Legislature(1993 - 1994)
02/09/1993 03:34 PM Senate TRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE TRANSPORTATION COMMITTEE
February 9, 1993
3:34 p.m.
MEMBERS PRESENT
Senator Bert Sharp, Chairman
Senator Randy Phillips, Vice-Chairman
Senator Jim Kelly
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Jay Kerttula
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 18
Proposing amendments to the Constitution of the State of
Alaska creating a transportation fund.
Alaska Railroad Overview
PREVIOUS COMMITTEE ACTION
SJR 18 - See Transportation minutes dated 2/4/93.
WITNESS REGISTER
Commissioner Frank Turpin
Department of Transportation
3132 Channel Dr.
Juneau, Alaska 99801-7898
POSITION STATEMENT: Commented on SJR 18.
Robert Hatfield, President
Alaska Railroad Corporation
POSITION STATEMENT: Alaska Railroad Overview.
Timothy Cerny
Fountainhead Development
448 Forest Hills Court
Fairbanks, Alaska 99701
POSITION STATEMENT: Commented on the Alaska Railroad
Overview.
Frank Dillon
Alaska Trucking Association
3443 Minnesota Dr.
Anchorage, Alaska 99501
POSITION STATEMENT: Commented on the Alaska Railroad
Overview.
ACTION NARRATIVE
TAPE 93-4, SIDE A
Number 001
SENATOR SHARP called the Transportation Committee meeting to
order at 3:34 p.m. and announced SJR 18 CONST. AMENDMENT FOR
TRANSPORTATION FUND to be up for consideration. He said the
only change in the committee substitute which is supported
by the administration is under Section 2 of the resolution,
page 2, line 13 which deletes "and enforcement."
SENATOR PHILLIPS wanted to see the fiscal note from the
Division of Elections since this would go on the ballot.
COMMISSIONER TURPIN said there would be a small cost. He
said that there is one fund that receives the taxes and
fees, but the bill restricts how that money can be spent.
Number 75
SENATOR PHILLIPS moved to adopt the committee substitute to
SJR 18 with the fiscal note from Division of Elections.
SENATOR KELLY said he would not vote for this bill, but he
doesn't object to moving it out of committee.
Number 89
SENATOR SHARP moved to pass CSSJR 18 from Committee with
individual recommendations. There were no objections and it
was so ordered.
SENATOR SHARP stated on page 2, line 7 where it refers to
the maintenance and operation of the state or local
government transportation facilities...that it did include
harbors. COMMISSIONER TURPIN agreed and said this gives the
legislature the option of using the money collected from the
marine fuel tax either for maintenance or construction.
Number 111
SENATOR SHARP announced that they would take up the Alaska
Railroad overview.
ROBERT HATFIELD, President, gave them a brief overview of
the Alaska Railroad Corporation as it exists today.
He said they have just under 530 permanent employees, a
separate pension plan, and a separate benefit package. He
reviewed the information contained in the Alaska Railroad
Corporation Annual Report. He said they spent just under
$13 million on capital projects which were improvements to
the railroad. He explained that aside from being one of the
largest passenger operations in North America, they handled
500,000,000 gallons of petroleum products, 1.5 million tons
of coal, about 12,000 trailers, 500 million board feet of
timber, a couple million tons of gravel, and a host of
machinery for interstate moves.
MR. HATFIELD said they had purchased two used locomotives
and a new mainframe computer.
Number 262
He said the railroad has a lot of competition from other
modes of transportation. Mapco, their major petroleum
shipping customer, may build a pipeline for transportation
of the petroleum products. Coal export is becoming more
difficult although the future for export looks good. Many
countries now offer coal at extremely competitive prices.
Also as the airfreight infrastructure develops in Anchorage,
that will nibble away at their fringes.
The mission of the Alaska Railroad Corporation is to provide
high quality, safe, cost effective freight, passenger, and
real estate service to their customers.
In developing their forecast, the economic assumptions they
have made are that they expect the economy to remain "flat,"
they don't expect the ANWR to be opened for exploration,
they don't expect a Canadian gas pipeline to be built. They
expect oil field activities to reduce over the next few
years with, perhaps, no administrative offset.
Number 330
MR. HATFIELD said that tourist related real estate projects
are a real bright spot in the future.
The projected funding levels for their capital expenditures
do not support, in all cases, the normalized replacement
program on some segments of track and equipment they have on
the railroad.
He said they would continue their mitigation of OSHA and
safety related items. They will continue the practice of
analyzing all buildings and replace all of those that are
absolutely necessary. Operations will be performed as much
as possible by full time, corporate employees, except on
those traditional summer support programs they have done
through contract.
He said there are two ways to increase the efficiency on a
rail line. The first is to increase the speed of the track
which requires enormous investment. You could also improve
the efficiency of the line itself by extending sightings or
building new sightings in strategic locations.
The past year, they did significant work in upgrading
sightings at Honolulu, Gold Creek, and Willow. When the
upgrading of the sightings is completed, they will be able
to pass trains at will. This results in a substantial
savings by reducing the time, which is normally a half hour,
trains have to wait for other trains to pass. It costs $700
per hour to operate a freight train. This is an important
component of how they are going to raise their traffic level
without having to spend enormous money on signal systems,
etc. He said the railroad was built after the second world
war so everything is wearing out at the same time.
Therefore expensive maintenance is necessary.
Number 425
MR. HATFIELD said bridges are an important component of
their business which need to be inspected regularly. The
Railroad also owns and maintains most of the dock facilities
at Whittier and Seward. Both are in need of cathodic
protection and redecking.
Number 438
The ballast and surfacing program is very important for the
integrity of the railroad.
Number 455
SENATOR SHARP asked if there was any component you can add
to the resurfacing to impede vegetation growth? MR.
HATFIELD said there is nothing they add, but there is
something they can take way which is dust and dirt. By
using washed ballast which costs more, instead of mine run
ballast, you can cut down on that considerably.
Number 474
SENATOR LINCOLN asked how they cleaned the brush from the
easements. MR. HATFIELD said they use a piece of on track
equipment called a brush cutter. They also hand manicure.
Reballasting with washed ballast is the other option. He
explained that moisture is the primary problem with the
railroad bed. Weeds and roots attract moisture. The
moisture either softens the road bed and weakens the
structure itself or when it freezes, it expands and causes
frost heave. They need a solution that is economic and
effective.
Number 509
SENATOR KELLY asked the difference between 70 lb. rail and
15 lb. rail. MR. HATFIELD explained that 70 lb. rail is
measured in weight per 3 feet. Industry standard in the
lower 48 right now is 136 - 142 lb. ribbon rail. The Alaska
Railroad Corporation uses 115 lb. jointed rail which is more
than adequate for the level business that we enjoy.
They are spending $600,000 in acquiring coal hoppers to
support the north end coal operation. They will be
consistently rolling in 25 - 30 new coal hoppers each year.
They are remodeling several passenger coaches to handle the
increased ridership they hope to get between Seward and
Anchorage and Anchorage and Fairbanks.
The only capital projects for real estate this year will be
$1 million bringing utilities to two parcels - one in
Fairbanks on the Chena River.
Number 557
SENATOR LINCOLN asked if the 80 acres in Fairbanks was to be
used for a passenger terminal? MR. HATFIELD said they are
making that property available for development and a
passenger terminal might be part of that. There may be a
hotel there.
TAPE 93-4, SIDE B
Number 589
SENATOR LINCOLN asked how the new federal handicap
regulations might affect the industry. MR. HATFIELD said
they have to redesign their passenger coaches to allow
handicapped access. As an industry issue, that is probably
the largest one.
Number 563
SENATOR LINCOLN asked what they have been using since the
underground storage tanks were removed and haven't been
replaced yet? MR. HATFIELD said he thought they are buying
fuel direct from the local vendors in Seward and Whittier
until new above ground tanks are installed.
SENATOR KELLY, referring to their five year plan, asked him
to explain their analysis of the Alaskan economy as being a
little weak and yet project increased revenues. MR.
HATFIELD said the two ways to increase revenues are to raise
rates and to broaden the base of the source of their
revenue. Almost 70% of their revenue comes from petroleum
or coal related activities. Other areas can be
substantially increased like developing the log and timber
exports, handling solid wastes, etc.
SENATOR KELLY asked him to explain in the real estate
portion how permit revenues are suppose to increase as a
result of the new pipeline appraisal process in the
beginning of the fourth quarter 1992. MR. HATFIELD said
they lease their right of way which has significant value as
a corridor and they are reevaluating the value of the
leases.
Number 513
SENATOR KELLY asked how solid their pension system was. MR.
HATFIELD said it was overfunded and was managed by a company
called Columbia Trust. They have an independent consultant
that helps them watch it.
Number 501
SENATOR SHARP questioned the cash generation during the 5
year plan. He said concerns have been expressed to him by
other people about investing in a hotel, because of the high
cost per room that causes many hotel businesses to go
bankrupt. MR. HATFIELD said he didn't know if a hotel was
in their future. Developing their property is an important
source of income and they are pursuing it aggressively.
They did elect to participate with a hotel partnership by
contributing the net present value of their lease. The
partnership went out and got their financing, paid taxes,
and did everything else a partnership in any other place in
the United States would do. This past year it paid a total
of $127,000 in taxes and it has only been open about 6
months.
There is interest in doing a hotel in Fairbanks. The
Railroad is unsure whether they want a position in it. They
are asking local people if they want to participate and
inform them of what they are doing. There is no formal
proposal on the table. If they are invited to participate,
there is no reason to assume that it would be a good deal
for the railroad. A Board of Directors has to review any
decisions.
SENATOR SHARP said he is concerned not so much about seeking
out developers, but of becoming a partner in hotels or
anything else beside the rail transportation business. MR.
HATFIELD said that any real estate development must relate
to the core business of the Railroad which is
transportation.
Number 321
SENATOR LINCOLN said she wanted to see the land leases the
Alaska Railroad has. MR. HATFIELD said she could see them,
but there were thousands of leases.
SENATOR LINCOLN asked about the Wishbone Hill lease and the
self insurance. MR. HATFIELD said they were self insured
for workmen's compensation. Their health insurance is a
cooperative - their own money managed by Aetna.
Number 238
TIMOTHY CERNY, Fountainhead Development, addressed the hotel
issue as it impacts his company and the Fairbanks community.
The use of a joint venture by the railroad to enter into the
hotel business is really an act of the government coming
into the private sector, he said. It gives the private
sector some financing advantages it wouldn't already have.
He used the Ship Creek Project as an example of what they
could see in the Fairbanks community with respect to an
equity participation. Information obtained from the
Division of Legislative Audit, May 1, 1992 shows who
participated in the project. The Alaska Railroad had a 40%
interest in the hotel in exchange for a 35 year lease on 1.7
acres of property. It is drawn up as a partnership
agreement in which all partners have unlimited liability
with respect to any debt or borrowings of the partnership.
The other partners were to contribute $250,000 in cash as
well as administrative work.
When the project was to be built, the $250,000 was not
forthcoming, but the project went ahead anyhow. It is
written in the partnership agreement that the manager of the
managing company of the hotel is the individual who decides
whether cash draws are necessary from the partners. As a
private sector investor, he wouldn't make an investment of
this kind. He would have a series of catches to make sure
his interests were protected. If this same procedures is
used in Fairbanks, it ultimately means the Railroad will own
the hotel.
In conclusion, Mr. Cerny said they believe in development,
but the private sector should handle it. The Railroad
should develop its property by putting it up for sale or
market it at a lease rate. If there aren't successful bids,
accept that as a message. If there are successful bids,
work with them.
Number 106
SENATOR LINCOLN asked him who he represented and what
properties they have. MR. CERNY said he represents
Fountainhead Development, a property management firm in
Fairbanks. They manage Sophie Station Hotel, Bridgewater
Hotel, and Lakewood Manor.
SENATOR LINCOLN said she did not want the Railroad to be in
competition with private industry.
Number 60
FRANK DILLON, Fairbanks, asked if the Alaska Railroad had
environmental remediation insurance? MR. HATFIELD said they
have a catastrophic insurance policy with a $5 million self
insured reserve and a $10 million line of credit with
various financial institutions to cover any catastrophic
event. He said he would find out whether any rail carrier
in the world had liability spill insurance. He thought it
was virtually unattainable at a reasonable price. They are
trying to get some of their customers to recognize the
liability of the products they ship and get them to
participate in their liability in case there is a spill.
TAPE 93-4, SIDE A
Number 001
MR. DILLON asked if the state would be liable to pick up the
tab on a cleanup. MR. HATFIELD said the state is legally
and financially independent from their operations. That is
one of the fundamental reasons it is so.
SENATOR SHARP thanked everyone for their participation and
adjourned the meeting at 5:10 p.m.
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