn Motel. He referred to Mr. Hatfield saying that the
ARRC is legally and financially independent from the state
and said he has received a letter from R. Gonzales, Contract
Administrator for the Alaska Railroad. The letter reads:
Dear Sir,
The question whether the ARRC is required to pay
lodging tax has come up from time to time. As an
effort to put this matter to rest, we requested
that the ARRC legal counsel review this matter in
order to come up with the final determination. It
has been determined by ARRC legal counsel that the
corporation is an agency of the state is exempt
from bed taxes in accordance with statute AS
42.40.910. Our intent is to apply this ruling to
all contracts...
TAPE 93-13, SIDE B
Number 001
MR. HATFIELD indicated he doesn't have a copy of the letter
that Mr. Lavey read from. He said the he wants to be sure
that the corporation doesn't confuse what are their lines of
business for the Comfort Inn with transportation activities.
He said he believes that the letter involves the railroad's
contract and train service employees who stay at hotels in
Fairbanks and Anchorage. He said if he isn't mistaken, that
policy has been changed. Nevertheless, at the time that
letter was written legal counsel did review, research, and
concluded that the ARRC's engineers, conductors, maintenance
workers, etc., who stay in various hotels throughout the
railbelt are not subject to tax. That, however, does not
relate to the Comfort Inn, who paid about $160 thousand in
bed taxes in 1992. He said that only involves the contracts
the ARRC has with hotels for employees.
Mr. Lavey said the motel he is involved with is owned by
four local Anchorage residents. He indicated that they are
suffering from an occupancy declines and one of the reasons
is the Comfort Inn. He said he can't compete when the ARRC
who is a 40 percent partner. Mr. Lavey said he currently
charges $39 a night and if the ARRC is selling rooms for $26
a night, how could he possibly compete. He urged that the
legislature to put some curbs on the ARRC as far as getting
in to the private sector.
RALPH NOGAL, President, Alaska Hotel/Motel Association,
indicated he is also the General Manager of the Anchorage
Hilton. He said on behalf of their 65 hotel/motels in his
association, they encourage the legislature to pass
legislation to limit the ARRC from going into the hotel
business. They feel that the ARRC running hotels is in
competition with private industry because of the fact that
the railroad is owned by the State of Alaska. The railroad
is a 40 percent partner in the ownership of the Comfort Inn,
a 96 room property in the Ship Creek area. The construction
financing of the property was easily obtained because of the
railroad ownership. The railroad gave the hotel operator
start up money, $500 thousand, for a period of time without
any interest charges. He said he understands that the hotel
operator still had not obtained vital financing for the
project. Mr. Nogal said some members of his organization
have tried to expand their businesses but have been unable
to get financing for additions. He asked what will happen
if the Comfort Inn cannot meet its applications and defaults
on its operation. As he understands, the railroad assumes
full ownership. He asked who will be responsible for the
maintenance of the hotel. The Alaska Hotel/Motel
Association understands that the ARRC is planning to build
hotels in Fairbanks, Denali, Whittier, Seward and Anchorage.
What is their basis for planning the hotels, he asked. He
urged that the legislation to be passed into law.
Number 081
VERNON MILLER was next to testify from Fairbanks. He said
he is very familiar with 45 U.S.C. 1201-1214 the Act of
1982. Mr. Miller said he would like to ask why the railroad
doesn't stick to the business of railroads as it was a $200
or $300 million gift from the federal government.
CHAIRMAN SHARP said he will try to get the answer and make
it available to Mr. Miller.
LEICHA WELTON, representing Fairbanks Association of Bed and
Breakfasts, an association of approximately 40 members, was
next to speak. She said their concerns are within the
proposed construction of a hotel by the ARRC in the downtown
Fairbanks area. She asked how the ARRC proposes to fill
vacancy in the new hotel when current bookings of the ARRC
can only fill approximately ten rooms. There is a chance
that the future relocation of the Alaska Railroad would be
directly adjacent to the new hotel and would create an
instant market for the ARRC owned hotel. She asked if a
state corporation can justify securing a loan for financing
of a private hotel and enjoy advantages, such as low
interest payments, that other private industry cannot enjoy.
Ms. Welton asked what impacts an outside interest will have
on the growth and development of a Fairbanks economy and
will this contribute to the growth and development of
tourism in Fairbanks. She asked if the Chena River
Commission has been informed about the possible implications
of a failure to complete the proposed tourism developmental
access at the area where the proposed development of the
hotel will take place. Ms. Welton asked if it is
appropriate that a hotel chain should be able to use a state
corporation to benefit their own financial well being. Other
concerns are the past track record where purchasing
procedures that were not followed pursuant to Alaska State
Ordinance 36.30. Ms. Welton said it is possible that half
of the hotels in Fairbanks are owned by outside interests
and there is concern about an even greater cash flow going
to the lower 48. She urged the committee to vote in favor
of restricting some of the activities of the ARRC.
CHAIRMAN SHARP asked Ms. Welton to please send her questions
to his office.
PAUL WELTON, representing Alaska Seven Gables Bed and
Breakfast, said there were two seminars given by the Small
Business Development Center regarding starting and managing
bed and breakfasts and there is the other side of government
which seems to be competing and taking away the
opportunities. He discussed the different things that a
person must go through to open a bed and breakfast such as
regulatory agencies such as fire marshall, DEC, zoning
requirements, etc. He informed the committee of the
hardships of filling the already existing rooms. Mr. Welton
thanked the committee for listening to him.
Number 197
JIM BRUCKMAN, Member, United Transportation Union, explained
he has been a conductor on the railroad for 23 years. He
said there are members concerned about their jobs and they
are worried that the railroad won't be able to compete. He
said the railroad does need to diversify and compete. Mr.
Bruckman said that many of the major hotels are owned by
outside interests and the money doesn't stay in Alaska.
Most of the employees are hired from colleges outside of
Alaska. The money the Anchorage Comfort Inn receives stays
in Anchorage and they hire Alaskan employees.
SENATOR LINCOLN referred to several letters in her committee
packet from ARRC employees urging the legislators to vote
"no." She asked what specifically that the employees don't
like about the bill. Mr. Bruckman said they don't like the
part that doesn't allow the CEO to be on the board. He said
the employees want somebody that knows the railroad, the
railroad business and the day to day functions. The ARRC
needs a steady income and it is important to have some sort
of stability. Senator Lincoln said she hopes that the
employees are not looking for diversification just for
diversification sake. Surly, the employees understand that
we can't diversify just to employ people. You have got to
have the income stream coming in to justify a
diversification. Senator Lincoln said she doesn't see in
the bill where diversification is not allowed. Senator
Lincoln said government entities shouldn't compete with the
private sector, but somewhere we have to look at how we can
generate revenue for the state as revenues are declining and
there are increases in expenditures. She said the
composition of the board looks good. She asked if the
employees are concerned about the CEO not sitting on the
board. Mr. Bruckman said not in those exact terms. The
only person that has experience on the board, not including
the current CEO, is a member of the United Transportation
Union, Mike Olsen.
Senator Lincoln asked who the board member is that is an
executive official of a U.S. Railroad. MR. POE said Mr.
Hatfield serves as the CEO and has the role of the railroad
experienced board member. He said the change in the bill
suggests that you need both. If you are lucky to get a CEO
who has ten years of railroad experience, that is great, but
there still needs to be a board member with ten years of
railroad experience. MR. BRUCKMAN said there is concern
about removing Mr. Hatfield, or whoever that person is that
has ten years experience. He said they want someone on the
board who knows day to day operations and the railroad
business. He referred to diversification and said he has
worked jobs putting in the fiber optic cable between Seward
and Eagle River. He said he believes that the bill would
limit such jobs in the future.
SENATOR KELLY asked how many people the railroad employs.
MR. BRUCKMAN indicated that there are approximately 700
employees.
Number 310
SENATOR RANDY PHILLIPS referred to the fiber optic cable and
said he assumes it cost $1 million or more. He referred to
the statute "(A) incurring debt, except in certain
circumstances, in excess of $1 million;" and said anything
occurring that costs over $1 million would be subject to
legislative approval. Senator Randy Phillips said the bill,
in his opinion, limits the railroad to transportation and
not other areas such as hotels and hotel management. He
said the railroad is a state asset owned by the people of
Alaska. It should be managed like a business and not run.
The people of Alaska are shareholders have a right to look
at the management style and the management itself of the
railroad.
JERRY MCCUTCHEON, testifying from Anchorage, said he doesn't
believe that the railroad is doing a good job. He referred
to the ARRC 1991 Financial Statement and said he has some
serious questions as to how long the railroad can keep on
operating. The ARRC 1992 Financial Statement will be
available in sometime in April and they will begin to tell a
pattern of activity. He discussed management of hotels
throughout Alaska and how it isn't an easy business. Mr.
McCutcheon said there should be more openness to the
railroad and there should be some kind of a review. He
thanked the committee for listening to him.
Number 437
SENATOR KELLY asked where the $9 million is for the Wishbone
Hill train. MR. HATFIELD said the $9 million for the
Wishbone Hill train is now up to over $11 million and is in
two CDs fully insured in two banks. Senator Kelly asked how
they are carried on ARRC's books. Mr. Hatfield said they
are carried as an asset and a liability. Senator Kelly
asked if the money is safe. Mr. Hatfield said that it is
safe and insured.
CHAIRMAN SHARP said the bill would be back before the
committee at a later date.
Number 465
Chairman Sharp adjourned the Senate Transportation Committee
meeting at 5:04 p.m.
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