Legislature(1999 - 2000)

02/18/1999 01:35 PM Senate TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           SENATE TRANSPORTATION COMMITTEE                                                                                      
                  February 18, 1999                                                                                             
                      1:35 p.m.                                                                                                 
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Senator Jerry Ward, Chairman                                                                                                    
Senator Drue Pearce, Vice Chair                                                                                                 
Senator Rick Halford                                                                                                            
                                                                                                                                
Representative Andrew Halcro, Vice Chair                                                                                        
Representative John Cowdery                                                                                                     
Representative Jerry Sanders                                                                                                    
Representative Bill Hudson                                                                                                      
Representative Allen Kemplen                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Senator Mike Miller                                                                                                             
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
Joint Meeting of the Senate Transportation Committee and House                                                                  
Transportation Subcommittee regarding Airline Passenger Facility                                                                
Charges.                                                                                                                        
                                                                                                                                
PREVIOUS SENATE ACTION                                                                                                          
                                                                                                                                
There is no previous action to report                                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
Mr. Ron Simpson, Manager                                                                                                        
Airports Division of the                                                                                                        
  Federal Aviation Administration                                                                                               
Anchorage, AK                                                                                                                   
                                                                                                                                
Mr. Kurt Parkan, Deputy Commissioner                                                                                            
Department of Transportation & Public                                                                                           
  Facilities                                                                                                                    
3132 Channel Drive                                                                                                              
Juneau, AK  99801-7898                                                                                                          
                                                                                                                                
Mr. Cliff Argue, Staff Vice President                                                                                           
Alaska Airlines/Airline Affairs Committee                                                                                       
Anchorage, AK                                                                                                                   
                                                                                                                                
Mr. Mort Plum, Director                                                                                                         
Anchorage International Airport                                                                                                 
Anchorage, AK                                                                                                                   
                                                                                                                                
Mr. David Jensen, Vice President                                                                                                
Reeve Aleutian Airways                                                                                                          
Anchorage, AK                                                                                                                   
                                                                                                                                
Mr. Paul Landis, Vice President                                                                                                 
ERA Aviation                                                                                                                    
Anchorage, AK                                                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 99-02, SIDE A                                                                                                              
Number 001                                                                                                                      
                                                                                                                                
CHAIRMAN WARD called the Senate Transportation Committee meeting to                                                             
order at 1:35 p.m. and announced that the full committee and the                                                                
House Transportation Subcommittee would hear testimony on Airline                                                               
Passenger Facility Charges.  Present were Senators Pearce and                                                                   
Halford.  Also present were Representatives Sanders, Kemplen and                                                                
Cowdery. CHAIRMAN WARD invited Representatives Hudson and Halcro to                                                             
join the members at the table.   CHAIRMAN WARD  stated that                                                                     
legislation on this issue, if needed, would be proposed by the                                                                  
Transportation Subcommittees to the full committees for                                                                         
consideration, with the committee chairs taking it under                                                                        
advisement.                                                                                                                     
                                                                                                                                
Number 044                                                                                                                      
                                                                                                                                
MR. RON SIMPSON, Manager of the Airports Division of FAA,                                                                       
Anchorage, stated he is responsible for the administration of the                                                               
Airport Improvement Program which provides federal funding for                                                                  
airport infrastructure development. The Department of                                                                           
Transportation (DOTPF) has requested an additional $25 million in                                                               
new revenue bonding authority from the Legislature to complete the                                                              
funding package for the Anchorage International Terminal                                                                        
Redevelopment Project (AITRP) .  Passenger Facility Charges (PFCs)                                                              
could be used to  supplement available financing or fund shortfalls                                                             
without incurring an additional $25 million in bond debt for the                                                                
State of Alaska.  By implementing PFCs, Anchorage would generate at                                                             
least $5 to $6.5 million in additional revenues annually.  The                                                                  
airport would be required to give up 50% of its Passenger                                                                       
Entitlement Funds, about $1.5 million annually, but the result                                                                  
would be a net gain of $3.5 million.  The FAA has supported the                                                                 
AITRP and the letter of intent, which is the long-term commitment                                                               
of AIP discretionary funds of $32 million for reimbursement over 2                                                              
years.                                                                                                                          
                                                                                                                                
MR. SIMPSON stated the PFC application and approval process                                                                     
requires full public disclosure, including public hearings,                                                                     
consultation with the airlines, and publication in the federal                                                                  
register for public comment.  PFCs are collected for projects pre-                                                              
approved by the FAA and are project specific.  For example, if                                                                  
Anchorage International were approved for PFCs for only the                                                                     
terminal redevelopment project, when the project is completed and                                                               
the bond debt is paid off, the PFC collection would be terminated.                                                              
Anchorage International would then have to reapply to collect PFCs                                                              
for future projects.                                                                                                            
                                                                                                                                
The FAA encourages airports to take advantage of every available                                                                
funding source for financing airport construction and development                                                               
projects.  PFCs are the most viable funding source for large                                                                    
airport infrastructure development projects.  Pressure to implement                                                             
a PFC program may impact an airport's ability to receive AIP                                                                    
discretionary funds which are allocated on a competitive basis.                                                                 
For example, if Anchorage were competing for discretionary funds                                                                
with another airport that did have a PFC, taking advantage of every                                                             
available funding source, the other airport would be more likely to                                                             
be awarded discretionary funds to make their financing package.                                                                 
                                                                                                                                
Over 300 airports are approved for collection of PFCs, and over 100                                                             
applications are currently being processed.  Estimated collections                                                              
based on current approvals for Jan. 1, 1999 through Dec. 31, 1999                                                               
exceed $1.4 billion nationally.  Over 3500 airports are eligible to                                                             
receive the limited AIP discretionary funds.                                                                                    
                                                                                                                                
Juneau International and Ketchikan International airports are                                                                   
approved for PFC collection.  Juneau's application was approved in                                                              
April 1998 and collection began last October. Ketchikan's                                                                       
application was approved in December 1998 and collection began this                                                             
February. The FAA has not received any complaints as a result of                                                                
implementing PFC programs in Juneau or Ketchikan.  Prior to Juneau                                                              
initiating the PFC collection, Alaska was one of only two states                                                                
without an airport participating in the PFC program.                                                                            
                                                                                                                                
Several of the AIP reauthorization proposals currently being                                                                    
considered by Congress include an increase in the maximum PFC an                                                                
airport can collect, from $3 per segment to $4 or maybe $5 per                                                                  
segment.  If these proposals pass with AIP reauthorization, the                                                                 
large to medium hub airports that elect to raise their PFC charge                                                               
to more than $3 will likely forego 100% of their Passenger                                                                      
Entitlement Funds and face new restrictions on the use of AIP Cargo                                                             
Entitlement Funds.  AIP funds for large to medium hub airports will                                                             
then be limited by federal mandate, such as meeting safety,                                                                     
security and environmental requirements.                                                                                        
                                                                                                                                
MR. SIMPSON said that whatever level of PFC is implemented, this                                                                
legislation which has been in effect since 1990 authorizes PFC                                                                  
collection at the first two participating airports on the outbound                                                              
trip excluding the destination airport.  On the return trip, the                                                                
last two participating airports, excluding the destination airport                                                              
are authorized for PFC collection.  This would remain the case with                                                             
any new legislation.  Airlines collect this fee as part of their                                                                
ticket price, and remit PFC revenues to the specific airport that                                                               
is PFC-approved.                                                                                                                
                                                                                                                                
There are legitimate concerns regarding the impacts that PFC                                                                    
collection will have on rural Alaska.  Currently there is strong                                                                
support for, and strong opposition to, increasing the PFC limit in                                                              
Congress.  During the last AIP reauthorization, all PFCs for                                                                    
business were dropped from the omnibus bill because the industry                                                                
had not reached consensus on the maximum PFC limit.  However, the                                                               
FAA has the authority to approve PFC exemptions by administrative                                                               
action.  Juneau requested exemptions in their PFC application for                                                               
several routes to rural communities.  The FAA approved Juneau's                                                                 
exemptions by administrative action without federal legislation,                                                                
direction or mandate.                                                                                                           
                                                                                                                                
Alaskans already pay PFCs when they fly outside of Alaska.  PFCs                                                                
are charged on flights to Seattle, Portland, San Francisco, Salt                                                                
Lake City, Denver, Minneapolis, Chicago; in short, every major                                                                  
airport with connections from Anchorage.  Alaskans are paying up to                                                             
$6 one way, $12 round trip in PFCs to help finance development                                                                  
projects in those other airports.  None of the funding remains in                                                               
Anchorage International because the airport has not applied for                                                                 
PFCs.                                                                                                                           
                                                                                                                                
Number 181                                                                                                                      
                                                                                                                                
MR. SIMPSON summarized by saying the FAA believes PFCs should be an                                                             
integral part of the Anchorage International Terminal Redevelopment                                                             
financing package.  The FAA stands ready to move forward on a PFC                                                               
application once it is received. He asserted that the FAA is                                                                    
sensitive to the concerns about the impacts the PFC will have on                                                                
rural Alaska and is willing to work with Anchorage International to                                                             
craft exemption language with PFC applications to address those                                                                 
concerns.                                                                                                                       
                                                                                                                                
Number 194                                                                                                                      
                                                                                                                                
REPRESENTATIVE COWDERY asked Mr. Simpson how long the Anchorage                                                                 
International application would take to implement.  MR. SIMPSON                                                                 
responded the FAA has 180 days to process a formal application for                                                              
approval from the date of receipt.  From a policy standpoint, the                                                               
FAA likes to work with an airport in advance of receiving a formal                                                              
application by putting together a draft application, which for                                                                  
Anchorage could include draft exemptions.  It coordinates with FAA                                                              
headquarters office in Washington D.C. and gives feedback to the                                                                
airport to complete and finalize the application.  During the 180-                                                              
day review, the PFC proposal must be published in the Federal                                                                   
Register for public comment and response.                                                                                       
                                                                                                                                
REPRESENTATIVE COWDERY asked if Kenai airport has applied for the                                                               
PFC.  MR. SIMPSON replied that Kenai has considered applying but                                                                
has not approached the FAA with a formal proposal.                                                                              
                                                                                                                                
REPRESENTATIVE COWDERY asked if Mr. Simpson had said the airports                                                               
would bring in $5 to $6 million.  MR. SIMPSON answered yes, the                                                                 
estimates are $5 to $6.5 million additional revenues annually;                                                                  
however, the airport would have to give up 50% of its past year's                                                               
entitlements, about $1.5 million annually, for a net gain of $4 to                                                              
$5 million in revenues annually.                                                                                                
                                                                                                                                
Number 235                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO asked Mr. Simpson to explain how the FAA can                                                              
circumvent, by administrative action, the current statutes and                                                                  
regulations not allowing exemption of rural communities.  He gave                                                               
the example of Juneau's exemptions.                                                                                             
                                                                                                                                
MR. SIMPSON replied that the City & Borough of Juneau requested the                                                             
following classes of air carriers be excluded from the requirement                                                              
to collect PFCs--  all those operating between Juneau and: Chatham,                                                             
Funter Bay, Gustavus, Petersburg, Wrangell, Yakutat; and all air                                                                
carriers deplaning 1,000 or less passengers annually at Juneau.                                                                 
All were approved by the FAA except for the route between Juneau                                                                
and Gustavus.                                                                                                                   
                                                                                                                                
The PFC regulation as written excludes collection by carriers who                                                               
fly to locations that receive the individual air service subsidy as                                                             
well.                                                                                                                           
                                                                                                                                
REPRESENTATIVE KEMPLEN asked Mr. Simpson what projects are funded                                                               
and what numbers are involved relative to Alaska, in the AIP                                                                    
discretionary funds allocated on a priority basis to airports with                                                              
PFCs.  MR. SIMPSON responded AIP funding is somewhat complex.                                                                   
Anchorage International receives funding from 3 different                                                                       
categories:  passenger entitlements, cargo entitlements and                                                                     
discretionary dollars.  The first two are by formula, from                                                                      
authorization from Congress that is distributed pro-rated for each                                                              
airport based on the number of passengers and the amount of cargo                                                               
service.  Discretionary dollars are at the discretion of the FAA to                                                             
be applied to high priority projects, primarily those that improve                                                              
safety, capacity, security or environmental concerns.  Those funds                                                              
are primarily used at the national level when an airport does not                                                               
have enough of one or both kinds of entitlement funds to fully fund                                                             
a project. The FAA is always asked, where is Anchorage                                                                          
International on implementing PFCs.  If Anchorage International is                                                              
competing with another airport in the Lower 48, and both have high                                                              
priority and worthy projects but the other airport uses every                                                                   
available funding source including PFCs while Anchorage does not,                                                               
it's more likely that the FAA will provide discretionary dollars to                                                             
complete the other airport's funding package. Over 3500 airports                                                                
compete for those discretionary dollars.                                                                                        
                                                                                                                                
REPRESENTATIVE KEMPLEN asked the total discretionary dollars                                                                    
available.  MR. SIMPSON replied over the last few years the State                                                               
of Alaska has been able to secure a little over $90 million in                                                                  
total AIP funding.  About $20 million to $25 million of that has                                                                
been discretionary dollars, or about a quarter of the funding                                                                   
through the AIP program.                                                                                                        
                                                                                                                                
REPRESENTATIVE COWDERY showed the committee a copy of a check from                                                              
Reeve Aleutian Airways.  CHAIRMAN WARD clarified that basically                                                                 
we're sending these dollars, in this case $1500, to Seattle.                                                                    
REPRESENTATIVE COWDERY explained it was for some tickets sold in                                                                
Western Alaska to go south, possibly from Dutch Harbor.                                                                         
                                                                                                                                
Number 339                                                                                                                      
                                                                                                                                
MR. KURT PARKAN, Deputy Commissioner, Department of Transportation                                                              
& Public Facilities, stated the Administration supports PFCs, and                                                               
supported them in 1996 when the department submitted the request to                                                             
the Legislative Budget & Audit Committee for a fund source change                                                               
for projects at Anchorage and Fairbanks airports.  The department                                                               
supports PFCs as a fund source that can be used for capital                                                                     
improvement projects at airports.  Unlike a tax that goes into the                                                              
General Fund that can be used for any purpose the legislative body                                                              
chooses to spend it on, the PFC is a pure user fee with the money                                                               
coming directly from the people benefiting from the facilities and                                                              
going right to the improvement of those facilities.                                                                             
                                                                                                                                
CHAIRMAN WARD asked when the Governor will introduce legislation.                                                               
                                                                                                                                
MR. PARKAN replied that legislation is not necessary to collect the                                                             
PFCs. In 1996 when the department proposed the PFCs to LB & A, the                                                              
committee expressed concern that there might not be adequate                                                                    
support. The committee held hearings in Fairbanks, Anchorage and                                                                
Kenai and heard a lot of testimony from legislators, rural                                                                      
communities, regional carriers and air carriers serving rural                                                                   
communities indicating that there was not adequate support for PFCs                                                             
at that time.  There was a sense of inequity and of placing an                                                                  
undue burden on rural communities without roads that have no other                                                              
option but to fly in and out.  DOTPF pulled back, and the Governor                                                              
advised that PFCs would not be pursued until there was a program                                                                
with broad public support that reflected the unique nature of the                                                               
state.                                                                                                                          
                                                                                                                                
From fall 1996 through January 1997, DOTPF talked with carriers who                                                             
had expressed concern, Warblow's in Fairbanks and Northern Air                                                                  
Cargo in Anchorage, and worked with FAA staff in Anchorage to try                                                               
to craft a program addressing the concerns of rural communities.                                                                
DOTPF looked for a way to exempt small communities off the road                                                                 
system.                                                                                                                         
                                                                                                                                
The FAA believed their administrative procedures would not allow                                                                
that kind of blanket exemption.  The mutual conclusion was that a                                                               
legislative fix by Congress was needed for that kind of exemption.                                                              
The department worked with the FAA,  Senator Stevens' office and                                                                
John Katz's office in D.C. to draft language the FAA submitted to                                                               
the Administration for inclusion in the Administration's proposal                                                               
for the AIP reauthorization. That language was modified a little,                                                               
with input from Senator Stevens.  The legislative session ended                                                                 
without agreement on the whole package, and it was decided to                                                                   
extend the whole program for six months without making substantive                                                              
changes to it.                                                                                                                  
                                                                                                                                
DOTPF is now working with the delegation again to get this language                                                             
inserted into this year's reauthorization bill package.  The AIP                                                                
funding in the program expires March 1, 1999, and the delegation is                                                             
under a lot of pressure to take care of this.  MR. PARKAN stated he                                                             
doesn't feel it's likely to happen because it's too contentious an                                                              
issue, principally because the airlines don't support the increase                                                              
from $3 to $5.  The airports do support the increase because they                                                               
see the need for capital improvements.                                                                                          
                                                                                                                                
SB 82 passed out of the Commerce Committee last week and has                                                                    
exemption language close to the old language, and with minor                                                                    
modifications, can move the PFC program forward.  Mr. Simpson                                                                   
called DOTPF recently and suggested the department pursue PFCs.  He                                                             
asked that the department look at the Juneau application, and he                                                                
shared the record of decision on Juneau to see if there is a way to                                                             
do it administratively and not go the legislative route.  DOTPF                                                                 
would rather go through the Legislature to get the needed                                                                       
exemptions rather than go to Congress; however, legislative fixes                                                               
are not the preferred alternative if it could be done                                                                           
administratively.  A consultant is looking at the Juneau point-to                                                               
-point exemption by community based on the total deplanements going                                                             
to each town.  DOTPF will try to get the roadless area exemption                                                                
it's seeking, but will continue to try for the legislative fix as                                                               
well.                                                                                                                           
                                                                                                                                
Number 434                                                                                                                      
                                                                                                                                
CHAIRMAN WARD asked Mr. Parkan, for the record, for a copy of the                                                               
original administrative proposal, before S. 82, that DOTPF took to                                                              
Senator Stevens.  MR. PARKAN replied that he would provide it.                                                                  
                                                                                                                                
REPRESENTATIVE HALCRO stated that in 1996 there were 30 communities                                                             
that enjoyed EAS subsidies and he asked Mr. Parkan how many there                                                               
are now.  MR. PARKAN replied that in Alaska the EAS communities                                                                 
haven't changed for several years.                                                                                              
                                                                                                                                
REPRESENTATIVE HALCRO discussed the exemptions for roadless                                                                     
communities, stressing that they still get off in Anchorage and                                                                 
still impact the airport and its services.  From rural communities                                                              
like Barrow, Nome, Kotzebue, the average fare for a supersaver is                                                               
$350; a PFC of $3 on those tickets appears to him to be nominal.                                                                
However, on a one-way trip from Kenai at $58, the $3 PFC would have                                                             
a much greater impact on the price of the ticket.  He stated he is                                                              
concerned with exempting communities where they already pay $350                                                                
for the airfare but comprise a much smaller percentage of travelers                                                             
than those from Kenai or Homer on weekend fares.                                                                                
                                                                                                                                
MR. PARKAN replied he's making the same case DOTPF made in 1996.                                                                
It is reasonable to ask people who use airports to contribute to                                                                
their improvement.  The department received strong opposition from                                                              
various areas of the state.  He stated he would not want to make                                                                
comparisons between Kenai with a smaller ticket price, and rural                                                                
Alaska with a high ticket price, only that all the passengers who                                                               
go through the Anchorage airport benefit from it.                                                                               
                                                                                                                                
Number 477                                                                                                                      
                                                                                                                                
REPRESENTATIVE HUDSON asked Mr. Parkan if he is saying that no                                                                  
legislation is needed in order for the Administration to place the                                                              
PFCs in effect.  MR. PARKAN replied the department wants the                                                                    
legislative endorsement of PFCs before it goes forward with the                                                                 
program.  He clarified that the Commissioner has statutory                                                                      
authority over the international airports, including Fairbanks and                                                              
Anchorage.                                                                                                                      
                                                                                                                                
REPRESENTATIVE COWDERY said that he has drafted a joint or                                                                      
concurrent resolution.  He asked Mr. Parkan if the legislature                                                                  
passed a resolution, would the department be ready to start                                                                     
immediately?  MR. PARKAN replied yes, the endorsement by the                                                                    
legislature for PFCS would give the department a "jump start."                                                                  
DOTPF would still be working to get the exemptions, but the                                                                     
endorsement would be absolutely important.                                                                                      
                                                                                                                                
CHAIRMAN WARD asked if Juneau applied for the PFC, received it, and                                                             
then applied for the exemptions.  MR. PARKAN replied he is unsure.                                                              
                                                                                                                                
SENATOR PEARCE asked if the department went to LB & A in 1996 for                                                               
authorization to accept the money.  MR. PARKAN responded the DOTPF                                                              
was looking for a fund source change in order to include PFCs as a                                                              
fund source.                                                                                                                    
                                                                                                                                
SENATOR PEARCE asked if there would need to be authorization in the                                                             
FY 2000 budget to accept the money and spend it.  MR. PARKAN                                                                    
replied the Attorney General's opinion states that DOTPF can apply                                                              
for the PFCs by statutory authority.  The money comes into the                                                                  
department's revenue fund and can be spent for projects; but the                                                                
additional money would need authorization to apply to a particular                                                              
project at some point.                                                                                                          
                                                                                                                                
CHAIRMAN WARD stated his appreciation of Representative Cowdery                                                                 
bringing forth the recommendation that the two committees introduce                                                             
a resolution.  He suggested the Administration should present a                                                                 
request, and SENATOR PEARCE clarified it should be a budget                                                                     
amendment.                                                                                                                      
                                                                                                                                
Number 521                                                                                                                      
                                                                                                                                
SENATOR HALFORD asked for an update of the top 8 revenue-generating                                                             
airports that are listed as Deadhorse, Kodiak, Birchwood, King                                                                  
Salmon, Galena, Bethel, Nome and Unalaska. He stated that one seems                                                             
out of place on the list.                                                                                                       
                                                                                                                                
MR. PARKAN replied that he guesses Birchwood airport is the only                                                                
state-owned airport outside of the Alaska international airport                                                                 
system that pays for itself.                                                                                                    
                                                                                                                                
MR. PARKAN referred to a handout showing the PFCs being charged and                                                             
the money going out of state.                                                                                                   
                                                                                                                                
SENATOR PEARCE asked if PFCs are charged in every airport you land                                                              
in, or every airport that you change planes in, or your                                                                         
destination?                                                                                                                    
                                                                                                                                
Number 548                                                                                                                      
                                                                                                                                
MR. PARKAN gave an example of a ticket from Fairbanks to San Diego.                                                             
On the Fairbanks-Anchorage-Sea/Tac leg, the passenger pays $3 on                                                                
the outbound to the Sea/Tac airport; and on the return trip, he                                                                 
pays $3 to San Diego and $3 to Sea/Tac, for a total of $9 collected                                                             
by airports outside of the state.                                                                                               
                                                                                                                                
The program says the first 2 airports of emplanement outbound                                                                   
charge the PFC, unless it's the same flight number; on the return,                                                              
the last 2 emplanement airports before the final destination                                                                    
collect the PFC.                                                                                                                
                                                                                                                                
Using the same example of the Fairbanks/San Diego round trip, if                                                                
Fairbanks and Anchorage had the PFC, the first PFC would be                                                                     
collected in Fairbanks and the second in Anchorage unless it's the                                                              
same flight number.  On the return, the final two emplanement                                                                   
airports, or Seattle and Anchorage, would collect. On that ticket,                                                              
$12 would be collected, with $9 staying in the state.                                                                           
                                                                                                                                
He said that Mr. Simpson's numbers of $5 to $6 million are                                                                      
accurate, based on emplanements without exemptions.  Exemptions                                                                 
would reduce it maybe 25-30%.                                                                                                   
                                                                                                                                
REPRESENTATIVE COWDERY asked if the money could be utilized for                                                                 
past projects.  MR. PARKAN replied that is correct, it can be used                                                              
for future projects or previously completed projects. The                                                                       
department plans to use it to pay back bonds to defer the cost of                                                               
the terminal project.                                                                                                           
                                                                                                                                
REPRESENTATIVE HALCRO asked if the department has figures for the                                                               
revenue generated if there were no exemptions.  MR. PARKAN                                                                      
responded that based on FY 99 emplanements, they expect Anchorage                                                               
without exemptions to collect just under $4.9 million.  In                                                                      
Fairbanks, taking a 25% exclusion off for certain types of                                                                      
passengers you can't collect on, they expect a total collection of                                                              
$340.0.  As Mr. Simpson said, a portion of the passenger                                                                        
entitlement funds would be lost, about $1.4 million.  The net for                                                               
Anchorage would be $3.5 million.  The growth of emplanements is                                                                 
expected to increase that figure.                                                                                               
                                                                                                                                
SENATOR PEARCE asked if there is any restriction under federal                                                                  
regulation or law that these dollars have to be utilized in some                                                                
way that upgrades passenger facilities, as opposed to going out and                                                             
building a new cargo tarmac. MR. PARKAN deferred to Mr. Simpson to                                                              
answer that.                                                                                                                    
                                                                                                                                
TAPE 99-02, SIDE B                                                                                                              
Number 591                                                                                                                      
                                                                                                                                
MR. PARKAN continued, saying that if Mr. Simpson can't answer                                                                   
Senator Pearce's question, he would be happy to follow up on it.                                                                
                                                                                                                                
MR. CLIFFORD ARGUE, Staff Vice President for Properties and                                                                     
Facilities for Alaska Airlines testified next.  He stated he serves                                                             
as Chair of the Anchorage/Fairbanks Airlines Airport Affairs                                                                    
Committee which represents 25 airlines with operating agreements to                                                             
serve the two airports.  His comments today reflect the position of                                                             
Alaska Airlines, Reeve, Delta, Mark West, Federal Express, United                                                               
and American.  He expressed their support of the imposition and use                                                             
of PFCs at the current $3 level as an appropriate funding source                                                                
for airport projects which meet statutory and regulatory criteria                                                               
of safety, security, capacity, noise mitigation or enhancement of                                                               
competition.  The terminal expansion project at Anchorage                                                                       
International is one for which PFC funding makes sense.  Most of                                                                
the airlines would support imposition of the PFC to help fund the                                                               
project, either through direct capital payments or to help offset                                                               
debt service of $179 million in revenue bonds already issued, plus                                                              
the forthcoming additional $25 million in revenue bonds to be                                                                   
issued soon.  He stated that there are other worthy projects for                                                                
consideration of PFC funding at Fairbanks and Anchorage to reduce                                                               
the overall impact on airline rates, fees and charges, including                                                                
planned airfield ramp and terminal work.  MR. ARGUE stated that                                                                 
some 300 airports all over the country with PFCs in place will                                                                  
collect a total estimated $23 billion over the next 20-25 years.                                                                
Anchorage and Fairbanks are among the only airports of their size                                                               
not collecting PFCs.  There is no hard evidence of any difference                                                               
in air traffic demand by adding the PFC to ticket cost.                                                                         
                                                                                                                                
Number 545                                                                                                                      
                                                                                                                                
MR. BUTCH HALLFORD, Vice President of Northern Air Cargo, Member of                                                             
Airport Affairs Committee, stated the arguments for and against the                                                             
PFC program continue to hold merit.  Now the quarter billion dollar                                                             
terminal expansion adds a new element: the approval for the                                                                     
expansion was predicated on the agreement of the signatory air                                                                  
carriers serving Anchorage and Fairbanks to pay for it.  Several                                                                
carriers supported the project based on written and verbal promises                                                             
from DOTPF that new and additional sources of income including PFCs                                                             
would be sought to pay for the terminal. They questioned if the PFC                                                             
program could, once achieved, still be applied to this project.                                                                 
The DOTPF argued the commencement of the project was urgent, and a                                                              
delay would create a hardship on visitors to Alaska if they waited                                                              
until PFCs were approved. Mr. Hallford said he testified last year                                                              
that one-third of the cost of the terminal expansion would be borne                                                             
by the cargo carriers that operate to and through the Anchorage and                                                             
Fairbanks airports. He remains concerned that to impose even a                                                                  
fraction of the $250 million dollar bill on cargo carriers could                                                                
potentially damage Alaska's ability to compete in the global                                                                    
market. He stated his rural customers will have to pay a portion of                                                             
the cost of the Anchorage terminal in every loaf of bread and                                                                   
gallon of milk they buy, whether or not they fly through the                                                                    
Anchorage terminal ever again.  It is clear that the cost of a                                                                  
project this size must be spread across a broad base of payers, but                                                             
should minimize the amount of cost borne by people who never use                                                                
the terminal. The people who use it should bear the greatest share.                                                             
                                                                                                                                
Number 492                                                                                                                      
                                                                                                                                
CHAIRMAN WARD asked Mr. Mort Plum if he can recall and explain the                                                              
concerns of the air cargo carriers last year regarding the                                                                      
mechanics of the PFC program.                                                                                                   
                                                                                                                                
MR. MORT PLUM, Director, Anchorage International Airport, recalled                                                              
that several carriers voted for the airport expansion contingent on                                                             
the future application for PFCs, including Mr. Jensen with Reeve                                                                
Airways.  The technical aspects of the vote did not have the PFC                                                                
contingent in it.  He said he does not have a copy of the vote.                                                                 
                                                                                                                                
REPRESENTATIVE COWDERY stated the legislation last year was based                                                               
on the statements by DOTPF and Administration about pursuing the                                                                
PFC program.  He asked if there have been cost overruns so far.                                                                 
                                                                                                                                
MR. PLUM replied not to his knowledge.  REPRESENTATIVE COWDERY                                                                  
asked how much has been spent on administration, design,                                                                        
engineering and other non-construction expenses to date.  MR. PLUM                                                              
replied he does not have that information with him, but a monthly                                                               
report is provided to the Legislature and he will get that material                                                             
to Representative Cowdery after the meeting.                                                                                    
                                                                                                                                
REPRESENTATIVE COWDERY asked if the project scope remains the same                                                              
as the project presented last year.  MR. PLUM replied that a                                                                    
committee will soon evaluate some of the terminal proportions.  The                                                             
Commissioner has not eliminated any part of the project at this                                                                 
time.                                                                                                                           
                                                                                                                                
CHAIRMAN WARD asked if the baggage area was eliminated.  MR. PLUM                                                               
replied the baggage area was not part of the original project which                                                             
included only those components within the new terminal.                                                                         
                                                                                                                                
REPRESENTATIVE COWDERY asked if the proposed covered walkway                                                                    
between the domestic and international terminals is still in                                                                    
planning to be built.  MR. PLUM said that the north terminal                                                                    
connector is being scrutinized closely and would cost around $1.7                                                               
million.  It was part of the original project as presented to the                                                               
Legislature and the airlines.                                                                                                   
                                                                                                                                
Number 416                                                                                                                      
                                                                                                                                
SENATOR HALFORD said it appears that virtually all of Southeast                                                                 
would be exempt except for Juneau, Ketchikan and Gustavus.  All the                                                             
essential air service communities are exempt, leaving the Railbelt                                                              
and Valdez in-state locations to pay the new cost. The other cost                                                               
is just a reallocation because if there's an outside leg, the money                                                             
is being collected and already goes there.  He suggested passing a                                                              
bill that only applies the fees to any flight that includes an                                                                  
outside leg, to maximize capture of fees from outside.                                                                          
                                                                                                                                
SENATOR WARD asked Mr. Parkan for a copy of the department's                                                                    
proposal in 1996 and Senator Steven's proposal now, so the                                                                      
committee can mix together the requests of the Administration.                                                                  
                                                                                                                                
MR. PARKAN responded he'll provide the original LB & A request                                                                  
which in 1996 did not consider exemptions.                                                                                      
                                                                                                                                
SENATOR HALFORD asked if the essential air service (EAS)                                                                        
communities are already exempt under federal law.  MR. PARKAN                                                                   
replied that is true.  The department looked at using EASs as a                                                                 
basis for exemptions; these were established at a point in time                                                                 
based on emplanements in a community.  Nome or Kotzebue are not                                                                 
designated EASs because they've grown considerably since the EAS                                                                
program was established.                                                                                                        
                                                                                                                                
MR. PARKAN explained the department looked at exempting intrastate                                                              
travel and only charging for those people going outside the state.                                                              
Hawaii tried to do the same thing and the FAA would not allow it.                                                               
He clarified that he meant the existing regulations of the PFC                                                                  
program would not allow it, but legislative change would provide                                                                
that opportunity. However, he cautioned that putting gates at the                                                               
borders would "set off red flags" and draw other states' attention                                                              
to Alaska.                                                                                                                      
                                                                                                                                
SENATOR PEARCE asked if 'essential air service' communities is a                                                                
federal designation for any community without a road.  MR. PARKAN                                                               
replied it is, it's based on emplanements, and it's been in                                                                     
existence for several years.                                                                                                    
                                                                                                                                
REPRESENTATIVE SANDERS asked why the original proposal for the PFC                                                              
program didn't include exemptions and now it does.  MR. PARKAN said                                                             
the department thought it could get approval more easily, but                                                                   
instead, generated a lot of concern and opposition.  Later DOTPF                                                                
felt it could get approval with the inclusion of exemptions.                                                                    
                                                                                                                                
Number 339                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO asked Mr. Hallford if he's concerned that if                                                              
the PFCs are not collected by the airport, the cargo companies will                                                             
be forced to bear a heavier burden of the bonded indebtedness.  MR.                                                             
HALLFORD replied yes, that is true.                                                                                             
                                                                                                                                
Number 328                                                                                                                      
                                                                                                                                
MR. DAVID JENSEN, Vice President of Reeve Aleutians Airways, stated                                                             
he supports Gateway 2000 and the Anchorage Terminal expansion.                                                                  
Twenty-two of the 25 signatory airlines voted by ballot on the                                                                  
expansion, with 12 voting disapproval.  A simple majority did not                                                               
approve the project, but according to the agreement a 2/3 vote is                                                               
required for disapproval. MR. JENSEN said he voted on behalf of                                                                 
Reeve to disapprove the project, but he noted on his ballot that                                                                
with PFCs included in the funding stream for bonds redemption that                                                              
Reeve would change its position and approve the expansion.  He was                                                              
led to believe by DOTPF that PFCs would be part of the 1999                                                                     
funding.  Based on his belief, Reeve joined the Airline Transport                                                               
Association in supporting the expansion.  He urged the state to                                                                 
propose a PFC for the Anchorage terminal expansion.                                                                             
                                                                                                                                
Number 268                                                                                                                      
                                                                                                                                
SENATOR PEARCE asked how many of the communities Reeve Aleutians                                                                
Airways serves are exempt.  MR. JENSEN replied that none are                                                                    
exempt.  They collect PFCs for out of state airports with a PFC in                                                              
place when they write a ticket in Cold Bay, for example.  In                                                                    
further discussion with Senator Pearce, MR. JENSEN said he does not                                                             
agree with having any exemptions at all.                                                                                        
                                                                                                                                
Number 230                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO asked if SB 82 passes into law, exempting PFC                                                             
collection for populations less than 10,000 that are not connected                                                              
with the national highway system, what percentage of Mr. Jensen's                                                               
customers would it affect?  MR. JENSEN replied none.                                                                            
                                                                                                                                
SENATOR HALFORD asked for clarification of exemptions, and if Sand                                                              
Point is an essential air service destination.  MR. JENSEN answered                                                             
it is not, and there is no PFC at Sand Point.                                                                                   
                                                                                                                                
MR. PARKAN explained that the first emplanement means an airport                                                                
that collects or charges PFCs.  The department doesn't envision                                                                 
Sand Point to be a PFC collecting airport.  He further clarified                                                                
that it works on the outbound flight.  In other states, you pay the                                                             
fee to leave the airport having the PFC, but not to arrive at it.                                                               
                                                                                                                                
The sponsor, the State of Alaska, as the owner and operator of most                                                             
airports can select them for PFC collection. Only the international                                                             
airports are under consideration at this time. It could be                                                                      
broadened to collection at all rural airports but there is marginal                                                             
value because of the administrative cost.                                                                                       
                                                                                                                                
SENATOR HALFORD stated virtually every outside trip has two stops                                                               
in Alaska.  If the state system collected on the first emplanement,                                                             
it would be taking money from Seattle.  MR. PARKAN said that is                                                                 
true. PFCs at all the state airports would clearly draw more                                                                    
revenue into the state.  SENATOR HALFORD suggested applying the                                                                 
charge to all state airports but only if there were an outside leg.                                                             
MR. PARKAN reiterated that putting the gate at the border is a                                                                  
problem with the existing PFC regulations.  CHAIRMAN WARD                                                                       
interjected that he would ask Mr. Simpson about it.                                                                             
                                                                                                                                
SENATOR PEARCE suggested trying to exempt any flight without at                                                                 
least two legs; so if you fly from Kenai to Anchorage, you don't                                                                
pay the charge, but if you fly Kenai-Anchorage-Fairbanks and change                                                             
planes in Anchorage, you pay the charge.  It would minimize the                                                                 
complaints from folks on the Kenai who don't want to pay every time                                                             
they fly to Anchorage, less than 75 miles away.                                                                                 
                                                                                                                                
MR. PARKAN responded they looked at ways to consider the Kenai                                                                  
situation, and were unable to find anything to satisfy the                                                                      
regulations.  The one percent rule applies:  any class of carrier                                                               
that has less than 1% of total emplanements out of an airport can                                                               
be considered for an exemption.  He had a list of the EAS airports                                                              
in the state and offered to make copies for the committee. In                                                                   
answer to CHAIRMAN WARD, he said he doesn't think Congress needs to                                                             
reauthorize the EAS, but they need to provide the funding for the                                                               
appropriation.                                                                                                                  
                                                                                                                                
REPRESENTATIVE COWDERY asked if it's possible to group the smaller                                                              
airports to get the PFC revenue pooled, and apply it to a                                                                       
particular airport.  MR. PARKAN replied that as the sponsor, the                                                                
state could apply the use of those PFCs to any airports it owns and                                                             
operates.  A pool wouldn't be necessary.                                                                                        
                                                                                                                                
REPRESENTATIVE HALCRO referred to a table of 1992 emplanement                                                                   
figures, and said that if the PFC was charged at all airports, it                                                               
would total $7.6 million, significantly more than the $5 million                                                                
being considered now.  He asked if Senator Halford's suggestion of                                                              
a PFC at all airports has been considered.                                                                                      
                                                                                                                                
MR. PARKAN said it was considered, but the DOTPF thought it would                                                               
be best to start with the international airports and assess their                                                               
success, then do the certificated rural airports later. A threshold                                                             
above which it pays to collect is 10,000 emplanements, so looking                                                               
at the 1992 list, the charge wouldn't be collected for many of                                                                  
them.  It has to be a community above 2,500 to qualify.                                                                         
                                                                                                                                
MR. PAUL LANDIS, Vice President of ERA Aviation, member of                                                                      
Anchorage International Airport Affairs Committee, said ERA has                                                                 
stated opposition to PFCs on a number of inequities to its                                                                      
passengers and the company in general. Kenai is ERA's largest                                                                   
passenger market and highly price sensitive, with ERA the only air                                                              
carrier.  The new and improved road has cut driving time to                                                                     
Anchorage by about an hour.  The full walk-up fare between Kenai                                                                
and Anchorage is $55 and includes an 8% transportation tax.  The                                                                
tax would be 7.5% except that Kenai is within 75 miles of Anchorage                                                             
International.  ERA also collects an additional federal tax, a $2                                                               
segment fee from each passenger, increasing the fare to $57.                                                                    
Adding a $3 PFC onto the passenger fee would mean about 15% of each                                                             
full fare is pure tax.  The PFC alone would be 5% of the Kenai-                                                                 
Anchorage fare, whereas on longer flights, it's about 1%. Among                                                                 
regional air carriers in Anchorage, ERA would carry a                                                                           
disproportionate share of the load in collecting PFCs.                                                                          
                                                                                                                                
                                                                                                                                
TAPE 99-03, SIDE A                                                                                                              
Number 000                                                                                                                      
                                                                                                                                
MR. LANDIS continued.  The two-tiered pricing structure and the                                                                 
common market means passengers riding on large aircraft will pay                                                                
more than those riding on small aircraft, making it impossible to                                                               
collect PFCs in advance.  The 20 passenger seat exemption places an                                                             
insurmountable burden on ERA Aviation.                                                                                          
                                                                                                                                
MR. LANDIS explained a situation in Cordova, a market served by                                                                 
both ERA Aviation as a subcontractor to Alaska Airlines, and by                                                                 
Alaska Airlines' jets.  According to FAR 158.9(a), Alaska Airlines                                                              
cannot collect the PFC because it collects the EAS subsidy for                                                                  
Cordova.  ERA does not share the EAS subsidy and therefore must                                                                 
collect PFCs, which puts ERA at an immediate price disadvantage,                                                                
and in a common market with its partner, Alaska Airlines.                                                                       
                                                                                                                                
MR. LANDIS explained his fifth point surrounds the question of                                                                  
whether or not the current push for PFCs is an attempt to mask the                                                              
known cost overruns on the terminal expansion project, which is a                                                               
Band-Aid approach.  ERA withdrew its initial objections to the                                                                  
terminal expansion and has not changed that position, however as                                                                
the second largest carrier of passengers to and from the Anchorage                                                              
International Airport, it desires to seek other solutions before                                                                
the burden is disproportionately shifted to airline passengers.                                                                 
Approximately 75 percent of ERA passenger traffic is local in                                                                   
nature, meaning those passengers only travel on ERA flights.  Those                                                             
passengers do not necessarily need the expanded terminal project,                                                               
but will be forced to carry a disproportionate share of the load if                                                             
PFC legislation is enacted.  All regional carriers should be                                                                    
required to collect local PFCs or all should be excluded from                                                                   
collecting them: ERA Aviation clearly prefers the latter approach.                                                              
One alternative approach would require regional airlines to collect                                                             
PFCs in Anchorage, but only in conjunction with the "down line"                                                                 
ticket from, for example, a passenger traveling from Kenai to                                                                   
Anchorage and beyond.                                                                                                           
                                                                                                                                
Number 066                                                                                                                      
                                                                                                                                
REPRESENTATIVE COWDERY asked Mr. Landis if he thought the $3 fee,                                                               
or an amount equal to five percent of the ticket cost, would stop                                                               
people from flying.                                                                                                             
                                                                                                                                
MR. LANDIS replied the number of emplanements in the Kenai market                                                               
has been decreasing over the past few years, one cause being the                                                                
change adding the $2 segment fee.  He suspected the additional $3                                                               
PFC would further reduce ERA's traffic.                                                                                         
                                                                                                                                
Number 080                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO described a scenario in which at one of ERA's                                                             
sites, the location and time of day dictates the use of a smaller                                                               
aircraft, and the passengers purchase tickets for that flight.  The                                                             
flight is then canceled due to weather conditions, and a larger                                                                 
aircraft is later used to accommodate the stranded passengers.  He                                                              
asked who will pay the PFCs for the passengers who bought tickets                                                               
for the previous, smaller flight.                                                                                               
                                                                                                                                
MR. LANDIS answered with ERA's situation and the 20-seat exemption,                                                             
ERA would have to position an employee next to the airplane                                                                     
collecting or returning $3 to each passenger, a system that would                                                               
be unworkable.                                                                                                                  
                                                                                                                                
Number 114                                                                                                                      
                                                                                                                                
CHAIRMAN WARD asked Mr. Simpson if all of Southeast is exempted,                                                                
with the exception of Juneau and Ketchikan.                                                                                     
                                                                                                                                
MR. SIMPSON replied Juneau and Ketchikan have approved PFC                                                                      
programs.  The exemptions in Southeast are specific to Juneau's                                                                 
applications; Ketchikan's application contained no PFC exemptions.                                                              
He clarified the EAS exemption pertains to the subsidized carrier                                                               
that flies in and out of the EAS location; Alaska Airlines does not                                                             
collect for a particular location.                                                                                              
                                                                                                                                
Number 139                                                                                                                      
                                                                                                                                
REPRESENTATIVE HALCRO asked, given the Cordova example where one                                                                
carrier is exempt from collecting PFCs and the other is not,                                                                    
whether Mr. Simpson knew of an administrative way to waive these                                                                
communities from the collection of PFCs.                                                                                        
                                                                                                                                
MR. SIMPSON replied the particular provision within that existing                                                               
regulation is specific regarding the EAS.  Using Juneau as an                                                                   
example, the FAA would be willing to consider and work with DOTPF                                                               
and Anchorage International Airport to structure exemptions that                                                                
are necessary for the particular airport or the communities served.                                                             
                                                                                                                                
MARCO PIGNALBERI, staff to Representative Cowdery, referred to                                                                  
Senator Halford's question regarding whether the FAA could or would                                                             
approve a system by which PFCs would be charged only for the                                                                    
interstate routes, and asked if the FCC could live with such a                                                                  
regime.                                                                                                                         
                                                                                                                                
MR. SIMPSON stated the FAA headquarters' response to that question                                                              
was that exempting PFCs within Alaska was specifically precluded by                                                             
the FAA PFC regulations.                                                                                                        
                                                                                                                                
MR. PIGNALBERI stated that during a negotiation process, a                                                                      
regulation might be amended based on the fact that Alaska is a non-                                                             
contiguous state with a predominant number of communities outside                                                               
of a road system. He asked whether ERA and Alaska Airlines would                                                                
both be exempt from paying the PFC for Cordova; and specifically                                                                
whether the exemption is based on the airline or community, or                                                                  
both.                                                                                                                           
                                                                                                                                
MR. SIMPSON said his list indicates that Alaska Airlines is the                                                                 
subsidized carrier for the Cordova market, therefore Alaska                                                                     
Airlines is exempt.  Any other carrier that serves that market is                                                               
subject to PFCs.                                                                                                                
                                                                                                                                
REPRESENTATIVE COWDERY asked Mr. Simpson whether Kenai has                                                                      
considered applying for an exemption.                                                                                           
                                                                                                                                
MR. SIMPSON said Kenai has not applied to date, and no direct                                                                   
discussion regarding an application with Kenai has taken place.  He                                                             
recalled, during public hearings in 1996 in Kenai, the Kenai mayor                                                              
expressed an interest in implementing PFCs for Kenai, but no                                                                    
further discussion has taken place.                                                                                             
                                                                                                                                
Number 214                                                                                                                      
                                                                                                                                
CHAIRMAN WARD asked Mort Plum to start preparing for the Senate                                                                 
Transportation Committee update on the noise study for the                                                                      
Anchorage International Airport.  He thanked all participants and                                                               
adjourned the meeting at 3:20 p.m.                                                                                              
                                                                                                                                

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