Legislature(1997 - 1998)
02/20/1997 01:30 PM Senate TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE TRANSPORTATION COMMITTEE February 20, 1997 1:30 p.m. MEMBERS PRESENT Senator Jerry Ward, Chairman Senator Gary Wilken, Vice Chairman Senator Lyda Green Senator Georgianna Lincoln MEMBERS ABSENT Senator Rick Halford COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 12 Relating to reconstruction and paving of the Alaska Highway. - MOVED SJR 12 OUT OF COMMITTEE SENATE BILL NO. 42 "An Act relating to the fiscal operations of the Alaska Railroad Corporation and to land acquired by the State of Alaska under the Alaska Railroad Transfer Act of 1982 or otherwise acquired for railroad purposes; and providing for an effective date." - MOVED SB 42 OUT OF COMMITTEE PREVIOUS SENATE ACTION SJR 12 - See Senate Transportation Committee minutes dated 2/18/97. SB 42 - No previous Senate action to record. WITNESS REGISTER Representative Martin, Vice Chair Legislative Budget & Audit State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Reviewed SB 42. Senator Randy Phillips, Vice Chair Legislative Budget & Audit State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Reviewed the Executive Budget Act portion of SB 42. Bill Cummings, Assistant Attorney General Transportation Division Department of Law PO Box 110300 Juneau, Alaska 99811-0300 POSITION STATEMENT: Recommended that SB 42 not proceed with the current land conveyance section. Joe Perkins, Commissioner Department of Transportation 3132 Channel Drive Juneau, Alaska 99801-7898 POSITION STATEMENT: Stated that the Administration opposes SB 42. Randy Welker, Legislative Auditor Legislative Budget & Audit Committee Legislative Agencies & Offices PO Box 113300 Juneau, Alaska 99811-3300 POSITION STATEMENT: Discussed the Executive Budget Act portion of SB 42. Frank Dillon, Executive Director Alaska Trucking Association (ATA) 3443 Minnesota Drive Anchorage, Alaska 99503 POSITION STATEMENT: Discussed ATA's relation to ARRC. ACTION NARRATIVE TAPE 97-5, SIDE A SJR 12 CONSTRUCTION OF ALASKA HIGHWAY Number 001 CHAIRMAN WARD called the Senate Transportation Committee meeting to order at 1:30 p.m. and introduced SJR 12 as the first order of business before the committee. Chairman Ward noted that testimony was taken on this issue at the last meeting. Chairman Ward inquired as to the pleasure of the committee. SENATOR WILKEN moved to report SJR 12 out of committee with individual recommendations and accompanying fiscal notes. Without objection, it was so ordered. SB 42 ALASKA RR BUDGET AND LAND CHAIRMAN WARD introduced SB 42 as the next order of business befor the committee. REPRESENTATIVE MARTIN , Vice Chair of Legislative Budget and Audit, informed the committee that Senator Phillips, the other Vice Chair of LB&A would also be present. SB 42 was drafted upon the request of LB&A. The Alaska Railroad Corporation (AARC) must be placed under the Executive Budget Act in order to comply with Alaska's Constitution. Representative Martin noted that a few audits of the ARRC have been done which have revealed problems. At times the ARRC wants to be treated as a public entity when it is to their benefit. At other times, the railroad wants to be treated as a private entity and the Legislature is practically prohibited from knowing what is happening to the state's resources, land, and the type of contracts being developed. Most importantly, this bill was introduced three years ago with the understanding that Alaska completed its agreement to maintain the railroad with the development of the corporation until the time of privatization. Representative Martin was shocked at the few on the board opposed to the Legislature upholding its constitutional responsibility. Legal services has made it clear that the Legislature has a constitutional responsibility to place the railroad under the Executive Budget Act. The ARRC is the only organization that is not under the Executive Budget Act. With regard to the land issue, Article VIII states that the Legislature has the responsibility for the lease and sale of the state's natural resources and land. This should be considered with the thought of becoming private. Millions are being lost by not transferring the land to the state. Number 114 CHAIRMAN WARD inquired as to how many acres this involved. REPRESENTATIVE MARTIN said that the most recent estimates report 43,000 acres are held by the railroad. SENATOR WILKEN noted that when this was heard in the House, HB 55, the issues were separated. Senator Wilken asked if Representative Martin supported that separation. REPRESENTATIVE MARTIN supported the separation of issues. Most importantly, the ARRC must be placed under the Executive Budget Act while the land can develop on its own course. Legal recommended the separation. SENATOR WILKEN informed everyone that he was a leaseholder on the Alaska Railroad in Fairbanks. Senator Wilken pointed out that there had not been any discussion regarding the benefit to Alaska in what Senator Wilken felt was an attempt to piecemeal the ARRC. REPRESENTATIVE MARTIN said that Senator Wilken had a good point, however nothing had been done for 10 years. Representative Martin aimed to uphold the Legislature's responsibility. The state has a high liability with the delivery of oil and passengers with little insurance. Representative Martin indicated that the state would be responsible in the event of an oil spill. All that is desired is for the books to be open. In Anchorage sole source gravel is being sold by the ARRC who believes that is private and not the business of the Legislature. There are also disparities in the cost of land depending upon which side of the tracks. Representative Martin noted that it has been said that the ARRC loses money transporting Princess passengers; why should money be lost to subsidize free enterprise? Representative Martin believed in free enterprise and the need to survive alone. Number 198 SENATOR RANDY PHILLIPS , Vice Chair of Legislative Budget & Audit, supported the portion of the bill placing the ARRC under the Executive Budget Act. Other quasi-entities like the railroad have been placed under the Executive Budget Act. For example, the Alaska Housing Finance Corporation (AHFC) was placed under the act a few years ago and it has worked well. By placing the ARRC under the Executive Budget Act, the Legislature and the public would feel more comfortable by knowing how the railroad is run. CHAIRMAN WARD asked if any of the railroad's abilities would be hampered under the Executive Budget Act. SENATOR RANDY PHILLIPS replied no. Senator Phillips reiterated how well AHFC has done under this act. The Legislature does not have to deal with the day-to-day operations of AHFC, yet there is some financial accounting. The Executive Budget Act provides some accountability. In response to Senator Wilken, SENATOR RANDY PHILLIPS believed it best to separate the issues. With regards to the ARRC's opposition to the timing of this, Senator Phillips did not believe that to be such a problem. The AHFC is much bigger than the ARRC and placing them under the act is working well. The same will work with the ARRC. The ARRC will be given the autonomy to operate as a private business while being accountable to the 600,000 people who own the railroad. The Executive Budget Act provides a middle ground. Senator Phillips did not believe that could be accomplished without the Executive Budget Act. Number 282 BILL CUMMINGS , Assistant Attorney General in the Department of Law, said that he would be speaking to the land conveyances portion of SB 42. There are some serious problems under Section 25 which vests title in the Department of Natural Resources (DNR) for the railroad land. If this bill passes, DNR thereby the state will be buying into all of the potential environmental litigation. Mr. Cummings estimated that legal services would be necessary in order to explore the new sites (2 lawyers and staff from DNR and DEC) as well as legal services for the ongoing litigation with the U.S. regarding existing polluted sites (1 attorney and outside council). Therefore, the fiscal note estimates the cost for the first year to be $415,000 for legal fees. Mr. Cummings stated that the best manner in which to proceed is to allow the commissioner of DNR the discretion to accept title when he is satisfied with it. Mr. Cummings recommended that the bill not proceed as it is currently with regard to the land conveyances. COMMISSIONER JOE PERKINS , Department of Transportation, passed out ARRC's response to the committee's questions. CHAIRMAN WARD interjected that the committee packet also contained correspondence from the ARRC. COMMISSIONER JOE PERKINS informed the committee that the representative from the Department of Law that was to speak on the Executive Budget Act was not present and hoped to be able to receive his testimony latter. The Administration opposes SB 42. Commissioner Perkins said that he would be speaking only to the portion of SB 42 placing the ARRC under the Executive Budget Act. Commissioner Perkins did not know of any other agency that had a Federal Law Transfer Act. From the time of transfer, the ARRC has operated at a deficit for only two years. Last year the profits were at $8 million. The ARRC provides public and business purposes. The ARRC needs flexibility to function as a business making decisions that are unincumbered by a yearly appropriation schedule. Often, ARRC borrows money from banks upon which the ARRC is dependent to manage cash flow. Further, the ARRC enters into long-term lease agreements which would be hampered by the potential uncertainty of legislative approval for repayment on a yearly basis. At the present, ARRC profits go into rolling stock in order to fund other ARRC costs. Number 359 Commissioner Perkins referred to a 1981 assessment of the ARRC which discussed the disadvantages of subjecting the ARRC to state oversight as a state line agency. Commissioner Perkins quoted the following from the assessment: "Most of the same limitations encountered by the Alaska Railroad as a federal agency would also be present with the railroad as a state agency. One of the most critical limitations would be the lack of ability to obtain essential capital investment funds except by state appropriation. The competitive issues relating to marketing, management flexibility, state agency regulation, procedures and requirements, the potential for even more direct political influence on operational decisions and the public service versus business orientation questions are all disadvantages of this approach." Commissioner Perkins acknowledged that SB 42 does not make the ARRC a line state agency, however placing the ARRC under the Executive Budget Act would result in the aforementioned limitations. The state ownership and operation of the ARRC has been extremely successful; why would changes be made at this time? Changes could risk the possibility of degrading the ARRC. If additional oversight is necessary, there are probably other ways to accomplish such and should be explored. Number 392 RANDY WELKER , Legislative Auditor, noted that he would speak to the Executive Budget Act portion of SB 42. The timing for the Executive Budget Act is appropriate while the land matters may be premature. Mr. Welker agreed with splitting the bill. Commissioner Perkins' reference to the 1981 assessment seemed to make a stronger argument for why the ARRC should not be a governmental entity. Many of the issues discussed in the 1981 assessment dealt with the public process interfering with the operation of the railroad. That is all after the fact, the ARRC is now a public entity. Mr. Welker acknowledged that the ARRC operates under statutes that direct the railroad to operate as a private business, but it is also owned by the state which requires a certain degree of accountability. The Executive Budget Act is the system in place to provide legislative oversight to all entities of government. Mr. Welker pointed out that the Executive Budget Act addresses the constitutional mandate. Mr. Welker believed that the first audit, meaningful inquiry, on the ARRC was in 1992 when reviewing Ship Creek development. He recognized that the ARRC issues an annual report. The audit process has been the only way to have legislative oversight although, it is after the fact. The Executive Budget Act allows the Legislature to be involved before there are potential problems. Mr. Welker said that the degree to which the Legislature is involved in the act is a matter of the Legislature's prerogative. There is flexibility for the Legislature in designing the appropriation. Mr. Welker believed that legislative oversight was more important than the appropriation process. Number 451 FRANK DILLON , Alaska Trucking Association (ATA), informed the committee that ATA was a 38 year old trade association which was established to look to the interests of for hire and truck users in Alaska. ATA is one of the ARRC's larger customers while also competing with the ARRC on a daily basis for freight and revenue. Mr. Dillon emphasized that if the ARRC is a profitable business as has been alleged, then the ARRC should stand alone. If the ARRC is not then the ARRC should be a state agency and run as such. Mr. Dillon did not have a problem with either scenario, but the problem is the current hybrid situation. Mr. Dillon indicated that the ARRC is subsidized. For example, the ARRC has the benefit of state exempt plates on its vehicles while ATA does not. Further, the ARRC inherited prime property for transportation purposes in Alaska which places ATA in competition with the ARRC while renting ARRC property without the option to purchase. Mr. Dillon pointed out that the ARRC reports profits of five percent on its freight operations while the trucking industry in Alaska is lucky to have a two percent rate of return. Mr. Dillon informed the committee that the ARRC has received some $20 million from the federal government. That money from the Highway Trust Fund is a tax fund trust account established by highway users paying excise taxes and fuel taxes. Mr. Dillon had no problem with the ARRC using that money for safety reasons, however the money is collected with the hope for roads, ports, bridges and interconnections. CHAIRMAN WARD asked if anyone else was present to testify. Hearing none, he asked if there were any comments. Number 500 SENATOR WILKEN asked if the bill would be split in this committee. CHAIRMAN WARD said that he did not intend to split the bill, but did intend to report the bill out of committee. Chairman Ward noted that there has been delays in the information regarding this bill. SENATOR LINCOLN pointed out that the legislation had been introduced January 13, 1997, and the only other committee to hear the bill is State Affairs. If a split is necessary, it would behoove the committee to make the changes before the bill is reported out. Senator Lincoln did not see the need to rush the bill out of committee. CHAIRMAN WARD said that he would not be offering the amendment to split the bill. He inquired as to the pleasure of the committee. SENATOR GREEN moved to report SB 42 out of committee with individual recommendations and accompanying fiscal notes. SENATOR LINCOLN objected. SENATOR WILKEN said that some things are missing from this. The bifurcation of the issue as well as the amount of the subsidy, the percent of income generated from real estate compared to freight operations should all be provided for consideration with this issue. Hearing no further discussion, a roll call vote was taken in which Senators Ward, Wilken, and Green voted "Yea" and Senator Lincoln voted "Nay". Therefore, SB 42 was reported out of committee. There being no further business before the committee, the meeting was adjourned at 2:13 p.m.