Legislature(1993 - 1994)

02/09/1993 03:34 PM Senate TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                 SENATE TRANSPORTATION COMMITTEE                               
                        February 9, 1993                                       
                            3:34 p.m.                                          
  MEMBERS PRESENT                                                              
  Senator Bert Sharp, Chairman                                                 
  Senator Randy Phillips, Vice-Chairman                                        
  Senator Jim Kelly                                                            
  Senator Georgianna Lincoln                                                   
  MEMBERS ABSENT                                                               
  Senator Jay Kerttula                                                         
  COMMITTEE CALENDAR                                                           
  SENATE JOINT RESOLUTION NO. 18                                               
  Proposing amendments  to the  Constitution of  the State  of                 
  Alaska creating a transportation fund.                                       
  Alaska Railroad Overview                                                     
  PREVIOUS COMMITTEE ACTION                                                    
  SJR 18 - See Transportation minutes dated 2/4/93.                            
  WITNESS REGISTER                                                             
  Commissioner Frank Turpin                                                    
  Department of Transportation                                                 
  3132 Channel Dr.                                                             
  Juneau, Alaska 99801-7898                                                    
  POSITION STATEMENT:  Commented on SJR 18.                                    
  Robert Hatfield, President                                                   
  Alaska Railroad Corporation                                                  
  POSITION STATEMENT:  Alaska Railroad Overview.                               
  Timothy Cerny                                                                
  Fountainhead Development                                                     
  448 Forest Hills Court                                                       
  Fairbanks, Alaska  99701                                                     
  POSITION  STATEMENT:    Commented  on  the  Alaska  Railroad                 
  Frank Dillon                                                                 
  Alaska Trucking Association                                                  
  3443 Minnesota Dr.                                                           
  Anchorage, Alaska 99501                                                      
  POSITION  STATEMENT:    Commented  on  the  Alaska  Railroad                 
  ACTION NARRATIVE                                                             
  TAPE 93-4, SIDE A                                                            
  Number 001                                                                   
  SENATOR SHARP called the Transportation Committee meeting to                 
  order at 3:34 p.m. and announced SJR 18 CONST. AMENDMENT FOR                 
  TRANSPORTATION FUND to be up for consideration.  He said the                 
  only change in  the committee substitute which  is supported                 
  by  the administration is under Section 2 of the resolution,                 
  page 2, line 13 which deletes "and enforcement."                             
  SENATOR PHILLIPS  wanted  to see  the fiscal  note from  the                 
  Division of Elections since this would go on the ballot.                     
  COMMISSIONER TURPIN said  there would be  a small cost.   He                 
  said that  there is  one fund  that receives  the taxes  and                 
  fees, but the bill restricts how that money can be spent.                    
  Number 75                                                                    
  SENATOR PHILLIPS moved to adopt  the committee substitute to                 
  SJR 18 with the fiscal note from Division of Elections.                      
  SENATOR  KELLY said he would not  vote for this bill, but he                 
  doesn't object to moving it out of committee.                                
  Number 89                                                                    
  SENATOR SHARP  moved to  pass CSSJR  18 from  Committee with                 
  individual recommendations.  There were no objections and it                 
  was so ordered.                                                              
  SENATOR SHARP  stated on page 2,  line 7 where it  refers to                 
  the  maintenance  and  operation  of   the  state  or  local                 
  government transportation facilities...that  it did  include                 
  harbors.  COMMISSIONER TURPIN agreed and said this gives the                 
  legislature the option of using the money collected from the                 
  marine fuel tax either for maintenance or construction.                      
  Number 111                                                                   
  SENATOR SHARP announced  that they would take  up the Alaska                 
  Railroad overview.                                                           
  ROBERT HATFIELD, President,  gave them  a brief overview  of                 
  the Alaska Railroad Corporation as it exists today.                          
  He said  they  have just  under 530  permanent employees,  a                 
  separate pension  plan, and a separate benefit  package.  He                 
  reviewed the  information contained  in the Alaska  Railroad                 
  Corporation Annual  Report.  He  said they spent  just under                 
  $13 million on  capital projects which were  improvements to                 
  the railroad.  He explained that aside from being one of the                 
  largest passenger operations in  North America, they handled                 
  500,000,000 gallons  of petroleum products, 1.5 million tons                 
  of coal,  about 12,000 trailers,  500 million board  feet of                 
  timber,  a  couple million  tons of  gravel,  and a  host of                 
  machinery for interstate moves.                                              
  MR. HATFIELD said  they had  purchased two used  locomotives                 
  and a new mainframe computer.                                                
  Number 262                                                                   
  He said the  railroad has  a lot of  competition from  other                 
  modes  of  transportation.   Mapco,  their  major  petroleum                 
  shipping customer, may  build a pipeline  for transportation                 
  of  the petroleum  products.   Coal export is  becoming more                 
  difficult although the  future for export looks  good.  Many                 
  countries  now offer coal  at extremely  competitive prices.                 
  Also as the airfreight infrastructure develops in Anchorage,                 
  that will nibble away at their fringes.                                      
  The mission of the Alaska Railroad Corporation is to provide                 
  high quality, safe,  cost effective freight, passenger,  and                 
  real estate service to their customers.                                      
  In developing their forecast,  the economic assumptions they                 
  have made are that they expect the economy to remain "flat,"                 
  they don't  expect the ANWR  to be  opened for  exploration,                 
  they don't expect a Canadian gas pipeline to be built.  They                 
  expect  oil field  activities to  reduce over  the  next few                 
  years with, perhaps, no administrative offset.                               
  Number 330                                                                   
  MR. HATFIELD said that tourist  related real estate projects                 
  are a real bright spot in the future.                                        
  The projected  funding levels for their capital expenditures                 
  do not  support, in  all cases,  the normalized  replacement                 
  program on some segments of track and equipment they have on                 
  the railroad.                                                                
  He  said they  would continue  their mitigation of  OSHA and                 
  safety related  items.  They  will continue the  practice of                 
  analyzing all buildings  and replace all  of those that  are                 
  absolutely necessary.  Operations will  be performed as much                 
  as possible  by full  time, corporate  employees, except  on                 
  those  traditional summer  support  programs they  have done                 
  through contract.                                                            
  He  said there are two ways to  increase the efficiency on a                 
  rail line.   The first is to increase the speed of the track                 
  which requires enormous investment.   You could also improve                 
  the efficiency of the line itself  by extending sightings or                 
  building new sightings in strategic locations.                               
  The  past  year,  they  did  significant work  in  upgrading                 
  sightings at  Honolulu, Gold  Creek, and  Willow.   When the                 
  upgrading of the sightings is  completed, they will be  able                 
  to  pass  trains at  will.   This  results in  a substantial                 
  savings by reducing the time, which is normally a half hour,                 
  trains have to wait for other trains to pass.  It costs $700                 
  per hour to operate a  freight train.  This is an  important                 
  component of how they are going to raise their traffic level                 
  without having to  spend enormous  money on signal  systems,                 
  etc.  He  said the railroad was built after the second world                 
  war  so  everything  is  wearing   out  at  the  same  time.                 
  Therefore expensive maintenance is necessary.                                
  Number 425                                                                   
  MR.  HATFIELD  said bridges  are  an important  component of                 
  their business  which need to  be inspected regularly.   The                 
  Railroad also owns and maintains most of the dock facilities                 
  at  Whittier  and Seward.    Both  are in  need  of cathodic                 
  protection and redecking.                                                    
  Number 438                                                                   
  The ballast and surfacing program  is very important for the                 
  integrity of the railroad.                                                   
  Number 455                                                                   
  SENATOR SHARP asked if  there was any component you  can add                 
  to  the  resurfacing  to  impede  vegetation  growth?    MR.                 
  HATFIELD  said there  is  nothing  they  add, but  there  is                 
  something  they can  take way  which is  dust and dirt.   By                 
  using washed ballast  which costs more, instead  of mine run                 
  ballast, you can cut down on that considerably.                              
  Number 474                                                                   
  SENATOR LINCOLN  asked how they  cleaned the brush  from the                 
  easements.  MR.  HATFIELD said they use a piece  of on track                 
  equipment called  a brush cutter.  They  also hand manicure.                 
  Reballasting with  washed ballast is  the other option.   He                 
  explained  that  moisture is  the  primary problem  with the                 
  railroad  bed.    Weeds and  roots  attract  moisture.   The                 
  moisture  either  softens  the  road  bed  and  weakens  the                 
  structure itself or  when it freezes, it expands  and causes                 
  frost heave.   They  need a  solution that  is economic  and                 
  Number 509                                                                   
  SENATOR KELLY asked  the difference between 70  lb. rail and                 
  15 lb. rail.   MR. HATFIELD  explained that 70  lb. rail  is                 
  measured in weight  per 3  feet.  Industry  standard in  the                 
  lower 48 right now is 136 - 142 lb. ribbon rail.  The Alaska                 
  Railroad Corporation uses 115 lb. jointed rail which is more                 
  than adequate for the level business that we enjoy.                          
  They  are  spending $600,000  in  acquiring coal  hoppers to                 
  support  the  north  end  coal  operation.    They  will  be                 
  consistently rolling in 25 - 30  new coal hoppers each year.                 
  They are remodeling several passenger  coaches to handle the                 
  increased  ridership  they hope  to  get between  Seward and                 
  Anchorage and Anchorage and Fairbanks.                                       
  The only capital projects for real  estate this year will be                 
  $1  million  bringing  utilities  to two  parcels  -  one in                 
  Fairbanks on the Chena River.                                                
  Number 557                                                                   
  SENATOR LINCOLN asked if the 80 acres in Fairbanks was to be                 
  used for a passenger  terminal?  MR. HATFIELD said  they are                 
  making  that  property  available   for  development  and  a                 
  passenger  terminal might be part  of that.   There may be a                 
  hotel there.                                                                 
  TAPE 93-4, SIDE B                                                            
  Number 589                                                                   
  SENATOR  LINCOLN   asked  how   the  new   federal  handicap                 
  regulations might affect  the industry.   MR. HATFIELD  said                 
  they  have  to  redesign their  passenger  coaches  to allow                 
  handicapped access.  As an  industry issue, that is probably                 
  the largest one.                                                             
  Number 563                                                                   
  SENATOR LINCOLN asked  what they have  been using since  the                 
  underground  storage  tanks were  removed  and  haven't been                 
  replaced yet?  MR. HATFIELD said  he thought they are buying                 
  fuel direct from  the local vendors  in Seward and  Whittier                 
  until new above ground tanks are installed.                                  
  SENATOR KELLY, referring to their five year plan, asked  him                 
  to explain their analysis of the  Alaskan economy as being a                 
  little  weak  and  yet  project  increased  revenues.    MR.                 
  HATFIELD said the two ways to increase revenues are to raise                 
  rates  and  to  broaden the  base  of  the  source of  their                 
  revenue.  Almost  70% of their revenue comes  from petroleum                 
  or   coal   related  activities.      Other  areas   can  be                 
  substantially increased like  developing  the log and timber                 
  exports, handling solid wastes, etc.                                         
  SENATOR  KELLY  asked  him to  explain  in  the  real estate                 
  portion how  permit revenues  are suppose  to increase  as a                 
  result  of  the  new  pipeline   appraisal  process  in  the                 
  beginning of  the fourth quarter  1992.   MR. HATFIELD  said                 
  they lease their right of way which has significant value as                 
  a corridor  and  they  are reevaluating  the  value  of  the                 
  Number 513                                                                   
  SENATOR KELLY asked how solid their pension system was.  MR.                 
  HATFIELD said it was overfunded and was managed by a company                 
  called Columbia Trust.  They  have an independent consultant                 
  that helps them watch it.                                                    
  Number 501                                                                   
  SENATOR SHARP questioned  the cash  generation during the  5                 
  year plan.   He said concerns have been  expressed to him by                 
  other people about investing in a hotel, because of the high                 
  cost  per  room  that causes  many  hotel  businesses to  go                 
  bankrupt.  MR.  HATFIELD said he didn't know if  a hotel was                 
  in  their future.  Developing their property is an important                 
  source  of  income and  they  are pursuing  it aggressively.                 
  They did  elect to participate  with a hotel  partnership by                 
  contributing the  net  present value  of their  lease.   The                 
  partnership went out  and got  their financing, paid  taxes,                 
  and did everything else a partnership  in any other place in                 
  the United States would do.  This past year it paid  a total                 
  of  $127,000 in  taxes and  it  has only  been open  about 6                 
  There  is  interest in  doing  a  hotel in  Fairbanks.   The                 
  Railroad is unsure whether they want a position in it.  They                 
  are  asking local  people if  they want  to participate  and                 
  inform  them of  what they are  doing.   There is  no formal                 
  proposal on the table.  If  they are invited to participate,                 
  there is no  reason to assume that  it would be a  good deal                 
  for the  railroad.  A Board  of Directors has to  review any                 
  SENATOR SHARP said he is concerned not so much about seeking                 
  out  developers,  but of  becoming  a partner  in  hotels or                 
  anything else beside the rail  transportation business.  MR.                 
  HATFIELD said that  any real estate development  must relate                 
  to   the   core   business   of   the  Railroad   which   is                 
  Number 321                                                                   
  SENATOR LINCOLN said she  wanted to see the land  leases the                 
  Alaska Railroad has.  MR. HATFIELD  said she could see them,                 
  but there were thousands of leases.                                          
  SENATOR LINCOLN asked about the Wishbone Hill lease and  the                 
  self insurance.   MR. HATFIELD  said they were  self insured                 
  for workmen's  compensation.   Their health  insurance is  a                 
  cooperative - their own money managed by Aetna.                              
  Number 238                                                                   
  TIMOTHY CERNY, Fountainhead Development, addressed the hotel                 
  issue as it impacts his company and the Fairbanks community.                 
  The use of a joint venture by the railroad to enter into the                 
  hotel business is  really an  act of  the government  coming                 
  into the  private sector,  he said.   It  gives the  private                 
  sector some financing advantages it wouldn't already have.                   
  He used  the Ship Creek Project  as an example of  what they                 
  could see  in  the Fairbanks  community with  respect to  an                 
  equity  participation.     Information  obtained  from   the                 
  Division  of  Legislative  Audit,  May  1,  1992  shows  who                 
  participated in the project.  The  Alaska Railroad had a 40%                 
  interest in the hotel in exchange for a 35 year lease on 1.7                 
  acres  of  property.    It  is  drawn up  as  a  partnership                 
  agreement  in which  all  partners have  unlimited liability                 
  with  respect to any debt  or borrowings of the partnership.                 
  The other  partners were to  contribute $250,000 in  cash as                 
  well as administrative work.                                                 
  When  the  project was  to be  built,  the $250,000  was not                 
  forthcoming,  but the  project  went ahead  anyhow.   It  is                 
  written in the partnership agreement that the manager of the                 
  managing company of the hotel is the individual  who decides                 
  whether cash draws  are necessary from  the partners.  As  a                 
  private sector investor,  he wouldn't make an  investment of                 
  this kind.  He would have  a series of catches to make  sure                 
  his  interests were protected.   If this  same procedures is                 
  used in Fairbanks, it ultimately means the Railroad will own                 
  the hotel.                                                                   
  In conclusion, Mr.  Cerny said they believe  in development,                 
  but  the private  sector  should handle  it.   The  Railroad                 
  should develop its  property by  putting it up  for sale  or                 
  market it at a lease rate.  If there aren't successful bids,                 
  accept that as  a message.   If there  are successful  bids,                 
  work with them.                                                              
  Number 106                                                                   
  SENATOR  LINCOLN  asked  him  who  he represented  and  what                 
  properties  they  have.    MR.   CERNY  said  he  represents                 
  Fountainhead  Development,  a  property management  firm  in                 
  Fairbanks.   They manage Sophie  Station Hotel,  Bridgewater                 
  Hotel, and Lakewood Manor.                                                   
  SENATOR LINCOLN said she  did not want the Railroad to be in                 
  competition with private industry.                                           
  Number 60                                                                    
  FRANK DILLON, Fairbanks,  asked if  the Alaska Railroad  had                 
  environmental remediation insurance?  MR. HATFIELD said they                 
  have a catastrophic insurance policy  with a $5 million self                 
  insured  reserve  and  a  $10 million  line  of  credit with                 
  various  financial  institutions to  cover  any catastrophic                 
  event.   He said he would find  out whether any rail carrier                 
  in the world had  liability spill insurance.  He  thought it                 
  was virtually unattainable  at a reasonable price.  They are                 
  trying  to get  some  of their  customers  to recognize  the                 
  liability  of  the  products  they  ship  and  get  them  to                 
  participate in their liability in case there is a spill.                     
  TAPE 93-4, SIDE A                                                            
  Number 001                                                                   
  MR. DILLON asked if the state would be liable to pick up the                 
  tab on a cleanup.   MR. HATFIELD said  the state is  legally                 
  and financially independent from their  operations.  That is                 
  one of the fundamental reasons it is so.                                     
  SENATOR SHARP thanked  everyone for their  participation and                 
  adjourned the meeting at 5:10 p.m.                                           

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