Legislature(2005 - 2006)SENATE FINANCE 532
03/21/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB261 | |
| SB271 | |
| SB308 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 261 | TELECONFERENCED | |
| + | SB 271 | TELECONFERENCED | |
| + | SB 308 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 308
"An Act authorizing the Alaska Railroad Corporation to
issue revenue bonds to finance rail transportation projects
that qualify for federal financial participation; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
PAT GAMBLE, President and Chief Executive Officer, Alaska
Railroad Corporation (ARRC), Department of Commerce, Community
and Economic Development noted that a handout titled "Alaska
Railroad Corporation Legislative Request for Bonding Approval"
and "a series of maps" depicting the ARRC's "work plan" for
proposed tract improvements during the years 2006 through 2015
[copies on file] have been provided.
Mr. Gamble reviewed the handout as follows.
Page 2
Request Legislative Approval
ARRC desires to issue one or more series of capital grant
receipts revenue bonds or notes, in aggregate not to exceed
$165 million.
Mr. Gamble remarked that this bill would seek Legislative
approval allowing AARC to issue a series of capital grant
receipt (CGR) revenue bonds not to exceed $165 million. The
"sourcing [of] these bonds" would be as prescribed by Alaska
State Railroad Transfer Statutes.
Page 3
What?
Rehabilitate Mainline Substandard or
Potentially Unsafe Track
· Single most important purpose for the use of federal
funds
· Top capital investment effort and #1 priority since
1996 … $220 million already invested.
Mr. Gamble informed that in 1996, ARRC began an effort to
"rehabilitate" or rebuild its main rail tracks. This continuing
effort has been primarily funded by annual federal
appropriations, provided through efforts by Alaska Congressman
Ted Stevens who recognized that no regular deferred maintenance
had been conducted on the Alaska Railroad's (Railroad) main line
since it was rebuilt in the 1950s following World War 11.
Mr. Gamble stated that the deferred maintenance effort was
further compounded by the fact that train mainline derailment
occurrences were increasing and incurring additional expenses.
That risk of derailments exacerbated the need for deferred
maintenance since the Railroad's passenger count and hazardous
cargo loads were increasing. Actual track improvements began in
1998.
Mr. Gamble noted that the revenues generated from this bonding
would be used to rapidly accelerate and complete the deferred
maintenance plan on upgrading the mainline track. ARRC has
continued to request Federal funding through Congressman Stevens
since it ranked the mainline track upgrade a priority in 1996.
That federal money has been and would continue to be limited to
funding work on the mainline rather than being utilized to
support facilities and equipment. The money generated by the
revenue bonds requested in this bill would also be limited, with
a few "minor exceptions", to the mainline rehabilitation work.
9:59:09 AM
Mr. Gamble conveyed that the "Derailments, 1996-2005" graph
depicted on page 4 was included to provide an example of what
has happened on the mainline since the improvements began. The
blue line on the graph indicates a downward trend in the number
of derailments with reportable damage. The "Train Accident Rate"
graph depicted on page 5 compares the Alaska Railroad accident
trend to national railroad statistics. These graphs "provide
strong evidence" that the deferred maintenance efforts are
"having the desired payoff". This fact is what prompted the
notion amongst Railroad staff that "accelerating" the work on
the main line would provide "a safer railroad faster … The State
and our customers would expect that from us." This prompted this
initiative.
Page 6
Project Information
· 100% CWR from Anchorage to Fairbanks (355 miles)
· 85,000 concrete ties on curves less than 6 degrees (32
miles)
· Wooden ties all upgraded to 35-year cycle
· All ballast reset
· Complimented by ARRC Bridge Program … $30 million
· Complimented by ARRC Collision Avoidance Program … $13
million
Mr. Gamble reviewed the benefits the Railroad would receive from
this endeavor. While it was once thought that Continuous Welded
Rail (CWR) would not work in the cold climates and extreme
temperatures changes experienced in the State, such as the high
ninety-degree summer time temperatures and the sixty-below-zero
ambient temperatures experienced in Fairbanks. Railroad experts
from other parts of the country "proved" that to be wrong. Thus
ARRC is "vigorously" conducting a CWR program. CWR is important
because it welds segments of track together thereby eliminating
joints, which are often the cause of derailments. "The exchange
of energy" between the rail joints and the train wheels "is hard
on the metals of both and quite often is the single most
prominent source of failures on track and damage to wheels. In
addition to improved safety, CWR tracks are quieter as the noise
generated by the wheels hitting joints is eliminated.
Mr. Gamble noted that while concrete ties provide no substantial
benefit over wooden ties on straight stretches of rail,
utilizing them on curves increases the stability of the rail and
better absorbs the energy transfer between the track and train
wheels. In addition, concrete ties are easier to place at "the
right degree" to meet the angle calculated for a specific curve.
85,000 concrete ties would be utilized between Anchorage and
Fairbanks on curves exceeding six degrees. This would further
improve rail safety, as curves are susceptible to track failure.
Mr. Gamble also noted that the project would specify a 35-year
tie upgrade cycle. Depending on how much water is absorbed by
the tie and other circumstances, a tie typically does not
undergo "serious breakdowns" until about 40 years of use. A 35-
year cycle would provide a "safety margin" and would align with
what "good railroads" in the contiguous United States are doing.
Mr. Gamble noted that in conjunction with tie and rail
replacement, rock ballast under the railways, including river
rock, would be replaced "with solid granite which interlocks
very tightly and provides a solid bed". 169 bridges would be
upgraded in conjunction with track improvements.
Mr. Gamble pointed out that while the majority of his remarks
have addressed "mitigating the physical risks of track failure,
collision avoidance is a technology" that is also being
addressed by ARRC. This effort would address "human mistakes and
errors in judgment". Thus, the Railroad is "simultaneously
reducing physical risk as well as human error risks to the
degree affordable and possible with the current technology." The
effort would be to provide "one of the safest railroads in the
United States within the next seven or eight years".
Page 7
Why?
· Consistent with #1 priority
· Faster "take" of safety benefits and risk reduction of
non-human factors
· Continued mitigation effort
- More than 600 passenger trains per year
- 800 million gal. Refined product/hazardous
materials (30,000 carloads)
- 60% = hazardous cargo proportion
· Builds clarity and budget discipline into capital
program
- Debt service schedule drives yearly capital
apportionment
Mr. Gamble reiterated that this endeavor would fulfill the
number one priority of ARRC. The fact that this effort could
reduce "by as much as ten years" the work that the current
program would otherwise allow would be "worth the premium that
we would pay through the bonding". The Railroad moves
approximately 600 passenger trains a year and 800,000,000
gallons of hazardous material on its mainline. The amount of
hazardous material moved by the Railroad is one of the "highest
proportions of hazardous material cargo" run on any railroad in
the country. Any effort to increase the Railroad safety is "an
obligation" owed to the State.
10:05:31 AM
Mr. Gamble communicated that one of the "advantages" this
legislation would provide "internally" would be that "locking
these dollars in on an annual basis through bonding" would
assist ARRC in determining the level of capital funding that
would be available for other programs.
Page 8
Why Now
· SAFETEA-LU makes it possible
· Formula Funds increased 6-fold
· No undue risk to railroad or state
· Consistent with corporate priority
· Materials costs escalating annually
· Growing passenger train demand required nothing less
· Desire to get pre-pipeline work done ASAP
· No impact to previous capital plan
Mr. Gamble stated that after a five-year effort to secure
Federal Transit Administration (FTA) Formula Funds on an annual
basis, ARRC is now entitled to receive a predictable level of
funds from year to year. The level is based on a formula relying
on such things as "passenger miles and the number of total miles
on the railroad". The formula is also subject to an approximate
two percent growth rate each year. The FTA funding has provided
ARRC a "new tool in the tool kit"; this funding source could be
used "to pay off the debt service".
Mr. Gamble stated that two other positive events occurred three
years prior: the ARRC match required for federal funds was
reduced from 20 percent to nine percent and the federal Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A
Legacy for Users (SAFETEA-LU) "formula for attributable miles to
the Alaska Railroad has increased from ten percent attributable
miles to 60 percent attributable miles". This meant that the FTA
formula dollars increased from approximately five million
dollars a year to approximately $30,000,000 a year. Therefore,
were the ARRC able to provide its "low" nine percent match, ARRC
could depend on receiving total funds ranging between
$30,000,000 to $36,000,000 into the future. These events
provided ARRC the opportunity to consider a bonding proposal
similar to the one presented in this bill.
Mr. Gamble declared that this proposal is consistent with ARRC's
priorities. It would also provide ARRC the ability to improve
materials management; particularly as ARRC could make bulk steel
purchases and store the steel in order to avoid continuing price
increases. Furthermore, the increasing passenger train traffic
would benefit from safer tracks.
Mr. Gamble also noted that this proposal would allow pre-
pipeline work to be conducted in anticipation of the
construction of the State gas pipeline. Railroad tracks and
bridges must be ready to handle the load capacities that would
be required.
10:08:20 AM
Mr. Gamble stated that these improvements would provide the
Railroad the "ability to flow" the demands of the pipeline into
"our current customer load without cutting other customers off."
Mr. Gamble reiterated that the bond proposal would not impact
the Railroad's capital program.
Page 9
Proposed Financing
· $165 million authorization requested
· Currently planning three bond sales over next six
years
- Maximum annual debt service: $19.1 million or 49%
of available FTA/match for year
· ARRC Board approval required for each project and bond
sale
Mr. Gamble reviewed the proposed financing plans.
Mr. Gamble noted that the "Debt Service as a Percent of Formula
Funds/Match" graph on page 10 depicts the program's debt service
percentages from the year 2007 through 2024. The maximum level
of 49 percent would be anticipated in the year 2014, with the
debt dramatically decreasing toward zero from the year 2017 to
2024.
Mr. Gamble reminded the Committee that this debt service is
"just one element" of the Railroad's debt. Some other smaller
Railroad "borrowings" would also be retiring at that time. The
Railroad's "debt position" would remain "very healthy during
this whole process".
Mr. Gamble concluded his presentation. He could provide
additional financial details or review the remaining information
in the handout if so desired by the Committee. The remaining
information in the handout would provide "additional detail
about some of the methodology and considerations that have gone
into this proposal".
10:10:43 AM
Senator Dyson, being "visually oriented", appreciated the charts
and maps provided. Continuing, he asked the location of Wish
Bone Hill, as that is the prospective site of a new coal plant.
Mr. Gamble replied that Wish Bone Hill is located in the
vicinity of Palmer, which is not on the Railroad's mainline.
Senator Dyson observed that each of the maps from the year 2007
to 2015, depict two views of the Railroad's mainline. The view
on the left of the page depicts the projects occurring that
specific year and the view on the right depicts "the cumulative
status of the track" to date.
Mr. Gamble affirmed. He apologized for not fully explaining the
maps earlier.
Senator Dyson, referencing the map for the year 2015, asked for
clarification as to whether the track at Hurricane, milepost
281.4, was CWT on wooden ties.
Mr. Gamble stated that was correct.
Senator Dyson understood that concrete ties usage would be
limited to the areas highlighted in yellow with orange borders,
as specified in the map's legend.
Mr. Gamble acknowledged that due to the small map scale, it is
difficult to show much detail about individual projects.
Concrete ties would be utilized at any point of the track
containing a curve over six degrees. For example, he pointed out
that, as highlighted by the yellow and orange coloring on the
map, concrete ties would be used on a curve near Broad Pass.
Senator Dyson ascertained therefore, that concrete ties would
also be used between Potter, milepost 100.6, and Bird, milepost
81.7.
Mr. Gamble affirmed. There is a lot "of curvature" in that area.
Senator Dyson ascertained that the narrow red line depicted on
the map would indicate areas with regular un-welded line on wood
ties.
Mr. Gamble affirmed. For example, the line near Eielson Air
Force Base near Fairbanks, milepost G24, is reflected as a
narrow red line because that line "carries far far less tonnage
than the main line". That segment was constructed after the main
line and would not require upgrading. He reiterated that the
view on the right side of the map reflects the cumulative
project status and the view on the left side is that year's work
plan.
Senator Dyson deemed the maps "very helpful".
Senator Olson, noting that 80,000 joints would be upgraded,
questioned the total number of joints on the track.
10:14:57 AM
Mr. Gamble stated that this information would be provided. A
simple calculation involving the length of the track would be
required.
Senator Olson understood that rails were made with joints to
accommodate expansion and contraction. Further information as to
how CWR would accommodate these occurrences is desired.
Mr. Gamble likened this to the question about "which came first
… the chicken or the egg?" for there is disagreement as to
whether train track joints were the result of rail length
capabilities or temperature related characteristics. The rail
length used today has been constant since the 1860s.
Mr. Gamble explained that specifically trained personnel must
conduct the CWR forced weld under exact circumstances. Expansion
and contraction can be accommodated with a CWR; however extreme
"vigilance" of the track for signs of wiggling or buckling must
occur. The experience is that the CWR "could handle" the State's
temperature conditions. A few instances have occurred during
times of "extremely hot weather for several days" in which rails
have experienced "heat soak" and have expanded and attempted to
wiggle. However, the rail ties have securely held the rails in
place. Such experiences are minor in comparison to the
maintenance cost savings that the CWR provide. In summary, he
concluded that "there is a science" to the CWRs and the process
must be done correctly.
Senator Dyson inquired to the number of track miles on the
Railroad.
Mr. Gamble advised that the Railroad's mainline is approximately
500 miles long.
Senator Dyson asked the length of a traditional rail segment.
Mr. Gamble noted that the CWR rail could be welded into a
continuous segment of "up to half a mile". That piece could be
loaded onto a work train and "fed" onto the track from the
train. A regular piece of rail is 80-feet in length.
10:18:58 AM
Senator Bunde asked for confirmation that these bonds would be
used to maintain existing track rather than to expand the line.
Mr. Gamble affirmed.
Co-Chair Green noted that Members' packets contain a letter,
dated March 14, 2006 from Tom Boutin, Deputy Commissioner,
Department of Revenue to Bill O'Leary, Vice President Finance
and Chief Financial Officer, Alaska Railroad Corporation [copy
on file] that addresses the debt liability that would be assumed
by the ARRC with the issuance of these bonds.
Senator Bunde stated that his concern was in regards "to an on-
going systemic problem", as, since "the Railroad is an
instrument of the State when Railroad earnings are used to pay
this, or if there should be a problem, it's really State money
its just not general fund money."
Based on two rails, a total mainline length of 500 miles, and
rail lengths of 80 feet, Senator Dyson calculated there to be
66,000 joints on the mainline of the Railroad.
Senator Stedman moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, SB 308 was REPORTED from Committee
with previous zero fiscal note #1 from the Department of
Commerce, Community and Economic Development.
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