03/24/2022 01:30 PM Senate TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| SB170 | |
| SB231 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 170 | TELECONFERENCED | |
| *+ | SB 231 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
March 24, 2022
1:35 p.m.
MEMBERS PRESENT
Senator Robert Myers, Chair
Senator Mike Shower, Vice Chair
Senator Peter Micciche
Senator Jesse Kiehl
MEMBERS ABSENT
Senator Click Bishop
COMMITTEE CALENDAR
SENATE BILL NO. 170
"An Act relating to the Alaska marine highway system;
establishing the Alaska Marine Highway Corporation; and
providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 231
"An Act providing that the Alaska Railroad Corporation is
subject to the Executive Budget Act; providing that expenditures
of the Alaska Railroad Corporation are subject to appropriation;
and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 170
SHORT TITLE: MARINE HIGHWAY CORPORATION
SPONSOR(s): TRANSPORTATION
01/21/22 (S) READ THE FIRST TIME - REFERRALS
01/21/22 (S) TRA, L&C, FIN
02/17/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
02/17/22 (S) Heard & Held
02/17/22 (S) MINUTE(TRA)
02/22/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
02/22/22 (S) Heard & Held
02/22/22 (S) MINUTE(TRA)
03/17/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
03/17/22 (S) Heard & Held
03/17/22 (S) MINUTE(TRA)
03/22/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
03/22/22 (S) Heard & Held
03/22/22 (S) MINUTE(TRA)
03/24/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 231
SHORT TITLE: AK RAILROAD CORP; EXEC BUDGET ACT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/15/22 (S) READ THE FIRST TIME - REFERRALS
03/15/22 (S) TRA, FIN
03/24/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
THERESA WOLSTAD, Staff
Senator Robert Myers
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided an overview of the issues related
to the need for the proposed Alaska Marine Highway Corporation
in SB 170 on behalf of the committee.
ROB CARPENTER, Deputy Commissioner
Department of Transportation and Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint on the Alaska Marine
Highway System Service and Routes.
JOHN FALVEY, General Manager
Marine Highway System
Department of Transportation and Public Facilities (DOTPF)
Ketchikan, Alaska
POSITION STATEMENT: Answered questions about the Alaska Marine
Highway System (AMHS) during the discussion of SB 170.
ANDY MILLS, Legislative Liaison
Office of the Commissioner
Department of Transportation and Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Answered questions on the Alaska Marine
Highway System during the discussion of SB 170.
MATT MCLAREN, Business Enterprise & Development Manager
Department of Transportation and Public Facilities (DOTPF)
Ketchikan, Alaska
POSITION STATEMENT: Answered questions on AMHS during the
hearing on SB 170.
NEIL STEININGER, Director
Office of Management and Budget
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented SB 231 on behalf of the
administration.
BILL O'LEARY, President and CEO
Alaska Railroad Corporation (ARRC)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of SB 231.
ACTION NARRATIVE
1:35:45 PM
CHAIR ROBERT MYERS called the Senate Transportation Standing
Committee meeting to order at 1:35 p.m. Present at the call to
order were Senators Kiehl, Shower, Micciche, and Chair Myers.
SB 170-MARINE HIGHWAY CORPORATION
1:36:15 PM
CHAIR MYERS announced the consideration of SENATE BILL NO. 170
"An Act relating to the Alaska marine highway system;
establishing the Alaska Marine Highway Corporation; and
providing for an effective date."
[SB 170 was previously heard on 2/17/22, 2/22/22, 3/17/22, and
3/22/22.]
1:36:45 PM
THERESA WOLSTAD, Staff, Senator Robert Myers, Alaska State
Legislature, Juneau, Alaska, reviewed the AMHS structure. She
stated that the Alaska Marine Highway System (AMHS) is a line
agency within the Department of Transportation and Public
Facilities (DOTPF). A general manager directs the day-to-day
operations of this system. While the existing governance model
presents interdepartmental coordination regarding public
transportation across the state of Alaska, the current system is
vulnerable to funding uncertainty, a lack of unified management
authority, frequent turnover in senior leadership positions,
short-term planning horizon, and exposure to political influence
over operational decisions. One advantage of SB 170 is it
creates a board of directors for the proposed corporation, which
would not need to reorganize with each administration. This
governance model would reduce substantial exposure to political
influence, provide for stable leadership, and foster a long-term
vision in strategic planning to develop reliable ferry services
in Alaska. One purpose of AMHC is to provide predictability and
stability of ferry service to Alaska communities. The proposed
corporation would be granted the authority to set rates and
establish routes, schedules, and types of services. The
corporation would also have the authority to contract with other
modes of transportation, enter into agreements to subcontract
delivery of services, and enter into a minimal assurance
agreement with the state to reflect the actual transportation
needs of the state.
MS. WOLSTAD deferred to Mr. Carpenter to present a PowerPoint
providing more detailed information.
1:39:20 PM
ROB CARPENTER, Deputy Commissioner, Department of Transportation
and Public Facilities (DOTPF), Juneau, Alaska, began a
PowerPoint on the Alaska Marine Highway System Service and
Routes.
1:40:33 PM
MR. CARPENTER reviewed slide 2, depicting a map that showed the
vessel routes for the ferries serving Southeast Alaska,
including the Matanuska, Kennicott, LeConte, and Lituya. He
noted that AMHS ferries serve communities from Bellingham to
Haines and Skagway. The Matanuska and Kennicott travel to
Bellingham every other Friday. The Kennicott travels from
Bellingham to Haines and Skagway, Yakutat, and across the Gulf
of Alaska. It is the only AMHS vessel that crosses the gulf. He
characterized the LeConte as the workhorse of Southeast Alaska.
He noted the Lituya travels between Ketchikan and Metlakatla.
1:41:27 PM
CHAIR MYERS related his understanding that the Columbia was
either in layup or about to layup. He asked whether the Columbia
was previously used for the cross-Gulf route, and if the vessel
would resume that route.
MR. CARPENTER responded that the Columbia does not cross the
Gulf of Alaska because she is not ocean certified. He deferred
to Captain Falvey.
1:42:13 PM
JOHN FALVEY, General Manager, Marine Highway System, Department
of Transportation and Public Facilities (DOTPF) Ketchikan,
Alaska, agreed that the Columbia lacks an ocean-class hull, so
it cannot cross the Gulf of Alaska without permission from the
United States Coast Guard (USCG). The two ships that are ocean
class vessels are the Tustumena and the Kennicott. He noted the
new Tustumena replacement vessel (TRV) will also be rated as an
ocean-class vessel.
1:43:00 PM
MR. CARPENTER added that the Tazlina, an Alaska Class Ferry
(ACF), also serves Southeast Alaska. When the Columbia returns
to service, she will serve Bellingham and assist the feeder
vessels.
1:43:30 PM
MR. CARPENTER reviewed slide 3, AMHS Ports - Southeast. He
stated that the "x" on the chart shows the ports that the
vessels could serve. For instance, the Aurora could dock at
Angoon although she typically serves Prince William Sound (PWS).
1:44:03 PM
CHAIR MYERS asked for the main reason that stops the vessels
from going to all of the ports.
MR. CARPENTER deferred to Captain Falvey but he believed it was
primarily due to the physical infrastructure.
1:44:27 PM
CAPTAIN FALVEY agreed it was the match up to the infrastructure,
including the dolphins. Some vessels cannot use some of the
docks.
1:44:43 PM
SENATOR MICCICHE asked for the financial reasons that AMHS was
not serving the communities.
CAPTAIN FALVEY explained that AMHS has tended to operate the
ships zonally. For example, the LeConte operates in Southeast
Alaska, the Aurora stays in Prince William Sound (PWS), the
Columbia typically runs in Southeast Alaska from Haines and
Skagway, and the Kennicott runs cross-Gulf. AMHS has modified
the Whittier dock to accommodate the new Alaska Class Ferries
(ACF). Thus, if an ACF operates in PWS, it will match up to all
of the docks. He noted AMHS is currently working with Subcoastal
Region Engineering to upgrade Pelican in Southeast Alaska and
Chenega Bay in Southwest Alaska to accommodate ACFs. As the new
vessels come in, AMHS will achieve consistent matchup in Alaska.
MR. CARPENTER added that some depth of water issues prevented
some vessels from using some docks.
1:46:17 PM
MR. CARPENTER reviewed slide 4, Vessel Routes - Southwest,
showing the vessel routes for the Aurora, and Tustumena from
Bellingham to Dutch Harbor. The Kennicott cruises to Whittier on
its cross-Gulf trip, and when the Tustumena travels to Chignik,
Sand Point and other communities along the Aleutian Chain, the
Kennicott will serve Chenega Bay, Homer, Kodiak, Old Harbor, and
Ouzinkie.
1:47:01 PM
MR. CARPENTER reviewed slide 5, AMHS Ports Southwest,
consisting of a chart showing the ports that vessels can serve.
1:47:21 PM
CHAIR MYERS asked whether the Aurora stays in PWS because the
vessel is not rated as an ocean-class vessel.
MR. CARPENTER answered yes. He stated that the LeConte and
Aurora are 235-foot sister inland water ships that are not
ocean-going.
1:47:44 PM
MR. CARPENTER reviewed slide 6, Current Fleet Status, which
consisted of a map showing the vessels in service and those in
the shipyard. The Aurora operates in PWS, the Matanuska runs
from Bellingham to Haines and Skagway, the Lituya runs between
Ketchikan and Annette Bay, and the Tazlina works the Northern
Panhandle communities, including Angoon, Gustavus, Hoonah,
Juneau, Haines, and Skagway. He stated that the LeConte was
scheduled for layup in late March, the Hubbard is having crew
quarters installed at Vigor shipyard, and the Columbia will soon
be mechanically ready, but AMHS must address crew issues. He
characterized the Kennicott as the fleet's workhorse, running
most routes. He indicated the Tustumena would be in the yard for
a capital improvement project for at least half of the summer.
1:49:13 PM
MR. CARPENTER reviewed slide 7, the Historical Revenues and
Operating Costs, which consisted of bar graphs showing the AMHS
Fare Box Recovery from 1992-2023. He noted that the salmon-
colored bar reflects the generated revenue, dark blue represents
the other fund sources, primarily unrestricted general funds
(UGF), and the gold line depicts the fare box recovery. He noted
the figures were adjusted for inflation. He pointed out that the
budget was $140 million in 1992, similar to the FY 2023
Governor's budget. He explained that the fare box declined
significantly from 2006 through 2018. At the time, the budgets
were higher, and AMHS was running more ships, but the revenue as
a percentage of the budget was less. He directed attention to
the lower right, which shows that the budget has been funded for
the last two years with federal funds, but AMHS is still
collecting the revenues, which will be deposited to the Marine
Highway System Fund.
1:50:56 PM
ANDY MILLS, Legislative Liaison, Office of the Commissioner,
Department of Transportation and Public Facilities (DOTPF),
Juneau, Alaska, stated that later on in the presentation, he and
Mr. Carpenter will reference slide 7 to show trends.
1:51:17 PM
SENATOR MICCICHE remarked that this slide shows some decisions
that were counter to ones the department probably would like to
have made by adding service and vessels when ridership was
declining.
MR. CARPENTER agreed that his remarks were fair.
MR. MILLS noted that airline travel had impacted ferry service,
but the reliability of vessels and other factors affect
decisions people make when deciding whether to travel by ferry.
He acknowledged that accessibility and cost affect those
decisions.
1:52:30 PM
MR. CARPENTER reviewed slide 8, Statistical Information:
Passengers. He referred to the 2006-2017 time period, noting
that the department provided significantly more weeks of
service, but there wasn't a corresponding spike in passenger
traffic. Although AMHS was doing more with less crew, it may not
have been the most efficient use of capacity. He indicated that
the figures were not adjusted for inflation. He directed
attention to 2019, 2020, and 2021, years dramatically affected
by COVID-19.
1:53:39 PM
CHAIR MYERS pointed out differences regionally, noting that AMHS
had a decent increase in ridership in Southwest Alaska, but
Southeast Alaska traffic remained flat.
1:53:56 PM
MR. CARPENTER reviewed slide 9, Statistical Information:
Vehicles. He stated that the vehicle traffic has remained
relatively consistent, partly because AMHS represents an
extension of the highway system.
1:54:35 PM
CHAIR MYERS asked whether AMHS has considered adding vehicle
space on new vessels, perhaps having a double car deck.
MR. CARPENTER indicated that the car decks on the TRV were
expanded to accommodate growing vehicle traffic. He recalled
AMHS considered not having any passenger quarters, but since
this vessel travels to the Aleutian Chain, retaining passenger
quarters were deemed appropriate. He deferred to Captain Falvey
for additional comments.
CAPTAIN FALVEY stated that the Alaska Class Ferry (ACF) has
considerably larger car decks than the LeConte and Aurora. He
indicated that the plan would be to replace the LeConte and
Aurora with ACFs with an additional car deck. Further, the
Tustumena Replacement Vessel (TRV) will have considerably more
vehicle capacity than the Tustumena.
1:56:42 PM
SENATOR KIEHL offered his view that the chart mirrors the
economic activity in Southeast Alaska. He recapped that
Southeast Alaska had two pulp mills and a robust commercial fish
sector, but when the pulp mills closed, AMHS suffered a downturn
in passenger traffic. It flattened out as the economy hit a
plateau and began to recover. He directed attention to the
northern end of the Southeast Alaska region, noting budget cuts
from FY 2016 onward. He asked whether the statistical
information could be overlaid with the size of the economy.
MR. CARPENTER agreed to do so.
1:58:09 PM
SENATOR MICCICHE stated that while the industry economy dropped,
Alaska has seen dramatic growth in tourism and independent
travelers. He asked whether AMHS has any idea which sector
accounts for the primary sources of vehicle traffic.
MR. CARPENTER offered his view that the vehicle source was a
combination of local, tourism, and commercial traffic.
CAPTAIN FALVEY agreed that vehicle traffic was a combination. He
elaborated that AMHS moves military families and locals in and
out of Alaska and serves independent travelers. In 2014, AMHS
had 11 ships running but did not have any significant changes in
vehicle traffic. He acknowledged that AMHS ships had been under
capacity for passenger travel, which improved, in part, by
running fewer ships.
2:00:10 PM
MATT MCLAREN, AMHS Business Enterprise & Development Manager,
Department of Transportation and Public Facilities (DOTPF),
Ketchikan, Alaska, added that AMHS carries fish vans seasonally.
He indicated that 60 percent of the traffic from Bellingham
during the summer was due to non-resident travelers and 40
percent from residents. The type of traveler switches to 60
percent resident and 40 percent non-resident travel in the
winter. He related that AMHS carries substantial numbers of
recreational vehicles in Prince William Sound (PWS) and tourist
traffic between Whittier and Valdez. He noted that rural Alaskan
villages use the system to transport fish or support other
industries. He offered his view that it was an even mix between
resident and non-resident vehicular traffic statewide.
2:01:20 PM
MR. CARPENTER added that the military is a big AMHS customer. He
stated that AMHS meets with the admiral of the US Coast Guard
several times a year, assuring him that AMHS will be available
to assist military customers moving to and from Kodiak and
Bellingham.
2:01:54 PM
MR. CARPENTER reviewed slide 10, Forward Funded Budget
Structure. This slide depicts a timeline for the budget cycle,
including the schedule release in August 2021, covering October
through September 30, 2022. He indicated that this allows people
to book and have a reliable schedule. DOTPF is working on the
budget for next year, which will be released in July or August,
as shown in yellow on the slide. He indicated this came about
because the legislature appropriated $64 million in bridge
funding to allow AMHS to have a full 12 months of funding.
2:03:39 PM
CHAIR MYERS wondered whether a government shutdown would affect
AMHS since it has six-month forward funding.
MR. CARPENTER agreed that AMHS was funded to September, with
appropriations covering the calendar year.
2:04:09 PM
SENATOR SHOWER asked how the potential federal infrastructure
funding of $200 million affects planning.
MR. CARPENTER answered that the department proposes using the
infrastructure funding for operations, which is in the operating
budget for $142 million. He stated that just because it is
federal funding doesn't play into the decision-making other than
the state must follow federal rules in the Notice of Funding
Opportunity.
2:05:01 PM
SENATOR SHOWER asked for the cutoff date.
MR. CARPENTER indicated that the department should receive the
Notice of Funding in April 2022 and apply for the grant shortly
after that, but he was unsure of the actual timeline. He
anticipated the state would potentially receive two years of
federal infrastructure funding in December 2022 for FY 2022 and
FY 2023. The department would need to plan how to spend the
potential $400 million.
SENATOR SHOWER wondered whether AMHS would need supplemental
funding, but he acknowledged that Mr. Carpenter couldn't answer
that question.
MR. CARPENTER reiterated that AMHS is funded through calendar
2022.
SENATOR SHOWER expressed an interest in the fallback position if
something happened and the federal funds were delayed.
MR. CARPENTER offered to provide the committee with more
details.
2:07:27 PM
SENATOR KIEHL stated that once the federal funds are received,
AMHS will not need to worry about the sweep for the next five
years because of the federal funding. He surmised that the
federal funding would not be extended beyond five years. He
indicated that AMHS would need to have the appropriate buffers
and fiscal structure in place to continue to operate on a
calendar year basis. He asked members to keep the benefits of
AMHS having funding for the calendar year in mind for publishing
the ferry schedule and making it possible for AMHS to provide
reliable planning for its customers.
2:08:26 PM
MR. CARPENTER reviewed slide 11, Service Schedule
Considerations.
• Considerations when drafting a service schedule:
• Overhaul timing of vessels
• Historical Ridership (demand)Historical Revenue
(gross receipts)
• Community events (solicited during draft schedule
public comment)
• Time, distance & speed
• Crew change ports, schedules and work/rest
requirements, (STCW) Standards of Training,
Certification and Watch keeping
• Dock configurations
• SOLAS compliance
• Tide and current restraints In-port times to
account for seasonal loading and unloading times
and weather challenges.
MR. CARPENTER highlighted the challenges in preparing the
schedule. He reviewed the process as shown on the slide.
2:11:17 PM
CAPTAIN FALVEY added that AMHS must consider dock conflicts. He
acknowledged that the union contracts present challenges because
the crews change at certain locations and times, and the ships
must be in the ports to allow that to happen, which can be
challenging. He pointed out that not meeting the schedule could
result in significant overtime, so AMHS must work through crew
changes when it builds the schedule.
2:12:17 PM
CHAIR MYERS asked how the Bellingham run was affected, given
Canada's decision to not allow ships to traverse its waters.
CAPTAIN FALVEY answered that it did not impact AMHS.
2:12:55 PM
SENATOR KIEHL remarked that AMHS couldn't use Prince Rupert.
CHAIR MYERS recalled that cruise ships could not use Canadian
ports or sail within a certain distance of the coastline.
CAPTAIN FALVEY interjected that AMHS has Rights-of-Passage
agreements with Canada.
2:13:32 PM
MR. CARPENTER reviewed slide 12, Operating Plan 2021-2022, which
depicts a fiscal year timeline schedule from 2021-2022 showing
the vessel makeup. He directed attention to the left axis, which
lists the vessels. For example, the Kennicott ran from July 2021
to January 2022, went into overhaul in January, is scheduled to
come out of the overhaul on April 21, 2022, and will resume
service for the remainder of the year. He noted that the
Columbia has been in layup since October. He offered to review
each vessel.
CHAIR MYERS asked him to continue.
2:14:45 PM
MR. CARPENTER said the operating plan drives the more detailed
scheduling.
2:15:00 PM
MR. CARPENTER reviewed slide 13, Operating Plan 2022-2023
(DRAFT), which shows the tentative operating plan. He noted that
the Columbia would go into a federal CIP mid-September to repair
the pitch propeller system. The TRV construction is scheduled to
begin in December 2022. The Hubbard crew quarters will be
completed on October 1 and will go into overhaul, then probably
operate in Northern Lynn Canal in November 2022.
2:16:13 PM
MR. CARPENTER reviewed slide 14, Spider Graph - Example Schedule
for Summer 2022, Southwest-Prince William Sound, Week 1. He said
this provides a visual of every ship and port for each week. For
example, the ports are shown on the left axis, and the Tustumena
is shown in blue. The Tustumena will depart Kodiak en route to
Seldovia, Homer, and other ports. The red line shows the Aurora
in PWS traveling to Cordova on Monday, then on to Whittier,
Valdez, and Tatitlek, and back to Whittier and Cordova. He noted
that is the circuit the Aurora will make each week. Meanwhile,
the Kennicott runs to Whittier, then Yakutat, and crosses the
Gulf of Alaska to Juneau.
MR. CARPENTER turned to slide 15, Spider Graph Example
Schedule shows the Kennicott in Juneau on Wednesday, then
traveling to Ketchikan on Thursday, Bellingham on Saturday, then
it reverses. The red bar indicates the LeConte in Juneau,
traveling to Angoon, Hoonah, Juneau, then north to Haines, and
Skagway, then repeats that circuit. He directed attention to the
green line, which shows the Matanuska run from Bellingham to
Skagway. Captain Falvey mentioned that the scheduling must
consider the vessels to avoid port scheduling conflicts.
2:18:53 PM
MR. CARPENTER reviewed slide 16, Spider Graph - Complex
Schedule, Southeast Summer 2014 July to mid-September, Week 1
and 3. He noted that this occurred with a big spike on the graph
when both fast ferries and most vessels were running. He
envisioned that this had taken substantial time to map out.
2:19:42 PM
CHAIR MYERS asked about configurations of car deck space on
ships depending on whether it was a cross-Gulf sailing or
staying within Southeast Alaska.
MR. CARPENTER deferred to Captain Falvey.
2:20:28 PM
CAPTAIN FALVEY stated that it would depend on the specific stops
and how the vessel needs to be loaded because the Kennicott
travels to Yakutat and on to Whittier.
2:21:05 PM
SENATOR MICCICHE referred to the genesis of the ferry system
from 1949 until 2008. He stated that when demonstrated, a well-
run system with new vessels provides a very different picture
than the current struggling, underfunded system with older
ships. For example, the private ferry ran in 1949 but failed
because it could not attract year-round customers. It began
running after the Territory of Alaska purchased the vessel in
1951. In the first year, AMHS made a $277 profit, but by 1952
the system began losing $43,000 annually. He suggested that
members read the history since it provides a relevant
perspective of AMHS.
2:22:56 PM
MR. CARPENTER referred to a video on YouTube about the ferry
system in the 1970s in which some of the same issues were
mentioned.
2:23:38 PM
CHAIR MYERS held SB 170 in committee.
SB 231-AK RAILROAD CORP; EXEC BUDGET ACT
2:23:42 PM
CHAIR MYERS announced the consideration of SENATE BILL NO. 231
"An Act providing that the Alaska Railroad Corporation is
subject to the Executive Budget Act; providing that expenditures
of the Alaska Railroad Corporation are subject to appropriation;
and providing for an effective date."
2:24:04 PM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, Juneau, Alaska, stated that the governor
introduced SB 231 to ensure that the expenditure of state funds
was subject to legislative appropriation. This bill would
require the Alaska Railroad Corporation (ARRC) to comply with
the Executive Budget Act, similar to other corporations and
state agencies. ARRC is a public corporation within the
Department of Commerce, Community, and Economic Development but
currently is not included in the department's annual operating
budget.
2:25:21 PM
SENATOR KIEHL stated that ARRC had operated this way for a long
time. He related his understanding that the audit did not make
any significant findings. He asked the reason for making this
change.
MR. STEININGER responded that this bill does not address
specific audit findings. It considers whether state funds should
be expended without legislative appropriation control. He noted
that there were limited instances without legislative
appropriation control. He highlighted that the only one he could
recall was grants the Alaska Mental Health Trust Authority
(AMHTA)received. He noted that these grants were required by an
Alaska Supreme Court case. He explained that in this case there
is not any indication of how ARRC spends money outside the
Executive Budget Act or legislative appropriation control or why
they shouldn't be subject to that scrutiny. The legislature and
Alaskans have the right to review the budget process and changes
to the operational spending plans to provide accountability and
transparency.
2:27:40 PM
SENATOR KIEHL pointed out that other state corporations expend
funds the legislature does not appropriate, such as the Alaska
Industrial Development and Export Authority (AIDEA). The
legislature does not oversee any of AIDEA's investments or
authorize most of the Alaska Housing Finance Corporation's
housing investments even though they are state corporations. He
asked whether the state should initiate comparable reforms for
those corporations.
MR. STEININGER responded that the operating costs for those
corporations are in the annual operating budget. The loans or
investments made are from funds capitalized via legislative
appropriation, so the legislature had appropriation control. The
legislature has appropriation control over the funds via a
section in the operating budget that grants broad authority over
AHFC's programs and subjects them to scrutiny. However, ARRC
does not appear in the appropriation bill. The public should be
able to access the Office of Management Budget or Legislative
Finance websites and review ARRC's expenditures and legislative
approval for them.
2:30:16 PM
CHAIR MYERS referred to Section 5 of SB 231, which would require
ARRC to report on the use of its assets.
MR. STEININGER responded that the administration would like ARRC
to provide an accounting of the existing assets and how they
will be used. The administration included reporting requirements
that would benefit ARRC's transition to fall under the Executive
Budget Act. He opined it would be helpful to the legislature
during the appropriation approval process. He characterized
becoming familiar with ARRC as potentially a steep learning
curve for committees.
2:31:35 PM
CHAIR MYERS asked whether the other corporations prepare similar
reports.
MR. STEININGER acknowledged that he was not familiar with every
report work required, but many of them have annual financial and
other reporting requirements.
2:32:00 PM
SENATOR MICCICHE asked how long ARRC had not been subject to the
Executive Budget Act (EBA).
MR. STEININGER responded that he was unsure when the federal
government transferred ARRC to the state.
CHAIR MYERS noted that Mr. O'Leary would be testifying later.
2:32:34 PM
SENATOR MICCICHE stated that for the last 40 years, ARRC had not
been subject to EBA. He wondered what problem arose because if
it was valid, the legislature might support SB 231; otherwise,
it seemed arbitrary.
MR. STEININGER explained that the governor's office received
constituent questions that led policymakers to review ARRC's
operations more closely. After noting ARRC was not in the budget
but the corporation expends public funds, the administration
took steps to resolve it in SB 231.
2:34:42 PM
SENATOR MICCICHE offered his belief that the state establishes
corporations to provide them with the flexibility to employ
private sector principles and let experts run organizations in a
manner that is typically far more efficient than public sector
organizations. He said it seems like this bill is moving ARRC
backward. He said he would listen, but it seems strange that
ARRC had operated without it being an issue for so long. He
wondered if OMB was having problems obtaining answers from ARRC.
MR. STEININGER responded that he was not aware of OMB having
issues obtaining any answers from ARRC. However, it might be
because ARRC does not fall under the EBA, so OMB does not have
an opportunity to ask questions. Since ARRC is exempt from the
Executive Budget Act, OMB does not receive any financial or
operational plans that OMB receives from every other state
corporation or state entity, which could lead to questions.
Throughout the interim, OMB works with corporations and other
entities to prepare the following year's budget, which leads to
questions about operations and management that could lead to
interventions.
2:37:32 PM
BILL O'LEARY, President and CEO, Alaska Railroad Corporation
(ARRC), Anchorage, Alaska, stated that the Alaska Railroad Board
has not met since this bill was introduced, so he cannot offer
the board's position on the bill. He offered to highlight any
impacts of SB 231 on the railroad.
MR. O'LEARY highlighted an essential distinction between ARRC
and other state corporations. He stated that the railroad is an
operating entity, not an investment company or one that provides
mortgages, such as AIDEA and AHFC. It operates in a very
competitive, dynamic marketplace. The model selected for the
Alaska Railroad came from a series of studies. He provided a
brief history, noting that the federal government owned the
railroad until the early 1980s, when the state purchased it. At
that time, the 13th legislature considered what model to use for
the railroad. Before state ownership, the railroad had
significant financial issues and was in deep disrepair. Some
members felt that many of the railroad's problems stemmed from
the railroad being subject to the federal budget process. He
characterized the railroad as being "starved" by the federal
process. Many studies, including the Harvard Business Review and
the University of Alaska's Institute of Social and Economic
Research (ISER), considered the best model for the railroad and
determined that the railroad should operate similarly to a
private corporation with oversight.
2:40:25 PM
MR. O'LEARY stated that this would allow the railroad to be
nimble enough to consider opportunities from dissatisfied
customers and the marketplace and solve the issues. He said he
was unsure how that would work under the Executive Budget Act.
2:41:30 PM
MR. O'LEARY provided several examples. He related that 2020 was
a financial bloodbath regarding ARRC's passenger service. ARRC
has three primary revenue sources: passenger services, freight,
and real estate activity. In 2020, the railroad moved about six
percent of the passengers it moved in 2019. He noted the
railroad operates on a calendar year, so it was very challenging
to build the 2021 budget. It did so by consulting with its
customers and groups and considering the general economic
situation. ARRC's seven-member board appointed by the governor
approved the budget. Shortly after that, things changed. It
became clear in March and April 2021 that the plans for
passenger service were markedly inadequate. With the advent of
vaccines and Europe still closed, many independent travelers
traveled to Alaska, but the railroad could not move them without
making significant changes. ARRC management worked with the
Alaska Railroad Corporations Board of Directors to quickly
develop a revised plan that allowed them to add sixty new train
starts to support the additional travelers.
2:44:31 PM
MR. O'LEARY indicated that ARRC had significant freight growth
during this time. He estimated that ARRC had a $20 million
opportunity, but to capture it would require spending $10
million, which was not included in the original budget.
2:44:52 PM
MR. O'LEARY characterized the 2021 tourism growth as an
opportunity to be nimble and move quickly. He stated that it was
similar to ARRC's work with the military. He said the railroad
frequently moves military equipment between Fort Wainwright and
the Port of Anchorage. He indicated that the notice is often
unsuitable for a long-range budget plan. However, ARRC can look
at the opportunity and work with its military partners. It is
not an appropriate answer in terms of national defense to tell
the military that ARRC cannot accommodate them because it lacks
the budget to do so. He indicated that these are the types of
concerns that ARRC has about SB 231.
MR. O'LEARY related examples on ARRC's capital side. He related
that customers might approach the railroad with a proposition to
move pipe if ARRC is willing to partner in purchasing
specialized equipment to offload the pipe. In such cases, ARRC
can put together a business case and call a board meeting to
acquire the authority to purchase the equipment expeditiously
due to the nature of the railroad's model. He expressed concern
that the Executive Budget Act may not allow the railroad to move
at the speed necessary to accommodate its customers.
2:46:33 PM
MR. O'LEARY indicated that there were other impacts related to
ARRC's outstanding debt, and the railroad is not entirely sure
how SB 231 would impact federal law, but these were the
immediate first blush impacts that came to mind.
2:46:55 PM
CHAIR MYERS asked what impacts SB 231 would have on ARRC's labor
contracts and negotiations.
MR. O'LEARY responded that the railroad was trying to understand
the impacts, partly due to its unfamiliarity with the Executive
Budget Act. He related that roughly 75 percent of railroad
employees are members of one of its five unions. He explained
the process, such that ARRC negotiates with its unions, reaches
an agreement, and brings it to their board for approval. The
unions bring the agreement to its membership for ratification,
which becomes incorporated into the budget. He stated that it
does not run on a static timeframe. For instance, negotiations
may take three days, which recently happened, while it might
take one union six years to ratify its contract. He acknowledged
that it could be challenging, but they plan for it through their
budgetary process.
2:48:14 PM
SENATOR SHOWER stated that it did not seem that SB 231 would
take away the railroad's authority to operate once the
legislature appropriated the funding. He asked whether SB 231
would prevent the railroad from making decisions like the ones
he just illustrated. He envisioned that if the legislature had
approved funding, the railroad could make subsequent decisions
without going back to the legislature since it would have the
board's authority to make decisions. He wondered if there would
be any issues.
2:49:35 PM
MR. O'LEARY acknowledged that he was not completely familiar
with the Executive Budget Act. He related his understanding that
the railroad's operating expense budget would be set at a
specific amount, for example, $150 million, and ARRC would
expend funds based on the plan the railroad put together.
However, if the railroad had an opportunity to capture $20
million but needed to expend $10 million, he was unsure the
railroad could do so. He surmised that there might be mechanisms
between Legislative Budget and Audit and OMB. Still, those
mechanisms may not provide sufficient speed needed for ARRC to
take advantage of the opportunities.
2:51:04 PM
SENATOR SHOWER recalled that some Whittier constituents have
complained about dealing with the railroad concerning its
property. He related his understanding that ARRC assumes that
the land is theirs and they won't negotiate. He wondered if SB
231 might alleviate some of the concerns because the railroad
would need to be more accommodating to people, entities, or
municipalities. Some people might like SB 231 to influence how
the railroad operates in Alaska. He indicated that some people
had expressed concern about how ARRC has handled its property in
Alaska. He said he was interested in having ARRC working better
within that context rather than having to tell constituents that
the state doesn't have any oversight over the railroad.
2:53:10 PM
MR. O'LEARY responded that the railroad runs heavy, noisy,
smelly equipment through people's back yards. He stated that the
vast majority of issues the railroad faces relate to land
because the railroad bisects part of the state. He reported that
ARRC owns 36,000 acres of land, of which 18,000 acres are
associated with ARRC's right-of-way. Although significant
discussions have arisen over the use and ownership of the right-
of-way, it is likely beyond the scope of today's discussion. He
stated that ARRC walks a fine line when working with communities
and individuals because the railroad is charged with the need to
be self-sustaining and an agent for economic development. While
he would not state that ARRC does it perfectly every time, the
railroad held successful discussions with Whittier about leasing
its land for economic development activities related to a new
passenger cruise dock. The dock will be on railroad-owned land
and has gone before the board and was approved by the Whittier
City Council. He acknowledged that the railroad sometimes "butts
heads" with people, but ARRC's goal is to be reasonable and fair
while trying to walk that fine line.
2:55:20 PM
MR. STEININGER offered to respond to Senator Shower's questions
about processes for flexibility to discuss inherent operational
challenges in the annual budget cycle. He highlighted that other
state agencies with similarly dynamic operations are subject to
the Executive Budget Act, including the Alaska International
Airport System. He stated that OMB employs some tools to provide
it with the ability to respond to emerging events and changing
operational conditions. He noted that Mr. O'Leary referred to
the Legislative Budget and Audit process through revised
programs, an option an entity could use to access additional
receipts from a public corporation that weren't otherwise
appropriated. OMB can send notice to the committee, and within
45 days or sooner, the agency could begin expending the funds if
the committee grants it. Further, the budget might build in some
contingency funding to address some of those concerns in the
EBA.
2:57:15 PM
CHAIR MYERS recalled that about 12 years ago, ARRC increased the
rent on the land leased by the Fairbanks Ice Park, so the park
had to leave. The railroad argued that it was statutorily
required to get the market rate for its land. He asked whether
anyone had leased the land in the last dozen years.
MR. O'LEARY responded that he was referring to the Chena
Landings Subdivision. He recalled that the legislature passed a
bill in 2018 that allowed the railroad to subdivide the land and
it has sold a significant number of housing lots.
2:58:34 PM
CHAIR MYERS recalled that the Alaska Railroad owns the
waterfront in Nenana. He related his understanding that the city
leased the railroad's land and built up some infrastructure. The
City of Nenana was subleasing some portions to Crowley Shipping.
The barge lines ended operating in about 2016. He stated that
the City of Nenana indicated that the Alaska Railroad had not
lowered its lease payments.
MR. O'LEARY responded that he was unaware of any changes to the
lease rate. He stated that some of the financial difficulties
that the City of Nenana has faced may have affected collecting
revenue. He said the Alaska Railroad discussed some solutions
with the city last year. He acknowledged that the City of Nenana
was interested in owning those lands. Although he was unsure of
the status, he recalled that the Alaska Railroad ordered an
appraisal. He further recalled that the City of Nenana was
considering grant funding to pay any arrearage and perhaps
purchase the lands.
3:00:31 PM
SENATOR KIEHL stated that he was unsure why the governor
introduced the bill since the governor appoints the whole board.
MR. O'LEARY understood the concept of wanting ARRC to look like
other state corporations. He offered his view that ARRC is
different. He said he previously served as the financial
controller for the Alaska International Airport System (AIAS)
for several years. He characterized it as a facility, which is
different than an operating entity, which would be more like
being an airline and an airport. He stated that there are
differences with ARRC due to the competitive marketplace and the
need for rapid responses. He noted that ARRC shares everything
other than highly proprietary information with the legislature
if asked to do so. He stated that ARRC sends a copy of ARRC's
board-approved operating and capital budgets and five-year plans
to the legislature and the state. The Alaska Railroad has an
annual financial audit by an external private certified public
accountancy firm that will be released on March 31, 2022. ARRC
provides updates for briefings to the legislature when
requested. He stated that substantial accountability is vested
with ARRC's seven-member Board of Directors.
3:03:54 PM
SENATOR KIEHL related that the Alaska Railroad Corporation
(ARRC) had been given authority to bond and build a rail line to
Port McKenzie and for a Kenai Gasification Project. He asked why
it had not done so.
MR. O'LEARY answered that the Alaska Railroad Corporation (ARRC)
walks a fine line between self-sustaining and an economic
development agent. He related that the Alaska Railroad worked
closely with both groups to get the bonding authority put in
place, understanding that there would need to be a source of
repayment for those funds. He characterized it as making a
business case for the projects. However, the business case has
not materialized that would permit ARRC to issue the bonds,
which would need to be repaid.
3:05:29 PM
SENATOR KIEHL remarked that the state could not force the Alaska
Railroad to make decisions that would lead to insolvency. He
stated that he knows very little about the federal Railroad Act.
He asked whether the Department of Law vetted this bill to
determine if there were any potential conflicts with the federal
law.
3:06:06 PM
MR. STEININGER deferred to the Department of Law.
3:06:32 PM
CHAIR MYERS held SB 231 in committee.
3:06:41 PM
There being no further business to come before the committee,
Chair Myers adjourned the Senate Transportation Standing
Committee meeting at 3:06 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 170 Research Document_Fleet Status 3.1.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170 Research Document_Vessel Information Table by AMHS DOT.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_AMHS Procurement Fact Sheet.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_Current AMHS Operating Plan 1.24.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_Tariff Impacts_Section 42.50.570.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 231 DCCED Fiscal Note.PDF |
STRA 3/24/2022 1:30:00 PM |
SB 231 |
| SB 231 Sectional Analysis 03.24.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 231 |
| Transmittal Letter HB 231 AKRR 03.11.22.pdf |
STRA 3/24/2022 1:30:00 PM |
HB 231 |
| S TRA - AMHS Routes and Service (03-24-2022).pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |