05/01/1997 09:10 AM Senate FIN

                                                                               
       CS FOR SENATE BILL NO. 42(STA)                                          
                                                                               
       "An Act relating to the fiscal operations of the Alaska                 
       Railroad  Corporation; and  providing for  an effective                 
  date."                                                                       
                                                                               
  Senator Randy  Phillips spoke  on behalf  of the  bill.   He                 
  noted that work  draft (O-LS0182\K, Utermohle, 4/26/97)  had                 
  previously  been  adopted for  working  purposes.   He moved                 
  amendment #1, page 1,  line 2, and without objection  it was                 
  adopted.  He  further moved amendment  #2, page 2, line  21;                 
  page 3, line 12 and without objection it was adopted.                        
                                                                               
                                                                               
  James  Baldwin, Assistant  Attorney General  was  invited to                 
  join  the  committee.    Senator  Parnell  said  there  were                 
  problems with  debt service  and said  he had  asked for  an                 
  opinion  from house  counsel for the  Alaska Railroad.   Mr.                 
  Baldwin said he had spoken with  AKRR counsel.  He explained                 
  the  debt  service and  that  it  could be  under  operating                 
  expenses of the  railroad.   The railroad felt  there was  a                 
  cost to what was happening.  He said subsection (6),  page 4                 
  explained the  inclusion  of  the  debt  service.    It  was                 
  suggested that an amendment  be made on  page 4,  line 10 to                 
  insert:    "...but  only for  expenditures  to  satisfy debt                 
  service of the corporation...".   Senator Parnell moved this                 
  as amendment #3 and without objection it was adopted.                        
                                                                               
  John Binkley, Board Member, Alaska Railroad testified before                 
  the  committee via teleconference  from Fairbanks.  Co-chair                 
  Sharp explained amendments #1, #2 and  #3.  In response, Mr.                 
  Binkley felt the amendments complimented  the bill.  Senator                 
  Phillips said as  far as he was concerned matters concerning                 
  the bill were now  taken care of by the  amendments but that                 
  Alaska  Railroad  would  always  testify  against  the  bill                 
  anyway.  Mr. Binkley said that  debt issue aside, there were                 
  structural problems with the bill.  The railroad operated as                 
  a  business entity  but was  under a  constraint to  operate                 
  efficiently.  It would cause problems to have their business                 
  year  end the  same as  the fiscal  year.   That  would mean                 
  ending in the peak of the season when they are doing  70% of                 
  their  business.   A closeout  in December  would  be better                 
  because it would not hinder                                                  
  business  operations  at  that  time.     It  was  extremely                 
  burdensome  to  make  changes  during   peak  time  and  the                 
  corporation always tried  to make  decisions based on  sound                 
  principles.    He did note  for the committee that  up until                 
  now  there  had   been  dozens   of  lawsuits  against   the                 
  corporation  but the  State  had never  been  made a  party.                 
  Under  the  bill liability  would  transfer from  the Alaska                 
  Railroad to  the State  and they  would have  to assume  the                 
  railroad liability.   Because  AKRR had  it's own  board the                 
  operation has run more  like a private business.   It should                 
  not become another State entity.                                             
                                                                               
  Mr. Randy Welker,  Legislative Auditor, was invited  to join                 
  the committee.  He said under the Executive Budget Act there                 
  should  be  no  concern  for  AKRR.    The  proposed  budget                 
  appropriated everything to AKRR.  Senator Phillips posed the                 
  liability question.  Mr. Welker said  he would have to defer                 
  to the involved attorneys.                                                   
                                                                               
  Mr. Baldwin  commented on  general  liability.   He said  it                 
  would be a possibility the State would be held liable in any                 
  suits.   However, he  felt it would  be up  to the  Court to                 
  consider how separate the corporation is from the State.                     
                                                                               
  Bill  Hupperich, associate  general counsel,  AKRR testified                 
                                                                               
                                                                               
  before the committee via teleconference  from Anchorage.  He                 
  said he  concurred with  Mr. Binkley's  testimony.   He said                 
  under  this  bill  the  railroad  would  lose status  as  an                 
  enterprise  and  no  longer  be  separate  from  the  State.                 
  Senator Phillips said the railroad could be handled the same                 
  as AHFC and AIDEA.  He noted they were doing just fine under                 
  the  State.    Mr.  Hupperich  explained the  different  tax                 
  exemptions  and said the railroad could  not issue more than                 
  $10 million debt per year if under the State.                                
                                                                               
  Senator  Phillips   moved  CSSB   42(FIN)  with   individual                 
  recommendations  and accompanying  fiscal notes  and without                 
  objection it was reported out.                                               
                                                                               
  (The committee took a brief at ease.)