Legislature(2009 - 2010)
04/13/2010 02:42 PM Senate TRA
| Audio | Topic |
|---|---|
| Start | |
| HB357 | |
| HJR42 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 357-AK RAILROAD CORP. LAND SALES
CHAIR KOOKESH announced the consideration of HB 357. [CSHB
357(FIN) was before the committee.]
2:42:59 PM
REPRESENTATIVE BILL STOLTZ, sponsor of HB 357, presented the
bill speaking to the sponsor statement:
To spur economic development throughout the state,
House Bill 357 adds a fourth clause to the existing
language governing how the Alaska Railroad Corporation
(ARRC) may dispose of land. House Bill 357 will enable
the railroad to sell land that is not needed for
essential railroad purposes. This bill does not ask
for any irresponsible disposal of land, as the sale
must be initiated by the board of directors on two
conditions. The first condition is that the land is
not essential to railroad operations, and the second
condition is that the sale is in the best interest of
the state of Alaska.
As support has shown, current leaseholders are very
unhappy with the inability to purchase their leased
properties from the railroad. In general real estate
dealings, private purchases are made in mutually
beneficial sales. House Bill 357 encourages these
sales after determination by the board of directors of
the railroad looks at each sale with the overall
benefit to the state of Alaska as the key driver. Not
only will the private sector benefit from this
addition to state law, the railroad will also have
increased ability to make decisions regarding their
overall real estate portfolio.
The sale and relationship of private and public lands
are vital to the economic growth of the state of
Alaska. I ask for your consideration and support of
House Bill 357 to promote Alaskan growth through the
diversification of land ownership, increasing the tax
base of the state, and encouraging responsible
development of Alaskan land.
REPRESENTATIVE STOLTZE clarified that any leasehold sales would
be permissive and considered on a case-by-case basis.
2:46:23 PM
SENATOR PASKVAN joined the meeting.
REPRESENTATIVE STOLTZE told the committee that ARRC Board Chair,
John Binkley, has taken a leadership role in acknowledging that
there have been problems in the way the railroad has dealt with
communities and lessees. HB 357 would help to keep the
conversation going, he said. In conclusion he restated that the
bill is permissive and provides opportunities that don't
currently exist.
2:49:34 PM
SENATOR MENARD asked if the current leaseholders would receive
priority if the railroad decided to sell its land.
REPRESENTATIVE STOLTZE replied the bill specifies that current
leaseholders would have first right of refusal, but it's a
policy issue that is debatable.
SENATOR MENARD said she is torn because, although the lessees
have a stake, it makes good business sense for the land to go to
the highest bidder.
REPRESENTATIVE STOLTZE replied it's debatable, but he opted to
protect leaseholder's time and money investments, some of which
go back over 50 to 60 years.
CHAIR KOOKESH asked if this simply adds a fourth option
governing how the railroad may dispose of its land.
REPRESENTATIVE STOLTZE confirmed that the bill was written to
reflect that intent.
2:52:06 PM
SENATOR PASKVAN said he understands that the bill was written to
give current leaseholders the right to match the highest bid.
REPRESENTATIVE STOLTZE responded that he believes it was written
that way.
SENATOR PASKVAN expressed concern about unduly delaying the
transaction and asked if there would be a limit on the time the
leaseholder would have to meet the high bid.
REPRESENTATIVE STOLTZE said he believes that would be up to the
railroad, but he believes ARRC would act in good faith.
SENATOR PASKVAN said he tends to agree with the sponsor. It
would be in ARRC's best economic interest to act in good faith
in these transactions.
2:55:18 PM
SENATOR MENARD asked if the railroad would argue for the status
quo since it gets eight percent annual return from its leased
land.
REPRESENTATIVE STOLTZE clarified that the proceeds would stay
with the railroad and he believes ARRC could make an eight
percent return on its money. The agency is unencumbered and
outside the Executive Act, and in some instances it should lower
interest rates to help certain small communities. It's not
always about making the most on every dollar, he said.
SENATOR MENARD complemented Representative Stoltze for his due
diligence.
2:58:15 PM
SENATOR MEYER asked him to elaborate on what would happen to the
proceeds from the sale of the land.
REPRESENTATIVE STOLTZE said this legislation clarifies that the
proceeds stay with the railroad and could only be spent in
increments as interest accrues.
SENATOR MEYER asked if he's heard that the passage of this bill
could impact the railroad's bond rating.
REPRESENTATIVE STOLTZE said he hasn't heard that and isn't sure
how a permissive activity that may not happen could affect the
rating. It begs the question of why some people are working so
hard to kill the bill, he added.
3:01:09 PM
CHAIR KOOKESH asked if this bill could force the railroad to
sell land.
REPRESENTATIVE STOLTZE said no; it's a gentle nudge.
CHAIR KOOKESH observed that the railroad's concern seems to
hinge on the language that says the money in the account may be
appropriated.
REPRESENTATIVE STOLTZE explained that an amendment in the House
Transportation Committee substituted the word "use" for
"appropriated" but legislative legal said that to comply with 45
U.S.C. 1207(a)(5)Alaska Railroad Transfer Act of 1982),
"appropriated" was the right language.
CHAIR KOOKESH asked for clarification that the language was
changed on the advice of legislative legal counsel; there was no
intention to do harm.
REPRESENTATIVE STOLTZE said that's correct.
3:03:12 PM
WENDY LINDSKOOG, Vice President of Corporate Affairs, Alaska
Railroad Corporation, thanked the sponsor for introducing HB 357
and bringing to light some of the frustrations that leaseholders
have had with ARRC. She assured the committee that ARRC is
discussing ways to address those concerns and is working to
improve customer relations with its leaseholders. Real estate
revenues are the bread and butter of the railroad and a vital
part of what has made ARRC a successful operating entity. The
model that allows ARRC to lease land is excellent and worth
protecting, she said.
MS. LINDSKOOG said that it has never been the railroad's
practice to sell land and there is concern that this bill will
create an expectation that that practice may change. This may
further frustrate customers, she said. Ms. Lindskoog referenced
a letter to legislators from John Binkley articulating those
concerns. She said she appreciates that Representative Stoltze
clarified that his intent is not to mandate land sales because
the board wouldn't necessarily take that path if this bill were
to pass.
MS. LINDSKOOG informed the committee that the concern that was
raised by ARRC's bond counsel centered on the word
"appropriate." She noted that Bill O'Leary, acting CEO and CFO,
could answer questions in regard to that potential problem. In
conclusion she said, "We do understand this doesn't require the
railroad to sell land, it is permissive at this point."
3:07:59 PM
CHAIR KOOKESH asked if she would greatly object if the committee
passed the bill as currently drafted. There is no requirement;
the bill simply provides the railroad a fourth option for
disposing of land.
MS. LINDSKOOG replied they could live with it because the bill
is permissive and does not require action.
SENATOR PASKVAN noted that the last sentence of the bill
contains the word "appropriated" and a reference to federal law
and asked if compliance to that federal law is compulsory for
ARRC.
MS. LINDSKOOG declined to answer a legal question and referenced
a legal memo from the ARRC's general counsel that strongly
recommended substituting another term for "appropriated" in the
legislation. The terms "retained and managed" [and "used"] were
suggested as viable alternatives. "Maybe it's just one of those
instances where our legal team at the railroad has a little bit
different take on the issue than the legislative legal team,"
she added.
SENATOR PASKVAN pointed out that any language the state might
use would be preempted if 45 U.S.C. 1207(a)(5)is compulsory on
the railroad.
3:10:31 PM
JEFFREY DAVIES, President, American Federation of Government
Employees, Alaska Railroad Workers Local 183, said he represents
350 employees who are concerned about the effect that HB 357
might have on the railroad's ability to continue as a self-
sufficient operation. In 2009 ARRC had to lay off many needed
positions in response to rising operational costs and without
real estate revenue to offset operational shortfalls the impact
could have been greater, he said. The employees he represents
believe these are necessary assets that continue to serve as
intended. The model works; changing it could create uncertainty
or lessen job stability and reduce the benefits that Alaskan
jobs provide, he said.
3:13:07 PM
JOHN COOK, Board of Directors, Alaska Railroad Corporation, said
he has a background in real estate development. He thanked the
sponsor for introducing the bill and said it's brought to light
some communication problems that ARRC has with the leaseholders.
He's new to the board and welcomes discussion, but he does have
certain concerns about the unintended consequences of this bill.
The first relates to the right of first refusal because it will
have the overall affect of depressing market rates.
The second concern is that developers would potentially lease
pieces of property and then attempt to purchase and subdivide
that property. That may be the property's highest and best use,
but just that one person would garner the profit instead of all
Alaska residents. He said he can also see situations where the
lessee would ask to purchase the property under the right of
first refusal and have a preexisting agreement to sell to the
developer for a profit when the title vests.
3:16:56 PM
PETER MACKSEY, Customer Relations, Steelfab, stated support for
HB 357. He related that this family-owned business has been on
the same ten-acre site for about 60 years. They pay taxes on the
property, which would be tax free if the railroad didn't lease
it. He noted that less than one percent of the land in Alaska is
in private hands and he thinks that this is a chance to allow a
viable business to expand. He expressed the view that the
railroad seems to act like a state agency when it suits them and
a private company when it doesn't. HB 357 doesn't push the
railroad into selling its leasehold land, it offers the option.
3:19:57 PM
CARL ANDERSON, Owner, Cook Inlet Tug and Barge, said the company
has been in the family since 1938. He is concerned that the
railroad is in the transportation business, but when times are
tough it can apply for subsidies or stimulus funds or raise
rates. These options aren't available to other transportation
companies, he said.
3:21:28 PM
MARK STEARNS, Alaskan Wood Molding, said he has been a
leaseholder since 2001 and in that time his effective costs have
increased from about $10,000 per year to $42,000 per year.
Leaseholders have no recourse when the railroad decides to levy
increases. HB 357 would provide some certainty and make it
reasonable to make further investments in their buildings. Until
recently his company was told that extending the lease wasn't
possible, which hindered any desire to make improvements and the
ability to get bank loans. He described the bill as a win-win
for the railroad and its leaseholders.
3:25:01 PM
REPRESENTATIVE STOLTZE reiterated that the bill is permissive.
It's spurred by a desire to be responsive to the majority of
Alaskans who aren't involved with the railroad.
CHAIR KOOKESH closed public testimony and asked the will of the
committee.
SENATOR MENARD moved to report HB 357 from committee with
individual recommendations and attached fiscal note(s).
REPRESENTATIVE STOLTZE commented that it's puzzling that the
railroad submitted an indeterminate fiscal note given that it
isn't under the Executive Budget Act. The result is that it has
a finance committee referral.
3:27:58 PM
SENATOR MEYER objected to state that he too is puzzled by the
fiscal note. He suggested that to avoid a finance referral the
committee could zero out the indeterminate part of the fiscal
note.
CHAIR KOOKESH opposed the suggestion.
SENATOR MEYER removed his objection.
CHAIR KOOKESH announced that without further objection, CSHB
357(FIN) moved from the Senate Transportation Standing
Committee.
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