Legislature(2001 - 2002)
05/04/2001 10:52 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
CS FOR SENATE BILL NO. 218(TRA) am
"An Act relating to international airports revenue bonds and
requiring that the spending plan for the International
Airports Construction Fund include information about the
amounts spent during the previous fiscal year for cost
overruns on certain projects and the identification of time
delays on certain projects; relating to customer facility
charges to fund facilities in airports to be constructed
without using international airport revenue bonds; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
SENATOR JOHN COWDERY testified that the bill raised the limit of
the bonding authority of the airports to $477,900,000. He reminded
the Committee of legislation from a few sessions back related to
airport bonds, which he said, was on-going. He shared that "all the
airlines" support SB 218. He pointed out this legislation requires
no tax dollars and instead, the airlines would contribute from
their revenues generated from landing fees.
Senator Austerman noted that the cost of the project at the Ted
Stevens International Airport in Anchorage has continued to "spiral
up" and he wanted to know if this legislation would apply to the
existing project and related cost overruns or toward a new project.
He pointed out that although the revenue for these bonds is not
received through taxes, the landing fees are considered a business
expense and the cost is passed along to the consumer in the ticket
prices.
Senator Cowdery answered that this bill does not apply to previous
projects, but rather new projects. He noted that the airports in
both Fairbanks and Anchorage would qualify for funding under this
legislation. He stated that the purpose of this legislation is to
utilize the revenues collected from landing fees by the airlines
for new projects. Otherwise, he explained, these revenues would be
spent on the existing upgrade project. He noted this legislation
allows the funds to be received earlier than the fifteen years it
would take if not for this legislation.
KURT PARKAN, Deputy Commissioner, Department of Transportation and
Public Facilities, added that this legislation provides for a
bonding package to fund the annual capital improvement project
(CIP) at the airport system. He explained this package was agreed
upon during the previous year's negotiations between the airlines
and the department in which the airlines requested a five-year CIP
for their consideration and the authority to issue bonds to fund
these improvements rather then the current method of "cash funding"
the projects each year.
Mr. Parkan detailed the funding for these projects include the
costs of environmental procedures, securing taxiways and equipment
purchases. He pointed out the general annual CIP is unrelated to
the on-going terminal upgrade project with the exception of four
projects that are similar to the terminal project but were not part
of the original project's "scope". He referred to a letter from the
Department of Transportation and Public Facilities to Senator
Cowdery that identifies these key projects.
Mr. Parkan shared that the agreement upon this debt financing
method for CIP projects was reached because the airlines wanted
some certainty as to their annual costs. He noted that under the
current system, the airlines incur "spikes" in landing fees, which
would not happen under the proposed method. He informed this is a
method of financing utilized for many airports across the country.
Senator Austerman asked the status of the existing five-year
terminal upgrade project.
Mr. Parkan responded that the proposed bond package in this
legislation would fund the first two years of the five-year CIP
plan; the first year being FY 01. He explained that approximately
$142,000,000 would be added to existing debt to cover these costs.
Senator Austerman asked if the legislature would then return to
this issue within three years to consider authorizing an increase
to the bonding limit for this project.
Mr. Parkan affirmed a second request would be made to issue bonds
to fund the final three years of the CIP project.
Senator Ward asked if any projects contained in this bond proposal
replace any of the anticipated bond proposals under the extension
of the airport bonds.
Mr. Parkan answered a question of Senator Ward, repeating that the
proposed bond package contains no projects that are currently part
of the on-going airport extension and upgrade project. He relayed
testimony he gave to the Senate Transportation Committee stating
that there are several proposed projects that relate to the on-
going terminal upgrade, but that do not replace a current project.
He explained these projects were not included in the original
expansion but are planned to coincide with the current terminal
projects. He gave an example of hazardous material asbestos
abatement, noting the extent of the asbestos found when the upgrade
construction began was not anticipated. He said $5 million has been
incorporated into the proposed bond package to address asbestos
removal. He noted an access control system, a medium voltage
project and some furnishings, are other projects related to, but
not replacements of, the on-going terminal upgrade project.
Senator Ward asked if Senator Cowdery has the same understanding of
this legislation as Mr. Parkan testified.
Senator Cowdery reminded that he has been working on this matter
for several years and had sponsored the legislation authorizing
bond issuance for the original terminal expansion and upgrade
project. He told that the department had estimated the amount of
asbestos that might be present, however much more was found during
demolition. He stated it was not his intention to "pay for
anything that we'd authorized before" however, there were cost
overruns with the on-going project.
Senator Ward opined, "That's the heart of the thing." He emphasized
the $5 million cost overrun was not due to earthquakes, footings,
etc. He qualified he was unsure if the overruns were a result of
fast-tracking the project. He stressed he wanted to ensure the
proposed bond package is not funding mistakes that were made during
the original project. He was concerned if this were so, it would
not be possible to identify and rectify those mistakes.
Mr. Parkan understood Senator Ward's concerns and noted that this
legislation does not cover any of the costs associated with the
delays encountered over the permitting and errors in seismic design
work. He expressed the intent to provide full disclosure of the
four or five proposed projects that are related to the terminal
project to the legislature. He assured that the remaining projects
in the bond package are unrelated to the terminal upgrade and could
not be changed because the bonds would be issued specific to those
projects. He informed that the department has relayed the same
assurances to the airline companies.
Senator Cowdery continued that he understood the problems with the
terminal upgrade project are eight to nine months old and are
related to delays. He recalled that during legislation authorizing
bond issuance for the terminal project, the department assured that
$10 million of insurance was purchased to cover any delays. He was
uncertain whether $10 million would be adequate to cover all the
costs and he did not know where the remaining funds would come
from. He surmised that Senator Ward was concerned that funds from
the new bond package would be utilized to cover these.
Senator Hoffman requested a copy of the list of proposed projects
in the bond package.
Mr. Parkan distributed a letter the department sent to the Senate
Transportation Committee. [Copy on file.]
Senator Austerman expressed concern, saying he did not support
moving the bill from Committee without documentation that shows the
projects funded in the original bond package, and the proposed
projects that would be funded through this legislation.
Mr. Parkan responded that the letter should address Senator
Austerman's concerns. He stated the "whole purpose of this package
is as a result of the airlines' request that we use debt financing
for the annual CIP."
Senator Austerman did not oppose this method of financing, but
stressed he did not have enough information to make a decision
regarding the bill.
Senator Leman questioned the fiscal note from the Department of
Revenue. He wanted to know if the sale of these bonds was
considered in relationship to a $52,000 request for the FY 02
budget.
DEVON MITCHELL, Debt Manager, Treasury Division and Executive
Director, Alaska Municipal Bond Bank Authority, Department of
Revenue, answered that the $52,000 is a FY 01 Supplemental budget
request related to the Alaska Municipal Bond Bank Authority, which
he informed is a separate entity.
Senator Leman next asked why the travel and contractual services
were funded with general funds.
Mr. Mitchell replied these expenses are anticipated prior to the
issuance of the bonds and are to cover the costs of the efforts to
market and sell the bonds.
Senator Leman asked if the Department of Revenue recovers these
funds after bonds are sold.
Mr. Mitchell answered it does not.
Co-Chair Donley asked if the Department of Transportation and
Public Facilities testimony is that none of the bonding proceeds
would be used to pay for corrections to the problems experienced to
date with the terminal project.
Mr. Parkan referred to material distributed that lists those
proposed projects that are related to the terminal upgrade. [Copy
on file.] He clarified some of the proposed projects, such as with
the hazardous materials are related to the on-going project.
Co-Chair Donley asked how the additional costs, related to
compliance with building codes, that are part of the terminal
project are being paid.
DAVID EBERLE, PE, Regional Director, Central Region, Department of
Transportation and Public Facilities, testified via teleconference
from Anchorage as the project manager on the terminal upgrade
project. He stated that the deficiency corrections are being funded
from the overall program contingency, which he said is part of the
original program. He noted the department has an insurance policy
to cover design flaws and that a claim would be filed. He assured
of the department's intent of "vigorously pursuing recovery of
those costs" but cautioned this would take time.
Co-Chair Donley asked if all the legal fees related to the problems
with the terminal project were covered under the insurance policy
or if there would be a supplemental budget request the next
session.
Mr. Eberle answered that the legal fees are currently funded from
the existing project's budget. He stated that how much of these
costs are recovered depends upon the bids submitted for the
remaining work on the project and subsequently, whether there is a
supplemental budget request.
Senator Ward asked for an explanation of the insurance policy and
the process of determining the responsible party and recovering
expenses from that party.
Mr. Eberle detailed that insurance policy was purchased to "cover
the entire project" and explained it covers any design errors or
omissions related to the engineering work. He shared that the
design firms are denying responsibility, which he said is standard.
He stated that the insurance company has been notified of the
intent to file the claim. He stressed the department intends to
pursue the responsible party with assistance from the Attorney
General's Office and outside counsel. He estimated it would be two
years before the matter is concluded.
Senator Ward asked if the department is also accounting for the
cost of lost revenue due to delay of the project in its claim. He
noted the additional retail and airline space the expansion is to
provide.
Mr. Eberle responded that those costs could be calculated after the
terminal is operational and revenue is earned.
Senator Ward requested an estimate of the amount of lost revenue,
particularly for the nine months to date that the opening has been
delayed. He understood that exact figures could not be calculated
but wanted an estimate within $400 to $500.
Senator Austerman referenced the letter from the Department of
Transportation and Public Facilities listing the $8.7 million for
the projects that relate to the terminal upgrade. He noted there is
a remaining amount of $134,200,000 and asked if for a detail of the
planned expenditures of these funds.
Mr. Parkan noted that this item is included in the governor's
proposed FY 02 Capital Budget legislation and stated he would
provide that information. He noted some projects are partially
funded through federal international airport improvement funds,
others are bond funded and a few are revenue-funded projects. He
pointed out environmental expenses could not be funded with bond
revenues because they are not considered an asset. He shared that
the bond revenue would be used for state match of the federal
funds.
Senator Austerman requested identification of this information in
relation to the bill.
AT EASE 11:14 AM / 11:17 AM
Senator Austerman asked why this bill was not introduced earlier in
the legislative session since the projects are contained in the
capital budget.
Mr. Parkan responded this bill, sponsored by the Senate
Transportation Committee is similar to one introduced by the
governor in January 2001.
Co-Chair Kelly noted the governor's bill has been in the Senate
Finance Committee since the first two weeks of the legislative
session.
Senator Ward added that there has been extensive discussion on the
matter of funding sources, responsibility for the delays, and
whether the terminal expansion project would essentially need to be
done twice. He expressed that although it would be at least two
years before the responsible party is determined, the citizens
would pay the price of the project delays and increased costs.
Senator Ward stressed that Senator Cowdery insisted on the new
legislation, not the Senate Transportation Committee, which
sponsored it.
Senator Hoffman noted SB 218 lists the amount of $142.9 million as
the bonding authority, but the fiscal note increases this amount by
$5 million. He asked for an explanation.
Mr. Parkan directed attention to a more current fiscal note dated
May 2, 2001. He shared that the airline industry requested $5
million be changed from bond funding to revenue funding, which he
said reduces the bond amount. It was determined that this fiscal
note was not in possession of the Committee at this time.
Mr. Parkan detailed the $5 million in question is for the
relocation costs of the airlines and was included in the
negotiations between the Department of Transportation and Public
Facilities and the airline companies.
Co-Chair Donley wanted to know where the funding comes from if it
is not bonded.
Mr. Parkan responded the monies are from the International Airports
Revenue fund. He detailed the list of proposed projects attached to
the aforementioned letter, explaining the various funding
mechanisms for each.
Mr. Eberle established for Co-Chair Donley, that he is not the
project manager of the terminal extension project, but rather the
overall program director.
Co-Chair Donley shared that he has learned that the project manager
of the terminal project is the same project manager of the Alaska
Center for the Performing Arts in Anchorage. He asked if this were
true.
Mr. Eberle replied that the project manager for the terminal
project is a Department of Transportation and Public Facilities
employee. He noted a variety of consultants are working under
contract with the state on this project. One of those consultants,
he informed is Rise Alaska and the owner of this firm had been
involved in construction of the performing arts center under a
different company name.
Co-Chair Donley asked if the contracts were competitively bid
contracts or sole source.
Mr. Eberle answered the proposals are all competitively bid.
Co-Chair Donley shared concerns with others in Anchorage about the
cost overruns incurred during construction of the arts center.
These concerns, he said, grow because the same contractor
responsible for those delays is involved in the airport project.
Mr. Eberle responded that Co-Chair Donley could review the terms of
the contract at any time.
Co-Chair Donley expressed he also wanted details of the bid
criteria and whether any consideration is given to the past
performance of a contractor.
Mr. Eberle stated he would provide the evaluation criteria and the
scores given for these bids.
Senator Leman clarified that "contractor" used in this context,
applies to professional management, engineers or other technical
service providers.
Senator Green pointed out that in the future many of these
questions would be answered in accordance to the provisions on page
2 of the committee substitute. These, she explained address
reporting requirements of expenditures, cost overruns, etc. She
stated her support of these provisions.
Senator Green offered a motion to move from Committee, CS SB 218
(TRA) with $25,000 fiscal note from the Department of Revenue.
There was no objection and the bill MOVED from Committee.
AT EASE 11:26 AM / 11:39 AM
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