Legislature(1993 - 1994)
02/09/1993 03:34 PM Senate TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 Overview. Frank Dillon Alaska Trucking Association 3443 Minnesota Dr. Anchorage, Alaska 99501 POSITION STATEMENT: Commented on the Alaska Railroad Overview. 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 effective. 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 leases. 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 months. 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 decisions. 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 transportation. 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.