Legislature(1993 - 1994)
04/05/1993 08:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 16
An Act relating to the financing authority of the
Alaska Industrial Development and Export Authority and
giving approval of the issuance of bonds for an
Anchorage airport seafood facility; and providing for
an effective date.
Co-chair Pearce directed that SB 16 be brought on for
discussion.
SENATOR JOHNNY ELLIS and RILEY SNELL, Executive Director,
AIDEA (Alaska Industrial Development Authority), Dept. of
Commerce and Economic Development, came before committee.
Senator Ellis voiced need to foster private sector economic
development meeting three tests:
1. Create jobs for resident Alaskans
2. Leveridge significant private sector investment by
drawing outside dollars into the state.
3. Add value to state resources prior to export.
Alaska's export of raw resources also means that refining
jobs are exported.
The proposed Alaska Seafood Center meets the above tests.
The project is not new. It was included in last year's
AIDEA bond bill but was dropped during special session when
it was determined that a stripped down bill had a better
chance of passage. Necessary plans and financing were not
in place at that time, and the decision was made to delay
until this year.
The Center would provide 450 year-round jobs and 750
indirect jobs outside of Anchorage. Approximately 200 jobs
in the construction phase would be created in the near
future, once authorization is provided. Between $100 and
$115 million in new, outside, private investment would flow
to Alaska for the Center. The Alaska Seafood Center will
not compete with existing primary processors or contract any
of its own fishing. The Center would make major, year-round
product purchases from Alaska's primary processors for use
in secondary, value-added processing. Following the
secondary processing, the product will be shipped to
domestic and international markets. The Center will make 45
million pounds of cold storage available to Alaska
processors and other Alaskan businesses. That has been a
great need in Alaska for some time. The Center will also
provide reliable and economical transportation services to
primary processors. The volume involved will be of great
benefit. Money will flow through Alaska rather than
directly to Seattle.
Anchorage will provide the transportation link for product
coming to and leaving from a central point.
Senator Ellis said that the ultimate test of the project
lies in the $15 million in revenue bonds. If the economics
of the project are not favorable, it will not proceed.
Financiers would match the bonds with $100 to $115 million.
Further, the project is ready to proceed in that it is not
tied up in mental health issues nor are there protests from
interest groups. Local government is extremely supportive.
Co-chair Pearce referenced accompanying zero fiscal notes
from AIDEA and the Dept. of Transportation and Public
Facilities as well as a supportive position paper from the
Dept. of Commerce and Economic Development. A position
paper from the Dept. of Transportation and Public Facilities
states support but also raises concern regarding location of
the facility near the airport because of a possible increase
in the number of birds in the vicinity. Senator Ellis
explained that the Center would not be located on airport
property. The airport intends to reserve that for other
uses. There are suitable locations for the Center in close
proximity to the airport. The processing undertaken by the
Center is not the type that would produce fish waste and
attract birds that might interfere with aircraft.
Riley Snell briefly spoke before committee, advising of
AIDEA belief that significant advancements have been made in
both the financing plan and marketing since last session.
HOWARD M. BENEDICT, President ASC, next came before
committee. He explained that he first came to Alaska in
1976 and moved to the state in 1981. Prior to applying to
AIDEA, Mr. Benedict said that he and his family invested $ 6
million in the project. Feasibility and marketability have
been determined. Additional marketing since the last
session has produced significant results. A market for all
of the Center's product appears to be available.
The Center will be the first, value-added facility. The
high technology operation will bring new infrastructure to
Alaska. There is presently no substantial secondary
processing occurring in the state.
Speaking to human resources, Mr. Benedict advised that the
center intends to provide profit sharing to all employees as
well as child care.
Last Week, lenders in New York indicated they could increase
the amount of cash available and decrease the amount of the
mortgage. Mr. Benedict reiterated that the project would
bring $100 to $115 million in outside money into Alaska. No
subsidy is being sought. The Center will repay AIDEA as it
does commercial lenders.
Senator Sharp referred to the position paper from the Dept.
of Commerce and Economic Development and inquired regarding
contracts with primary processors as well as contracts for
sale of the product. Discussion followed between Senator
Sharp and Mr. Snell regarding the type of analysis conducted
by AIDEA prior to commencement of a project.
Co-chair Pearce advised of concern by Senator Jacko relating
to location of the facility in Anchorage rather than
Dillingham or Dutch Harbor. Mr. Benedict said that location
had been studied in great detail. The facility would
experience a $2.5 million disadvantage per year per 100
million pounds of production for being located in Alaska.
That disadvantage is caused by the fact that product will be
brought to Anchorage at 2.1 cent a pound and taken to
Seattle for approximately 8 cents. That is a 2.5 cent
disadvantage. Practical methods of overcoming that have
been developed. Construction elsewhere would lose the
transportation advantage provided by the Anchorage Airport.
Power is another factor. The facility must compete with
Seattle's power costs. The proposed facility will be the
"largest, single, private power user in the city"--a 4
megawatt power consumer. A location other than Anchorage
would put the cost of electricity totally out of the
economic picture. Seattle power currently costs 3.81 cents
per kilowatt hour. The agreement with the City of Anchorage
for an interrupted demand rate is 2.76 cents. That is 38%
below the Seattle cost.
End, SFC-93, #47, Side 2
Begin, SFC-93, #49, Side 1
In response to an inquiry from Co-chair Frank, Mr. Benedict
said he had hired "one of the finest secondary processing
people." He has resided in Anchorage for the past two
years. He previously built a plant the same size as the one
proposed for Anchorage and brought it in on time and under
budget. Mr. Benedict said that the hire effectively
eliminated financial institution concern that the project
was starting something that had not been done in Alaska
before.
Mr. Benedict explained that secondary processing involves
taking frozen blocks of seafood, cutting them into serving
pieces, and breading, or battering, or topping with sauce.
This work is now being done in Seattle or on the East Coast.
Frozen fish does not have much odor. The concern regarding
additional birds at the airport is not a great one since the
plant will "only do 15 or 20% primary."
Mr. Benedict advised that only top management positions--
four or five individuals--that must possess necessary
background and knowledge of this type of processing would
not be local hire. The intent is to hire Alaskans.
In response to a further inquiry from Co-chair Frank, Mr.
Benedict said the end product will not have a brand. It
will be produced for other companies. He further advised of
his intent that the quality of the product would be higher
than currently available.
Responding to a further question regarding financial
arrangements aside from AIDEA, Mr. Benedict said "In the
overall picture, our project is $165 million." Between $35
and $50 million will be cash, equity in the project--
provided by an investment banking firm in New York. In
addition, there will be approximately $80 million in bank
financing as a first mortgage. The foregoing is in addition
to the $50 million request to AIDEA.
Co-chair Frank sought assurance that AIDEA funds would be
the last dollars rather than the first committed to the
project. Both Mr. Benedict and Mr. Snell assured that all
other commitments would have to be made prior to commitment
from AIDEA. Mr. Snell said that he had been in contact with
the New York investment banking firm and the bank that would
raise the balance of the funds. Everything is now in the
working stage. Nothing is yet firm. Mr. Benedict noted
that part of the reason the project remains in the working
stage is that it "lost a great deal of credibility" when
legislation for the project did not pass last year. As soon
as there is a commitment from the state, the other
arrangements will be finalized. Mr. Benedict advised that
his investment banking firm raised over $1.5 billion for
internal projects over the last six weeks. The proposed $35
million request is small by comparison.
Discussion followed between Co-chair Frank and Mr. Benedict
regarding the means utilized to overcome cost differentials
between Anchorage and Seattle. Mr. Benedict cited decreased
electrical costs, an adequate labor supply, and manufacture
of "extremely efficient" equipment. Many existing East
Coast manufacturers have not upgraded their equipment. They
thus do far too much hand labor. A total of nine different
elements not only overcome the differential but overcome it
substantially. Mr. Benedict voiced his assumption that once
the proposed plant is operational and successful, others
will follow. Someone must break ground first.
In response to a question from Senator Kerttula, Mr.
Benedict said that eighty percent of production will be
committed to the "Lower Forty-eight." The remaining 20%
will either be sold within the United States or overseas,
which ever is best in terms of the strength of the dollar
and other financial considerations. Mr. Benedict noted that
Americans eat little seafood compared to the rest of the
world. The average in the U.S. is 14.9 pounds per person.
Europeans average 50 to 60 pounds, and the Japanese average
150 pounds.
Responding to questions from Senator Kelly, Mr. Benedict
noted that fish sticks will comprise the low end of the
product line. Packaging will include family packs in
addition to single dinners. The Center will also work
directly with the food service industry to serve restaurants
and cruise ships. Both have expressed need for a high
quality product that is not now available.
In reply to a further question from Co-chair Frank, Mr.
Benedict indicated that interest rates are presently so low
that AIDEA's interest component will not be of great
assistance. The project needs a strong demonstration of
state support. During further discussion, Mr. Benedict
spoke to outside perception that Alaska has more money than
it knows what to do with. Investment banking firms seek to
utilize funding in areas evidencing demonstrated need and
strong local support.
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