Legislature(1997 - 1998)
02/20/1997 01:30 PM Senate TRA
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* first hearing in first committee of referral
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SENATE TRANSPORTATION COMMITTEE
February 20, 1997
1:30 p.m.
MEMBERS PRESENT
Senator Jerry Ward, Chairman
Senator Gary Wilken, Vice Chairman
Senator Lyda Green
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Rick Halford
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 12
Relating to reconstruction and paving of the Alaska Highway.
- MOVED SJR 12 OUT OF COMMITTEE
SENATE BILL NO. 42
"An Act relating to the fiscal operations of the Alaska Railroad
Corporation and to land acquired by the State of Alaska under the
Alaska Railroad Transfer Act of 1982 or otherwise acquired for
railroad purposes; and providing for an effective date."
- MOVED SB 42 OUT OF COMMITTEE
PREVIOUS SENATE ACTION
SJR 12 - See Senate Transportation Committee minutes dated 2/18/97.
SB 42 - No previous Senate action to record.
WITNESS REGISTER
Representative Martin, Vice Chair
Legislative Budget & Audit
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: Reviewed SB 42.
Senator Randy Phillips, Vice Chair
Legislative Budget & Audit
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: Reviewed the Executive Budget Act portion of
SB 42.
Bill Cummings, Assistant Attorney General
Transportation Division
Department of Law
PO Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Recommended that SB 42 not proceed with the
current land conveyance section.
Joe Perkins, Commissioner
Department of Transportation
3132 Channel Drive
Juneau, Alaska 99801-7898
POSITION STATEMENT: Stated that the Administration opposes SB 42.
Randy Welker, Legislative Auditor
Legislative Budget & Audit Committee
Legislative Agencies & Offices
PO Box 113300
Juneau, Alaska 99811-3300
POSITION STATEMENT: Discussed the Executive Budget Act portion of
SB 42.
Frank Dillon, Executive Director
Alaska Trucking Association (ATA)
3443 Minnesota Drive
Anchorage, Alaska 99503
POSITION STATEMENT: Discussed ATA's relation to ARRC.
ACTION NARRATIVE
TAPE 97-5, SIDE A
SJR 12 CONSTRUCTION OF ALASKA HIGHWAY
Number 001
CHAIRMAN WARD called the Senate Transportation Committee meeting to
order at 1:30 p.m. and introduced SJR 12 as the first order of
business before the committee. Chairman Ward noted that testimony
was taken on this issue at the last meeting. Chairman Ward
inquired as to the pleasure of the committee.
SENATOR WILKEN moved to report SJR 12 out of committee with
individual recommendations and accompanying fiscal notes. Without
objection, it was so ordered.
SB 42 ALASKA RR BUDGET AND LAND
CHAIRMAN WARD introduced SB 42 as the next order of business befor
the committee.
REPRESENTATIVE MARTIN , Vice Chair of Legislative Budget and Audit,
informed the committee that Senator Phillips, the other Vice Chair
of LB&A would also be present. SB 42 was drafted upon the request
of LB&A. The Alaska Railroad Corporation (AARC) must be placed
under the Executive Budget Act in order to comply with Alaska's
Constitution. Representative Martin noted that a few audits of the
ARRC have been done which have revealed problems. At times the
ARRC wants to be treated as a public entity when it is to their
benefit. At other times, the railroad wants to be treated as a
private entity and the Legislature is practically prohibited from
knowing what is happening to the state's resources, land, and the
type of contracts being developed. Most importantly, this bill was
introduced three years ago with the understanding that Alaska
completed its agreement to maintain the railroad with the
development of the corporation until the time of privatization.
Representative Martin was shocked at the few on the board opposed
to the Legislature upholding its constitutional responsibility.
Legal services has made it clear that the Legislature has a
constitutional responsibility to place the railroad under the
Executive Budget Act. The ARRC is the only organization that is
not under the Executive Budget Act. With regard to the land issue,
Article VIII states that the Legislature has the responsibility for
the lease and sale of the state's natural resources and land. This
should be considered with the thought of becoming private.
Millions are being lost by not transferring the land to the state.
Number 114
CHAIRMAN WARD inquired as to how many acres this involved.
REPRESENTATIVE MARTIN said that the most recent estimates report
43,000 acres are held by the railroad.
SENATOR WILKEN noted that when this was heard in the House, HB 55,
the issues were separated. Senator Wilken asked if Representative
Martin supported that separation. REPRESENTATIVE MARTIN supported
the separation of issues. Most importantly, the ARRC must be
placed under the Executive Budget Act while the land can develop on
its own course. Legal recommended the separation.
SENATOR WILKEN informed everyone that he was a leaseholder on the
Alaska Railroad in Fairbanks. Senator Wilken pointed out that
there had not been any discussion regarding the benefit to Alaska
in what Senator Wilken felt was an attempt to piecemeal the ARRC.
REPRESENTATIVE MARTIN said that Senator Wilken had a good
point, however nothing had been done for 10 years. Representative
Martin aimed to uphold the Legislature's responsibility. The state
has a high liability with the delivery of oil and passengers with
little insurance. Representative Martin indicated that the state
would be responsible in the event of an oil spill. All that is
desired is for the books to be open. In Anchorage sole source
gravel is being sold by the ARRC who believes that is private and
not the business of the Legislature. There are also disparities in
the cost of land depending upon which side of the tracks.
Representative Martin noted that it has been said that the ARRC
loses money transporting Princess passengers; why should money be
lost to subsidize free enterprise? Representative Martin believed
in free enterprise and the need to survive alone.
Number 198
SENATOR RANDY PHILLIPS , Vice Chair of Legislative Budget & Audit,
supported the portion of the bill placing the ARRC under the
Executive Budget Act. Other quasi-entities like the railroad have
been placed under the Executive Budget Act. For example, the
Alaska Housing Finance Corporation (AHFC) was placed under the act
a few years ago and it has worked well. By placing the ARRC under
the Executive Budget Act, the Legislature and the public would feel
more comfortable by knowing how the railroad is run.
CHAIRMAN WARD asked if any of the railroad's abilities would be
hampered under the Executive Budget Act. SENATOR RANDY PHILLIPS
replied no. Senator Phillips reiterated how well AHFC has done
under this act. The Legislature does not have to deal with the
day-to-day operations of AHFC, yet there is some financial
accounting. The Executive Budget Act provides some accountability.
In response to Senator Wilken, SENATOR RANDY PHILLIPS believed it
best to separate the issues. With regards to the ARRC's opposition
to the timing of this, Senator Phillips did not believe that to be
such a problem. The AHFC is much bigger than the ARRC and placing
them under the act is working well. The same will work with the
ARRC. The ARRC will be given the autonomy to operate as a private
business while being accountable to the 600,000 people who own the
railroad. The Executive Budget Act provides a middle ground.
Senator Phillips did not believe that could be accomplished without
the Executive Budget Act.
Number 282
BILL CUMMINGS , Assistant Attorney General in the Department of Law,
said that he would be speaking to the land conveyances portion of
SB 42. There are some serious problems under Section 25 which
vests title in the Department of Natural Resources (DNR) for the
railroad land. If this bill passes, DNR thereby the state will be
buying into all of the potential environmental litigation. Mr.
Cummings estimated that legal services would be necessary in order
to explore the new sites (2 lawyers and staff from DNR and DEC) as
well as legal services for the ongoing litigation with the U.S.
regarding existing polluted sites (1 attorney and outside council).
Therefore, the fiscal note estimates the cost for the first year to
be $415,000 for legal fees. Mr. Cummings stated that the best
manner in which to proceed is to allow the commissioner of DNR the
discretion to accept title when he is satisfied with it. Mr.
Cummings recommended that the bill not proceed as it is currently
with regard to the land conveyances.
COMMISSIONER JOE PERKINS , Department of Transportation, passed out
ARRC's response to the committee's questions.
CHAIRMAN WARD interjected that the committee packet also contained
correspondence from the ARRC.
COMMISSIONER JOE PERKINS informed the committee that the
representative from the Department of Law that was to speak on the
Executive Budget Act was not present and hoped to be able to
receive his testimony latter. The Administration opposes SB 42.
Commissioner Perkins said that he would be speaking only to the
portion of SB 42 placing the ARRC under the Executive Budget Act.
Commissioner Perkins did not know of any other agency that had a
Federal Law Transfer Act. From the time of transfer, the ARRC has
operated at a deficit for only two years. Last year the profits
were at $8 million. The ARRC provides public and business
purposes. The ARRC needs flexibility to function as a business
making decisions that are unincumbered by a yearly appropriation
schedule. Often, ARRC borrows money from banks upon which the ARRC
is dependent to manage cash flow. Further, the ARRC enters into
long-term lease agreements which would be hampered by the potential
uncertainty of legislative approval for repayment on a yearly
basis. At the present, ARRC profits go into rolling stock in order
to fund other ARRC costs.
Number 359
Commissioner Perkins referred to a 1981 assessment of the ARRC
which discussed the disadvantages of subjecting the ARRC to state
oversight as a state line agency. Commissioner Perkins quoted the
following from the assessment:
"Most of the same limitations encountered by the Alaska Railroad as
a federal agency would also be present with the railroad as a state
agency. One of the most critical limitations would be the lack of
ability to obtain essential capital investment funds except by
state appropriation. The competitive issues relating to marketing,
management flexibility, state agency regulation, procedures and
requirements, the potential for even more direct political
influence on operational decisions and the public service versus
business orientation questions are all disadvantages of this
approach."
Commissioner Perkins acknowledged that SB 42 does not make the ARRC
a line state agency, however placing the ARRC under the Executive
Budget Act would result in the aforementioned limitations. The
state ownership and operation of the ARRC has been extremely
successful; why would changes be made at this time? Changes could
risk the possibility of degrading the ARRC. If additional
oversight is necessary, there are probably other ways to accomplish
such and should be explored.
Number 392
RANDY WELKER , Legislative Auditor, noted that he would speak to the
Executive Budget Act portion of SB 42. The timing for the
Executive Budget Act is appropriate while the land matters may be
premature. Mr. Welker agreed with splitting the bill.
Commissioner Perkins' reference to the 1981 assessment seemed to
make a stronger argument for why the ARRC should not be a
governmental entity. Many of the issues discussed in the 1981
assessment dealt with the public process interfering with the
operation of the railroad. That is all after the fact, the ARRC is
now a public entity. Mr. Welker acknowledged that the ARRC
operates under statutes that direct the railroad to operate as a
private business, but it is also owned by the state which requires
a certain degree of accountability. The Executive Budget Act is
the system in place to provide legislative oversight to all
entities of government. Mr. Welker pointed out that the Executive
Budget Act addresses the constitutional mandate.
Mr. Welker believed that the first audit, meaningful inquiry, on
the ARRC was in 1992 when reviewing Ship Creek development. He
recognized that the ARRC issues an annual report. The audit
process has been the only way to have legislative oversight
although, it is after the fact. The Executive Budget Act allows
the Legislature to be involved before there are potential problems.
Mr. Welker said that the degree to which the Legislature is
involved in the act is a matter of the Legislature's prerogative.
There is flexibility for the Legislature in designing the
appropriation. Mr. Welker believed that legislative oversight was
more important than the appropriation process.
Number 451
FRANK DILLON , Alaska Trucking Association (ATA), informed the
committee that ATA was a 38 year old trade association which was
established to look to the interests of for hire and truck users in
Alaska. ATA is one of the ARRC's larger customers while also
competing with the ARRC on a daily basis for freight and revenue.
Mr. Dillon emphasized that if the ARRC is a profitable business as
has been alleged, then the ARRC should stand alone. If the ARRC is
not then the ARRC should be a state agency and run as such. Mr.
Dillon did not have a problem with either scenario, but the problem
is the current hybrid situation. Mr. Dillon indicated that the
ARRC is subsidized. For example, the ARRC has the benefit of state
exempt plates on its vehicles while ATA does not. Further, the
ARRC inherited prime property for transportation purposes in Alaska
which places ATA in competition with the ARRC while renting ARRC
property without the option to purchase. Mr. Dillon pointed out
that the ARRC reports profits of five percent on its freight
operations while the trucking industry in Alaska is lucky to have
a two percent rate of return. Mr. Dillon informed the committee
that the ARRC has received some $20 million from the federal
government. That money from the Highway Trust Fund is a tax fund
trust account established by highway users paying excise taxes and
fuel taxes. Mr. Dillon had no problem with the ARRC using that
money for safety reasons, however the money is collected with the
hope for roads, ports, bridges and interconnections.
CHAIRMAN WARD asked if anyone else was present to testify. Hearing
none, he asked if there were any comments.
Number 500
SENATOR WILKEN asked if the bill would be split in this committee.
CHAIRMAN WARD said that he did not intend to split the bill, but
did intend to report the bill out of committee. Chairman Ward
noted that there has been delays in the information regarding this
bill.
SENATOR LINCOLN pointed out that the legislation had been
introduced January 13, 1997, and the only other committee to hear
the bill is State Affairs. If a split is necessary, it would
behoove the committee to make the changes before the bill is
reported out. Senator Lincoln did not see the need to rush the
bill out of committee.
CHAIRMAN WARD said that he would not be offering the amendment to
split the bill. He inquired as to the pleasure of the committee.
SENATOR GREEN moved to report SB 42 out of committee with
individual recommendations and accompanying fiscal notes.
SENATOR LINCOLN objected.
SENATOR WILKEN said that some things are missing from this. The
bifurcation of the issue as well as the amount of the subsidy, the
percent of income generated from real estate compared to freight
operations should all be provided for consideration with this
issue.
Hearing no further discussion, a roll call vote was taken in which
Senators Ward, Wilken, and Green voted "Yea" and Senator Lincoln
voted "Nay". Therefore, SB 42 was reported out of committee.
There being no further business before the committee, the meeting
was adjourned at 2:13 p.m.
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