Legislature(2003 - 2004)
05/10/2003 09:05 AM Senate TRA
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ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
May 10, 2003
9:05 a.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Thomas Wagoner, Vice Chair
Senator Gene Therriault
Senator Donny Olson
MEMBERS ABSENT
Senator Georgianna Lincoln
COMMITTEE CALENDAR
SENATE BILL NO. 216
"An Act relating to international airports revenue bonds; and
providing for an effective date."
MOVED SB 216 OUT OF COMMITTEE
PREVIOUS ACTION
SB 216 - See Transportation minutes dated 5/9/03
WITNESS REGISTER
David R. Eberle
Project Manager for the Terminal Redevelopment
Department of Transportation &
Public Facilities
P.O. Box 196900
Anchorage, AK 99519-6900
POSITION STATEMENT: Answered questions on SB 216
Mike Barton
Commissioner, Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Answered questions on SB 216
Morton V. Plumb Jr.
P.O. Box 196960
Anchorage, AK 99510-6960
POSITION STATEMENT: Answered questions on SB 216
Kip Knudson
Deputy Commissioner of Aviation
Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Answered questions on SB 216
Tom Boutin
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Answered questions on SB 216
ACTION NARRATIVE
TAPE 03-20, SIDE A
CHAIR JOHN COWDERY reconvened the Senate Transportation Standing
Committee meeting at 9:05 a.m. Present were Senators Thomas
Wagoner, Donny Olson and Chair John Cowdery. Senator Gene
Therriault arrived momentarily. SB 216 was before the committee.
SB 216-INTERNATIONAL AIRPORTS REVENUE BONDS
SENATOR THOMAS WAGONER announced he had questions regarding
self-insuring and airport authority.
CHAIR JOHN COWDERY stated it was his understanding that if the
bill is given legislative approval and there are no schedule
delays, the project would be completed no later than May or June
2004.
COMMISSIONER MIKE BARTON, Department of Transportation & Public
Facilities, agreed that is the plan.
SENATOR WAGONER said he thought he knew why the decision was
made to self-insure the project, but he wondered what the policy
would be for future projects.
DAVID EBERLE, project manager for terminal redevelopment,
Department of Transportation & Public Facilities (DOTPF),
explained the project is not self-insured. There is an owner
controlled insurance program whereby the state places the
insurance with a carrier, but the state isn't paying the bill.
They consolidated all contractor insurance under an owner-
controlled program and purchased one policy to cover all
contractors. The net result is reduced overall insurance cost.
CHAIR COWDERY asked if that was a good decision.
MR. EBERLE said he thought so. They still have the equivalent
amount of insurance without each contractor having a separate
policy.
CHAIR COWDERY noted the limits weren't adequate.
MR. EBERLE acknowledged that was a valid argument.
SENATOR WAGONER added there is a $10 million policy to cover a
$20 million loss.
CHAIR COWDERY said it's up to $30 million.
MR. EBERLE said an E&O [error and omission] policy is seldom
tapped to the limit, but in this case it was. The state selected
the same limit as was selected for the Healy Coal Plant, which
seemed adequate at the time. Certainly more insurance was
available, but it's always a question of how much you want to
invest in insurance.
SENATOR WAGONER asked if they had a bond in addition to the
insurance and did they have E&O coverage as part of either the
state or another policy.
MR. EBERLE explained, "Typically in the design industry, they
carry a general E&O policy to cover the design firm. It's pretty
minimal though; it's like $1 million. And then as design firms
sign up for major projects, part of that project cost, if the
owner chooses, is to pick up that insurance policy just for that
project. Either way, we [the state] end up paying for the E&O
policy for that particular project. The question is, what limits
do we want and do we place the insurance or do they place the
insurance? Those are really the only questions that are out
there."
SENATOR WAGONER asked if the state insurance program also
insured the design firm on an E&O policy.
MR. EBERLE replied it did; the state placed a separate E&O
policy on the project.
SENATOR WAGONER opined the state is underinsured then asked the
commissioner whether forming an airport authority might keep
this situation from occurring in the future.
COMMISSIONER BARTON said he didn't believe that an authority was
the answer because it would have to address the same issues. He
recommended a review of the project management and more
involvement with third party design reviews. The contributing
factors need to be identified and addressed.
SENATOR WAGONER said he was looking for some way to change the
process and provide for a review to avoid some of the current
difficulties in the future.
CHAIR COWDERY advised he intended to hold hearings in the
interim to address the problems. He acknowledged that some of
the $30 million overrun was not associated with errors.
COMMISSIONER BARTON agreed.
CHAIR COWDERY asked for an accounting of the cost overrun.
MR. EBERLE explained most of the $33 million overrun was
associated with permitting problems, which could be traced back
to the design problems. This impacted the contractor's schedule
and extended the construction period.
CHAIR COWDERY asked if Coffman Engineers were the design
engineers for Concourse C.
MR. EBERLE said they were the structural design engineers.
CHAIR COWDERY said he assumes Coffman Engineering would finish
the project and noted the real difficulty centered on seismic
problems and not the major design.
MR. EBERLE said the structural design and issues surrounding the
model were the source of the significant problems that led to
the permit delays, but the municipality's interpretation of the
code differed from the designer's interpretation and that too
caused delay.
CHAIR COWDERY asked who was right.
MR. EBERLE said that experts would make that determination.
CHAIR COWDERY asked whether the municipality would have any
liability.
MR. EBERLE said he didn't believe so.
CHAIR COWDERY questioned, "They had a code that wasn't
followed?"
MR. EBERLE replied that's what they believe. He added there was
a legislative audit regarding the causes of the permit delays
and the recommendation was that the current statute that puts
the state under the permitting authority of the local
jurisdiction should be more flexible to allow a third party
review on major projects.
CHAIR COWDERY asked if there was legislation to that effect
being developed.
MR. EBERLE said Representative Rokeberg introduced HB 264 and he
wasn't sure of its status.
CHAIR COWDERY announced his staff would get a copy of the audit.
He believes local codes should be followed and in this instance,
they were not.
MR. EBERLE clarified he wasn't suggesting that the state be
exempt from local codes, it's simply a question of whether the
municipality does the review or a third party is so charged.
CHAIR COWDERY asked which way would be the most expensive.
MR. EBERLE replied it was done in the very most expensive way.
The municipality was paid to review the design but, because they
couldn't reach consensus, the state hired a third party to
review so they paid twice.
CHAIR COWDERY said there was a third party brought in because
there was a lot of compromise from the municipality.
MR. EBERLE agreed; bringing in the third party was an effort to
bring resolution.
SENATOR OLSON he's from a different district, but the changes
are impacting aviation in general. Because he received
passionate phone calls regarding the elimination of the small
taxiway to make way for the fuel maintenance facility he asked
for a comment.
9:21 am
COMMISSIONER BARTON said there is no plan to eliminate Victor
Taxiway, but a new fuel maintenance facility is needed because
there are code problems associated with the current facility.
Another issue is that a lot of expensive equipment is sitting in
the open exposed to the weather. The storage site that was
selected is under review, but it isn't part of C Concourse.
CHAIR COWDERY wanted to make it clear that the proposed
legislation is not related to the maintenance facility.
COMMISSIONER BARTON agreed.
SENATOR OLSON said there is no doubt that a maintenance and
storage facility is needed, it's a matter of where it would be
located.
COMMISSIONER BARTON said he was looking at the options. He noted
the FAA said they wouldn't buy more equipment for the Juneau
airport until covered storage was available. They haven't said
the same about Anchorage, but storing the equipment outside
isn't a wise use of money.
SENATOR OLSON asked what he should tell someone who calls and
asks about the status of the facility.
COMMISSIONER BARTON replied they're evaluating the site to
determine whether it's properly located.
CHAIR COWDERY asked if it might stay in the same spot.
COMMISSIONER BARTON said it was possible and he would be happy
to walk the site with Senator Olson and review the options.
SENATOR OLSON said there is concern that the Victor Taxiway is
being choked off because of the relationship between the quick
turn facility (QTF) and the fuel pump area. He asked what the
future plans are for the quick turn facility.
CHAIR COWDERY said he would also like an explanation of the
voting arrangements for the projects. Specifically, he wanted to
hear about the meaning of no participation and what a negative
vote means.
MORT PLUMB, director of the Ted Stevens Anchorage International
Airport, addressed Senator Olson's concern regarding the quick
turn facility (QTF) and the fuel pumping area by explaining that
both are 66 feet from centerline, which is the same as the
current distance from the blast fence to the centerline.
However, there are other obstacles such as stop signs and
guardrails that are closer to the taxiway than the blast fence
that would restrict wingspans.
CHAIR COWDERY said he thought the current barriers were
temporary.
MR. PLUMB acknowledged that there has probably been confusion
because a part of the Victor Taxiway was closed during the
construction of the QTF, but now it's open.
He said he would be happy to work with Senator Olson to address
his concerns regarding wingspan restrictions.
SENATOR OLSON replied he is concerned the area might be
restricted to very small aircraft. Removing a stop sign or
guardrail is relatively easy and inexpensive, but making
alterations to a new $10 million quick turn facility is not.
MR. PLUMB said the obstacles he identified have been there for
years.
SENATOR OLSON pointed out that the QTF is new.
MR. PLUMB agreed it is new in 2003.
SENATOR OLSON asked for verification that it cost $10 million.
MR. PLUMB replied he didn't have the exact figure, but it was
over $8 million.
SENATOR OLSON stated his concern is that, when you spend that
much for a facility, he views at it as permanent. He then asked
what the long term plans are for the facility because it would
certainly entail a permanent structure.
MR. PLUMB agreed it would include a permanent structure.
SENATOR OLSON asked how much more money might be put into the
QTF in the next ten years.
MR. PLUMB replied he didn't know of any other expenditure other
than for routine maintenance and utilities.
SENATOR OLSON asked about larger or different tanks and more
pumps.
MR. PLUMB said environmental compliance issues might drive
changes in the future, but to his knowledge there are no current
plans to make changes.
SENATOR OLSON asked what kind of savings might be realized if
the QTF was moved now compared to ten years from now.
MR. PLUMB replied he didn't have an answer.
SENATOR OLSON asked about the proposed rate change for tie downs
in leased areas. He noted the airport lessees have received
notice that the rates will increase by 50 percent, which makes
it seem as though the cost overruns are being borne by the small
operators.
KIP KNUDSON, deputy commissioner of aviation for the Department
of Transportation & Public Facilities, explained that the
department rewrote Title 17 rural and international airport land
rental regulations in 1999. The international regulations were
promulgated about two years ago and the department is following
the process and procedures for rate setting on all types of fees
set forth in those regulations.
The second issue is that when the operating agreement was up for
negotiation between the signatory carriers and the airport, the
signatory airlines were looking for ways to spread the cost to
other fee payers. They perceived that the percentage of pure
non-airline revenues was too low so they asked that the state
raise the land rents from six cents per square foot to nine
cents per square foot. For auxiliary uses such as rental cars,
the rates would rise from nine cents per square foot to twelve
cents. Although this is almost a 50 percent increase, this would
be the first increase in international airport land rental rates
in 30 years and is still just a fraction of the fair market
value for land rental in Anchorage. Although any rate increase
impacts a business, it was the signatory airlines that suggested
the increase and they will bear the lion's share.
He noted that a number of leaseholders would see their increase
phased in because regulations restrict rental increases to not
more than ten percent in the first five years of a lease. The
theory is that if you had a land lease for longer than five
years you would have enjoyed a low rate. If you were a new
leaseholder, you hadn't had that opportunity so an increase was
less fair.
SENATOR OLSON made the point that some businesses were
downsizing, but couldn't downsize their land use.
DEPUTY COMMISSIONER KNUDSON replied there is never a good time
to increase fees, and it's particularly difficult in a bad
industry cycle. However, the signatories asked for the increase
and they will pay the most.
SENATOR OLSON stated the small guys are paying for the overrun.
DEPUTY COMMISSIONER KNUDSON said the increase isn't designed to
pay for the overruns. This was conceived years ago and it's
fallen to the current administration to implement the rent
increase.
9:40 pm
SENATOR OLSON asked if there was any chance for the increase to
be phased in instead of taking place in a month and one half.
DEPUTY COMMISSIONER KNUDSON replied the commissioner could
rescind the fee increase, but the phase in strategy couldn't be
instituted because the process is set by regulation.
SENATOR WAGONER commented the major carriers such as Federal
Express and United Parcel Service are able to pass the rate
increase on to the consumers, but the small operators don't have
that ability. Even so, he wondered why they would ask for a rate
increase.
DEPUTY COMMISSIONER KNUDSON explained the signatories were
looking for diversification of the fee base; they were not
trying to put smaller operators out of business.
COMMISSIONER BARTON advised that when land rents were raised at
the Juneau airport, state airport rates were pointed to as being
a better deal comparatively.
SENATOR OLSON said he realizes the administration is faced with
enhancing economic opportunities. However, if rates can't be
raised incrementally then perhaps there should be statutory
changes to allow that freedom. It's likely that some of the
small carriers won't be in business next year if they're faced
with such increases.
COMMISSIONER BARTON said he didn't know whether they could put a
phase in into regulation, but they could look at the possibility
and perhaps statutory changes would be necessary. He cautioned
that changing regulations is not a fast process.
SENATOR OLSON asked how fast the bonds could be sold since the
cash flow crisis was looming.
COMMISSIONER BARTON said he was quite sure the bonds would be
purchased quickly. Although he didn't know how long it would
take to get them to market, he didn't think meeting the
September deadline would present a problem.
SENATOR OLSON asked Mr. Boutin how fast bond issues could be
sold.
TOM BOUTIN, deputy commissioner of the Department of Revenue and
State Bond Committee, explained that the first component is the
feasibility study after which the resolution amendment and the
official statement are drafted. Finally, the rating agencies
issue a rating. He estimated that it could be completed within a
60 day period.
SENATOR OLSON asked about previous bonding issue difficulties.
DEPUTY COMMISSIONER BOUTIN said the only situation he was aware
of related to the issue in 1975 to build the international
terminal. In that case, the state made a mistake and issued the
bond before the airlines were in agreement and the bonds had to
be defeased. He advised he kept documentation of that error in
his office as a reminder to be cautious.
COMMISSIONER BARTON pointed out that page 17 of the financial
information outlines the mechanics of taking a bond to market.
CHAIR COWDERY asked for a motion.
SENATOR WAGONER motioned to move SB 216 and attached fiscal note
from committee with individual recommendations. There being no
objection, it was so ordered.
There being no further business to come before the committee,
Chair Cowdery adjourned the meeting at 9:52 am.
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