Legislature(2015 - 2016)HOUSE FINANCE 519
03/17/2015 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB140 | |
| HB30 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 140 | TELECONFERENCED | |
| + | HB 30 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 140
"An Act authorizing the Alaska Railroad Corporation to
issue revenue bonds to finance a positive train
control rail transportation safety project that
qualifies for federal financial participation; and
providing for an effective date."
Co-Chair Thompson reviewed the meeting agenda and indicated
he would not be moving either of the scheduled bills out of
committee.
1:33:51 PM
JANE PIERSON, CHIEF OF STAFF, REPRESENTATIVE STEVE
THOMPSON, introduced herself and told a personal story
about riding on the Alaska railroad from Seward to
Anchorage. She read the sponsor statement:
HB 140 will authorize the Alaska Railroad Corporation
(ARRC) to issue up to $37 million in tax-exempt bonds
backed by Federal Transit Administration (FTA) formula
funds received annually by ARRC. Bond proceeds will be
used to finance Positive Train Control (PTC): a safety
program mandated by the federal government without any
correlating funding, which is estimated to cost ARRC
approximately $158 million.
ARRC proposes to refinance $66 million in existing
bonds and extend the repayment date in order to issue
an additional $37 million in bonds to pay for a major
portion of the remaining $55 million in PTC costs.
Under AS.42.40.285 ARRC is required to receive
legislative approval to issue bonds. In no event will
the general credit of the State of Alaska or ARRC be
pledged for the repayment of these bonds. AS.42.40.500
requires that all liabilities incurred by ARRC shall
be satisfied "exclusively" from the assets or revenue
of ARRC and not the State.
Debt payment for the bonds will come from a portion of
Federal Transit Administration (FTA) formula funds
which are statutorily mandated by Federal law and
received annually by ARRC. Issuing debt backed by FTA
formula funds is authorized through FTA regulation and
has already been used by ARRC to issue bonds.
PTC is technology designed to stop or slow a train
before human-error causes an accident to occur. In
2008, the federal Rail Safety Improvement Act required
certain railroads to install a fully functional PTC
system by the end of 2015; by virtue of its passenger
service, ARRC is subject to this requirement. A
failure to implement PTC will force ARRC to severely
curtail or eliminate passenger service and/or face
severe fines for non-compliance.
Estimates for this large research and development
project indicate that it will cost approximately $158
million to implement. Since 1997, ARRC has invested
$68.9 million to develop a PTC system. In 2013 and
2014, ARRC received an additional $19.1 million and
$15 million respectively from the State of Alaska to
continue work on PTC. Between 2016 and 2018, an
additional $55 million will be required for ARRC to
complete the development and installation of PTC by
2018. This figure does not include the estimated $5
million to $7 million per year of operating and
capital maintenance costs related to the system that
ARRC will fund after PTC is installed.
She added that the bond issuance would leave the additional
$18 million to complete the project for the funding
package. She noted that if ARRC did not show that it was
making a good-faith effort to implement PTC, the Federal
Railroad Administration could implement fines up to $100
thousand per day. She concluded her introduction of the
bill and mentioned that Bill O'Leary, ARRC's President and
Chief Executive Officer, and Linda Leary, ARRC's Board
Chair were in the audience available for questions. She
also indicated Barbara Amy, ARRC's Chief Financial Officer,
was online and available for questions.
1:38:37 PM
Co-Chair Thompson relayed that Co-Chair Neuman and
Representative Gattis had joined the meeting and asked if
any committee members had questions.
Vice-Chair Saddler wondered if anyone had any ideas on how
to increase revenue to pay for the additional $5 million to
$7 million per year for the operational expense of the PTC
system.
WILLIAM G. O'LEARY, PRESIDENT AND CEO, ALASKA RAILROAD
CORPORATION, responded that the $5 million to $7 million
would be the ongoing costs to maintain the system once
installed. He anticipated taking the maintenance funding
from the railroad's operating and capital budgets. The
railroad had been in a series of flux with the drops in key
revenue streams including federal monies. He thought that
funding would be a challenge starting in 2019.
Co-Chair Thompson asked about how much gross revenue the
state received from passenger service.
Mr. O'Leary estimated that the annual gross revenue for
passenger services was between $26 million to $27 million.
He reported that passenger activity had grown over recent
years.
Vice-Chair Saddler asked Mr. O'Leary if the cost of the PTC
was paid for through passenger fees. Mr. O'Leary responded
in the negative. He signified that ARRC would be exploring
different revenue options. He opined that the railroad was
operating in a competitive market place and raising fees
could lead to more competition. He assured the committee
that ARRC would be reevaluating its entire fee structure.
1:41:44 PM
Representative Gara commented that over the years the
railroad had not made a consistent net revenue. He wondered
about the railroad's net revenue in real estate operations,
for example, over the previous five years. Mr. O'Leary
responded that the revenue bonds would not be a credit for
ARRC. He continued that the only supporting revenue stream
for the bonds would be the Federal Transit Administration
(FTA) formula monies, federal monies the railroad received
annually. He relayed that over the previous ten years ARRC
had received between $29 million to $36 million per year in
FTA funds. The funds came as a result of ARRC offering
year-round scheduled passenger service. The corporation
itself had a net income of $11 million to $14 million over
the previous five years.
Representative Gara asked if Mr. O'Leary had full
confidence that the railroad would be able to repay the
revenue bonds.
Mr. O'Leary responded that since the credit of the railroad
would not be supporting the bonds, the only revenue that
would be applied were FTA monies. He furthered that FTA
funds were up for reauthorization in congress as part of
the national transportation reauthorization. He explained
that the funding that ARRC received was part of formula
monies that supported many other passenger train lines all
over the country. He expressed his confidence in the funds
continuing into the future. Otherwise, he surmised there
would be too great an impact on the populous of the states.
Representative Gara commented that the bill seemed fine. He
expressed concern that the railroad would come back to the
state for funds to pay for the bonds in the future. For
example, if ARRC received $30 million in federal funds but
began to lose more than that as a railroad operation, he
wondered if ARRC would come to the state for additional
funds. He wanted to know whether Mr. O'Leary was confident
that ARRC had enough internal revenue to avoid coming to
the state for help with the bond repayment.
Mr. O'Leary responded, "Yes." He explained that the bond
indenture was written such that the bond holders' debt
service payments were made before the federal revenue could
be used for any other purpose.
Representative Gara suggested that ARRC had been making
approximately $11 million to $14 million in net revenue. He
wondered if it included the $29 million to $36 million from
the federal government. Otherwise, he surmised ARRC was
losing money.
Mr. O'Leary responded positively that the net revenue
included the federal funds. However, the monies that came
in did not flow into net income. The funds were used for
capital activities. He continued that the FTA funds were
used for debt service first and then for capital
activities.
1:46:17 PM
Representative Gara wanted to confirm that ARRC would be
revenue positive even without FTA funding. He asked that if
ARRC was using the FTA money for capital expenses and the
funds were now pledged to pay for the revenue bond, was
there any foreseeable circumstance in which ARRC would have
to come to the state for additional money. He wondered if
ARRC would always have a positive net revenue.
Mr. O'Leary stated that in his view there would be
sufficient revenue and that ARRC would not be coming to the
state for any kind of operating subsidy.
Representative Wilson asked about funding for the previous
two years.
Mr. O'Leary responded that in the past two years ARRC had
received state general fund (GF) monies totaling $34
million. Prior to that, since 1997, AARC used federal
monies including ear marks and formula funds, and revenue
generated from internal railroad operations.
Representative Wilson asked why ARRC was not asking for GF
monies.
Mr. O'Leary replied that ARRC started out looking for GF
monies, but was quickly disabused of the notion. Alaska
Railroad Corporation (ARRC) was challenged by members of
the [Finance] committee to think creatively about how to
move the project forward without $55 million in GF funding.
Representative Wilson thanked Mr. O'Leary for his efforts.
Vice-Chair Saddler asked if other states had used their FTA
revenue stream to pay for PTC. He wondered if Alaska's
approach had been used previously.
Mr. O'Leary confirmed that the approach had been used in
other states. He furthered that ARRC had used the approach
in 2006 when the railroad issued its first bonds.
Vice-Chair Saddler asked how it had worked for the state in
the past and for other railroads.
Mr. O'Leary believed that it had worked well for ARRC and
for other railroads to leverage FTA funds. The funds were
consistent, coming from FTA, and provided the opportunity
to finish projects that would have otherwise taken much
longer to complete.
Vice-Chair Saddler asked about the federal funding stream.
He wondered if it stemmed from a freight surcharge or if it
was a full faith in credit with the federal government. Mr.
O'Leary relayed that the monies came from the mass transit
account in the highway trust fund.
Vice-Chair Saddler asked how the highway trust fund was
fueled. Mr. O'Leary responded that the fund was augmented
by a federal gas tax.
Representative Kawasaki suggested that in previous
committee meetings with Department of Transportation and
Public Facilities it was reported that the federal highway
trust fund was shrinking. He wondered how ARRC would be
affected.
Mr. O'Leary indicated that there was risk in the federal
reauthorization concerning how the highway trust fund would
be funded and at what levels. However, congress was
investigating different approaches alternate to a flat gas
tax. He noted the possibility of a mileage-based approach.
Alaska Railroad Corporation believed the outflows from the
federal government would continue in a similar form.
Co-Chair Thompson signified that his understanding was that
the bond holders were aware of the risk of FTA dollars
going away.
Mr. O'Leary responded affirmatively. He reported that there
were very explicit disclosures on all of the bond-offering
documents that showed there was no pledge of full faith in
credit of the state, nor of ARRC, but rather the only
security for the bonds was the formula money that ARRC
received from FTA.
1:51:00 PM
Co-Chair Thompson asked if the timing was critical for ARRC
to secure the bonds in the current year.
Mr. O'Leary responded that the timing was extremely
critical. The railroad was not quite living hand-to-mouth
on the project but explained that ARRC would need to have
an infusion of cash by June 2015 or July 2015.
Vice-Chair Saddler wonder about the interest rate
associated with the bonds. Mr. O'Leary reported that the
modeling ARRC was doing with a financial advisor was based
on an interest rate below 2.5 percent.
Co-Chair Thompson commented that if the state waited a year
the interest rate could jump to 5 percent or 7 percent. He
added that an interest rate of 2.5 percent was a good rate.
Vice-Chair Saddler asked about what would happened if ARRC
did not receive authority from the legislature in the
current year.
Mr. O'Leary stated that ARRC would have a significant
problem. He elaborated that the railroad would not be able
to enter into any further contracts or spend additional
funds which would result in the project coming to a
complete halt. Alaska Railroad Corporation would not be
acting in good faith in the eyes of the Federal Railroad
Administration, the railroad regulator. The consequences of
not implementing PTC within the designated timeline could
lead to fines of up to $100 thousand per day and eventually
the inability to provide passenger service. He noted that
not only would ARRC lose $26 million to $27 million in
gross revenues for passenger service, ARRC would no longer
be eligible to receive FTA funding. There would be a very
different model for ARRC going forward. He referred to it
as a, "death spiral."
Vice-Chair Saddler followed up by asking if it was possible
that the Federal Railroad Administration would issue
waivers for the PTC requirement.
Mr. O'Leary responded in the negative. He relayed that he
had recently been in Washington D.C. the prior week to meet
with Alaska's congressional delegation and with federal
regulators. He cited that the consistent message from all
parties was that there was no way for ARRC to get out of
meeting the PTC requirement.
HB 140 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson relayed a personal story about Mr.
O'Leary's mom.
Representative Gara interjected that he knew that Linda
Leary was a good fisherman.
LINDA LEARY, BOARD CHAIR, BOARD OF DIRECTORS, ALASKA
RAILROAD CORPORATION, thanked the committee for hearing HB
140 and admitted to loving to fish.
Co-Chair Thompson acknowledged Sharon Kelly from the
Speaker's office and wished her a happy birthday. He
followed by bringing up the next agenda item, HB 30.
1:56:12 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 30 AK Ed Stand History.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 AK Ed Standards (no print).pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 AML ltr.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Civics Board Timeline.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Civic's Dunces.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Constitutionalism.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 H Fin hear request.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Keefer eltr.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Thompson comments.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 US Senate S 504 summary and co spons.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 140 - Sponsor Statement.pdf |
HFIN 3/17/2015 1:30:00 PM STRA 4/7/2015 1:00:00 PM |
HB 140 |
| HB 140 FN - AK Railroad.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 140 |
| HB 140 Supporting Document - 2015 PTC Two Pager.pdf |
HFIN 3/17/2015 1:30:00 PM STRA 4/7/2015 1:00:00 PM |
HB 140 |
| CSHB 30 Sponsor.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| CSHB 30 Sectional.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |
| HB 30 Support.pdf |
HFIN 3/17/2015 1:30:00 PM |
HB 30 |