Legislature(2023 - 2024)BARNES 124
04/23/2024 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| HB217 | |
| HB332 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 233 | TELECONFERENCED | |
| *+ | HB 217 | TELECONFERENCED | |
| += | HB 332 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 332-SALE OF ALASKA RAILROAD
1:33:29 PM
CHAIR MCCABE announced that the final order of business would be
HOUSE BILL NO. 332, "An Act relating to the sale of the Alaska
Railroad; and providing for an effective date."
1:33:55 PM
REPRESENTATIVE SUMNER, as prime sponsor, introduced HB 332. He
paraphrased the sponsor statement [included in the committee
packet], which read as follows [original punctuation provided]:
This legislation represents a critical turning point
for our state, unlocking economic potential while
ensuring protections for the interests of Alaskans.
For years, the Alaska Railroad has served our
communities, but it has not reached its full
potential. Operating under state ownership, the
railroad has faced limitations in terms of investment,
innovation, and strategic expansion. This bill
initiates a careful, responsible process to transfer
the Alaska Railroad to a private buyer committed to
the railroad's success.
This legislation protects Alaska's interests in
several ways. The potential buyer must agree to
operate the railroad for at least 50 years and assume
existing contracts, providing continuity for our
communities and businesses. The purchase price must
exceed the fair market value or the state's total
investment in the railroad, ensuring taxpayers receive
a fair return. The legislature retains the ultimate
authority to approve or reject a sale agreement,
safeguarding public interest. By establishing a
resource development agreement, this bill positions
the Alaska Railroad to be a key catalyst for unlocking
responsible, sustainable expansion of our state's vast
resources.
Additionally, this process will streamline governance
and inject much-needed private sector expertise into
the railroad's operations. The bill recognizes the
potential for modernization, expansion, and the
creation of new Alaskan jobs through this strategic
sale. I recognize that any change in the Alaska
Railroad's status raises questions and concerns. This
bill addresses those with care, through a transparent
process focused on obtaining the best long-term
outcome for our state. I urge my colleagues to join me
in voting in favor of this legislation, allowing us to
write the next successful chapter in the Alaska
Railroad's history.
1:35:19 PM
CHAIR MCCABE invited questions from committee members.
1:36:08 PM
BILL O'LEARY, President & CEO, Alaska Railroad Corporation,
answered questions during the hearing on HB 332. He followed a
slideshow [not provided on BASIS], titled "Alaska Railroad
Corporation Act." He noted a letter sent to the committee on
March 28, 2024, after the initial hearing on HB 332, that the
Alaska Railroad Corporation (ARRC) was unable to participate in,
and he offered his belief that the bill is "deeply impactful."
The letter provided good background and updates, he said, and
the bill could provoke a healthy discussion. It is also
beneficial for the state to review a portfolio of assets, and
the bill triggers this discussion, he said. He said he
appreciated that this is a public policy decision and his goal
today is to ensure that the committee is aware of a series of
impacts that could have far-reaching implications to the
railroad operations, its customers, communities, and
stakeholders. He summarized how the railroad is currently
structured.
1:39:59 PM
MR. O'LEARY continued speaking while a slide titled "HB 332" was
shown. He spoke to real estate being important to the railroad,
and without federal funding and real estate revenue, the
maintenance of the infrastructure would be difficult to achieve.
He provided information on 2023 bringing high net earnings and
not long ago, he noted, net losses had occurred. He stressed
the importance of real estate being one of the railroad's three
business lines and that it buffers the business cycles that
occur on the freight and passenger side and has been a
consistent performer. He noted that an advantage of the
railroad being under public ownership is that it is exempt from
state and local taxes and that would not be the case if it were
privately owned. He said that since 1996, over a billion
dollars has flowed to the railroad. He further noted the
differences of what could occur if the railroad were privately
owned.
1:45:31 PM
REPRESENTATIVE STUTES asked how much new track was put down with
the monies.
MR. O'LEARY replied that those monies have been used for
projects to maintain the existing infrastructure.
REPRESENTATIVE STUTES inquired about the maintenance of
equipment and making sure the rail cars have been in good shape
over the last 40 years.
MR. O'LEARY said he would not characterize it as being a status
quo situation and the condition that the railroad was almost in
disrepair when the state received it. He said the federal
government was unaware of the maintenance of the railroad, and
it had not been maintained at an appropriate level. He
explained there had been a significant effort over the past 40
years to "get out of this hole" and address the deferred
maintenance backlog; therefore, the monies have been used for
maintenance more so than expansion.
REPRESENTATIVE STUTES asked what had been extended or increased
in regard to new rail.
MR. O'LEARY replied that he did not have the specifics.
1:49:13 PM
REPRESENTATIVE MCKAY offered more definition on the expansions
that have been done beyond laying track.
MR. O'LEARY added that $188 million was invested between federal
money and state general fund money in creating the longest
bridge in Alaska over the Tanana River.
1:51:12 PM
REPRESENTATIVE SUMNER commented that he did not want monies to
be mischaracterized.
1:51:44 PM
REPRESENTATIVE MINA asked whether privately owned railroads
qualify for any local or federal subsidies when they conduct
deferred maintenance.
MR. O'LEARY pointed out that ARRC is the only railroad in the
U.S. that has both passenger and freight service. The funding
is different in freight versus the passenger side, he said, and
on the freight side, most funding is internal but on the
passenger side, it is state authorities.
1:54:07 PM
REPRESENTATIVE STUTES asked when the railroad was purchased.
MR. O'LEARY responded January 1985.
REPRESENTATIVE STUTES referred to a previous comment that since
1996, a billion and a half federal dollars have been received.
She stated she does not see where the railroad is moving in a
forward direction.
1:55:26 PM
CHAIR MCCABE asked what kind of grade Mr. O'Leary would give the
railroad in reference to being charged with supporting economic
development.
MR. O'LEARY replied that ARRC has done a good job of supporting
economic development in the state, being that the state is
bereft of basic infrastructure and the railroad is still safe,
efficient, and well-maintained.
CHAIR MCCABE asked whether the railroad had taken advantage of
Alaska Industrial Development and Export Authority (AIDEA)
loans.
MR. O'LEARY replied that the railroad had spoken with
representatives of AIDEA on many occasions but had not utilized
AIDEA's abilities.
CHAIR MCCABE requested for Mr. O'Leary to describe how the
railroad made money in real estate.
MR. O'LEARY said the money comes in a number of different
fashions, such as to lease or permit the land to the private
sector.
2:00:31 PM
CHAIR MCCABE inquired about the railroad's success with other
grants. He further inquired about the hold up on the commuter
rail that he presumed had something to do with Joint Base
Elmendorf Richardson (JBER).
MR. O'LEARY replied that grants would be discussed further
along. In response to a follow-up question, he said the primary
issue was financial and that it would be a highly subsidized
route.
2:02:51 PM
REPRESENTATIVE STUTES spoke to the commuter train in the last 25
years and what strides have been made in connectivity between
Alaska and the Lower 48.
MR. O'LEARY stated that the railroad is connected to the Lower
48 through its rail barge service which is for freight and
movement of rail cars between Seattle and Whittier. For the
concept of land connection, it is a topic of interest, he said,
and there must be talks and partnerships. He provided examples
of previous interest from different entities that eventually
dissipated.
2:05:56 PM
REPRESENTATIVE MCKAY commented that the railroad had helped
build the North Slope oil fields, and the notion that the
railroad is limited in resource development is inaccurate, he
opined. He recited passages from the bill, and asked Mr.
O'Leary what he would do to accomplish those objectives if he
owned the railroad himself.
MR. O'LEARY replied that his priority would be the same as what
ARRC is doing now, which is going after federal infrastructure
grants and partnering with others that see the benefit of having
this infrastructure in Alaska.
2:10:33 PM
MR. O'LEARY further commented that the idea of the federal
grants approach matched by monies from customers, users, or
state investment makes the level of sense to move these projects
forward.
REPRESENTATIVE MCKAY said that he tried to visualize what the
bill promised.
2:11:52 PM
CHAIR MCCABE related examples of a rail line that went to the
North Slope or Canada and how that would create positive
economic impacts.
2:13:25 PM
MR. O'LEARY noted that if private enterprises purchased the
railroad, steps would have to be taken to achieve a net income
as the current dollars would go away. They would have to sell
off assets, reduce non-profitable business lines such as the
passenger side, and rates would increase. He opined that these
changes would be negative for the state. He accentuated that
the railroad's mission was different from that of a fully
private enterprise as it is not there to maximize shareholder
wealth but be self-sustaining and provide a service to Alaska.
2:16:28 PM
MEGHAN CLEMENS, Director, External Affairs, Alaska Railroad
Corporation, joined the presentation on a slide, titled "Rail
Extensions: ARRC Strengths," and she said the railroad was well
positioned for these efforts. She restated some of Mr.
O'Leary's discussion and said ARRC would love to see expansion
to new parts of the state and reach out to partnering with
others. She noted the various ways ARRC attempted to engage in
creating partnerships.
2:20:52 PM
MS. CLEMENS said that ARRC, as a state-owned corporation, had
access to funding opportunities that would not be available to a
privately owned railroad. The corporation is always open to
conversations with customers, and bond authorizations are a
great tax-exempt tool, but it requires finding a customer, she
explained. She noted that Royal Caribbean Group was a partner.
2:22:12 PM
CHAIR MCCABE asked whether ARRC approached Royal Caribbean or
vice versa. He noted people wanting to go into Port MacKenzie
if there was a rail and questioned why the "freight side of
things" did not work out.
MR. O'LEARY acknowledged that he understood and wanted to expand
partnerships. The barriers to entry [to Port MacKenzie] are
significant and are large dollars; therefore, there needs to be
a business case there. He noted that in the 2014-2015 timeframe
before funding dried up, there was greater interest from
potential customers as it seemed like more of a reality.
CHAIR MCCABE said the military had been to Port MacKenzie about
20 times in the last six months, and he related attending a big
function including military officials. He stressed that the
railroad should have been there. He emphasized that all options
must be explored and opined that the Northern Rail Extension
would be a perfect economic corridor.
2:27:50 PM
REPRESENTATIVE VANCE asked whether ARRC put together a report
that showed how much revenue is needed to make the rail
extensions economically viable. She stressed the need for a
state match to the federal grants.
MS. CLEMENS responded that as a component to federal grant
applications, there is a requirement that a benefit/cost
analysis (BCA) would be calculated which would prove that the
economic and community benefit of the federal investment would
exceed the dollar value of the grant.
REPRESENTATIVE VANCE questioned how, without a report, investors
would know if it was something in which they may be interested.
MR. O'LEARY added that it would all depend on how the whole
thing was funded. He offered a hypothetical situation
describing how the costs would average out over 30 years;
therefore, the railroad would need revenue in excess of just
paying off the debt. There are a number of scenarios where it
could be done, he said.
2:32:12 PM
REPRESENTATIVE VANCE commented that if it is such a simple
equation, then perhaps ARRC should put together a report of
these different scenarios to offer to potential partners.
CHAIR MCCABE interposed that it sounded like a business plan and
how to advance forward if the revenue bond were included. He
further noted that the legislature was actively trying to help
the railroad help the state, and he opined that the railroad was
the key to unlocking many things in Alaska.
2:34:46 PM
REPRESENTATIVE VANCE referred to the $55 million pointing to
Port MacKenzie, and she questioned how the railroad makes such a
request.
MR. O'LEARY replied that it can be done in many different ways
including the traditional governor's budget. He summarized how
match amounts are a minimum and to be more competitive, greater
matches are encouraged. He reiterated that loans require
repayment and before someone loaned money to ARRC, they would
want to see a business plan that shows that their money would be
repaid; that is the struggle.
2:38:14 PM
CHAIR MCCABE asked how much capital ARRC was sitting on
currently.
MR. O'LEARY replied that ARRC had an amount of working capital,
and he synopsized the yearly budget focusing on what the
earnings are going to be.
2:39:26 PM
REPRESENTATIVE MINA brought up a point related to passenger
lines and how some are subsidized and asked what lines are the
most subsidized.
MS. CLEMENS replied that the least profitable line was the
Hurricane Turn Flagstop Train, which benefits Alaskans who live
off the road system and rely on the rail service. She noted a
private owner would continue the service.
REPRESENTATIVE MINA asked whether those living off the grid, who
relied on the flagstop line had an alternative.
MS. CLEMENS answered that it depended on how far away they live
and what private means of transportation they have. Small ATVs
can cross the river, she said, and 4-weeling access is available
to some of the property owners; however, that is not viable to
those further down the rail line.
REPRESENTATIVE MINA offered her understanding of the contents of
the bill and asked whether a bill was needed to do said things.
MR. O'LEARY replied, "No."
REPRESENTATIVE MINA asked how often different investors have
shown interest in purchasing the railroad in the past.
MR. O'LEARY answered that in his 23 years with the railroad, he
was aware of one group who contacted ARRC with interest, and
after several meetings, it dissolved.
2:44:02 PM
REPRESENTATIVE MINA pointed to page 1, line 9 of the bill
regarding an agreement by the governor to sell the railroad by
2025. She inquired what would occur if there were no interested
investor.
REPRESENTATIVE SUMNER replied that there would be no sale.
2:44:47 PM
MS. CLEMENS proceeded with the discussion and noted that there
was an overview available of the spending requests and grants.
MR. O'LEARY added that he had great plans for a "big finish" but
reiterated that it is a decision for the legislature and the
governor to consider and he hoped the discussion was helpful.
The railroad is a key piece of infrastructure in the state, he
said, and expansion and realizing its full potential is
something ARRC takes seriously. The need for support is clear,
he stated.
2:46:41 PM
REPRESENTATIVE MCKAY commented on the resource development
section of the bill and asked, "Why wait for a sale?" He spoke
of Prudhoe Bay being announced as a major discovery in the
1960s; the resource was found and the infrastructure was built.
It is a "chicken and the egg" situation, he opined.
2:48:09 PM
CHAIR MCCABE thanked the presenters and reflected on the state
struggling with money and stranded resources.
[HB 332 was held over.]