02/17/2012 03:15 PM House LABOR & COMMERCE

               HB 314-ALASKA RAILROAD LAND LEASES                                                                           
                                                                                                                                
4:26:16 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL NO.  314, "An Act extending the time  period for which                                                               
the Alaska Railroad Corporation  may lease land without reserving                                                               
the right to terminate the  lease; and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
4:26:29 PM                                                                                                                    
                                                                                                                                
ANNA LATHAM, Staff,  Representative Kurt Olson, on  behalf of the                                                               
sponsor,  the  House  Labor and  Commerce  Committee,  introduced                                                               
herself.                                                                                                                        
                                                                                                                                
MS. LATHAM  stated that  HB 314 would  extend the  maximum Alaska                                                               
Railroad Corporation  (ARRC) property  lease term  from 55  to 95                                                               
years.  She  provided a brief overview of the  ARC, such that the                                                               
state has  owned the  Alaska railroad  since 1985.   It  has been                                                               
incorporated and  operates as  though it  is a  private business.                                                               
The corporation generates  revenues through real-estate holdings,                                                               
year-round passenger service and  freight service.  Historically,                                                               
railroads have  owned large parcels  of land which they  lease to                                                               
generate revenue.   The  railroad industry  has been  cyclical so                                                               
revenue  generated  from property  leases  have  helped to  carry                                                               
railroads through economic downturns.                                                                                           
                                                                                                                                
MS. LATHAM  related that the  ARRC leases approximately  2,000 of                                                               
the 36,000 acres it owns  and the corporation currently holds 260                                                               
long-term leases.   She  reported that 38  percent of  the 36,000                                                               
acres  is  devoted  to  right-of-way,  12  percent  is  used  for                                                               
operations, and the remaining 50  percent is available for lease.                                                               
As a state-owned entity, the  ARRC is mandated to foster economic                                                               
development statewide and in communities  along the Railbelt.  An                                                               
extension of  lease terms  for up  to 95  years would  assist the                                                               
ARRC  in  meeting this  directive.    She explained  that  longer                                                               
leases  encourage high-value  building  construction by  assuring                                                               
developers  and financiers  the  developments  will retain  their                                                               
value  for  future buyers.    Quality  developments retain  their                                                               
value  for a  longer  period of  time and  have  a higher  resale                                                               
value,  which  is good  for  the  railroad,  the state,  and  for                                                               
leaseholders.                                                                                                                   
                                                                                                                                
MS. LATHAM cautioned  that this does not mean  the standard lease                                                               
will  be 95  years, but  the  bill will  give the  ARRC Board  of                                                               
Directors the option  of extending a lease for up  to 95 years at                                                               
their discretion.    She highlighted that this  bill has received                                                               
widespread  support  and  members'  packets  contain  letters  of                                                               
support from the  Municipality of Anchorage (MOA),  the cities of                                                               
Valdez, Seward  and Whittier, and  from various  leaseholders and                                                               
developers throughout the  Railbelt.  She noted  that the sponsor                                                               
has not received any opposition to this bill.                                                                                   
                                                                                                                                
4:29:06 PM                                                                                                                    
                                                                                                                                
JON  COOK,  Chair,  Real  Estate   Committee;  Member,  Board  of                                                               
Directors (BOD), Alaska Railroad  Corporation (ARRC), stated that                                                               
the genesis  of the bill  was explained by  Ms. Latham.   He said                                                               
that this  bill was requested  by existing tenants  and potential                                                               
developers who  indicated they would be  interested in developing                                                               
projects on  ARRC leased property  if the 95-year lease  term was                                                               
available.  He  explained that the 95-year leases  would give the                                                               
tenants an opportunity to remarket  the properties to ensure that                                                               
the owners  the long-term leases  are as  close to fee  simple as                                                               
one can get.  He advised  that another reason to extend the lease                                                               
terms is that the underwriting  standards for obtaining loans has                                                               
tightened  up  pretty dramatically  since  2008.   Therefore,  55                                                               
years for  very large project  is insufficient.  He  suggested if                                                               
HB  314 passes  the 95-year  leases would  not be  the norm,  but                                                               
would be  an exception  reserved for  new, large  development, or                                                               
existing  businesses that  plan to  invest substantial  amount of                                                               
capital in the property.                                                                                                        
                                                                                                                                
4:31:14 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON, after first determining no one else wished to                                                                      
testify, closed public testimony on HB 314.                                                                                     
                                                                                                                                
4:31:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES  moved to  report HB  314 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes. There  being no  objection, HB 314  was reported  from the                                                               
House Labor and Commerce Standing Committee.