03/27/2009 01:30 PM House FINANCE

HOUSE BILL NO. 127                                                                                                            
                                                                                                                                
     "An Act  providing that the Alaska  Railroad Corporation                                                                   
     is  subject to the  Executive Budget  Act and  providing                                                                   
     that  expenditures of  the  Alaska Railroad  Corporation                                                                   
     are  subject  to  appropriation; and  providing  for  an                                                                   
     effective date."                                                                                                           
                                                                                                                                
1:41:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze presented an overview of the day's bills.                                                                      
                                                                                                                                
PATRICK   GAMBLE,   PRESIDENT    &   CEO,   ALASKA   RAILROAD                                                                   
CORPORATION,  stressed  the  significance  of  the  bill  and                                                                   
provided history  leading up to the state  assuming operation                                                                   
of the railroad. The Alaska Railroad  Corporation Act of 1985                                                                   
provided  guidance for  the innovative  relationship  between                                                                   
the state and the railroad, including a management board.                                                                       
                                                                                                                                
1:45:52 PM                                                                                                                    
                                                                                                                                
Mr.  Gamble  detailed  the goal  of  making  the  corporation                                                                   
financially sustainable.  The corporation  had to be  able to                                                                   
make  enough money  to turn  revenues  into capital  projects                                                                   
that  would  benefit  the state,  especially  connecting  the                                                                   
Railbelt. The corporation was  formed in 1985 and reviewed by                                                                   
the legislature  in 1997. He saw  the purpose of  the current                                                                   
meeting as a review of conditions  to determine the viability                                                                   
of the original model.                                                                                                          
                                                                                                                                
1:48:59 PM                                                                                                                    
                                                                                                                                
Mr.   Gamble  presented   the  committee   with  a   document                                                                   
summarizing  the railroad's  performance (copy  on file).  He                                                                   
suggested  that  consultants  and  lawyers  could  study  and                                                                   
rewrite the 1985  act if the legislature believes  the budget                                                                   
act   requires  a   deeper  review.   He   referred  to   the                                                                   
corporation's  14 percent  combined annual  growth rate  over                                                                   
the 24-year period.                                                                                                             
                                                                                                                                
1:51:52 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  agreed that the policy issue  was important                                                                   
and  referred  to  active  debates   and  criticisms  of  the                                                                   
corporation.  He thought there  was foundational  support for                                                                   
state government  having oversight of and  responsibility for                                                                   
the railroad. He referred to earlier concerns.                                                                                  
                                                                                                                                
1:54:49 PM                                                                                                                    
                                                                                                                                
Representative Gara  questioned the ramifications  of putting                                                                   
the railroad under the executive budget act.                                                                                    
                                                                                                                                
Co-Chair  Stoltze  thought  there  would  be  differences  of                                                                   
opinion.  His intent  was  to have  little  or no  day-to-day                                                                   
oversight of  operations. He referred  to initial  fears that                                                                   
have not  been realized and did  not think the  changes would                                                                   
be significant.                                                                                                                 
                                                                                                                                
1:57:39 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked if the railroad  corporation would                                                                   
submit  a budget  like  other agencies  and  queried how  the                                                                   
budget process  works currently. Mr. Gamble replied  that the                                                                   
budget goes through the board of directors.                                                                                     
                                                                                                                                
Representative Gara questioned  language on page 2 related to                                                                   
the concurrence of the governor.                                                                                                
                                                                                                                                
BILL  O'LEARY,  CHIEF  FINANCIAL   OFFICER,  ALASKA  RAILROAD                                                                   
CORPORATION, clarified that current  language states that the                                                                   
corporation   may   request   an   appropriation   from   the                                                                   
legislature;   the  change  would   require  it   to  request                                                                   
appropriations.                                                                                                                 
                                                                                                                                
Representative Gara  asked if the corporation  receives state                                                                   
money outside  of the capital  budget. Mr. O'Leary  responded                                                                   
that  the  corporation  has not  received  state  funds.  Mr.                                                                   
Gamble  added  that  the  corporate   act  provided  for  the                                                                   
corporation going to the legislature  for funding if it could                                                                   
not pay its own way.                                                                                                            
                                                                                                                                
2:00:56 PM                                                                                                                    
                                                                                                                                
Representative  Austerman  queried  the  corporation's  plans                                                                   
regarding  the  legislation.  Co-Chair  Stoltze  stated  that                                                                   
subcommittee hearings  would be needed and did  not think the                                                                   
legislation  would   move  through  quickly.  He   hoped  for                                                                   
meaningful input from the corporation  regarding the changes.                                                                   
                                                                                                                                
2:03:36 PM                                                                                                                    
                                                                                                                                
Representative  Gara referred  to  concerns he  had with  the                                                                   
railroad corporation  and reviewed  past legal cases  against                                                                   
the railroad.  He questioned high  management salaries  and a                                                                   
sense  of an  insider  club, and  stated  concerns about  the                                                                   
corporation's status  as a "quasi  state agency."  He thought                                                                   
the corporation acted  either as a state agency  or a private                                                                   
company  depending on  its  own interests.  He  asked if  the                                                                   
state currently reviewed management salaries.                                                                                   
                                                                                                                                
2:06:58 PM                                                                                                                    
                                                                                                                                
Mr. Gamble  replied that his salary  is the only one  that is                                                                   
public  information, so  he  could provide  only  statistical                                                                   
information  and  not  information   about  the  salaries  of                                                                   
individuals.  He   would  be  able  to   compare  corporation                                                                   
salaries with those in the Lower 48.                                                                                            
                                                                                                                                
Representative Gara  reiterated historic concerns  related to                                                                   
management salaries.  Mr. Gamble  thought that the  issue had                                                                   
changed  since the railroad  had downsized  in recent  years.                                                                   
Individual actions  must go through  him. He speculated  that                                                                   
illegal actions may have taken  place at one time. He now has                                                                   
three  lawyers   and  a  human  resource   person  overseeing                                                                   
personnel actions.                                                                                                              
                                                                                                                                
Mr. Gamble  commented on remarks  that the corporation  acted                                                                   
sometimes as a  state agency and sometimes as  a private one,                                                                   
opining that the flexibility to  do so was part of the genius                                                                   
of  the Alaska  Railroad  Corporation  Act,  and has  brought                                                                   
millions of federal dollars into  the state.  He believed the                                                                   
ability to operate  both ways was an advantage.  He commented                                                                   
that the tax code is unique in the U.S.                                                                                         
                                                                                                                                
2:11:09 PM                                                                                                                    
                                                                                                                                
Representative Gara  wanted assurance that  railroad property                                                                   
would be public  property. Mr. Gamble acknowledged  the right                                                                   
to protest  on railroad property  as long as  individuals are                                                                   
not standing in the right-of-way.                                                                                               
                                                                                                                                
Representative  Crawford  questioned  how  workers  would  be                                                                   
treated  if  the  railroad came  under  the  federal  system,                                                                   
especially related to retirement contributions.                                                                                 
                                                                                                                                
Co-Chair Stoltze stated that the  intent was to have employee                                                                   
status remain the same.                                                                                                         
                                                                                                                                
2:13:25 PM                                                                                                                    
                                                                                                                                
Mr.  Gamble agreed  and  recommended  the issue  be  examined                                                                   
closely,  as it is  complex. In  general, anything  involving                                                                   
hiring,  wages,  or benefits  could  be affected  by  outside                                                                   
control  and  employees  will  be  concerned.  He  wanted  to                                                                   
protect benefits.  He referred to  a letter in  the committee                                                                   
packet  from a long-time  labor representative  on the  board                                                                   
(copy  on  file). He  wanted  human  resources issues  to  be                                                                   
carefully  vetted.  He referred  to  a  two-year gap  in  the                                                                   
corporation's  formation  process  during which  some  rights                                                                   
were lost and  emphasized his desire to make  sure that would                                                                   
not happen again.                                                                                                               
                                                                                                                                
2:16:18 PM                                                                                                                    
                                                                                                                                
Representative  Gara stated  an affinity  for railroad  rank-                                                                   
and-file  workers, and  discussed salary  requests that  were                                                                   
denied  because the  corporation  claimed  to be  financially                                                                   
stressed.  He  wanted  the  committee  to  review  management                                                                   
salaries and bonuses  over the past three years  and asked if                                                                   
the figures  could be  seen if the  names of the  individuals                                                                   
were deleted.  Mr. Gamble replied  that he needed to  ask his                                                                   
lawyers;  he did  not have  a  problem with  the request.  He                                                                   
thought   statistical   information   compared   with   other                                                                   
statistical information might be possible.                                                                                      
                                                                                                                                
Representative Gara  wanted the information by  position. Mr.                                                                   
Gamble pointed  out that  management salaries were  currently                                                                   
frozen. To  address revenue loss,  there was a  hiring freeze                                                                   
in 2007,  positions were  reduced in  2008, and a  management                                                                   
salary freeze was implemented in 2009.                                                                                          
                                                                                                                                
2:20:19 PM                                                                                                                    
                                                                                                                                
Representative  Foster liked way  the railroad was  being run                                                                   
and questioned the time being spent on the legislation.                                                                         
                                                                                                                                
2:23:15 PM                                                                                                                    
                                                                                                                                
Representative Kelly  asked if there were a  list of problems                                                                   
with the railroad.                                                                                                              
                                                                                                                                
Co-Chair  Stoltze  did not  want  a  list of  grievances.  He                                                                   
believed the  legislation dealt with long-term  institutional                                                                   
questions and policy issues.                                                                                                    
                                                                                                                                
Representative Kelly  queried the number of  unresolved labor                                                                   
grievances.  Mr. Gamble  offered to get  the information.  He                                                                   
thought the number was a high average.                                                                                          
                                                                                                                                
Representative  Kelly  asked   about  dividends.  Mr.  Gamble                                                                   
replied that the issue has come up, although not recently.                                                                      
                                                                                                                                
Representative Kelly  asked about the quality  of the current                                                                   
board. Mr. Gamble spoke positively of the board.                                                                                
                                                                                                                                
Representative  Kelly  asked if  the  corporation's  unfunded                                                                   
liability  was included  in the  state's unfunded  liability.                                                                   
Mr.  Gamble responded  that the  corporation's  entitlements,                                                                   
such as retirement  and post-retirement medical  are paid for                                                                   
out  of  earnings   and  not  out  of  the   Public  Employee                                                                   
Retirement  System (PERS).  The entitlements  went down  with                                                                   
the economic downturn; there is  currently 80 percent funding                                                                   
for retirement.                                                                                                                 
                                                                                                                                
2:28:43 PM                                                                                                                    
                                                                                                                                
Representative Kelly queried the sunset date.                                                                                   
                                                                                                                                
Representative  Fairclough  volunteered  to  be on  the  sub-                                                                   
committee.  She  relayed  that   her  constituents  have  had                                                                   
problems with  the railroad. She mentioned conflict  with the                                                                   
port in Anchorage.  Constituents have also  expressed concern                                                                   
regarding rail straightening.                                                                                                   
                                                                                                                                
Co-Chair Stoltze emphasized that  the broader policy issue is                                                                   
related to budget concerns. He  acknowledged the existence of                                                                   
many complaints  related to the  railroad, but did  not think                                                                   
it would  be productive  to bring  them before committee.  He                                                                   
appointed the  subcommittee with himself,  Represented Joule,                                                                   
Representative      Fairclough,     Representative      Gara,                                                                   
Representative Foster,  and Representative Kelly.  He invited                                                                   
the public to call his office with comment.                                                                                     
                                                                                                                                
2:31:57 PM                                                                                                                    
                                                                                                                                
HB 127 was HEARD  and placed in a subcommittee  consisting of                                                                   
Representative  Stoltze  as chair,  and  with  Representative                                                                   
Fairclough,   Representative   Joule,  Representative   Gara,                                                                   
Representative Foster, and Representative Kelly.