Legislature(1993 - 1994)
03/16/1994 09:10 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. 338
An Act relating to the issuance of revenue bonds for
acquisition and construction of the Alaska Discovery
Center for the Ship Creek Project in Anchorage;
relating to a study of the feasibility and financial
viability of the Alaska Discovery Center; relating to
construction of the Alaska Discovery Center; and
providing for an effective date.
Co-chair Pearce directed that SB 338 be brought on for
discussion, referenced correspondence of this date from
Wohlforth, Argetsinger, Johnson & Brecht as well as a copy
of the 1984 session law establishing the railroad, and noted
the teleconference participation of Ken Vassar from
Anchorage and Mark LoPatin from Detroit.
The Co-chair next directed attention to CSSB 338 (L&C), page
1, line 7, and noted need to correct the session law
citation from sec. 1(a) to sec. 1(b). NOTE - The proper
citation was subsequently determined to be sec. 1(a)(1)(B).
Senator Kelly MOVED to effect the technical change. No
objection having been raised, IT WAS SO ORDERED.
MARK LoPATIN, of LoPatin & Company, spoke via teleconference
from Detroit, Michigan. He concurred in dovetailing aspects
of SB 148 and SB 338. He stressed need to ensure that the
railroad understands that approval of SB 338 as a
legislative action should not impinge on the $10 million and
$50 million limitations set forth in SB 148.
Addressing concerns raised by Senator Sharp regarding use of
tax exempt financing for other than railroad related
purposes, Mr. LoPatin acknowledged that the benefit is a
quirk in federal law which was part of the original transfer
act. He stressed that the federal government has no ability
to prevent the railroad, as an agency of the state, from
selling tax exempt bonds for railroad purposes. That
includes rolling stock, track, storage, etc. That right
will not be impacted by "our using it." If the benefit was
abused or disappeared, the railroad would continue to have
the federal right to sell tax exempt bonds for public
purposes/railroad purposes. Mr. LoPatin acknowledged that
the federal government could eliminate the benefit, but, in
doing so, it would be eliminating the benefit for all public
agencies. He advised that he could not conceive of a
situation where it would "just apply to the railroad." The
railroad receives this benefit because it is owned by the
State of Alaska. The benefit allows the railroad to "go out
and do non-railroad purposes." The transfer act
contemplated non-railroad oriented activities that would
generate revenue to support railroad oriented activity.
In response to questions from Co-chair Frank, Senator Kelly
advised that provisions of CSSB 338 (L&C) were intended to
guard against "a half built building." The bottom line is
that if the project does not work, the railroad has a
building which can be used for something.
Discussion followed regarding lease arrangements and owner,
bondholder, and railroad interest in the project in case of
default. Mr. LoPatin acknowledged that the bondholders
would stand in primary position to take over operation of
the facility. They would not do so without assurance of a
return on capital. They would, however, continue to pay
rent to the railroad, or they too would be in default, and
the railroad would own the facility, free and clear. The
railroad's interest is prior to and superior to other
interests.
Discussion followed concerning lease terms for the 120
acres. Mr. LoPatin explained that the owner of the project
is responsible for rent payments to the railroad. Should
the owner default, the bondholders have a period of time to
cure the default. If they decline to do so, their interest
is extinguished. The railroad, state, and municipality
would be under no legal or moral obligation to make
payments. He further advised that he would have no
objection to language, suggested by Co-chair Frank, that the
state and/or the railroad would be under no obligation to
cure the default.
End: SFC-94, #32, Side 2
Begin: SFC-94, #34, Side 1
Co-chair Frank inquired concerning fair market aspects of
the rental agreements with the railroad. Mr. LoPatin
explained that as each piece of land is "carved out," there
is a new appraisal, and a new rental rate is structured.
Discussion of lease assignments followed.
Senator Sharp noted that it appears that, statutorily, the
board of directors of the Alaska Railroad is required to
exercise substantial discretionary power over the project in
review of studies to determine whether the center is
feasible and financially viable, etc. He then suggested
that the foregoing exudes a sense of direct project
involvement and responsibility. He further questioned
language at page 2, line 3, stating that the "Alaska
Railroad Corporation may loan the proceeds from the sale of
revenue bonds . . . ." Mr. LoPatin directed attention to
correspondence (copy appended as Attachment A) from
Wohlforth, Argetsinger, Johnson & Brecht and noted that
requirements for a feasibility study make a strong case for
the fact that the railroad has no obligation to repay these
bonds. They are purely revenue bonds.
KEN VASSAR, Wohlforth, Argetsinger, Johnson & Brecht, next
testified via teleconference from Anchorage. He
acknowledged the connection between the railroad and the
project but stressed that the connection does not translate
to a legal or moral obligation with respect to the bonds.
The legislation is extremely clear on that point. The bonds
are payable solely from revenues pledged for the bonds and
not from any other source. Railroad control of aspects of
the project does not impact that issue.
As background information, Mr. Vassar explained that in
order for the bonds to be tax exempt, they must be issued by
the railroad. The proceeds of bond sales will accrue to the
railroad which will, in turn, lend the proceeds to the
developer. Repayment of the loan and land lease payments
will be made from revenues from the project. The loan
payments will then repay the bonds. Mr. Vassar stressed
that the proposed bonds will not create state debt.
Senator Sharp again voiced need to hear from the railroad.
Co-chair Pearce asked if the railroad board had taken action
on the project. Mr. Hickey responded negatively. He said
the board had reviewed the project, and there is support for
the overall proposal. The board has not yet made a decision
as to whether or not the railroad will issue the bonds.
That decision will not be made until a number of thing
happen, including the independent feasibility study.
Senator Kelly asked if the board was "gun-shy." Mr. Hickey
acknowledged that since the proposed project represents "the
first use of this authority," the board has reservations.
In response to questions from Co-chair Frank, Mr. Vassar
described the sequence of events should the project be
approved. The railroad corporation would issue its bonds,
and underwriters selected by the corporation would buy the
bonds. Proceeds from the sale of bonds would flow to a
trustee--a large bank with trust powers, capable of handling
the accounts and doing the paperwork. The trustee would
deposit the proceeds of the bond sale into an account that
would be used to make the loan to the developer. Mr. Vassar
voiced his belief that the bank would handle the loan
similar to a construction loan with release of funds upon
completion of phases until the project is complete.
Following distribution of the loan, the trustee would
thereafter be responsible for collection of revenues to pay
back bond holders.
Co-chair Pearce noted that the board must feel a certain
level of comfort with the LoPatin proposal since the
railroad hired Mr. LoPatin to "do the development" over
strenuous objections by AEDC and others in Anchorage. She
then directed that SB 148 and SB 338 be HELD in committee
pending future discussion with Mr. Hatfield and members of
the board of directors of the railroad.
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