04/28/1997 08:10 AM Senate FIN

       SB 42 ALASKA RR BUDGET AND LAND                                         
                                                                               
       Testimony was heard  from SAM  KITO III, JAMES  BALDWIN                 
       and  RANDY  WELKER.    SB   42  was  HELD  for  further                 
       consideration.                                                          
  SB 42 ALASKA RR BUDGET AND LAND                                              
                                                                               
  SAM   KITO,  III,   Special   Assistant,   Office   of   the                 
  Commissioner,  Department  of   Transportation  and   Public                 
  Facilities,  testified  in  opposition  to  the  bill.    He                 
  explained that the Alaska Railroad  Corporation had been set                 
  up to function as both a  public and a business entity.   To                 
  operate effectively,  they needed  the  flexibility to  make                 
  business  decisions  unencumbered by  yearly appropriations.                 
  Long-term  lease  agreements  would   be  hampered  by   the                 
  uncertainty  of  legislative  approval  for  repayment on  a                 
  yearly basis.  He referred to  an ISER report that described                 
  disadvantages of subjecting the railroad to state oversight.                 
  The most critical  would be the inability to  obtain capital                 
                                                                               
                                                                               
  investment funds.  He believed by placing the railroad under                 
  the  executive  budget act  would  result  in the  kinds  of                 
  limitations mentioned in the ISER report.                                    
                                                                               
  SENATOR  PHILLIPS  brought up  AHFC  and AIDEA,  noting that                 
  similar fears of putting them under the executive budget act                 
  were  not  occurring.     He   believed  it  would   improve                 
  communications  between  the  railroad  and  the  state  and                 
  provide a better working relationship.                                       
                                                                               
  End SFC-97 #130, Side 2                                                      
  Begin SFC-97 #131, Side 1                                                    
                                                                               
  SENATOR PHILLIPS briefly continued his comments.                             
                                                                               
  JAMES  BALDWIN,  Assistant Attorney  General,  Department of                 
  Law,  testified  that  public  corporations  could  be  made                 
  subject  to  legislative  appropriation,  but  there  was no                 
  consistent  way  of  dealing with  them  based  on different                 
  circumstances of  the various  corporations.   He  described                 
  certain areas that  were not  made subject to  appropriation                 
  with  regard to  AHFC  and AIDEA.   SB  42  would made  debt                 
  service of the  railroad subject  to appropriation and  that                 
  would present a severe  business problem.  He referred  to a                 
  broad statement on page 3, line 12 of CSSB 42 (STA).  It had                 
  been  the intent of the legislature  to operate the railroad                 
  budget as a business  entity.  As the bill  currently reads,                 
  it would be disastrous to the railroad.  Debt was negotiated                 
  without  consideration  of an  appropriation  risk.   It may                 
  create an incident  and enough  uncertainty with lenders  to                 
  declare the right to accelerate the debt.                                    
                                                                               
  SENATOR  PARNELL  inquired  if  a  legal  opinion  had  been                 
  requested   regarding  whether  the  bill  would  result  in                 
  acceleration  of  current indebtedness.    MR.  BALDWIN said                 
  there  had  not  been  a  request.    There  was  additional                 
  discussion on this  matter between  SENATOR PARNELL and  MR.                 
  BALDWIN.                                                                     
                                                                               
  RANDY WELKER, Director, Division  of Legislative Audit, gave                 
  a brief overview of the bill, noting it had come from issues                 
  raised during  overviews early  in the  session.   The state                 
  would benefit from bringing the railroad under the executive                 
  budget act.  The intent was  not to limit the railroad to  a                 
  specific dollar  amount or  line items.   Language  provides                 
  that  the amount necessary to  operate the railroad would be                 
  appropriated.   It would  be in  keeping with  the important                 
  aspect  of  oversight  by  the  legislature which  had  been                 
  missing in the past.  The railroad was the only state entity                 
  not subject  to the  oversight process  and  he believed  it                 
  would be  a healthier situation  to bring the  railroad into                 
  the  process.    In  response  to a  question  from  SENATOR                 
  PHILLIPS, MR. WELKER had no comment regarding debt service.                  
                                                                               
                                                                               
  SENATOR PARNELL stated  his opinion that a legal opinion was                 
  needed  to shed  light  on whether  the  bill would  trigger                 
  acceleration of debt.   MR.  BALDWIN indicated the  railroad                 
  had established  about $4-5  million  in a  line of  credit.                 
  General language in  the loan agreement had  terms regarding                 
  when the lender felt insecure.                                               
                                                                               
  SENATOR PARNELL  brought up environmental liability that the                 
  Department of  Law would  have to  take over.   MR.  BALDWIN                 
  noted  that had  been removed  under the  State  Affairs CS.                 
  SENATOR  PARNELL   reiterated  a  request   for  an  opinion                 
  regarding debt acceleration.  MR. BALDWIN indicated he would                 
  pass the request on to the railroad.                                         
                                                                               
  SENATOR PHILLIPS  inquired about the difference between this                 
  and  AHFC  debt   service.     MR.  WELKER  responded   that                 
  appropriations  for  AHFC  didn't   cover  debt  service  on                 
  outstanding bonds, so it  was not a significant issue.   The                 
  main concern was with the process of oversight.                              
                                                                               
  SENATOR PHILLIPS asked what the railroad's response would be                 
  if they removed  debt service language  from the bill.   MR.                 
  BALDWIN indicated that their position  would be a preference                 
  to not be covered under the executive budget act at all.                     
                                                                               
  COCHAIR SHARP briefly  mentioned lines of credit  and bonds.                 
  He concluded the  discussion by stating an opinion  would be                 
  requested.  SB 42 was HELD for further consideration.