Legislature(1997 - 1998)
05/02/1998 09:31 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL 352
"An Act relating to international airports revenue
bonds; and providing for an effective date."
Co-chair Sharp opened public testimony for the bill.
[Brief AT EASE]
LYDIA JONES, STAFF, SENATE TRANSPORTATION COMMITTEE, read
the sponsor statement for SB 352:
Senate Bill 352 amends the statutory bonding limit for
the state of Alaska to sell international airport
revenue bonds. The current limit is $100,825,000. This
bill changes the limit to $280 million. The difference
between the old amount and the new amount is $179.1
million, which is the amount of new debt proposed to
finance passenger terminal improvements at Anchorage
International Airport. This increased bonding
authority is only one component of the financing for
proposed airport improvements. Another component
included federal highway funds for curbside
improvements and a surface transportation access
corridor. A third component is federal airport funding
for ramp and airside improvements.
The bonding cap contained in this bill is $25 million
less than a similar bill introduced by the governor.
This bill contemplates an additional $25 million in
federal funding. Consequently, we can reduce the
amount the state needs to borrow. By taking the $25
million off the table, it will not be available to
expand the project. The $179 million (plus) in
proposed terminal improvements represents the single
largest public-works project the state has ever
undertaken. The wisdom of taking on such a high amount
of debt and whether the international airport revenue
fund can afford the debt remains to be proven in the
committee-hearing process. Several of the small air
carriers have expressed concern that the proposed
project is too big. They voted against it but lost.
Still, their concerns may be valid and we owe it to
them to make the project no more expensive than is
necessary.
This bill is also notable for what it does not
include. It differs from the governor's bill in that
it does not change the statutes to allow for undefined
brokerage fees and unspecified obligations to be
charged against the IARF [international airport
revenue fund]. Additionally, SB 352 requires the
Department of Transportation and Public Facilities to
submit an advanced fiscal year spending plan to the
legislature by January 1 each year of the project.
Ms. Jones noted that the bill was identical to CSHB 432
(Representative Cowdrey's bill). On the House side, the
bill had five hearings with over nine hours of testimony. A
multitude of questions concerning plans and financing for
the airport project were asked by the international trade
and tourism committee; the questions were answered in
writing by the Department of Transportation and Public
Facilities (DOT/PF). The information was contained in
several volumes that were available for the committee's
review.
Ms. Jones also noted that every effort had been made to
make sure that many aspects of the project would be
contracted to local contractors (on the record from
DOT/PF). She added that 10 percent of the Anchorage
workforce was airline-related; the project would add
substantially to local labor.
Co-chair Sharp asked the volumes of information to be
available for committee members.
MR. CLIFFORD ARGUE, VICE-PRESIDENT FOR PROPERTIES AND
FACILITIES, ALASKA AIRLINES and CHAIR, ANCHORAGE-FAIRBANKS
AIRLINES AIRPORT AFFAIRS COMMITTEE, testified in support of
SB 352. He detailed that the airlines/airport committee was
comprised of 25 airlines that had signed lease and
operating agreements with one or both of the international
airports in Anchorage and Fairbanks. He maintained that SB
352 would authorize the issuance of revenue bonds to fund
the much-needed expansion of the domestic terminal at
Anchorage International Airport. He focused on three areas:
the process, the project, and payments.
Mr. Argue began by discussing the process. In November
1997, the airlines voted, in accordance with the agreements
each had executed and long-standing past practice, to
approve the financing and construction of the terminal re-
development project in Anchorage, with a total estimated
cost of $191 million. During the voting process, DOT/PF
pledged an additional $26.5 million in federal highway
funds to the project, leaving a net total of $164.5
million. The vote also approved the Alaska International
Airport System (AIAS) to issue airport-revenue bonds in an
amount necessary to cover the new net-project cost, plus
financing and escalation, with the understanding that AIAS
would continue to use its best efforts to obtain alternate
sources of funding and financing to reduce airline cost
exposure. They hoped that there would be additional federal
airport improvement program funds available.
Mr. Argue reported that he had been involved in the
planning and development of airport terminal facilities for
some thirty years; he contended that the work done to date
on the Anchorage project was among the most thorough and
professional he had seen. The needs assessment, the
conceptual solutions, and the financing plan were carefully
developed by an expert team of airport staff and
consultants. There had been excellent coordination with the
airlines at every step in the process, with numerous
meetings and reviews. He added that his colleagues from a
number of other airlines, including Lynden, Northwest,
United, Delta, Reno, America West, Federal Express, and
United Parcel Service, shared the feeling about the quality
of the process and supported the project.
Mr. Argue informed the committee that the previous week, he
had served on a panel at the annual economic conference of
the Airports Council International (a large trade
association of airports throughout the world) in San
Francisco. The session was co-sponsored by the Air
Transport Association, which was made up of the scheduled
domestic airlines in the U.S. as well as some international
carriers. One of the focuses was on the relationship
between airlines and airports. Very difficult situations
were reported, but he was pleased that he could point to
the Anchorage experience as a model for good cooperation
that resulted in the project eventually endorsed by the
airlines.
Mr. Argue continued that with respect to the Anchorage
project, the serious deficiencies in the existing Anchorage
domestic terminal were well known, both as documented in
studies and experienced by many travelers. He stressed that
the plan to remedy existing shortcomings and accommodate
forecast growth between the present and the year 2005 was
sound and conservative, and would provide Alaskans and
visitors from outside the state with a modern, efficient,
and functional airport terminal, serving the largest city
and air-transportation hub of the state. The project would
allow passengers flying out of Anchorage to use the newest
technologies to speed progress through the terminal. He
emphasized that Alaska Airlines was especially exited about
the opportunity to offer better customer service as quickly
as possible through a greater use of new technologies.
Mr. Argue turned to his third area of focus: financing. He
urged the committee to give AIAS maximum flexibility to
issue the bonds necessary for the project all at one time
and immediately, which he believed was the most cost-
effective way to proceed, rather than trying to split it
up, phase it, or otherwise delay it. The bonds would be
backed by airport revenues generated from rates, fees, and
charges to the airlines, concessionaires, and others
benefitting from the airport. He argued that the proposed
revenue bonds would in no way impact the state's general
fund, nor would they harm the ability for either the
Anchorage or Fairbanks airports to continue to develop
other necessary capital improvements using already
established funding mechanisms. Additional costs to the
airlines, when considered on a cost-per-passenger basis,
would be modest, and the airlines were ready to pay. He
maintained that the AIAS proposal was prudent and
reasonable and would fund needed improvements to one of the
major economic engines of the state, and that the proposed
project was small compared to what was being done
throughout the rest of the country. He listed projects that
were planned or underway on the West coast:
· Seattle, planned at $1.7 billion
· San Francisco, underway at $2.7 billion
· Portland, underway at over $800 million so far
Mr. Argue acknowledged that some of the projects were far
more complex and expensive than the proposed Anchorage
project. He urged the committee to move the project
forward. He noted that Denny Bird, the general manager for
Federal Express in Alaska, was unable to be at the meeting,
but fully supported the project.
RON LANCE, GENERAL MANAGER, UNITED AIRLINES, Anchorage,
testified that in January of 1997, United Airlines had
approximately 45 employees in Alaska; at the present date
there were 225 employees living mostly in Anchorage. He
thought the numbers represented a significant investment in
the Alaskan economy and reflected United Airlines'
confidence in the state's ability to support its growth. He
reported that at present, operations were 25 percent
passenger-related and 75 percent cargo-related. United
Airlines intended to expand cargo operations in the near
future; he stated that the present facilities were
inadequate to support further expansion in both areas and
needed to be corrected. From United Airline's perspective,
it would have been helpful if the proposed Anchorage
International Airport expansion plan represented in SB 352
had been passed three years prior. He reported that others
would testify about the need for the facilities as well.
Mr. Lance emphasized that the existing facility simply did
not fit the size of passenger and cargo traffic going
through the Anchorage airport. He stressed the fairness of
the process by which the expansion plans were decided. He
noted that United was an employee-owned airline which
attempted to move policy decisions to the lowest possible
level. All of the airlines involved had a chance to
participate in the decision-making process as well. The
Airport Affairs Technical Committee reviewed the plans and
reduced them from as many as 15 concepts down to one; there
was a lot of give-and-take during the process. He
maintained that everyone had a say and that a compromise
solution was reached that would ultimately pay for the
project. He urged timely movement of the legislation and
noted that more delay would result in more triple parking
around gates and problems for passengers and cargo
customers.
Senator Parnell asked who had opposed the decision. Mr.
Argue answered that several carriers voted against the
project. He explained the operating agreement process for
the Anchorage and Fairbanks airports: In order for a
project to not pass, two-thirds of the signatories had to
vote against the project; that did not happen. There were
10 votes in favor and 12 against the project. However, the
positive votes for the project represented about 85 percent
of the carriers operating in the domestic terminal, the
terminal most heavily affected by the project.
Senator Pearce asked for the names of the international
carriers that voted against the project. Mr. Argue listed
the negative votes: Asiana Airlines, Cathay Pacific
Airlines, China Airlines, Japan Airlines, Korean Airlines,
Lufthansa Airlines, and Nippon Airlines Cargo.
Senator Pearce reminded the committee that the listed
carriers would not get the tax.
Co-chair Sharp queried the domestic carriers that voted
against the project. Mr. Argue listed the domestic carriers
that voted against the project: ARI (?) Aviation, Evergreen
International Aviation, Northern Air Cargo, Peninsula
Airways, and Reeve Aleutian Airways. He noted that Reeve
Aleutian Airways had made a statement on the ballot that
they would vote yes if the alternate source of funding
passenger facility charges was included in the project; he
noted an April 15 letter to Senator Ward stating that the
carrier supported the project.
Co-chair Sharp pointed to quoted amounts spent by other
airports that he did not think related to Alaska because of
the smaller size and the fact that most business was
related to cargo. He did not want United to pull out of
Alaska because of lease rates. Mr. Lance responded that
landing fees and lease costs were a small part of the
overall cost of doing business.
Co-chair Sharp said he would ask DOT/PF about expected
increases in lease rates to finance the debt. He thought
some of the airports with massive improvements had lost a
lot of business from smaller airlines that could not afford
the increased costs. He was concerned that the carriers
that voted against the project were the intra-Alaska
carriers that did 90 percent of the business. He queried
Reeve Aleutian Airways details. Mr. Argue responded that
the carrier had changed its conditions from the first
ballot mentioned to the letter to Senator Ward.
Co-chair Sharp thought it was naïve to believe there would
not be an increase in passenger-service charges after a
quarter billion dollars worth of new financing. He was
concerned that a $3.00 charge on a $30.00 trip was a lot
more than a $3.00 charge on a trip to San Francisco,
although Juneau had just excluded charging the fee on
smaller trips.
EDWARD MERLIS, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS,
AIR TRANSPORT ASSOCIATION (ATA), WASHINGTON, D.C. (via
teleconference), testified that ATA was the principal trade
and service organization of the U.S. airline industry.
Members transported more than 95 percent of passengers and
cargo shipped on U.S. airlines. He stated that ATA believed
that the process that had been followed at Anchorage should
serve as a hallmark of what airport expansion projects in
cooperation with airlines should be. Throughout the
country, there were efforts by local governments and
airport authorities to control the costs and scope of
airport expansions. He opined that the Anchorage project
was appropriately sized and priced. He reported that ATA
urged the prompt passage of the legislation.
[SFC-98, Tape 150, Side B]
Mr. Merlis spoke to the need to cover anticipated federal
costs of the Anchorage expansion program.
Co-chair Sharp queried the projected curve of increase on
existing fees and lease costs to finance the debt service
of the proposed project.
MORTON PLUMB, JR., DIRECTOR, ANCHORAGE INTERNATIONAL AIRPORT,
replied that the information was contained in the two volumes
provided for the committee. He referred to a handout given to
committee members with a short synopsis (page 5); he did not
have percentages, but had approximate numbers: the change
would be $32.97 in 1999 to around $41.75 in 2010.
Co-chair Sharp conjectured an increase of about 25 percent.
He asked whether the plan included increases in passenger
fees. Mr. Plumb responded that he was referring to passenger
facility charges (PFC), which were not included in the
current proposal. The plan did not address the future use of
PFCs.
Co-chair Sharp referred to past testimony when the idea of
PFCs was discussed. He queried the annual amount of revenue
that had been anticipated during the discussions.
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES, replied that the
Anchorage airport was anticipated to generate about $5
million annually. He recalled that there had been
considerable concern expressed about PFCs.
Co-chair Sharp questioned the process for instituting a PFC.
Mr. Parkan responded that the process was that the airport
would collect the PFCs after going through a process of
identifying a project that PFCs would be used for, consulting
with the carriers that would collect the fee, presenting an
application to the Federal Aviation Administration (FAA), and
going through a public process. Then, FAA would approve the
collection of PFCs. He noted that Juneau had recently
implemented a PFC program and would start collecting in July.
He added that the legislature would have to approve of the
collection and the expenditures of funds for the project;
there would be no collection of a PFC without the
legislature.
Co-chair Sharp asked whether the fees would have to be
appropriated by the legislature even if the fees were
collected by the Anchorage International Airport or the AIAS.
Mr. Parkan responded in the affirmative.
Co-chair Sharp questioned the duration of the bonds. Mr.
Parkan (and others) replied 25 years.
Co-chair Sharp pointed out that there could be a possible
cost-shift of $125 million onto passengers, with no
reflection of the costs in lease payments. Mr. Parken
responded that SB 352 was only the authorization for the
bond. He noted that PFCs could be used to repay a portion of
the debt payment. While the department had proposed $5
million through PFCs the previous year, they had since been
working with the FAA to find a way of coming up with a PFC
program reflecting the unique nature of Alaska; the FAA was
considering exempting certain portions of the state from
having to pay the PFCs, which would reduce the revenue. He
did not have an estimate of what would be collected in PFCs
in the future, but it would be less than the $5 million that
would be collected if everybody in the state were charged.
Co-chair Sharp asked whether the fees could be imposed by
AIAS, with proper public notice and so on. Mr. Parken
answered that the sponsor of the airport did the processing
of the application.
Co-chair Sharp asked whether the users would be able to vote
on the issue. Mr. Parkan replied that the question would be
taken to the carriers that operated at the airport for
consideration. He added that interest expressed by the
carriers would then be given to FAA for their consideration;
FAA would ultimately approve or deny the PFC.
Co-chair Sharp pointed out that the majority of the voters
would be cargo people, and they would not care about
passenger-service charges. He was concerned the $125 million
would be shifted to the passengers if it came to a vote. Mr.
Parkan responded that the operating agreement was different
than the process for PFCs. He asserted that it was not a
matter of a majority vote.
Senator Pearce pointed out that the reason the legislature
got involved in the first place was that DOT/PF had to come
to them for an RPL [revised program - legislative] for
additional receipt authority to be able to collect the fees.
She stressed that the legislature would have a role to play
because without receipt authority, the PFCs could not be
charged.
Mr. Parkan noted that a considerable number of the passenger
carriers supportted the concept of PFCs. Co-chair Sharp
observed that the smaller passenger carriers did not. Mr.
Parkan noted that Reeve was willing to collect for Alaska. He
acknowledged that the response was mixed.
Co-chair Sharp pointed out that there were $25,150,000 of
current capital projects in the capital budget, excluding the
Anchorage airport project.
[AT EASE]
Co-chair Sharp queried the current Statewide Transportation
Improvement Programs (STIP) out to 2001 related to airport
improvements. Mr. Parkan responded that there was a portion
in the STIP that was a little over $26 million.
Co-chair Sharp relayed that his main concern related to
tearing down the existing ramps and replacing the ramping; he
asked whether that was still in the STIP. Mr. Parken answered
that there was a portion still in the STIP and the department
would be requesting authorization in the coming year for a
piece of that. He that the Intermodal Surface Transportation
Efficiency Act (ISTEA) was promoted; the International
Airport Road going up to the terminal was part of the
national highway system (NHS) and qualified for federal
highway funding.
Co-chair Sharp questioned the total NHS allocation for the
ISTEA. Mr. Parkan responded that there would only be partial
funding for the current year, but the normal amount was over
$200 million. The new authorization was expected to be around
$300 million.
Co-chair Sharp indicated that the version before the
committee was the Senate Transportation Committee's version
of HB 352, which called for an increase in authority of $179
million.
Senator Donley MOVED to REPORT CSSB 352(TRA) out of committee
with individual recommendations and any accompanying fiscal
notes.
Co-chair Sharp OBJECTED. A roll call was taken on the motion:
IN FAVOR: Parnell, Phillips, Donley, Pearce
OPPOSED: Sharp
Senators Adams and Torgerson were absent from the vote.
The MOTION PASSED (4/1).
Senator Donley stated for the record that he shared Co-chair
Sharp's concerns about the structure of the STIP and
inclusion of the ramp project in the STIP. He believed the
administration should be on notice that the item might not be
approved by the legislature, as it should be an airport cost.
Co-chair Sharp referred to a meeting in December 1997 with
the airport personnel and DOT/PF. He had asked how many other
airport authorities used ISTEA money to get up the front door
on ramping and parking access. The response had been one, at
Dulles International Airport outside of Washington, D.C. He
reiterated concerns.
CS SB 352(TRA) was REPORTED out of committee with no
recommendation and attached previously published fiscal note
by the Department of Transportation and Public Facilities.
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