Legislature(2001 - 2002)
01/23/2001 01:35 PM Senate TRA
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ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
January 23, 2001
1:35 p. m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Jerry Ward, Vice Chair
Senator Robin Taylor
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SENATE BILL NO. 36
"An Act relating to international airports revenue bonds; and
providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 36 - No previous action recorded.
WITNESS REGISTER
Kurt Parkan, Deputy Commissioner
Department of Transportation &
Public Facilities (DOTPF)
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Supports SB 36
Cliff Augue, Vice-President Alaska Airlines Properties & Facilities
Alaska Airlines
P.O. Box 68900
Seattle, WA 98168
POSITION STATEMENT: Supports SB 36
Bill O'Leary
Comptroller Alaska International Airport System
P.O. Box 196860
Anchorage, AK 99519
POSITION STATEMENT: Supports the bill
Mort Plumb
Director, Anchorage Airport
P.O. Box 196860
Anchorage, AK 99519
POSITION STATEMENT: Supports SB 36
Dave Eberle
PE Regional Director
Department of Transportation & Public Facilities
P.O. Box 19600
Anchorage, AK 99519-6900
POSITION STATEMENT: Supports SB 36
ACTION NARRATIVE
TAPE 01-2, SIDE A
Number 001
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 1:35 p.m. Senators Elton, Ward, Wilken, and
Chairman Cowdery were present. The first order of business was SB
36.
SB 36-INTERNATIONAL AIRPORTS REVENUE BONDS
CHAIRMAN COWDERY invited Kurt Parkan, Deputy Commissioner DOTPF,
forward to testify and answer questions.
KURT PARKAN introduced Bill O'Leary and Mort Plumb. He explained
that SB 36 is a bill that increases the authorization for the
International Airport Revenue Bonds to support capital improvement
projects (CIP). DOTPF is negotiating a 5-year CIP business plan
with the airlines operating out of the Anchorage and Fairbanks
airports. Currently CIPs are funded on a cash basis rather than
bonded and projects are planned every year rather than over a five
year period. The bonds would be paid back over a period of
approximately twenty-five years.
Most airports sell bonds for large projects. The current Alaska
system of funding capital projects annually and on a cash basis is
somewhat unique. Funding large projects on a cash basis causes
wide fluctuations in the rate base for the airlines on a year-to-
year basis. Developing a 5-year CIP plan and funding the projects
through the sale of bonds would allow the airlines more continuity
in their expense projections.
MR. PARKAN said that Mort Plumb was present to discuss the
specifics on the projects and Devin Mitchell was there to talk
about the bonding. He said SB 36 is a fairly simple bill, the
airports, the airlines and the state worked cooperatively and
mutually agreed on the approach they are taking.
SENATOR ELTON said that he understood that the bonds would be paid
off through passenger landing fees and concessionaires but he was
unsure how funding with bonds would affect the concessionaires.
MR. PARKAN said that concessions - parking and various other fees
are a separate source of revenue. Although there is a relationship,
the landing fees provide the bulk of the monies for repayment of
the bond. [PORTION OF TAPE INDISCERNIBLE.]
SENATOR ELTON wanted to know what percent of the bond indebtedness
would be paid with landing fees and what part with other revenues,
such as tie downs.
MR. PARKAN said that Bill O'Leary could help with specifics but
basically the CIPs directly affect landing fees and indirectly
affect concessionaires and others paying fees to the airport.
After all sources of revenue are determined for the year and the
net need is set, the landing fees are adjusted up or down
accordingly.
SENATOR ELTON asked what he should tell a (hypothetical)
concessionaire approaching his office and asking whether or not
this would put upward price pressure on his rental fees.
MR. PARKAN said that everyone shares in payment of the costs of
operating the airport. Concessionaires are a cost center that is
looked at frequently but he couldn't say whether or not this would
affect specific concessionaire fees.
SENATOR COWDERY followed up by asking what the impact to
concessionaires would be if the projects were not funded with a
bond package but on a cash basis instead.
MR. PARKAN said that the impact to concessionaires would be similar
either way. The biggest impact variation would be to the airlines
because they make up the difference in the annual cost of operation
of the airport. Cash funding translates to large increases in
landing fees when large projects are undertaken. With bond funding
those costs are spread out over time.
Number 759
SENATOR WARD wanted to know whether any of the additional bonding
authorization would go toward paying for the extension of the
railroad to the airport for parking.
MR. PARKAN said it would not. The railroad is funding that entire
project through its own sources of revenue. DOTPF has nothing
included in this 5-year CIP for that project.
SENATOR WARD wanted reassurance that there were no state dollars
for the extension of the railroad.
MR. PARKAN said the extent to which they are spending money on that
project is mostly in review of the building permit, establishing a
lease with the railroad and costs incurred by anybody that wants to
do business at the airport.
SENATOR COWDERY asked if there would be employee parking if the
railroad is extended or if it is anticipated that employees would
park elsewhere.
MR. PARKAN was not prepared to talk about the railroad project but
said that employees would need a fair size, designated employee
parking area.
SENATOR WILKEN wanted clarification on the 2-3 provisions in the 5-
year plan. To his understanding, a 5 year plan is decided upon,
bond authorization is received for 2 years, and then something
happens so that DOTPF comes back for authorization for 3 more years
of bonding. He wanted to know when DOTPF comes back for the 3 year
authorization and whether approval starts another roll of projects.
Number 939
MR. PARKAN said DOTPF would be coming back in 2 years for the next
3-year proposals. This would provide a series of revenue bonds and
is an approach that was negotiated with the airlines. It's an
approach most airlines use. DOTPF would be returning for future
CIPs for bond financing forms so it would be a continual series of
revenue bonds to fund projects and would be paid off over time.
SENATOR WILKEN asked if this was a 2-year request with a 3-year
window before looking at another 2 years.
MR. PARKAN said no, the operating agreement would end and they
would negotiate with the airlines well in advance of that so that
there would be no gap.
SENATOR WILKEN asked why they didn't use a 6-year plan and fund
every 2 years.
MR. PARKAN said this is the plan that had been worked out over the
period of about a year with much discussion.
SENATOR WILKEN asked what the effect would be on landing fees if
the facility was all built.
Number 1079
MR. PARKAN asked Bill O'Leary to answer.
BILL O'LEARY, financial comptroller for the Alaska International
Airport System, said the projected landing fees for the next 5
years are in the $.60 to $.90 range. Currently the landing fee is
$.89 per 1000 pounds certified maximum gross take-off weight, which
is the measure used to calculate landing fees.
SENATOR WILKEN wondered where he had gotten the $1.40 rate.
MR. O'LEARY said it is currently $.89. It had been lower than that
in previous years but, to his knowledge, it had never been above
that rate.
SENATOR WILKEN asked if the effect of that 5-year bond would be to
drive those fees down.
MR. O'LEARY's response was inaudible.
SENATOR WILKEN said that the bill's impact on landing fees would be
revenue neutral.
MR. O'LEARY said that, based on their projections, they will max
out at close to what the landing fees are at this time.
SENATOR TAYLOR asked for comment on an Anchorage newspaper article
that said it appeared that the $204 million that was authorized and
unspent has been earning interest. That interest is being used, in
part, for the cost overruns as DOTPF and Anchorage argue about how
earthquake-proof the structure is.
He noted that if the legislature gave the additional authorization
and DOTPF sold the additional bonds, there would be leveraging at a
higher rate in working the capital and there would be an additional
income stream to use until that money is used for construction.
DOTPF is making money off the bonds already issued, yet the cost of
those bonds is factored into the revenue stream. He then said that
landing fees would have to go down if they never built anything
because they would be making more on the investment return on the
bonds than the rate payment of the bonds.
SENATOR TAYLOR wondered why they were even talking about this
because he thought authorization to build something had been given
almost 3 years ago and not much had happened. Some building
materials sitting in paid storage were to be used in a building for
which there was not even a building permit issued.
MR. PARKAN said that Senator Taylor was referring to the terminal
project that they had gotten bond authorization for and for which
they are now collecting and using interest monies. The proposal
before the legislature currently is related to the ongoing annual
CIP program, whether it be a ramp, taxiway, environmental work, or
maintenance facility work. It is for normal projects and is
largely unrelated to the terminal project.
Number 1377
SENATOR WARD thought it might be beneficial to discuss the related
projects all at once.
SENATOR TAYLOR said that he understands that DOTPF is always going
to need a certain amount of bonding authority to take care of
ongoing capital needs at the airport. From Senator Wilken's
question, he understands that bonds are paid off and then the
department asks to issue new bonds. He asked if it is necessary
to return to the legislature every time additional bond authority
is needed.
MR. PARKAN said DOTPF needs legislative authorization every time
additional bonding is needed. DOTPF is looking to stabilize costs
to the system and therefore to the public, who ultimately pays for
airline tickets. Without bonding there would be large spikes in
landing fees that would have a more immediate negative impact on
the flying public. Bonding allows the cost fluctuations to be
spread out over time.
SENATOR TAYLOR said he understood that, but since the bonding
authority given for the terminal was apparently being separated
from the ongoing bonding needs, is this what was meant by the 2
year and 5 year plan so DOTPF could see what would be done over
time.
MR. PARKAN said that is essentially correct. DOTPF has authority
over the terminal project and will need additional authority to
cover the specifically identified projects for the new package.
The specific projects on the list have been negotiated with the
airlines in advance.
SENATOR TAYLOR said this is different than a normal DOTPF capital
budget where you're working off a Statewide Transportation
Improvement Program (STIP) list. When DOTPF sells bonds, it has to
do those projects outlined by the bonding authority.
MR. PARKAN said DOTPF is compelled to use the monies for the
projects specifically listed in the bonding authority. There can be
no deviation.
SENATOR COWDERY wanted the two original bond packages explained.
MR. PARKAN said the previous revenue bond authority bills were for
$179 million and (he believes) $25 million for the Anchorage
terminal project. Those bonds have been sold and some federal
funds have been received through a letter of intent that
contributes to the project.
Number 1595
SENATOR COWDERY asked whether or not the $25 million bond had any
impact on the landing fees or whether the bond would be paid with
federal funds in the future.
MR. PARKAN said there was an offset to the extent that DOTPF can
use the federal funds. He didn't think the bonds themselves are
directly paid from the federal fund. The debt is paid from the
international airport revenue fund; the federal funds received are
an offset to the total cost.
SENATOR WARD asked whether the terminal would be paid for with any
new bond funds.
MR. PARKAN referred the question to Mr. Plumb.
MR. MORT PLUMB, director of the Ted Stevens Anchorage International
Airport, said some items overlapped, such as asbestos abatement and
relocation costs of regional airlines.
SENATOR COWDERY asked that DOTPF get the specific information to
Senator Ward and they agreed to do so.
Number 1780
SENATOR TAYLOR asked if the cost overruns were included in the
additional authority requested on the second bond package so that
funds from both authorities could be used to build the terminal.
MR. PLUMB said he wouldn't characterize it that way exactly. Some
areas have changed from the original to the final design so there
are probably areas that overlap.
SENATOR TAYLOR said that means yes, meaning there isn't enough
money in the original bond package to build the terminal.
MR. PARKAN said that the items listed are additional items. An
example given was the relocation of regional airlines. Although it
was in the original proposal, the actual relocation was much more
extensive and expensive so additional funding is needed to cover
those costs.
SENATOR TAYLOR again referred to the Anchorage newspaper article
that said that there were significant increased costs to the
terminal itself. He wondered whether the article was completely off
base or not. He wanted to know where the authority or money came
from to pay the cost overruns if indeed there were significant
increased costs.
MR. PARKAN replied that DOTPF does not know what the full impact
will be for the delay in obtaining a building permit for the
terminal project. The department has an insurance policy, which it
will use to recover some of the costs of the delay. At this point,
the only thing that is impacted by the delay is the foundation
work. The foundation contract will be followed by the construction
of the C Concourse. As a result of the separate contracts, the
cost impact of the delay is less.
Number 1953
SENATOR TAYLOR wondered about accountability within DOTPF since the
department decided on the design and then accelerated the schedule.
When the city pointed out problems and didn't issue the permit,
cost overruns occurred. Senator Taylor thought that the department
should bear part of the responsibility for those cost overruns and
serious delays.
MR. PARKAN said that in a project of this size, the problems
experienced so far are not unusual. He didn't want to speak
specifically about which person or persons are responsible for the
design problems. The department is pleased that the Municipality of
Anchorage found the design problems and that they are being
addressed.
SENATOR TAYLOR said that when DOTPF files an insurance claim for
between 5 and 10 million dollars for the delays, the insurance
company would probably turn around and try to recover some of its
costs from the design engineer. He felt that there must be someone
at fault for the insurance company to pay out such a large sum of
money.
MR. PARKAN said that attorneys would determine the answers to those
questions.
SENATOR TAYLOR wanted assurance that there would be some level of
accountability for the $10 million payout and that the legislators
would be informed of the particulars.
MR. PARKAN said that insurance is purchased for situations such as
this. Premiums are paid and the insurance is secured.
SENATOR COWDERY asked whether a contingency was originally
calculated in for cost overruns.
MR. DAVE EBERLE, program manager for the terminal project, answered
via teleconference saying that the original project had about a $19
million contingency for the $230 million project.
SENATOR COWDERY asked if all contingency funds had been used.
MR. EBERLE said there are remaining funds but that the budget is in
need of updating so he doesn't have an exact figure.
SENATOR WARD asked for the original completion date for the
terminal.
MR. EBERLE said that the original completion date for the new C
concourse was 2002 and now it is projected to be late April or
early May 2003.
SENATOR WARD then wanted to know the name of the original project
manager.
MR. EBERLE said that Rides Alaska was involved in some of the
original concept development and is now providing some project
management reports, cost schedulers and secretarial services. They
are not the lead program manager at this time.
MR. PARKAN added that the performance measure of overall success
and the ability to complete the project by September 2004 is on
track.
SENATOR WARD then asked about the current status on permitting from
the city.
MR. EBERLE explained that the permit is being issued incrementally
as DOTPF provides design information that is reviewed by the city.
A permit for the bulk of the remaining foundation is expected on
February 6, 2001 and all foundation permits would be in hand by the
end of March. There will also be a similar permitting process for
the structure and steel itself. The first approval is anticipated
on February 19, 2001, with final approval by the end of March 2001.
This is the rough schedule for the first phase contract. It is
anticipated that the permit for the second phase will be in hand by
the end of April and before the bids are opened.
SENATOR WARD wanted to know which city permits, if any, were in
hand.
MR. EBERLE said they have permits covering about one-half the
foundation work that has been done.
SENATOR COWDERY asked Cliff Argue, Alaska Airlines representative
for both Anchorage and Fairbanks, to come forward to answer
questions.
SENATOR ELTON asked Mr. Parkan to clarify the accountability issue.
It's his understanding that the first level of accountability in
the new bonding authorization is that the carriers have approved
the list of projects for the Anchorage and Fairbanks airports. He
asked Mr. Parkan to talk about that process and approval.
MR. PARKAN said that the project list was developed with the
airlines at the Anchorage and Fairbanks airports. Although the
agreement hasn't been finalized, they are comfortable enough with
the negotiating teams to present the full package now.
SENATOR ELTON asked what would happen if the industry said that it
wasn't comfortable with the list as presented and whether amounts
or projects would change.
MR. PARKAN said an agreement is an agreement and they will agree on
all components including the CIP. To the extent that there is
disagreement, changes would be made.
Number 2380
SENATOR ELTON said that hearing that industry is comfortable with
the list would be about the best accountability possible.
SENATOR COWDERY asked for testimony from Cliff Argue.
MR. ARGUE, staff vice-president of properties and facilities for
Alaska Airlines and chair of the Anchorage and Fairbanks airlines
airport affairs committee, came forward. He said that the affairs
committee consists of all the carriers at the two airports that are
currently signatory to the operating agreement. He noted that the
committee has spent almost 2 years negotiating the new operating
agreement; one of the primary objectives was to come up with a 5-
year business plan. Part of that business plan was the list of
approved capital projects. Prior to this they operated on a year-
to-year basis, which caused a fair amount of economic uncertainty
to the carriers. The 5-year program provides an ability to
forecast cost exposure over time.
The current bill represents the natural progression of the
negotiations. Throughout, the state was asked for the 5-year
business plan and to maximize the use of revenue bonds to finance
that plan. Given the size of the current project and the size of
the additional 5-year capital program, the airlines didn't feel it
appropriate or prudent to try to finance with cash. This is exactly
what the carriers are asking for. The actual list of projects on
the 5-year capital improvement program represents many hours of
negotiations between the state and the airlines. It reflects a
compromise position that the negotiating committee for the airlines
feels very comfortable with and has recommended for approval to the
full body of airlines.
There is a provision in the agreement that if projects need to be
added later on, that can happen through another voting process.
MR. ARGUE said that the use of revenue bond debt is common among
most airports throughout the United States. Getting the additional
bond authority is the first step so that DOTPF can begin the
process of funding these projects, which are separate and apart
from the terminal project currently underway. There is a small
amount of overlap but, for the most part, the money is for new
projects needed at both the Anchorage and Fairbanks airports. This
approach is good solid public. On behalf of the airlines serving
these two airports, he urged the committee to pass the legislation
because it is important to provide the additional infrastructure at
both airports.
SENATOR TAYLOR asked for specific examples of things the airlines
wanted but didn't get.
MR. ARGUE said that there were many compromises over the course of
the two years. However, he didn't have anything specific to cite.
SENATOR TAYLOR couldn't understand why the negotiations would be
difficult when the air carriers are the ones funding the bill
through landing and other fees. It would seem that if that group
wanted to pay for something, there wouldn't be much argument about
it. He noted that the project has over $12 million for
environmental compliance and clean up and over $14 million in
security related items. He wondered whether those were the kinds of
items that caused difficulty in negotiations.
MR. ARGUE said that it was actually somewhat the opposite. The
state presented its list of capital projects that they saw needed
over the next 5-years and the airlines questioned each and every
one of those as to whether it was needed at all and what the timing
for that item would be. A great deal of time was spent looking at
the state's original list, cutting items from that list and
reaching a time frame for items left on the list.
SENATOR TAYLOR said he understood. He then noted, according to the
newspaper article, the 300-foot walkway to assist passengers
through the terminal and the tour group baggage facility might be
cut. He observed that the things the public might want most were
the first to be cut. He is concerned that the traveling public,
those paying for the facility, don't have a role in determining
which items will be cut.
MR. ARGUE said that the airlines were very much involved with the
state in determining which items would be cut. The features just
mentioned were prioritized and, as mentioned earlier, the exact
list is not established. The walkway is recognized as being a very
important customer service feature but the tour group baggage are
could be deferred. The airlines and the airport are sensitive to
the traveling public and that's why this project moved forward in
the first place. They are trying to minimize the impact of any cuts
that have to be made.
SENATOR COWDERY asked if the cut items could be put back at some
time and where the money would come from.
MR. PARKAN said that some items, such as the moving sidewalk, could
be added later. Mr. Eberle could speak to that.
Number 1985
MR. EBERLE said that three alternates have been identified as
distinct pieces of work that could be added at a later date if
funding comes available. Some projects in the terminal must be
done now or the opportunity will be lost. Examples of those are
adding a basement, widening the concourse, or making the gate
concourse area wider. Those need to be done as a part of original
construction or not at all. These types of items were prioritized
in the base contract while elements that can be added later were
not.
SENATOR COWDERY asked where the additional funding would come from
and whether more bonds would be necessary.
MR. EBERLE said that they would have to sit down with the airlines
and determine when items would be put back into the program.
SENATOR WILKEN said it sounded as though there were really two
levels of negotiations. First, the negotiating team had to meet
with the state and then it went back to all the airlines to advise
them of any issues or potential changes.
MR. EBERLE said yes, the negotiating committee consists of just six
airline representatives and there are about 26 airline signatories.
During the process, the team had to go back and advise the full
group of issues being discussed with the state. This isn't unusual
in negotiations between airlines and airports. There are other
issues, such as access and how the cash would flow through the
airport, and each takes time to discuss and negotiate.
SENATOR WILKEN asked about the dynamics of the 26 airline
signatories and whether it takes a simple majority vote to approve
the new plan.
MR. ARGUE said it's an interesting dynamic because four distinct
types of airlines serve the two airports: the regional carriers,
domestic airlines serving the lower 48 from Anchorage and
Fairbanks, international carriers, and the cargo carriers, such as
UPS and FedEx. Each has different issues, wants and desires and,
for the most part, there has to be much give and take. In voting
they try to reach a consensus. When a critical mass of the
carriers agree then that becomes the airline position.
SENATOR WILKEN asked Mr. Parkan for the name of the general
contractor.
MR. PARKAN said that for the terminal project, Kewitt is performing
the foundation work and Parsons Brinderhoff is the program
management for the entire project.
SENATOR COWDERY wanted clarification of the vote as asked by
Senator Wilken as it sounds like a negative type of voting.
MR. ARGUE said that's correct for the new project, but the question
Senator Wilken asked was about voting among the airlines on a
particular issue. With respect to project voting, 66 2/3 percent of
the total airline signatories must vote no on a project for it to
be deferred.
SENATOR WARD asked if it took a consensus to come up with the new
list.
MR. ARGUE said the list was arrived at through negotiation as
mentioned previously. The airlines started with a longer list that
had been presented by DOTPF.
SENATOR WARD said that he had received calls from smaller carriers
and he wondered where they fit into the list decision-making
process.
MR. ARGUE said that the list was developed and agreed to by
consensus of the negotiating committee and then presented to the
full group on a no objection basis. He didn't recall any
particular objections from a specific carrier on the list of
capital projects. This can best be described as consensus or no
objection from the carrier group. It should be noted that everyone
doesn't respond every time.
SENATOR WARD asked for permission to hold the bill until he could
talk to the Municipality of Anchorage about it.
SENATOR COWDERY announced that the bill would be held, noting that
more questions need to be answered.
SENATOR TAYLOR noted that the bill is structured in such a way as
to take effect immediately. With this in mind, he asked what the
timeline is for authorization and issuance of the bonds and how
critical that might be to the projects.
MR. PARKAN said that the FY02 fiscal year projects are included in
this bill so it is critical that this measure pass so that funding
is available for next year's capital programs.
SENATOR TAYLOR said he wanted to know when they anticipate getting
it passed and having authority to issue the bonds. He wanted a
specific date.
MR. PARKAN said they anticipate that the bill will pass during the
present legislative session. DOTPF could then sell the bonds in
the fall as it has done with the two previous bond bills.
SENATOR COWDERY said that the last time bonds were sold the market
was very favorable. He wanted to know what is anticipated this
time if the bill passes in the next month or two.
MR. O'LEARY thought the interest rate projections are between 6 and
6.5 percent.
There being no further discussion, CHAIRMAN COWDERY adjourned the
meeting at 2:45 p.m.
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