Legislature(2009 - 2010)HOUSE FINANCE 519
04/01/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB357 | |
| HB344 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 357 | TELECONFERENCED | |
| + | HB 344 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 357
"An Act relating to the sale of land owned by the
Alaska Railroad that is not needed for railroad
purposes."
1:40:48 PM
JOHN COAN, STAFF, REPRESENTATIVE BILL STOLTZE explained the
legislation. He explained that HB 357 is an act giving the
Alaska Railroad Corporation the ability to sell land that
is not used for railroad purposes. The bill does not
establish a method for the railroad to liquidate land
assets or force the railroad to dispose of any lease hold
interests. The legislation creates flexibility to sell
unneeded land. The bill received numerous letters of
support from unhappy leaseholders that do not have the
ability to purchase the property they have improved. The
letters were unsolicited and the lease holders are
reluctant to make new or additional improvements for fear
that they will not be able to adjust their lease or
purchase the property. The bill was designed to give a
voice to the lease holders.
Representative Austerman understood that the legislation
indicated that the railroad cannot sell land. Co-Chair
Stoltze concurred, but stated that a more precise
definition will be available during testimony from the
Alaska Railroad Corporation.
Representative Salmon asked if the legislation affected the
land surrounding Nenana. Co-Chair Stoltze responded that
the legislation might affect the mentioned area, but a
designated area is not mandated. The intent was not
geocentric, but instead affects the landholding of the
whole Alaska Railroad.
Representative Salmon commented that the Alaska Railroad
owns the land surrounding the loading dock in Nenana. He
referenced reports of the steep prices charged to maintain
and lease the land. He opined that the action constituted a
disadvantage to the barge company. Much of the high lease
rate is passed on to inhabitants of villages.
Representative Salmon stated concerns. He referenced that
other village entities having difficulty with the high
lease payments.
1:46:32 PM
Co-Chair Stoltze referred to other concerns raised
regarding the Alaska Railroad. The legislation spurred many
similar comments.
Representative Gara reported many questions about railroad
issues. He was concerned that the state allows the railroad
to control the land that they own. He expressed concern
about allowing the railroad to sell state land and keep the
money. He opined that the railroad might take what belongs
to the people and use the money for internal operations
that the legislature may or may not agree with.
Co-Chair Stoltze opined that funds would not be eligible
for use without legislative intervention. He agreed that
problems existed. He reported that the testimony would
provide answers.
Representative Austerman viewed that the scenario is such
that the railroad has the ability to lease the land at the
chosen rate. Co-Chair Stoltze concurred.
Representative Austerman pointed out that the railroad
already has the ability to use lease money for salaries.
Representative Gara communicated the limitation of short
term leases as an advantage. Another benefit of the limited
lease was that the state will eventually reclaim the land.
With the legislation, the railroad receives the money and
the state never sees the land again.
Co-Chair Stoltze acknowledged the many questions associated
with the legislation.
1:51:04 PM
PETER MACKSEY, CUSTOMER RELATIONS, STEELFAB, ANCHORAGE (via
teleconference), addressed Representative Gara's comment
and opined that the investment made by some people would be
difficult if the state took the land back. He stated that
he felt confined by the railroad periodically raising the
rent. He commented that the mentioned property is without
rail and he believed that the railroad has no further use
for the land. A piece of property in Anchorage leased under
the railroad is heavily taxed. He opined that with private
ownership, the investment and sense of worth would be
greater. He announced that the railroad increases stress
levels with the steep lease prices.
Representative Doogan requested more detail on the
statement "taxed as if own the land." Mr. Macksey responded
that he paid property taxes in addition to taxes for the
City of Anchorage.
Co-Chair Stoltze commented that the municipal of Anchorage
taxed airport property in a similar manner.
Representative Doogan asked where the land was located. Mr.
Macksey replied Railroad Avenue.
1:55:51 PM
Representative Gara asked if Mr. Macksey realized that the
land was owned by the railroad when he agreed to lease it.
Mr. Macksey responded that many of the leases were 100 year
leases and the original intent was to provide an industrial
base for Anchorage. He believed that the length of time
that his company existed on the land warranted the option
to buy.
JOHN BINKLEY, CHAIR, BOARD OF DIRECTORS, ALASKA RAILROAD
CORPORATION, FAIRBANKS (via teleconference), commented that
the legislation highlighted the importance of the
relationship between the lessees and the Alaska Railroad
Corporation. The real estate division of the Alaska
Railroad Corporation is critical to the corporation's
success. The real estate division relies completely on the
revenue from the lessees. The steady revenue provided by
the lessees allows the corporation to succeed throughout
varying business cycles.
Mr. Binkley shared that the board understands the need to
renew efforts to communicate well with the tenants. He
mentioned the railroad's fiduciary responsibility to the
shareholders of Alaska to treat lessees in an equal manner
and to receive a fair return on the asset value. He
stressed the importance of ensuring that the people of
Alaska receive a fair return for the asset made on the
leased land.
2:00:22 PM
Mr. Binkley referred to a mechanism already in place to
release Alaska Railroad Corporation land utilizing a
procedure to determine public purpose and report to the
legislature for advice. He believed the legislation would
refine the process.
Representative Austerman asked Mr. Binkley's stand on the
bill. Mr. Binkley reported that the railroad was "not
necessarily supportive" of the legislation. The board
believed that the mechanisms were already in place in terms
of discharging land with the appropriate role of the
legislature. He repeated that the opinions of the lessees
were important to him.
Representative Doogan asked how many lessees the railroad
had under contract. Mr. Binkley responded approximately
250.
Representative Doogan asked for the annual basis income.
Mr. Binkley replied approximately $9 million.
Representative Doogan queried the annual budget. Mr.
Binkley replied that the corporation had operating revenues
of $143 million or approximately 7 percent.
Representative Gara referred to years of net income for
railroad from leaseholds not operations; if that were true
he expressed concern about the lessening of leasehold
rental potential. He asked how long the corporation's net
income has been attributable to its leasehold interest. Mr.
Binkley responded that the income goes up and down; in some
years the real estate is necessary to carry the corporation
through, in other years the corporation creates a return on
the operations of the railroad plus the real estate. The
railroad was experiencing tough times because of less fuel
availability leading to a reduction in the bottom line.
2:05:26 PM
Representative Gara asked what the railroad was doing to
accommodate lessees. He asked about any changes made by the
corporation regarding the treatment and communication with
lessees. Mr. Binkley responded that an important issue was
sound communication with lessees to enable businesses to
succeed. He referred to the extension of leases from 35
years to 55 years for increased stability.
Representative Gara asked if companies like SteelFab would
lose their improvements. Mr. Binkley hoped SteelFab would
not; he wanted them to succeed and commended their
achievements.
Co-Chair Stoltze noted that the purpose of the legislation
was not to sell the land but instead to function like a
permanent fund within the railroad. The corporation would
use the earnings for their operations.
2:09:06 PM
Representative Salmon asked about the lease situation in
Nenana with the cost passed on to the village people. He
believed the legislation would change nothing. He wanted
action and not just talk.
Co-Chair Stoltze advocated for the bill, which will lead to
discussion and potentially change.
Mr. Binkley stated that the railroad is working with Nenana
to renew the lease. He discussed the history of the
railroad as part of the overall transportation system. He
mentioned the process of renegotiating a lease for the dock
properties. He reiterated promises to communicate better
with lessees and support their success.
Representative Austerman asked about a standard year
renegotiated contract or yearly fee. Mr. Binkley responded
that the corporation re-evaluates every five years and a
reappraisal is presented with a ceiling no greater than 35
percent.
Representative Kelly queried the concerns of the railroad.
Mr. Binkley replied that the railroad does not want to sell
the real estate. He expressed concern regarding the
importance of the railroad's success being tied to the real
estate. He mentioned that the railroad has operated as a
state owned entity for 25 years without annual requests for
operating funds. He pointed out that the state would suffer
the loss of the real estate even if the proceeds were
reinvested. He noted that real estate is a great
investment. He commented on the wisdom of the Alaska
Legislature in establishing the Alaska Railroad
Corporation.
2:15:27 PM
Co-Chair Stoltze commented that additional testimony for
the railroad would be organized by Mr. Binkley.
MARK STEARNS, OWNER, ALASKA WOOD MOULDING, INC., ANCHORAGE
(via teleconference) informed that he has been a lease
holder for ten years. He provided the history of increasing
lease prices for his company. He discussed his experience
with changes in lease terms without notice or discussion.
He understood that the railroad has a fiduciary
responsibility to maximize the benefit of their assets for
the shareholders. He understood the need to utilize the
property as a revenue source.
Mr. Stearns referred to other buildings in the area that
have been taken over by the railroad. He understood that
the money earned from the sale of the land could be used as
a permanent fund; the railroad did not lose the value. He
was concerned with a long-term ability to control expenses
for his business. The lease has gone up dramatically, which
hurts the ability to reinvest in the business.
Representative Kelly pointed out that HB 357 would only
permit the railroad to sell the land if they chose to. He
asked how the bill would help.
Mr. Stearns explained that the mentioned property was not
used by the railroad. He believed that the property that he
leases is not essential to the railroad's operations. He
argued that if the railroad does not require land as an
essential part of their operation, then the sale of land
would only strengthen the business climate.
2:23:10 PM
Co-Chair Stoltze pointed out that Mr. Binkley was
responsive to the needs of the lessees.
Representative Doogan asked about the municipality of
Anchorage's decision to tax lessees. Mr. Stearns confirmed
that he was taxed by the Municipality of Anchorage for an
additional $6 thousand per year. He pointed out that his
company pays an additional $26 thousand in taxes each year
as a result of the changes instituted by the railroad.
Representative Doogan asked about the lease rate increases.
He asked about the communication with the railroad
following the rate increase notices. Mr. Stearns responded
that he received the information "just because" and listed
problems that the railroad responded to by requesting a
letter. He stated that the damage has been done.
2:28:16 PM
Representative Kelly asked if property was sold during a
lease expiration time, would improvement costs be required.
Mr. Stearns replied that the improvements on the property
belong to his business "from the ground up."
Representative Kelly verified that the answer provided was
no. He asked if the corporation would own the improvements
if he did not renew his lease. Mr. Stearns replied that the
corporation could own the improvements or they could
request or require that the improvements were removed.
BONNE WOLDSTAD, FAIRBANKS (via teleconference), had
concerns about the legislation. She expressed that the bill
might solidify the inverse take that the railroad created
on her property in 2003 by repealing Sections 1208 and 1209
of the Alaska Railroad Transfer Act (ARTA). She explained
that she owned a homestead that predates the railroad. The
railroad received an exclusive use easement on her
property. She expressed concern that the corporation might
sell her land.
Co-Chair Stoltze expressed a lack of understanding
regarding the railroad transfer. Ms. Woldstad pointed out
that ARTA stated that if railroad track was unused for 18
years, then it would be declared vacant and revert back to
the adjacent property owner.
2:33:48 PM
Representative Kelly asked if a change in language would
help to ensure that the bill did not negatively affect the
property. Ms. Woldstad responded that language might be
inserted to recognize that if the railroad was to vacate
their easement with a prior existing right, then the land
would revert back to the adjacent property owner.
Representative Kelly commented that a language change might
be difficult to achieve, as he was not the bill sponsor.
Ms. Woldstad thought that a language change would alleviate
concerns that the bill is not intended to prejudice those
ownership rights.
Representative Fairclough asked if the easement was passed,
was the homestead compensated by the railroad. Ms. Woldstad
stated that she had not found record of compensation under
the original 1914 law. Following changes in the original
Homestead Act of 1862, any future homestead had a clause
into patent for construction of railroad, telegraph, and
telephone lines. The territory had the right to traverse by
the Homestead Act, but not to own.
Co-Chair Stoltze promised to follow up on the issue.
TERRY SMITH, CHIEF FINANCIAL OFFICER, CARLILE
TRANSPORTATION SYSTEMS, ANCHORAGE (via teleconference)
stated that the railroad has been a good partner, but his
personal standpoint was that the amount of road controlled
by the railroad leads to scarcity. He added that leased
land is not favored as collateral in lending situations. He
understood the value of land ownership for the railroad,
but for investors the preference is to reduce risk and gain
ownership to control destiny.
2:39:18 PM
Ms. Woldstad commented on the fiduciary rights of the
state. She wished to communicate the maximum benefit by
considering the jobs provided by the lessees.
2:40:36 PM AT EASE
2:42:33 PM RECONVENED
Representative Austerman asked how the railroad arrived at
8 percent. Mr. Binkley responded that 8 percent is the
corporation's policy with a couple of exceptions including
waterfront land.
Representative Austerman clarified that the action was
determined via board policy. Mr. Binkley concurred and
stated that the action was consistent for leases around the
state. Many leases were initiated under the federal
government and rather than terminating the leases, the
state allowed federal leases to lapse under the terms and
conditions of the federal government. Many of the leases
were a better deal for leaseholders than state system. He
understood the shock when the federal leases expired
placing them under the state system.
Representative Austerman asked when municipalities of
Anchorage and Fairbanks initiated any adjustment on leases
from the railroad. Mr. Binkley replied that there was not
an adjustment by the railroad when the lessees paid the
additional amount for property taxes. Some lessees express
that the cost of the lease can be expensed over a period of
time; from a tax standpoint, there is sometimes an
advantage to leasing.
2:46:21 PM
Co-Chair Stoltze suggested that this was the permissive
nature to be discussed between the government owner and the
lease holder. He appreciated the discussion and the
testimony from the Alaska Railroad Corporation.
Representative Austerman commented that he understood that
the leasing agreement presents a good deal for the
railroad.
Co-Chair Stoltze agreed that the legislation provided a
permissive route for the Alaska Railroad Corporation.
HB 357 was HEARD and HELD in Committee for further
consideration.
2:49:10 PM AT EASE
2:56:55 PM RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB357 Letters.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 357 |
| HB344 PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Alaska Tax Division 2009 Detail[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344N Pac Seafood support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Qualified and Non-qualified Expenditures[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| peter pan Letter HB 344.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
|
| ss Hb 344 Sponsor Statement.doc |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 CS WORKDRAFT 26-LS1473 E Version.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 Letter Icicle Seafoods.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |