Legislature(1997 - 1998)

02/20/1997 01:30 PM Senate TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                  
 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            
  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                 
 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.                                                    

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