Legislature(2019 - 2020)BUTROVICH 205

02/12/2019 01:30 PM TRANSPORTATION

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
01:31:42 PM Start
01:32:16 PM Confirmation Hearing
01:51:01 PM Overview: Alaska Railroad
03:04:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Consideration of Governor's Appointee: TELECONFERENCED
Edward Sinclair, Board of Marine Pilots
-- Public Testimony --
Alaska Railroad by President & CEO Bill O'Leary
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
                       February 12, 2019                                                                                        
                           1:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Shelley Hughes, Chair                                                                                                   
Senator Jesse Kiehl                                                                                                             
Senator Peter Micciche                                                                                                          
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Mike Shower, Vice Chair                                                                                                 
COMMITTEE CALENDAR                                                                                                            
CONFIRMATION HEARING                                                                                                            
Board of Marine Pilots                                                                                                          
Edward Sinclair                                                                                                                 
     - Confirmation Advanced                                                                                                    
OVERVIEW: ALASKA RAILROAD                                                                                                       
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
EDWARD SINCLAIR, appointee                                                                                                      
Board of Marine Pilots                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Testified as appointee to the Board of                                                                    
Marine Pilots.                                                                                                                  
BILL O'LEARY, President and CEO                                                                                                 
Alaska Railroad                                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Delivered  the  overview  of   the  Alaska                                                             
ACTION NARRATIVE                                                                                                              
1:31:42 PM                                                                                                                    
CHAIR SHELLEY  HUGHES called  the Senate  Transportation Standing                                                             
Committee meeting  to order at 1:31  p.m. Present at the  call to                                                               
order  were Senators  Kiehl, Wilson,  and  Chair Hughes.  Senator                                                               
Micciche arrived during the introduction.                                                                                       
1:32:16 PM                                                                                                                    
At ease                                                                                                                         
^Confirmation Hearing                                                                                                           
                      Confirmation Hearing                                                                                  
                     Board of Marine Pilots                                                                                 
1:33:18 PM                                                                                                                    
CHAIR  HUGHES  reconvened the  meeting  and  announced the  first                                                               
order  of business  would be  a confirmation  hearing for  Edward                                                               
Sinclair to the Board of Marine  Pilots. She read the mission and                                                               
composition of  the board and  asked Captain Sinclair  to provide                                                               
his opening remarks.                                                                                                            
1:34:23 PM                                                                                                                    
CAPTAIN  EDWARD  SINCLAIR,  appointee, Board  of  Marine  Pilots,                                                               
Juneau, stated  that he served in  the Coast Guard for  20 years,                                                               
mostly  in Alaska.  He  became involved  with  the marine  pilots                                                               
through work and  was asked to join their  training program after                                                               
he retired.  He accepted because it  seemed to be a  good fit. He                                                               
has  been  licensed  since  2006  and he  looks  at  this  as  an                                                               
opportunity meet the mission of the board.                                                                                      
1:35:49 PM                                                                                                                    
SENATOR  KIEHL  thanked  Captain Sinclair  for  volunteering  and                                                               
asked him to  share insight on the issues that  pilots are facing                                                               
in areas other than Southeast.                                                                                                  
CAPTAIN SINCLAIR said  the issue in Southeast is  that the cruise                                                               
industry  is  bringing  on  the  new  mega-ships.  This  is  also                                                               
relevant  to some  other regions  of  the state,  but things  are                                                               
generally more  stable in  the other regions.  There has  been an                                                               
increase in  traffic in the far  west but he wasn't  aware of any                                                               
major issues facing the board.                                                                                                  
SENATOR KIEHL said  he appreciates the work  the Southeast Pilots                                                               
Association has  done working  collaboratively with  the industry                                                               
to prepare  for the new mega  cruise ships. He noted  that, "Some                                                               
of these vessels have a broadside  sail area of almost four acres                                                               
and piloting  them in the  winds of the  Inside Passage can  be a                                                               
heck  of  a  challenge."  The association  and  Southeast  marine                                                               
pilots have gotten  out ahead of that curve  with ship simulators                                                               
in Seward, he said.                                                                                                             
SENATOR MICCICHE  said he reviewed Captain  Sinclair's resume and                                                               
it is impressive; he is well credentialed.                                                                                      
SENATOR WILSON asked if he had attended past board meetings.                                                                    
CAPTAIN  SINCLAIR replied  he attended  the  January and  October                                                               
2018 meetings,  and at least  one during  his time as  a licensed                                                               
SENATOR WILSON  asked if he  has any  concerns with the  board or                                                               
sees improvements that could be made.                                                                                           
1:38:51 PM                                                                                                                    
CAPTAIN SINCLAIR said he would like  the board to discuss the new                                                               
mega ships and the role the  state and the federal government may                                                               
play in  managing safe  traffic. The mission  of the  board isn't                                                               
quite in  line with  what he has  in mind, but  he would  like to                                                               
explore  that   and  perhaps  lead  the   discussion  with  other                                                               
CHAIR  HUGHES  asked if  the  Board  of  Marine Pilots  has  been                                                               
involved  in  the analysis  and  discussions  about Nome  as  the                                                               
Arctic port.                                                                                                                    
CAPTAIN SINCLAIR said he wasn't  aware of any recent discussions,                                                               
but  several   years  ago  there  was   detailed  discussion  and                                                               
presentations at  the board level.  He said the board  took great                                                               
interest in how piloting would be handled.                                                                                      
CHAIR  HUGHES asked  if marine  pilots are  used at  the Port  of                                                               
Anchorage and  if they  would be  used if ships  went in  to Port                                                               
CAPTAIN SINCLAIR said yes; the  general rule is that any foreign-                                                               
flagged  vessel is  required  to  take on  a  state marine  pilot                                                               
anytime it is maneuvering or transiting state waters.                                                                           
CHAIR  HUGHES asked  if he  had experience  in waters  other than                                                               
CAPTAIN  SINCLAIR  replied  his experience  is  predominately  in                                                               
Southeast, but he made a couple  of trips west past Kodiak and to                                                               
the Aleutian Islands while in the Coast Guard.                                                                                  
SENATOR MICCICHE  asked if he worked  as a captain or  an officer                                                               
in the private sector after 2002.                                                                                               
CAPTAIN SINCLAIR  said no;  he retired from  the Coast  Guard and                                                               
immediately entered  the piloting  training. He received  a Coast                                                               
Guard  unlimited   tonnage  license  before  retiring   and  that                                                               
qualified  him  at a  certain  level  to  start piloting  in  the                                                               
training program.                                                                                                               
SENATOR MICCICHE asked  if he feels prepared to  deal with issues                                                               
associated  with  tanked  and  cargo  vessels  in  ports  outside                                                               
Southeast. "How do  you feel you'll deal with  that specific lack                                                               
of experience around the state," he asked.                                                                                      
CAPTAIN SINCLAIR said  in Southeast, pilots train  on the vessels                                                               
that call  on Southeast  ports but  the training  program doesn't                                                               
prevent someone  from training for large  tanked vessels. Through                                                               
training  and continuing  education,  marine  pilots handle  many                                                               
different ships either in simulation  or manned models. The rules                                                               
and regulations  are statewide and  while he may not  have served                                                               
on  any tankers,  that doesn't  prevent him  from serving  on the                                                               
board and helping it to meet its mission.                                                                                       
1:44:01 PM                                                                                                                    
SENATOR MICCICHE  remarked that there are  some extremely dynamic                                                               
bodies of  water around  the state that  are very  different than                                                               
Southeast. He  asked, "How  will you  become familiar  with those                                                               
challenges while serving on the board?"                                                                                         
CAPTAIN SINCLAIR  said he'd  get input from  pilots in  the area,                                                               
find out what  the unique challenges are, and apply  the rules of                                                               
the board to that information.                                                                                                  
1:44:45 PM                                                                                                                    
CHAIR  HUGHES noted  that he  was a  graduate of  the U.S.  Coast                                                               
Guard Academy. She  asked if attending the  academy was something                                                               
he always wanted to do and if that's what brought him to Alaska.                                                                
CAPTAIN SINCLAIR  said the  academy wasn't on  his list,  but his                                                               
father served in  the Coast Guard and suggested he  look into it.                                                               
His first  assignment out  of the Coast  Guard Academy  was Sitka                                                               
and he fell in  love with Alaska. Being on a  ship allowed him to                                                               
become familiar with Southeast. He  found he enjoyed learning the                                                               
waterways and  handling ships in  close proximity to  dangers. He                                                               
related  that every  time he  was transferred  out of  Alaska, he                                                               
asked to return.                                                                                                                
1:47:13 PM                                                                                                                    
CHAIR HUGHES  thanked Captain  Sinclair for  his service  and for                                                               
stepping forward. Finding no further  questions she opened public                                                               
testimony. Finding none she closed public testimony.                                                                            
1:48:06 PM                                                                                                                    
CHAIR HUGHES  stated that  in accordance  with AS  39.05.080, the                                                               
Senate  Transportation  committee   reviewed  the  following  and                                                               
recommends the appointments  be forwarded to a  joint session for                                                               
Board of Marine Pilots                                                                                                        
Edward Sinclair - Juneau                                                                                                        
She  reminded   members  that   signing  the   reports  regarding                                                               
appointments  to  boards  and  commissions  in  no  way  reflects                                                               
individual members'  approval or  disapproval of  the appointees;                                                               
the nominations are merely forwarded  to the full legislature for                                                               
confirmation or rejection.                                                                                                      
1:48:38 PM                                                                                                                    
At ease                                                                                                                         
^Overview: Alaska Railroad                                                                                                      
                   Overview: Alaska Railroad                                                                                
1:51:01 PM                                                                                                                    
CHAIR HUGHES reconvened the meeting  and announced the next order                                                               
of business would  be an overview of the Alaska  Railroad by Bill                                                               
1:51:13 PM                                                                                                                    
BILL  O'LEARY, President  and CEO,  Alaska Railroad  Corporation,                                                               
said he would  provide an overview and update of  things going on                                                               
with the railroad.  He started with slide 2,  "Safety Minute" and                                                               
explained that  every railroad presentation  starts with  a slide                                                               
about safety. The  railroad takes safety very  seriously and that                                                               
is  reflected  in  all  its  public  presentations.  He  directed                                                               
attention  to the  first graphic  that highlights  the group  the                                                               
railroad is involved with called,  "Operation Lifesaver." It's an                                                               
organization  the railroad  partners with  to educate  the public                                                               
about  the  issues with  trespass  and  being  on or  around  the                                                               
tracks. He  noted that  since the  railroad was  transferred from                                                               
the federal  government in  1985, 15 people  have been  killed on                                                               
the tracks.  The three graphics  on the  bottom of the  slide are                                                               
examples of illegal trespass that were posted on social media.                                                                  
1:53:25 PM                                                                                                                    
MR.  O'LEARY described  the  organization,  operating data,  2018                                                               
operating statistics,  and numbers of employees  of the railroad.                                                               
He said in 1917-1919 the  federal government combined a number of                                                               
failed railroads  into what  is now the  Alaska Railroad.  It was                                                               
owned  by the  federal railroad  administration until  about 1985                                                               
when it was purchased by the  State of Alaska and the legislature                                                               
established  the  Alaska  Railroad  Corporation (ARRC.  It  is  a                                                               
public  corporation  that was  set  up  to operate  like  private                                                               
enterprise that can respond to  the marketplace. ARRC has a board                                                               
consisting of  7 members; [6  appointed by Governor    2 licensed                                                               
pilots  actively   engaged  in   piloting  vessels   (subject  to                                                               
statute), 2 agents or managers  of vessels, and 2 public members;                                                               
plus the  commissioner of  the Dept.  of Commerce,  Community and                                                               
Economic  Development  or his/her  designee;  not  more than  one                                                               
pilot  and one  agent shall  be from  any one  judicial district;                                                               
must be Alaska residents].                                                                                                      
CHAIR HUGHES  observed that about  200 of  the 656 miles  of ARRC                                                               
track run  through the  MatSu Borough.  She asked  if any  of the                                                               
board members were from that area.                                                                                              
MR. O'LEARY answered no.                                                                                                        
CHAIR HUGHES asked when a MatSu resident was last on the board.                                                                 
MR. O'LEARY estimated it was 6-7 years ago.                                                                                     
CHAIR HUGHES asked when there would be an opening on the board.                                                                 
MR. O'LEARY replied  the five-year terms are staggered  so one or                                                               
two come up every year.                                                                                                         
CHAIR HUGHES asked if there were term restrictions.                                                                             
MR. O'LEARY replied he didn't believe so.                                                                                       
MR. O'LEARY continued to review  ARRC facts. The railroad must be                                                               
self-sustaining  and  it  does  that  with  significant  freight,                                                               
passenger, and  real estate activities. The  year-round passenger                                                               
services makes  the railroad eligible  for federal  grant monies.                                                               
ARRC is the  last full-service railroad in the U.S.  and they run                                                               
a unique flag stop service.  The railroad employs about 600 year-                                                               
round  employees and  about  120-150 more  in  the summer.  About                                                               
three-fourths of the employees belong to one of the five unions.                                                                
1:58:08 PM                                                                                                                    
MR.  O'LEARY reviewed  passenger operations  that serve  both the                                                               
visitor  industry and  Alaska  residents. In  some  areas of  the                                                               
state the railroad is the primary transportation.                                                                               
CHAIR  HUGHES  asked  how  often   service  comes  through  those                                                               
communities that rely primarily on the railroad.                                                                                
MR. O'LEARY replied  the Hurricane Turn service runs  five days a                                                               
week throughout the  summer months and weekly  and monthly during                                                               
the winter.                                                                                                                     
He referred  to the blue  and gold colored  bar chart on  slide 4                                                               
that shows  the number of  passengers that ride on  ARRC railcars                                                               
and the  cruise line railcars.  He said the flagship  service has                                                               
been Anchorage  to Fairbanks and  return but there is  also daily                                                               
service to Whittier and Seward. This is a growing business                                                                      
CHAIR HUGHES asked  if vehicles can be put on  the Hurricane Turn                                                               
MR. O'LEARY  replied the Hurricane  Turn Train is  just passenger                                                               
2:01:09 PM                                                                                                                    
MR.  O'LEARY said  the second  and larger  leg of  the railroad's                                                               
financial stool is the freight  operations. The colored bar graph                                                               
on page  5 represents the types  and tonnage of bulk  freight the                                                               
railroad moves. Each of the  lines of business represented on the                                                               
graph has  its own  story, he  said, but the  trend from  2008 to                                                               
2018 has been significantly downward.  In 2018, the tonnage moved                                                               
was roughly  half of what was  moved ten years earlier.  The drop                                                               
in  bulk  petroleum  shipments   is  the  most  significant.  The                                                               
refinery outside  of Fairbanks was  closed in about 2014  and now                                                               
the only petroleum  product that is moved comes from  the Port of                                                               
Anchorage to  the Interior. The  other significant drop  was coal                                                               
for export.  There has been no  coal for export since  2016. 2017                                                               
was the exception to the downward  trend when a large DOT project                                                               
required a lot of gravel for the O'Malley Road project.                                                                         
2:03:40 PM                                                                                                                    
SENATOR  WILSON  noted the  comparatively  small  drop in  gravel                                                               
movement and  commented that  rail is still  the cheapest  way to                                                               
move heavy freight throughout the state.                                                                                        
MR. O'LEARY  agreed that  ARRC is at  a competitive  advantage to                                                               
move large  quantities of heavy,  bulky freight. Gravel  has been                                                               
relatively consistent  because it  is driven by  federally funded                                                               
DOT road  projects. He expressed  hope that 2019 would  be better                                                               
with the completion of projects that were started in 2018.                                                                      
CHAIR HUGHES asked if ARRC  proactively works with companies that                                                               
might bring  the railroad business.  She cited new  technology to                                                               
burn coal without  the emissions as an example  that might reopen                                                               
the coal market in Alaska.                                                                                                      
MR. O'LEARY  said yes; ARRC  is very interested in  replacing the                                                               
tonnage losses and is working  with existing and new customers to                                                               
facilitate  bringing  new commodities  to  market.  "Part of  our                                                               
mission is economic  development for the state and we  want to be                                                               
there as a tool for  different industries and different customers                                                               
to be able to develop resources," he said.                                                                                      
2:07:22 PM                                                                                                                    
CHAIR HUGHES asked if the railroad  had talked about the new coal                                                               
burning technology with the Usibelli Coal Mine Company.                                                                         
MR. O'LEARY  said he wasn't  aware of the  particular technology,                                                               
but he would follow up.                                                                                                         
CHAIR HUGHES  expressed hope that  the railroad would  expand its                                                               
business horizons.                                                                                                              
SENATOR  MICCICHE asked  if  ARRC  has an  assumption  as to  the                                                               
bottom on  freight in the  future or  is there potential  for the                                                               
existing ugly trend to continue.                                                                                                
MR. O'LEARY  said they  are guardedly  optimistic that  they have                                                               
hit  the  bottom.  They  have  been working  with  an  entity  in                                                               
Southcentral  Alaska  to  move greater  quantities  of  petroleum                                                               
products northbound. That service is  scheduled to start in 2020.                                                               
He  said ARRC  is also  seeing its  support of  oilfield services                                                               
SENATOR MICCICHE  asked if they  have evaluated the  potential to                                                               
connect to the Lower 48 to increase both exports and imports.                                                                   
MR. O'LEARY said various private  sector groups have talked about                                                               
connecting to the Canadian rail  system. It's a large project had                                                               
the economics would be key to  that moving forward. He added that                                                               
it  is  important  to  recognize  that  the  Alaska  Railroad  is                                                               
connected to  the Lower 48  rail system through their  rail barge                                                               
that  sails out  of Seattle  and  Prince Rupert  to Whittier.  He                                                               
acknowledged that  the volumes are  not the  same as with  a land                                                               
2:11:55 PM                                                                                                                    
MR.  O'LEARY turned  to  slide  6 titled  "The  Bottom Line."  He                                                               
explained that the  railroad's books are kept  similar to private                                                               
industry.  An historical  look  at net  income  reflects a  large                                                               
increase  in  2017. They  have  been  able to  maintain  positive                                                               
earnings with the  exception of 2016 when they were  in a dispute                                                               
with the Municipality  of Anchorage. The dispute  is resolved for                                                               
now  and the  revenues  were  doubled for  2017.  They have  kept                                                               
earnings at a level to  maintain infrastructure. They are waiting                                                               
for numbers from their actuaries to close out 2018.                                                                             
2:14:52 PM                                                                                                                    
SENATOR  KIEHL asked  for a  ballpark estimate  of revenues  most                                                               
MR. O'LEARY  said total revenue  for 2017 was $187.5  million and                                                               
that's generally  where it has  been. Generally,  freight revenue                                                               
is  falling and  passenger  revenue is  increasing, although  the                                                               
growth in passenger has not offset the decline in freight.                                                                      
SENATOR KIEHL  calculated $165 million  to $170 million  in costs                                                               
and asked what the split is for operating capital.                                                                              
MR.  O'LEARY replied  their capital  budget has  ranged from  $20                                                               
million to $40 million annually.                                                                                                
SENATOR KIEHL asked  if some of the federal grant  revenue can be                                                               
used for capital expenditures or  if it's limited to salaries and                                                               
MR. O'LEARY  said it's a mix.  Some of the federal  formula money                                                               
is used  for operating expenses  and direct capital  projects but                                                               
the  majority is  used to  pay debt  service on  bonds that  were                                                               
issued  in  2006  and  2007   to  support  an  accelerated  track                                                               
rehabilitation program.                                                                                                         
CHAIR  HUGHES asked  if  it's typical  for  railroads to  receive                                                               
about 30 percent of their revenue from federal grants.                                                                          
MR. O'LEARY  said he  couldn't say  but he  would guess  that the                                                               
grant  percentage  for  other  entities  would  be  significantly                                                               
CHAIR HUGHES  asked him  to verify  that. She  also asked  if all                                                               
trains receive some federal subsidy.                                                                                            
MR.  O'LEARY  said  the  majority   of  passenger  providers  are                                                               
subsidized,  some   significantly.  The  ARRC  has   a  different                                                               
financial model because it uses  the same track for passenger and                                                               
freight movement.                                                                                                               
2:20:05 PM                                                                                                                    
CHAIR HUGHES asked  how the federal subsidy for  rail compares to                                                               
the federal subsidy for a highway.                                                                                              
MR. O'LEARY said he didn't know.                                                                                                
CHAIR HUGHES  asked if someone  from ARRC served on  the commuter                                                               
rail task force that the previous administration formed.                                                                        
MR. O'LEARY said  ARRC was not on the taskforce,  but they served                                                               
as support. He  agreed to follow up with her  office to show what                                                               
they had.                                                                                                                       
CHAIR  HUGHES  said  her  interest  is  based  on  the  need  for                                                               
alternate  routes in  the event  of another  earthquake or  other                                                               
incidents on the road system.                                                                                                   
2:22:44 PM                                                                                                                    
MR. O'LEARY  turned to slide  7 titled "Employee  Reductions." He                                                               
said  with the  drop in  freight movement,  it became  clear that                                                               
employee costs would  need to be reduced. To that  end, about 250                                                               
positions have been  eliminated since 2008. This  has resulted in                                                               
some  changes in  the way  ARRC does  business and  the functions                                                               
they provide.                                                                                                                   
He said  the next  slide highlights come  federal issues  and the                                                               
regulatory environment in which  the railroad operates. He listed                                                               
some of  the numerous  agencies the railroad  deals with  and the                                                               
number of  requirements they fall  under given  their activities.                                                               
For example:  Transit Asset Management  is a  federal requirement                                                               
for  passenger railroads  that has  helped ARRC  get a  handle on                                                               
their  deferred   maintenance.  Positive  Train  Control   is  an                                                               
unfunded  federally  mandated  safety  overlay  required  of  all                                                               
larger class I and passenger  railroads. He said the research and                                                               
development project is part of that  and will be completed by the                                                               
extended  alternate schedule  of 2020.  Partial funding  has come                                                               
from about $13 million in federal grants.                                                                                       
Because  the   railroad  runs  year-round  service,   it  is  the                                                               
recipient  of  federal  formula   funding.  This  has  helped  to                                                               
annually maintain  and replace buildings,  bridges, 656  miles of                                                               
track, and 2 million ties.                                                                                                      
2:27:27 PM                                                                                                                    
MR. O'LEARY described the railroad's  real estate holdings as its                                                               
third financial leg  and not so secret weapon.  When the railroad                                                               
was transferred from the federal  government, it came with 36,000                                                               
acres  of  land.  About  half  of  that  is  used  for  operating                                                               
activities  and  the other  18,000  acres  is available  at  fair                                                               
market value  for lease, permit  or other  use. This income  is a                                                               
buffer  for the  up  and  down cycles  in  both  the freight  and                                                               
passenger   business.   He   expressed  appreciation   that   the                                                               
legislature  last  year authorized  the  railroad  to dispose  of                                                               
properties. He noted  that the Ship Creek  development was slowly                                                               
improving.  Other real  estate activity  includes establishing  a                                                               
wetlands  mitigation bank  and  compromise on  right  of way  and                                                               
exclusive use easement issues.                                                                                                  
2:30:39 PM                                                                                                                    
SENATOR KIEHL  asked if railroad  land would be used  as wetlands                                                               
mitigation for other DOT projects.                                                                                              
MR.  O'LEARY replied  that  railroad  land would  be  put into  a                                                               
wetlands  mitigation  bank and  the  credits  would be  used  for                                                               
railroad projects or they could be  purchased by DOT or any other                                                               
entity in need of wetlands credits.                                                                                             
SENATOR  KIEHL  asked if  the  18,000  acres available  for  real                                                               
estate use includes the right of way leases or easements.                                                                       
MR.  O'LEARY  clarified  that the  acreage  used  for  operations                                                               
includes the rights  of way. The other 18,000  acres is available                                                               
for lease or permit.                                                                                                            
SENATOR KIEHL  offered his understanding that  the railroad earns                                                               
income from the use of the rights of way.                                                                                       
MR. O'LEARY said that's correct.                                                                                                
SENATOR KIEHL  asked how much  of the  18,000 acres not  used for                                                               
operations was currently under lease or option.                                                                                 
MR. O'LEARY  said about  3,000 acres are  either leased  or under                                                               
SENATOR  WILSON  requested  a  list  and the  cost  of  land  and                                                               
improvements the  railroad leases from  the state to  ensure that                                                               
the state is also receiving fair market value.                                                                                  
MR. O'LEARY  said he wasn't  aware of anyplace that  the railroad                                                               
was leasing land from the state.                                                                                                
SENATOR WILSON  responded that the  train depot at  the Anchorage                                                               
Airport is  leased for about $2,000  a year. He said  that is not                                                               
fair market value and he'd like  to see the state get fair market                                                               
value for the land it leases.                                                                                                   
MR.  O'LEARY said  he would  follow up  with the  leased property                                                               
information. He addressed the fair  market value issue by drawing                                                               
a  parallel to  the work  the  railroad is  doing with  different                                                               
utilities  to  avoid raising  rates  precipitously.  He said  the                                                               
railroad has  utility permits that  expired 20 years ago  and the                                                               
rates haven't been  raised since then. Work is ongoing  to get to                                                               
fair market value over time, he said.                                                                                           
2:36:37 PM                                                                                                                    
CHAIR HUGHES asked if the railroad  has limits like DOT as to the                                                               
amount it can annually increase rents or leases.                                                                                
MR. O'LEARY answered no; they're  trying to work cooperatively to                                                               
bring rates up to fair market value over time.                                                                                  
CHAIR  HUGHES asked  if  the requirement  to  charge fair  market                                                               
value is in statute.                                                                                                            
MR. O'LEARY answered yes.                                                                                                       
CHAIR  HUGHES asked  if the  railroad pays  fair market  value to                                                               
lease  private,  Native  corporation  or  federal  land  that  it                                                               
MR. O'LEARY said he would follow up with the information.                                                                       
2:38:22 PM                                                                                                                    
SENATOR MICCICHE  asked if  the airport  terminal was  in service                                                               
and, if so, for what portion of the year.                                                                                       
MR. O'LEARY estimated that the  depot at the Anchorage Airport is                                                               
used 4-5 days  a week throughout the summer  months, primarily by                                                               
the cruise lines.                                                                                                               
CHAIR  HUGHES  asked  if  the  depot is  used  just  once  a  day                                                               
throughout the summer.                                                                                                          
MR. O'LEARY said yes.                                                                                                           
CHAIR HUGHES characterized that as  limited use. She asked if the                                                               
railroad received state assistance to build the facility.                                                                       
MR. O'LEARY  replied those were  federal monies earmarked  by the                                                               
late Senator Ted Stevens.                                                                                                       
2:40:04 PM                                                                                                                    
MR. O'LEARY  continued the presentation showing  graphics of some                                                               
of  the damage  caused by  the November  30, 2018  earthquake. He                                                               
applauded the railroad  employees for getting the  trains back in                                                               
service about  50 hours after  the earthquake. The  slides showed                                                               
damage alongside the track near  Houston, damage to the Anchorage                                                               
Operations  Center,   and  sloughed  ground  near   Houston  that                                                               
revealed buried railroad tracks.                                                                                                
MR.  O'LEARY displayed  four  graphics of  the  January 15,  2019                                                               
derailment. He said it appears that  a failed bearing on a leased                                                               
tank car  resulted in  over 7,000 ties  being shredded.  He again                                                               
lauded the work of the  railroad employees. They worked in sub-to                                                               
return the train to service in about 70 hours.                                                                                  
CHAIR  HUGHES asked  if  all  the inspections  had  been done  on                                                               
MR. O'LEARY  replied the  comprehensive investigation  is ongoing                                                               
to ensure that  this does not happen in the  future. It should be                                                               
complete in the next month or so.                                                                                               
CHAIR  HUGHES asked  him to  send a  copy of  the results  to her                                                               
office and she would distribute it to the committee.                                                                            
SENATOR  MICCICHE asked  if there  was a  monitoring system  that                                                               
alerted the engineer that the  truck was being dragged across the                                                               
ties for three miles.                                                                                                           
MR. O'LEARY said there are detectors  on the line but they didn't                                                               
pick this  up. The engineers were  alerted when the air  went out                                                               
of the  system. As a result  of this derailment, ARRC  is looking                                                               
at  newer  technologies  that might  detect  something  like  the                                                               
derailment more quickly.                                                                                                        
2:45:17 PM                                                                                                                    
MR. O'LEARY  pointed to  the bullet  points on  slides 17  and 18                                                               
that show  what's next  in passenger  service. He  said passenger                                                               
service  in 2019  will probably  be better  than the  3-4 percent                                                               
projected  growth over  2018. The  railroad is  engaging in  more                                                               
hospitality  and tourism  partnerships  that  removes over  7,000                                                               
motor coaches from Alaska highways.  Anyone who has driven on the                                                               
Seward, Glenn,  or Parks highways  can appreciate that,  he said.                                                               
The railroad  is also  working to  expand their  specialty trains                                                               
beyond the  beer trains and  kids' Halloween trains  in Anchorage                                                               
and Fairbanks.                                                                                                                  
SENATOR KIEHL asked if the specialty trains cover their costs.                                                                  
MR.  O'LEARY replied  most of  them do  and if  they don't,  they                                                               
aren't run again.                                                                                                               
SENATOR KIEHL pointed out that  a roundtrip ticket from Anchorage                                                               
to the  state fair is $20  and a roundtrip ticket  to the Wasilla                                                               
depot is over $100 in the season.                                                                                               
MR. O'LEARY clarified that the  specialty trains he was referring                                                               
to were the Beer trains,  Halloween trains, and Valentine trains.                                                               
The fair train  is subsidized and even  though those sponsorships                                                               
have become more  difficult to find in the  tighter economy, they                                                               
feel it is worthwhile to continue to provide that service.                                                                      
2:48:19 PM                                                                                                                    
MR. O'LEARY directed  attention to the bullet points  on slide 19                                                               
that  highlight  the work  the  railroad  is  doing to  grow  its                                                               
freight  business.  Tankage  is  being  built  in  Fairbanks  and                                                               
improved  in Anchorage  to  move more  refined  petroleum to  the                                                               
Interior. The interline barge service  includes the longest rail-                                                               
haul  in  North  America.  There are  military  opportunities  in                                                               
Fairbanks with the  F-35s and there are some things  at Clear Air                                                               
Force Station, he said.                                                                                                         
MR.  O'LEARY said  the railroad  has followed  with interest  the                                                               
quest  to get  natural gas  to  Fairbanks to  help reduce  energy                                                               
costs. In 2016  the Alaska railroad became the  first railroad in                                                               
the nation  to be authorized to  move LNG by rail.  With a number                                                               
of  other  railroads  watching, the  demonstration  project  made                                                               
eight round trips to Fairbanks  with loaded LNG containers. There                                                               
has  also been  significant  first responder  training along  the                                                               
railbelt. At this  point ARRC wants whoever is  supplying the gas                                                               
to know that  the railroad can assist in  moving large quantities                                                               
of LNG.  He noted that a  5 million gallon LNG  storage tank will                                                               
be ready for service in Fairbanks this summer.                                                                                  
2:51:53 PM                                                                                                                    
MR.  O'LEARY   emphasized  that  the  Alaska   Railroad  is  very                                                               
important   to  the   state.  Alaska   is  woefully   lacking  in                                                               
infrastructure and the  railroad is a key piece  of the logistics                                                               
puzzle  to move  freight and  passengers, he  said. The  railroad                                                               
exists to serve  its customers and to  facilitate development. He                                                               
said we  sometimes have to stand  our ground but we  want to work                                                               
with stakeholders and groups to help  them and the railroad to be                                                               
successful. If  the Alaska  railroad is  a successful  and strong                                                               
entity, it  will be there  to help  the state in  any development                                                               
projects it has.                                                                                                                
He  thanked   the  committee  for   inviting  him  to   give  the                                                               
CHAIR HUGHES commented that she didn't  know if it made money but                                                               
the  photography  with  the  train  was  always  very  good.  She                                                               
referenced  his earlier  comment  about cautioning  photographers                                                               
against using  the tracks as  a prop  and asked if  ARRC suggests                                                               
they  instead use  the unused  tracks  in the  Palmer and  Sutton                                                               
areas for their photographs.                                                                                                    
MR. O'LEARY replied, "We don't like people on rail period."                                                                     
CHAIR HUGHES said she figured that would be his answer.                                                                         
SENATOR WILSON  questioned why  he didn't  comment on  the Seward                                                               
Passenger Dock.                                                                                                                 
2:54:33 PM                                                                                                                    
MR. O'LEARY thanked  him for bringing that up. He  said it was an                                                               
inadvertent omission  because it's  a "big  deal" for  the Alaska                                                               
Railroad.  The three  docks they  have  in Seward  are for  coal,                                                               
freight, and passengers.                                                                                                        
CHAIR HUGHES noted that the information was on Slide 9.                                                                         
MR. O'LEARY  related that  from his  perspective the  1966 Seward                                                               
Passenger  Dock is  on  hospice care.  It  requires between  $0.5                                                               
million and  $1 million a year  to maintain and it's  usable life                                                               
is still  estimated to be  just five more  years. This dock  is a                                                               
critical  link for  not only  the  Alaska Railroad  but also  the                                                               
Southcentral  and Interior  visitor industry.  More than  200,000                                                               
visitors are  anticipated to cross  this dock in 2019  despite it                                                               
being on its  last legs. Several years ago  the railroad received                                                               
some federal money  to do a master plan for  Seward and the first                                                               
recommendation  was to  address the  dock issue.  ARRC has  since                                                               
been  working with  the various  stakeholders to  figure out  the                                                               
path forward.  In recent years  they have received some  head tax                                                               
dollars for maintenance  and planning and they  hope that several                                                               
million is in the budget to keep this project moving forward.                                                                   
2:57:33 PM                                                                                                                    
SENATOR WILSON asked  if ARRC had worked  with the administration                                                               
on their annual budget request.                                                                                                 
MR. O'LEARY responded  that ARRC is not subject  to the Executive                                                               
Budget Act and  the only discussion they have had  relates to the                                                               
possibility  of   using  head   tax  monies  for   this  project.                                                               
Responding  to a  further question,  he  said they  met with  the                                                               
Office of  Management and Budget  several years ago  to reiterate                                                               
their request.                                                                                                                  
CHAIR HUGHES asked how the head tax works.                                                                                      
MR.  O'LEARY offered  his understanding  that the  state collects                                                               
the head tax  and disburses the funds according  to an allocation                                                               
procedure, with  the state  keeping a  portion that  is available                                                               
for appropriation.                                                                                                              
CHAIR  HUGHES asked  if  the railroad  is  already receiving  the                                                               
maximum or  if it  could receive  a little  more to  complete the                                                               
Seward project.                                                                                                                 
MR.  O'LEARY clarified  that they  have received  funds just  one                                                               
year.  The allocation  process isn't  entirely clear  to him,  he                                                               
CHAIR HUGHES asked  if part of ARRC's  appropriation request this                                                               
year is to receive a portion of the head tax.                                                                                   
MR. O'LEARY replied, "It's been  an area they wanted to highlight                                                               
that  we'd be  very appreciative  of  those monies  to keep  this                                                               
process moving."                                                                                                                
3:00:29 PM                                                                                                                    
CHAIR HUGHES  asked Senator Kiehl  to enlighten the  committee as                                                               
to how the head tax works.                                                                                                      
SENATOR KIEHL  related that the  railroad does not get  a regular                                                               
disbursement. Rather,  once the formula is  worked through, there                                                               
is  usually  money  remaining  that  is  subject  to  legislative                                                               
appropriation. His understanding is that  is what the railroad is                                                               
seeking  on  a year-by-year,  project-by  project  basis, not  an                                                               
annual appropriation.                                                                                                           
CHAIR  HUGHES summarized  that the  existing formula  is used  to                                                               
distribute funds to local municipalities, not the railroad.                                                                     
SENATOR MICCICHE  commented on the  challenges mounted  that some                                                               
municipalities weren't  utilizing the  funds entirely  for cruise                                                               
passenger-related   services.  He   asked   whether  the   Seward                                                               
Passenger  Dock upgrade  would pass  that vetting  and if  it was                                                               
directly related to the cruise ship industry.                                                                                   
MR. O'LEARY replied  it would most certainly  qualify, even under                                                               
the recent ruling regarding the use of head tax monies.                                                                         
SENATOR MICCICHE  asked if  the terminal  was currently  used for                                                               
cruise ship passengers.                                                                                                         
MR. O'LEARY  answered yes;  the dock  currently has  over 200,000                                                               
passengers passing through it every year.                                                                                       
CHAIR HUGHES  asked for clarification  that the dock  itself, not                                                               
the terminal, would have that traffic.                                                                                          
MR.  O'LEARY replied  the passengers  disembark  the cruise  ship                                                               
onto the dock and through the terminal.                                                                                         
CHAIR HUGHES opined that would pass the head tax test.                                                                          
SENATOR MICCICHE  clarified that he  was asking the  question for                                                               
the  public,  not  for  his own  information.  He  described  the                                                               
project as  very important.  He added, "We're  very proud  of our                                                               
Alaska Railroad  and [its] performance in  challenging times." He                                                               
committed  to do  what  he could  to ensure  the  success of  the                                                               
CHAIR HUGHES thanked Mr. O'Leary for the presentation.                                                                          
3:04:08 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Hughes   adjourned  the  Senate   Transportation  Standing                                                               
Committee meeting at 3:04 pm.                                                                                                   

Document Name Date/Time Subjects
STRA Agenda 2.12.19.pdf STRA 2/12/2019 1:30:00 PM
Board of Marine Pilots - Appointee Sinclair Resume.pdf STRA 2/12/2019 1:30:00 PM
AK Railroad Presentation.pdf STRA 2/12/2019 1:30:00 PM
Handout - Seward Passenger Dock.pdf STRA 2/12/2019 1:30:00 PM