Legislature(1997 - 1998)
03/05/1998 04:07 PM House ITT
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 432 - AIRPORT REVENUE BONDS Number 0013 CHAIRMAN COWDERY announced the first order of business would be HB 432, "An Act relating to the bond authorization for international airports revenue bonds; and providing for an effective date," sponsored by Representative Cowdery. CHAIRMAN COWDERY pointed out that he received a list of questions and answers two hours ago from the Department of Transportation and Public Facilities. He noted that the committee has not had time to analyze the answers or review the list of questions and said he would go through the list one by one. Number 0048 KURT PARKAN, Deputy Commissioner, Department of Transportation and Public Facilities, came before the committee to testify. He apologized for not getting the list of questions to the committee sooner than they were able to. He noted that a considerable amount of time was spent researching the answers to the questions asked by the ITT Committee. He informed the committee that he would like to summarize some of the key issues that were brought up at the previous meeting and also he would like to respond to a couple of comments that were made in previous testimony. He referred to the planning process noting that there were some questions regarding that. He said the planing processing that brings this project to the committee has been thorough and comprehensive. He noted that Cliff Argue, the Alaska Airlines Chairman of the Airport Affairs Committee, summarized this project the best, which he read into the record: Having been involved for nearly 30 years in the planning and development of airport terminal facilities, I can tell you that the work to date on the Anchorage project is among the most thorough and most professional such effort I have seen. The needs assessment, conceptual solutions and financial plan were carefully developed by an expert team of airport staff and consultants. There was an excellent coordination with the airlines in every step in the process as we participated in numerous meetings and reviews. My colleagues from a number of other airlines, including Reeve, Lynden, Northwest, United, Delta, Reno, America West, Federal Express, and UPS share this feeling on the quality of the process. MR. PARKAN informed the committee that the planning team for this project included national aviation and airport master planning experts. He referred to the airline vote and stated that there was some question about how that vote shook out." He said the airlines voted in support of the plan, according to the operating agreement, with 13 affirmative votes and 12 negative votes. He explained, "Of the affirmative votes, there were seven passenger carriers and six cargo carriers, including the three abstentions. And of the negative votes, there were nine cargo carriers and three passenger carriers. Airlines representing 89 percent of the domestic passenger revenue and 84 percent of the passenger traffic support the project." MR. PARKAN noted that ERA Aviation responded to a question from Representative Phillips last week by stating that there were multiple stipulated votes based on institution of passenger facility charges. He informed the committee, in their packets is a copy of two stipulated ballots: 1) from Delta Airlines indicating that they support the project because it included federal dollars and 2) from Reeve Aleutian Airways indicating that they didn't support the project, but they would change their mind if passenger facility charges were imposed. MR. PARKAN referred to the forecast and the flexibility of the plan, and explained, "The plan as presented to you is based on detailed analysis of aviation forecasts and facility needs. The forecast annual growth rate at Anchorage for the next ten years is projected to be 4.8 percent by TAMS consultee. For that same period, FAA is projecting 4.15 percent." He noted that AIA's historical activity for the last seven years has been 4.65 percent, and this has not been a straight line growth, but is comprised of peaks and valleys. He continued, "Throughout the planning process the airlines have been the peer review on determining size and priority of the components of the plan. The plan represents the airline's approved solution, not just the administration's plan." He referred to occupancy rates and explained, "When the Concourse C replacement of the plan comes on line in 2001, 93 percent of the available airline rentable space is expected to be occupied. This is based on interviews with individual airlines and written requests for terminal space." He referred to the project estimate and schedule and stated that the estimated cost of $197 million was prepared by a professional design and consulting team and peer reviewed by construction experts. He said the estimate is based on good historical information on costs to construct airport projects with unique factors for building in Alaska. The raw terminal construction costs are $142 per square foot in 1997 dollars. These costs compare favorable with national costs for constructing airport terminals in similar seismic zones. The implementation plan for this project is prepared to be cost effect and minimize disruption to the airline and the public. He said a piecemeal approach will not meet these objectives. Number 0140 MR. PARKAN stated that contrary to recent testimony from a project opponent, there has never been a $33 million solution for this project. He reported that they presented a six-year cash flow requirement to the airlines with the first year cash flow requirement equaling $33 million. He continued, "The plan of finance that supports the project provides an opportunity for funding the design face services with revenue bonds. This provides a cost effective way to immediately initiate the project without general fund dollars. The project team will manage the overall project budget throughout the design procurement construction phases to meet budget restrictions." He informed the committee that the project schedule calls for a phased approach. He said, "The project schedule will be phased to coincide with seasonal construction windows and to manage impacts on airport operations. There is no fast-track construction sequencing being proposed." MR. PARKAN referred to the six-year CIP and the rates and fees and stated, "The plan of finance anticipates that the ongoing six-year CIP requirements will continue to be funded, as well as the terminal redevelopment project. Effects on the rate and charges structure have been given to the airlines as a basis for their vote. [Anchorage International Airport] AIA landing fees will remain in the low to moderate range even at their highest level when compared to other national medium and large hub airports." Mr. Parkan noted that at the last meeting, Chairman Cowdery asked whether landing fees have gone down over the last couple of years. He informed the committee that in 1992 the landing fee rate was $.84 per thousand pounds certified max gross take-off weight. Today the rate is $.46, which has gone down considerably. He said what that means in real terms, for example, today a Convair is charged $5.75 every time it lands; the landing fee for a 737 is $59.34 and a 747 pays $383. He advised the committee in their packets is a handout, attachment 3, which has a comparison of landing fees. He said AIA is currently in the early stages of preparing a cargo master plan, which will address future cargo requirements consistent with forecast and business plan decisions. He said, "Like the terminal master plan, the cargo master plan will require thorough review by the airlines and careful financial consideration. Large cargo projects requiring funding in the future will need to address cost benefit analysis as part of the design making process on whether to proceed or not. Only those projects determined to be financially viable will be recommended for implementation and consideration by the airlines." MR. PARKAN informed the committee included in their packet is an 11-page bibliography of project documents to date. He noted that there is a correction on page 6 of DOT/PF's response to questions from the committee under the question, "How much debt is against the AIRF at this point?" He said the last sentence of the first paragraph should read: "One is paid off in FY 2002 and the other in FY 2015." Number 0208 REPRESENTATIVE JOE RYAN said, "I've seen you're charging here incomparable fees in America, but since this is an international terminal with the Pacific Rim, I'd like to see what the fee for a 747 is ... and Taiwan and what the projected fees would be in this new airport in Hong Kong." He continued, "Unless something has changed dramatically in the last couple of years, we're talking about disparity of quite a few thousands of dollars and I wonder why we're not competitive with those Pacific Rim airports." He said $383 for a 747 is pretty darn cheap. Number 0221 REPRESENTATIVE GAIL PHILLIPS asked Mr. Parkan in his list of airlines, "Are you still counting America West vote? Aren't the out? Haven't they left?" MR. PARKAN replied he believes that America West has reduced their operations at AIA, but they haven't completely pulled out. REPRESENTATIVE PHILLIPS said it was her understanding that they pulled out in January. MR. PARKAN said they pulled out, but it is his understanding that they would be coming back. He indicated that perhaps Mort Plumb, the Director of AIA, could better answer that question. Number 0232 MORT PLUMB, Director, Anchorage International Airport, testified via teleconference from Anchorage. He said the answer that Mr. Parkan gave was correct. He said American West Airlines is still a member and a signator to AIA. Currently, they are seasonal, so they reduced their service, but they are coming back this summer. CHAIRMAN COWDERY referred to the 1992 landing fees and said even though there are a number of small carriers landing, they wouldn't receive enough landing fees, and asked how AIA makes adjustments for that. MR. PARKAN responded, "The demand is met by either existing carriers or new carries that would come in. I suspect, depending on what the load factor is for any individual carrier, would determine whether or not you've got a full load and a landing and you're still paying the landing fee even though you don't have a full capacity plane, that adjusts itself over time." He said more importantly, what the reduction in landing fees illustrates over this period of time, is the substantial growth the airport has had with regard to cargo. CHAIRMAN COWDERY said when Mark Air was at AIA they had a lot of half-full flights, the same as Alaska Airlines, but maybe Alaska Airlines was running larger capacities, but his understanding is that the fees are generated regardless of the load of their gross weight. MR. PARKAN said he was correct and it's clearly better if they can have a full load because they still pay the same landing fee. CHAIRMAN COWDERY said both airlines pay the same fee. MR. PARKAN agreed. CHAIRMAN COWDERY asked, "When these two airlines were head to head, and, say, became one airlines, forgetting Reno and Southwest, wouldn't the landing fees, in effect, -- there might be a little bit of frequency, but the fact is that the planes on Alaska with larger capacities, they were taking up the slack by being nearly full or fully loaded. Am I right in saying that?" MR. PARKAN said he could only assume. He said he has no basis to be able to answer that question. Number 0285 RON SIMPSON, Manager, Airports Division, Federal Aviation Administration, Alaska Region, testified via teleconference from Anchorage. He informed the committee they are responsible for the administration of the airport improvement program, which provides federal funding for airport infrastructure and development projects in Alaska. He noted that federal funding has been a question in regard to this bill. He said he would like to address two federal funding strategies: one is a letter of intent and the second is passenger facility charges. He said either financial strategy, a letter of intent (LOI), or passenger facility charges (PFC) can be used to pay off bond debts, either by reducing the term of airport revenue bonds or offsetting the bond financing charges. Both LOIs and PFCs will allow the project to be built with the financial reimbursement paid out over time. LOI and PFC revenues are officially used to pay back debt service and financing costs. MR. SIMPSON continued, "In the area of LOIs, AIA submitted their LOI application to them [FAA] on March 2, 1998. He said LOIs are basically a long-term plan for future commitment of airport improvement program (AIP) discretionary funds needed above the anticipated entitlement funding level. The total LOI application amount for AIA is $47.3 million in AIP discretionary funds requested to be paid out over a ten-year time period. He continued, "We are currently completing our regional review of Anchorage International's LOI application, ensuring that all program requirements are met, such as cost (indisc.) analysis and systems benefit. We will have the application submitted to RSAA headquarters by Monday. We are endorsing Anchorage International's LOI application and advocating that it be approved and we're expecting final decisions to be issued in the July time frame. We have to keep in mind though and remember that LOIs are request for discretionary funding, which is very tentative; there's no guarantee. Anchorage International competes nationally with other airports in the same category for these LOI discretionary funds. Securing airport revenue bonds will help gain LOI approval because it shows commitment by the airport to actually do the project. LOI funding is paid out over time and approximately $4-6 million per year over a ten-year period. The LOI must be approved in advance of the project; therefore, federal funding is primarily on a reimbursement basis." MR. SIMPSON continued, "To go on to passenger facility charges, as I've stated in my testimony earlier on this bill, Anchorage International could be earning $5 million annually with PFC collection, and that's a fairly conservative estimate. The PFC program was enacted in 1990 as part of the Aviation Safety and Capacity Expansion Act. It basically is a $3 per passenger user fee for use of airport facilities, charged where passengers in plane or board aircraft, not to exceed $12 on a round-trip ticket or $6 one way. PFCs are the most viable way to finance large airport infrastructure development projects. They provide a reliable, guaranteed stream of funding for long-term planning. PFCs are especially suited for terminal buildings and land site improvements, which are very low priority for AIP discretionary dollars. We have been encouraging DOT/PF to pursue PFC. I participated in LBA [Legislative Budget and Audit Division] task force public hearings on PFCs in November 1996 when hearings were held in Anchorage, Fairbanks, and Kenai. I emphasized the benefits of implementing PFCs. At these hearings, we learned about legitimate concerns regarding the impacts that PFCs would have on rural Alaska where aviation is the only means of transportation. We heard those concerns and we have been working with DOT/PF at our FAA headquarters office on proposed changes to the regulations to provide exemptions for rural Alaskans. "We have received the first PFC application from Juneau in January of this year, which we have determined it's substantially complete. It's been published in the federal register and it's now out for public comment. We expect to approve Juneau's PFC application in April with collection to commit in May. This will be the first PFC approval in Alaska. Juneau's PFC application projects collections of $700,000 annually, or $4.2 million over a six-year period. By comparison, Anchorage International could be collecting $5 million annually with PFC revenues, or $50 million over a ten-year period. As I've said before, that's a conservative estimate. Nationally, 288 airports have approved PFC programs with annual collections of over $1.15 billion. Out of the top 100 airports nationally, only a handful of airports have not implemented PFC, primarily in Alaska and Hawaii." MR. SIMPSON said he has been asked several questions regarding how much are Alaskans currently paying when they travel down to the Lower 48 in the way of PFC. He said even though they don't have statistics to verify the exact costs that Alaskans are paying at Seattle, Minneapolis, Salt Lake City, and other facilities that are collecting PFCs, if the state of Alaska requested it, they would be glad to further study for DOT/PF to investigate how the PFC program actually impacts Alaska, look at the fare and root structures and assess all of the impacts. Mr. Simpson wanted to clarify that the current AIP bill as far as after fiscal year 1998, LOIs are subject to AIP reauthorization. PFCs, however, once implemented are not subject to AIP reauthorization. He said PFCs are the most reliable guaranteed funding stream to provide the large airport infrastructure development projects as these proposed in Anchorage International. Number 0393 REPRESENTATIVE PHILLIPS said she appreciates Mr. Simpson's comments he made regarding PFC's, but its her understanding in speaking with the commissioner of DOT/PF that PFCs are not going to be an integral part of the financing of this project. She referred to Mr. Simpson's testimony on February 24, 1998, and also today's that he is looking conservatively that PFCs could possibly bring in between over $5 million and up to $6 million per year to the airport. However, he has not stated what they would have to give up in passenger entitlement federal funds if PFCs were instituted. She asked if PFCs were instituted, what funding would they lose from the federal government because they had put that program into place. MR. SIMPSON replied that PFCs are intended to supplement AIP. He agreed with Representative Phillips in that there would be a moderate reduction in the entitlement, only on the passenger entitlement, if a PFC is implemented. He said he does not have the exact figures in front of him. REPRESENTATIVE PHILLIPS said it's her understanding that it would be about $1.3 million per year. She said in her book that's not a minor amount, especially when the project looks like there's an annual debt service of about $14.5 million; 1.5 million of that they would be giving up because they instituted PFCs, which she again reiterated is not a minor amount. MR. SIMPSON said, "As I understand it, we're looking at the debt surface -- the entitle (indisc.) that the airport is earning, he [Mr. Plumb] would have to speak to how they are being applied to that debt service in the LOI package. Number 0403 MR. PLUMB said he doesn't have the figures before him, and he would be glad to get the exact figures, but he believes their entitlements last year were somewhere in the neighborhood of $2.7 per passenger [per year] and around $3.1 million for cargo. It's his understanding that they would probably lose about half of that so $1.3 million is correct. It was also his understanding that the net gain with the loss of the $1.3 million and the PFCs they would collect would be in the neighborhood of $4-5 million net gain. He indicated that he would have to get those figures to the committee after reviewing the exact charts. REPRESENTATIVE RYAN said it is his understanding that the FAA has traditionally had for years an airport improvement fund that was basically funded from taxes on general aviation fuel. He asked if the FAA money is coming from this particular fund. He indicated that it was a couple of billion dollars the last time he checked. MR. SIMPSON said, "Yes; the AIP fund comes from the aviation trust fund which is made up of fees that are paid for fuel and cargo throughout the country. Number 0420 REPRESENTATIVE PHILLIPS noted that Mr. Simpson has written to Senator Stevens regarding an exemption for Alaska smaller carriers on the PFCs. She asked if there is a precedence for this in any of the other states that have PFCs in place. MR. SIMPSON said the PFC regulation does provide for some exemption. He explained that the exemptions are for particular classes of carriers. The way that the regulation reads now, it would have to be less than one percent of the traffic at that airport. He said something that is unique to Alaska is that if they look at their commuter service, it will exceed that one percent cap for exemption, which is basically the relief they have been asking headquarters for, based on the uniqueness of Alaska and the fact that many communities have relied solely upon aviation for their transportation link. It is also based on the fact that the commuter service well exceeds above one percent of the overall service at the airport, such as Anchorage or Fairbanks, that they provided an exemption for those class of carriers in Alaska. He said they have submitted adequate justification, rationale, and background for that and it's back being worked through the rule- making process. Number 0332 MR. PARKAN informed the committee that DOT/PF is talking with FAA about a program that might take into the consideration the unique nature of Alaska. He indicated the department wouldn't pose any PFC program without legislative approval. He said the finance fund did not included PFCs, and unless there's something that's publicly acceptable that takes care of the people that have no other options than to fly around the state of Alaska, they would not bring forward PFCs. MR. PARKAN made a correction to his early testimony stating that a Convair paid a $5 fee and clarified that it is a $25 fee. Number 0454 REPRESENTATIVE NORMAN ROKEBERG asked why PFCs wouldn't be used as part of the financing (indisc.). MR. PARKAN replied that they don't believe PFCs are publicly acceptable at this time. REPRESENTATIVE RYAN asked, "How did it come about in this airline agreement that it took 3/4 [vote] to turn something down, rather than to get something?" He said that is a unique situation in the annuls of any kind of voting situation anywhere and stated it looks like the deck was stacked toward keeping out dissidence. He asked for an explanation on how that happened. MR. PARKAN responded that this was the operating agreement that was negotiated between the state and all of the airlines who signed the operating agreement. It was negotiated in good faith and they all agreed that this would be the approach to take for turning down projects. He indicated that operating agreements are not unique throughout the aviation industry for airports. Some operating agreements have a different percentage requirement for vetoing a project; some have a higher one. He said what is unique about the AIA system is the fact that both Anchorage and Fairbanks are a part of it. He said you could see what would happened if a lower percentage of no votes were allowed for projects in Fairbanks. It would be very difficult to get projects approved when a carrier doesn't even fly there. Because of the operating agreement, a carrier landing in Anchorage that doesn't go to Fairbanks can vote on Fairbanks projects. REPRESENTATIVE RYAN referred to attachment 5 in the packet of information submitted by DOT/PF and noted a significant amount of funds were designated for noise reduction. He asked if the Anchorage Assembly has enacted an ordinance for an overlay noise reduction area around the airport in Anchorage. MR. PARKAN said he believes there is some consideration at this time by the Assembly and the city administration that deals with development within those concentric circles as the noise contours. He indicated he doesn't think the city has taken any action on that. Number 0491 REPRESENTATIVE RYAN commented it's kind of standard throughout the country in planning and zoning. He said he knows for fact that for ten years Fairbanks has had a noise reduction ordinance that the airport has been trying to sell to the borough. He noted approximately eight years ago, it had not been implemented as of yet. He asked what the cost would be to implement noise reduction in Anchorage. MR. PARKAN remarked that that is a problem that every large in the country has to deal with when there's a conflict between airport grown and residential growth. He said in some cases an airport will have to pay for some kind of mitigation, whether it's soundproofing a home or even purchasing the home. He said clearly that's an issue that the Part 150 Study is addressing and indicated they are working with the City of Anchorage on that. REPRESENTATIVE RYAN said he would like to see, if possible, that somewhere in the planning process and in a budget item, that someone start looking into this and figure out the cost of implementation. He gave an example of an old 707, which a lot of airlines still use for cargo hauling, and noted that about ten years ago a hush kit cost approximately $1.5 million. He said there's an expense on all sides and the ordinance would keep people from moving in next to the runway and then complain about the noise. He said it would be reasonable to plan because it's eventuality; it's coming. MR. PARKAN agreed with Representative Ryan indicating that there are FAA requirements for moving toward the quieter aircraft and putting hush kits on. He noted that Alaska Airlines recently stated that they put hush kits in all of their aircraft as an advance requirement that is coming up in the near future. CHAIRMAN COWDERY stated that he has had some questions about Leif Selkregg's background and asked him to come before the committee to testify about his involvement with the Performing Arts Center in Anchorage. Number 0528 LEIF SELKREGG, Program Management Consultant to the Anchorage International Airport and the Department of Transportation and Public Facilities, testified via teleconference from Anchorage. He briefed the board of his employment background. He said he began his professional career in Alaska in 1980 and between 1980-1988 he was a project manager and worked on a series of major capital projects in the area of the municipality of Anchorage. From 1980- 1983 he was the on-site construction manager for the Sullivan Sports Arena and was employed by an international project management company. From 1983-1985 he was the program manager for the new police headquarters animal control shelter with an international project management firm. In late 1985, early 1986, he was approached by Mayor Knowles Administration to consider coming on board as the on-site construction administrator for the Performing Arts Center. His role began on that project after footings and foundations had been installed and the structural steel general contract sites with Kiewit Construction who is also the construction manager. He indicated he had no role in the five years of previous planning, design, and budgeting, but he did lead the on-site construction team which was responsible for finishing that project. His first responsibility on that project in 1986 was to develop a cost and complete analysis. He said it was a tough message to deliver, but they delivered it to the administration and the public and with Kiewit Construction. With the support of a number of Alaska contractors, they managed to wrestle that project to completion and successfully in terms of no construction claims. He informed the committee that he worked for the Sullivan Administration, Knowles Administration, and Fink Administration on major capital projects in Anchorage. Since that time, he has worked internationally. One of his major responsibilities was the program manager for the expansion of Hethro (ph) Airport new terminal 5 which was $1.5 billion terminal expansion program. MR. SELKREGG continued and said since 1994 he has been back in Alaska developing a national project management company. He has offices in Anchorage, Chicago, Philadelphia and Seattle and he employs approximately 50 people. He emphasized he is very proud of the fact that there is great project management capability in Alaska. He noted he was responsible for assembling $60 million in funding in overseeing the planning and design of the Alaska Sea Life Center which opens to the public on May 1, 1998. He said he would be happy to answer any specific questions about any aspect of his professional career. Number 0560 CHAIRMAN COWDERY asked if he could elaborate a little on any cost overruns with the Performing Arts Center. He said he realized that the center was put up in a shell by one contractor and then someone else took over. He indicated he didn't think that the original plan was for it to be completed. MR. SELKREGG said at the time he was brought on board with Kiewit Construction as the construction manager, in 1986 they estimated the cost to complete the project, which exceeded the funds available to finish the project. His recollection of the funding of the project was approximately $45 million. In 1986 when he was brought on board, he developed a cost to complete for the project which showed the project would cost approximately $86 million. With the construction community, they proceeded to value engineer $10 million out of that cost to complete budget. He believes that the final cost on the project was somewhere between $72-73 million. He said it was still in excess of what the administration, at the time, had assembled for funding. He noted the administration did make additional dollars available. He said they did not, at any time, buckle under the pressure of the complexity of the project in terms of the value (indisc.) exercise. He advised the committee that 13 Alaska contractors that built that project and every one of them was involved with cost reduction exercises as part of their bid packages. From the life of the on-site construction manager it was a very successful project. From the public perception it was a project that had been under-budgeted, and when it came time to tell the story about what the project cost was, that story came late. He said when he came on board, his first responsibility was to tell the administration what the final cost for that project was going to be. They did that and it was a tough story to tell, but they did manage to bring that down by about $10 million through the help of the Alaska construction community. CHAIRMAN COWDERY asked Mr. Selkregg if there were any cost overruns on the Sea Life Center. MR. SELKREGG answered no and stated that they are currently finishing that project on [ends mid-speech because of tape change]... TAPE 98-5, SIDE B Number 0001 MR. SELKREGG continued, "... it's been a huge project, both in terms of putting together the $60 million through private fund raising, a plan of finance, and support from the Exxon Valdez Oil Spill Trustee Council." He stated that it is a big construction project and that they have not had any cost overruns and they are in the final stages of completion. Number 0022 CHAIRMAN COWDERY referred to page 1 of DOT/PF's responses to questions from the committee under the "need/program questions and answers" section. He asked Mr. Parkan what is meant by the following sentence: "The project is designed to accommodate 3,000,000 enplanements or 6 million passengers..." MR. PARKAN explained that enplanements is people getting on the plane and deplanements is getting the people off. Therefore, you've got people getting on and off for a total of 6 million passengers. He said enplanements is counting the people as they board the plane. Number 0032 BUTCH HALFORD, Vice President, Northern Air Cargo, came before the committee to testify. He informed the committee that the Anchorage International Airport system has hired some of the most highly regarded experts in their respective fields to evaluate, assess and design a terminal expansion for AIA. They have spent several million dollars producing hundreds of pages of analyses, projections, data, assumptions, concepts, summaries, calculations, et cetera. He noted that the product of all this work is complex and convoluted. Without attempting to go over the entire mass of paper line by line, it is sufficive to say that he is uncomfortable with many of the assumptions and projections that have been made. He said, "We agree that the terminal could use some sprucing up. In fact, we think it's a good idea and we support it. We do not, however, support such a grand plan that does not address adequately the risks that we face if we fail to meet those expectations. If the traffic doesn't come, who pays for it? Those of us who live here, that's who. It is unfathomable to me to renovate and upgrade the terminal to a reasonable level should cost over $200 million to begin with. That seems that there is either way too much for what we need or we're paying way too much for what we're getting. Despite the immense costs before us, please keep in mind that it's only the first part of the greater plan. There's at least a second phase that, complete with the new parking garage, will no doubt also cost over $200 million. There are plans for a substantial development in both the North Air Park and the West Air Park as well that could also run into hundreds of millions of dollars. The projected landing fees don't appear to consider these other projects nor will have much in the way of runway repaving or replacing any pieces of snow removal equipment, et cetera, in the meantime. And they don't appear to take into account much in the way of other capital projects. Except for paying for a significant amount of it the cargo carriers, both domestic and international, are not really impacted by a terminal renovation and expansion. We derive no direct benefit from it whatsoever and simply put, the terminal consists of the Anchorage domestic, Anchorage international and Fairbanks domestic terminals. "Under the terms of the operating agreement, the total cost of operating and maintaining them, including the debt service of the three terminals, is by dividing the total number of square feet in the terminals by the total cost of maintaining and operating into a determined cost per square foot. Then each tenant pays that rate for whatever space they lease. The concessionaire, rents, parking, duty free revenues, et cetera, are also applied against the terminal maintenance and operating costs. On leased space, which included common areas and other space not available for lease by an airline or concessionaire, such as the concourse areas, airport management's administrative offices, airport security, governor's private conference room, et cetera is paid for by landing fees. Today, with approximately 90 percent of the leasable space rented, 31 percent of the terminal costs are borne by landing fees. That figure is projected to reach 40 percent when the terminal comes into service in the year 2002." Number 0065 MR. HALFORD continued, "Cargo carriers currently pay approximately 70 percent of the landing fees. The models for the new terminal provided by the airport are at least initially for less than 90 percent occupancy. Coupled with the projected cargo growth higher than that projected for passenger growth, the portion paid by cargo carriers will grow even larger over time. Nevertheless, cargo carriers do not arbitrarily oppose projects that do not directly benefit them. We all have a long history of supporting reasonable and responsible and justifiable projects that benefit the community or airport as a whole, even when there's no direct benefit to the cargo carriers and the record clearly reflects this. It is prudent to be cautious, though, and ask tough questions and demand clear and satisfactory answers, particularly when paying sums of money of this magnitude. "I require less certainty when contemplating spending $20 on something than I do when I contemplate spending $20,000 on something, and a lot less than when I'm spending $200 million on something. Two hundred million of anything demands scrutiny and that the need be clear and the cost reasonable. It's said that facts are stubborn and sometimes very stubborn. For $200 million we must all be stubborn as well and get every fact, stubborn or not. It is important beyond belief when applied to that much money." MR. HALFORD said even if the airport's projections are accurate, he asked, "Do we truly need such an ambitious expansion to accommodate them? Is this the way that you would spend your own money?" He asked who really needs this terminal. He commented that the people who live in Bethel, Ketchikan, Juneau or Kotzebue don't. In short, the people that live in Alaska really don't need it. He said the people who visit Alaska don't choose to stay home because the terminal may be crowded when they get there. As for the Alaskans that live in the rural parts of our state, they are already the least able to afford even the slightest cost increase. They clearly don't have the money to waste on things they don't need and they don't need a $200 million terminal. He asked, "How much can the two airports afford? Well, if you assume that landing fees and terminal rates can be increased ad infinitum and that it's okay to pay $12 for a hot dog that you're only getting off with for $4 for now, then I suppose it is limitless. But in reality, there is a limit. If cargo grows anywhere near the levels forecast, then the airport will no doubt require further substantial investment in the next few years to come. How much bonding can the airport secure? And even if they can get the bonding, how high do the landing fees have to get before carriers would rather spend that money on Russian overflight fees or new longer range aircraft that no longer need Anchorage at all. The well is not bottomless." Number 0094 MR. HALFORD urged a measured incremental approach to meeting the terminal expansion needs. He said we can always build more, once built, however, it can't be torn down and the expense doesn't go away if they find out that it was overdone. He said we should first establish clearly-defined trigger points to determine when to make additions and expansions. Second, closely define what needs to be done and provide a precise cost estimate for it. Only then with the facts, figures, and justifications can the legislature make an informed decision and be confident that the best use will be made of the resources available. He said he would be happy to answer any questions from the committee. Number 0102 CHAIRMAN COWDERY indicated that he has requested assistance from legislative consultants to help them with the project. He asked Mr. Halford, "Do you think that would be a prudent thing to do?" MR. HALFORD replied, "More eyes are better. More eyes' objective view of it may see things that we're overlooking." He noted that there is a lot of complex data, which is not easily understood. He stated that professionally trained eyes can do nothing but help. He commented he thinks it's a good idea to get assistance. CHAIRMAN COWDERY asked, "Are there ever cargo-related projects that don't directly benefit passenger airlines? Do passenger airlines complain when that happens that you're aware of?" MR. HALFORD said he could not recollect a case where that occurred. He said there are probably fewer projects that are specifically for cargo than there are for passenger facilities. Number 0116 REPRESENTATIVE RYAN said using a 747, model 300 series as an example, he recently gave the committee a little insight on how an airplane is loaded, how the fuel stops are planned, the FAA weight of 350 passengers, baggage, et cetera. Using that example, approximately 130,000 pounds of excess capacity would be left in the aircraft for freight that could be put in the belly to help get revenue for the plane. He said it's his understanding that United Parcel Service and Federal Express are not breaking down loads now like they would at a hub in Memphis or someplace. It's just kind of a fuel stopover. He said there are Russian flights that are cargo only, and there's a new airport being built in Hong Kong with 14,000 feet runways. His question was where are all of these people going to come from for this passenger terminal when it looks like freight is what the AIA's future is. MR. HALFORD said Anchorage, for passengers, is by in large a destination. It's the end of the road. He referenced Seattle in that some people get off of the plane because it's their destination, but a good number of people continue on with the flight. He indicated that Anchorage doesn't behave that way. For an airport it's size, it's unusual. On the other hand, in many ways the cargo mimics the traditional passenger traffic patterns by stopping in Anchorage on their way somewhere else. He said he believes that United Parcel Service, Federal Express, and United Airlines do a limited amount of interchange on their freight between aircraft, and he thinks they expect to do a lot more. In terms of the future for Anchorage, he said the passenger growth is going to have to come primarily from tourism and perhaps a rebirth of international passenger traffic. He said they don't transit Anchorage like they once did, and there's a far less amount of the flights that are passengers with bellies full of freight. Currently, the flights are all passengers or all freight, by in large. He said truly the convention of wisdom forecasts that the future of the Anchorage International Airport and the Fairbanks International Airport lies more in cargo than it does in passengers. Number 0154 REPRESENTATIVE RYAN asked Mr. Halford if he thinks it would be prudent to try and add another couple thousand feet of runway so greater payloads could be carried for the cargo aircraft versus the big terminal and perhaps some warehousing with a duty free zone for bonded warehousing and so forth? MR. HALFORD replied that a longer runway to allow maximum payloads has been visited and there are extended runways both in Anchorage and Fairbanks. Except for specific weather conditions with temperatures and unfavorable winds, and trying to be consistent with noise considerations and not wanting to take off fully- grossed, wide-body freighters over neighborhoods, he thinks that over 95 percent of the time they are not payload limited. He said he is certain that there is occasionally a flight that is payload limited. After consulting with all of the international wide-body freight aircraft operators, for the most part, in their opinion, the cost and benefit of a runway extension wasn't worth the few times a year where they get impacted by it. REPRESENTATIVE RYAN asked, "How about the bonded warehouse?" MR. HALFORD replied, "I think it's just a matter of when." He said being a duty free zone presents many opportunities. Number 0180 REPRESENTATIVE ROKEBERG noted that Northern Air Cargo voted no on the airport expansion. He said Mr. Halford indicated in his testimony that he was fearful that the scope of the terminal was basically pretty large and grand and that he was concerned about the cost. He asked Mr. Halford if he is more concerned about the increase in landing fees that may result if there were problems in paying for this, or does he see a misallocation or a diversion of funds away from the cargo development, which would affect his business end of the passenger development. He asked Mr. Halford what his concerns are, in particular, as they affect his operations as a business. MR. HALFORD replied, "It's actually some of each." He stated that they are not anxious for additional costs and they vigorously fight the inevitable increase of costs for a number of reasons: 1) it makes them less competitive and 2) they feel they have an obligation to be able to provide the service to their customers in rural Alaska as affordably as possible. He said they fear and don't take lightly any potential cost increase. He said they will have to pay a significant amount of this project. His other concern, which is difficult to foresee, is that there may be something in the future that would make sense and improve things for cargo operations, but because of their cost structure with a debt of this size may make it less likely to occur. He said there is a maximum amount of debt and expense the airport can support. Number 0210 REPRESENTATIVE ELDON MULDER referred to Mr. Halford's testimony regarding gas and asked, in his opinion, what has a greater determination of the price of an airline ticket - the landing fee or the price of gas? MR. HALFORD responded, "Neither; what your competitor is charging." REPRESENTATIVE MULDER said the reason he asked that is because he has received a number of telephone calls from his constituents lately regarding since the price of gas has gone down why hasn't the price of airline tickets gone down. MR. HALFORD said with his company their highest expense is payroll. Secondly, and not very far behind that, is fuel. In terms of the amount of money that they spend on fuel versus the amount of money they spend on landing fees, landing fees pales in comparison. He said a very small change in the price of fuel can amount to a whole lot of dollars for even a company their size. In conclusion, he said the price of fuel has more impact than the landing fees. CHAIRMAN COWDERY asked Mr. Halford what calculation he did on the contingency plan that's been set aside in the project's cost. MR. HALFORD said he took the construction cost estimate and the cover sheet showed a line-by-line description of each of the projects that would be required to complete it and the associated price. He continued, "On the following pages was a more detailed description of each item, which gave the anticipated construction price. And then estimator's contingency, change order contingency, which were either 10 or 20 percent, depending on which particular project it was, that brought you to the new subtotal cost of that project. Then they were added to that 'does other construction cost of 5 percent and a construction administration' of an additional 10 percent, which was applied both to the actual cost of construction end of the contingencies. And then that brought you to the price for that project. That brings you back to the cover sheet where it summarized the construction cost estimate where those were all totaled up. And then they took 10 percent for design and administration, 2 percent for permitting ... but that totaled 14 percent, and that was again applied to the other contingency cost. To determine what the part was actually identified as construction and the part that was expressed as a percentage, I just took those construction figures and subtracted them from the total and what was left over was the indirect cost. Around 53 percent was the line item for the cost of the project and just under 47 percent was for the items that were identified by a percentage." Number 0266 GERALD DES JARLAIS, President, Summit Paving and Construction in Anchorage testified via teleconference from Anchorage. He said from what he's heard in committee today he may be a bit premature in his comments, but seeing the magnitude of the project, he wanted to add his comments from the perspective of a general contractor. He said the first time he heard of the airport expansion project he supported it. He thinks AIA is a major economic asset to Anchorage and to the state. His comments concern the size of it. He said, "The volume of work in Anchorage or in Alaska is such that few of us can justify gearing up and bonding equipment organization and take on huge projects and too often the very large ones, the majority of them, go to outside contractors. I think we'd all agree that the value of such a project as this is enhanced when the majority of the dollars for construction stay in Alaska. As such, I wanted to urge that, assuming it does forward, that it be broken into a sufficient number of phases to permit a significant number of Alaskan contractors to bid on the work." He said just prior to the today's committee meeting, he was advised that apparently there is the intent to break it into 15 or 20 phases. In conclusion, on that basis, he is looking forward to seeing the bid packages. CHAIRMAN COWDERY said he would like to go through the handout from DOT/PF, which are the responses to questions from the committee at their last meeting. Number 0306 MARCO PIGNALBERI, Legislative Assistant to Representative John Cowdery, Alaska State Legislature, came before the committee to get them started on the questions and answers. He noted that when they received the information this afternoon, Representative Cowdery asked him to highlight some issues that might lead to questions to assist the committee due to the limitation of time in committee. He referred to the first question on page 1 which reads: After the proposed project is completed, what will be the plane/passenger capacity at AIA and how long will this capacity satisfy anticipated demand? MR. PIGNALBERI pointed out at that the end of that answer DOT/PF said one of the factors determining terminal expansion is the ability of airlines to share or to cross-use gates. He said the question that comes to mind is can they or can't they? Who makes that decision and why is it an open question at this point if the projections are made as to the gate sizes and what type of aircraft will be there? Is it an airport management decision? He asked why that should be an open question at this point? He said according to the passenger forecast an additional four jet gates may be needed in about 2010 with another four jet gates in about 2015. He said the question that keeps coming up is, can the airport revenue fund support additional projects, additional capital expenditures, that will be needed while this $190 million of debt is still being paid off at the rate of about $14 million a year. He pointed out that those are the factors that came to light on the first question. CHAIRMAN COWDERY asked Mr. Parkan if he could answer that question. Number 0312 MR. PARKAN said Mort Plumb could speak to the issue of cross-use of gates, and said that it principally is a matter of interest by the airlines, and whether or not they want to share a gate, as well as the equipment. MR. PLUMB said the people who did the forecast analysis went to the airlines and they were offered the opportunity to use a CUT (common use terminal) system and the preponderance of those that spoke with the consultants on this did not want to use common use terminal space because when they do that they have to switch out computers, et cetera. That was one of the fundamentals that went into determining the number of gates. He said the larger driving area may be the schedule. In Anchorage in the late evening hours many of the airlines arrive at the same time, so it's not only the ability to use the same gate, but it's also the conflict of having several airlines on the ground at the same time. He pointed out that the airlines determined if they wanted to use common use space or if they wanted to have proprietary space. He indicated they think there are some ways to accommodate with some of the regional carriers and some of the jet carriers that are between day and night that they can cross-utilize some of the gates. In their planning, they had allocated three of the gates to cross-utilize, although currently in Anchorage they are not cross-utilizing any gates. REPRESENTATIVE RYAN said, "This total enplanement for seven years from now of ten times the population of Alaska is six million people is going to take an awful lot of airlines coming in here and dropping off passengers that are going on to other destinations with other carriers. So we're going to have to have something like United or American or an up-lying route in competition with KAL or Cafe Pacific (ph) or somebody like this coming in and dumping their passengers here, interlining them off to this other airline. Or everybody in Alaska is going to have to go somewhere ten times a year." He said he understands what projected growth is, but he has difficulty visualizing that many people out of Anchorage. He asked if he could explain where all the people are going to come from. MR. PLUMB said he's not sure he heard the whole question. He then referred to attachment 2 entitled "Enplanement Forecast Charts," which shows the passenger traffic at AIA. Last year over five million domestic/international people went through the AIA terminal. He said he believes the enplanements for the target period were three million, which would equate to six million, and AIA is only one million behind that right now. REPRESENTATIVE RYAN restated his question. He said, "We have a projection of five times the population of Alaska. If I understand the word 'enplanement' that's someone getting on an aircraft to go somewhere; is that correct?" MR. PLUMB said, "Basically that is correct; that is someone getting on an airplane. It could also be counted as someone coming in on Alaska flight from Seattle to Anchorage and then getting on a U (ph) flight or an Era flight - if the air flight were not a co- chair flight or not a continuing flight - so they would be counted as an enplanement also." REPRESENTATIVE RYAN said he would like to ask a question out of context. He said he heard a rumor and doesn't know any of the details that there's a new underground fuel pipe system that's going to be laid at the airport. He asked Mr. Plumb if the new fuel system is going to take place in conjunction with or before the airport construction begins or are the new ramps and taxiways going to be built first and later dug up to put the new fuel line in. MR. PARKAN interjected and said the pipeline he is referring to is a pipeline that is being proposed by the fuel consortium that is delivering the fuel to all of the carriers right now. It's a separate issue being proposed and developed by that consortium currently and they are working with the municipality and the state and federal government to get the necessary permits to access fuel, particularly from the Port of Anchorage to the airport. He said because of the growth of traffic at the airport, the capacity of the existing pipeline isn't going to be able to meet the demand that they need. He said the airport needs a better way to get the fuel than their current system. He informed the committee it is a totally separate issue from the terminal project. REPRESENTATIVE RYAN asked, "It won't involve underground fueling?" MR. PARKAN replied if the pipeline is the ultimate solution it will come into the airport at some point, which will require it connecting with either the existing line or another larger diameter line that brings it to the new fuel site on the north side of the terminal. Number 0431 REPRESENTATIVE ROKEBERG said as he was reviewing the information submitted by DOT/PF he noticed that some of the questions the committee asked last week were omitted. Therefore, he would like to repeat his questions he asked and expand on them, which don't necessarily have to be answered today. He addressed the issue of gates and said he is disturbed with the design of the entire terminal for the fact that for the amount of money, only five new jetway positions are being added. He said, "If the projections are such that in five year increments will be a need for four each in the ten following years. And because of the - what appears to me a lack of foresight or design in the future footprint, I have talked to Mr. Plumb and other people about putting on another concourse between the B Concourse and the international concourse. However, I'm concerned about that. And perhaps it's the most only logical place, but it just seems for the 'bang for the buck' here we're getting about $40 million for each jetway. It doesn't seem like a very good investment, although that's not the proper way to look at it and I understand that. I am concerned about that and having adequate numbers." He asked Mr. Plumb, "When you're managing those jetways and those gates, you indicated they are proprietary now so it's really up to the particular airlines, but is there a vacancy factor or a turnover rate that helps you manage that?" He referred to Mr. Plumb's testimony where he talked about the common use versus the proprietary use, which he feels has a major impact on the turnover. As a manager, he asked Mr. Plumb how he perceives the number of gates the airport currently has and where they are going to be in a few years. MR. PLUMB advised the committee that one of the challenges they are facing is that TWA wants to dock in Anchorage, but they are having a very difficult time finding a place for them to dock at the times they want to come in. He said AIA is already behind the number of gates they should have at the current time. He said that is not a problem right now, but it will only become a greater issue as the traffic increases. He indicated that they certainly would not welcome any reduction to ease the gate problem, and said they currently do not have a problem as far as having too many gates. The challenge is trying to figure out where to pack the people when they come in now. REPRESENTATIVE ROKEBERG said his question was does AIA have enough gates. He noted that AIA would only pick up five more gates for $200 million. He said if AIA can't even accommodate their demands currently, and only five more are being added in the time frame of this project, he is concerned about that. He said he doesn't understand why they are adding five-feet of space for the people standing in line at the ticket counters, and wants to know how it all fits together. MR. PLUMB said he would refer the question to Donn Ketner, the project manager for the terminal redevelopment for AIA to explain exactly how that has been engineered and what some of the costs are. Number 0517 DONN KETNER, Architect, CCS, testified via teleconference from Anchorage. He explained that he is the project manager for the terminal portion of the terminal redevelopment project. He stated that there may be some misconceptions on several issues. First, they are proposing about a 40-foot pushout, the back gates A-1 through A-4, off the back of the ticket lobby and bag claim area. The reason for doing that is they will obviously be able to expand the ticketing and bag claim area. He pointed out it's important to understand that one of the main challenges that they face is the imbalance in the terminal today between the air side and the land side. He noted they are very deficient in ticketing and bag claims for the number of gates they have today. The other issue he wanted to address is future expansion. He indicated that they looked at 14 master plan alternatives for the year 2015. He said the airlines participated in evaluating those 14 different concepts, and the concept to provide a future concourse between what is currently the international terminal and Concourse B was found to be the most cost-effective plan for the future. In fact, some of the developments that they're proposing, such as the elevated road system, is currently sized to accommodate the 2015 plan because it would be too costly to do that expansion in multiple phases. REPRESENTATIVE ROKEBERG took note that the expansion would be 40 feet as Mr. Ketner explained and not five feet as he first stated. He noted that was a significant difference. He asked Mr. Ketner if they looked at expanding the baggage pick-up area in the new Concourse C area instead of reworking the existing bag claim area. MR. KETNER responded that they will expand both the bag claim area and the ticketing area in the new "C" replacement. He said they found that it would not be cost effective to totally replace the existing ticketing and bag claim area. He said, "Expanding what we have today with a combination of new square footage was the least expensive solution to the problem." Number 0570 REPRESENTATIVE ROKEBERG asked Mr. Ketner, "Why did you use a 45 degree angle when you go down from the perpendicular line of Concourse B to C and then your 40-foot expansion?" He said it expands a significant amount of square footage in cost and indicated he's not sure what they pick up from an efficiency standpoint. MR. KETNER said it would be better to answer that question looking at a conceptual floor plan. He said he could make that available to the committee, but the concept right now is to provide a central retail core to the new terminal space and also to provide for a secure circulation pattern that would allow all gates to be accessed without leaving security. He referred to the lower level and said they have an extensive need for operational space and bag make-up, which that space lends itself to quite nicely. REPRESENTATIVE ROKEBERG said, "I'm glad that's the case because I wouldn't want to spend $20 million on building a food court there, if that was the square footage cost." MR. KETNER said one of the answers to the questions the committee has in their packets addresses the expansion of the concession area. TAPE 98-6, SIDE A Number 0001 MR. KETNER continued, "One of the other points that's of interest is that we projected that the retail space that we're building should pay for itself in about a six-year period." REPRESENTATIVE ROKEBERG said, "In terms of the overall concept again, extending beyond the jetway area of the new Concourse C redevelopment wing and out into the regional commuter parking area, the way the conceptual design is it narrows down significantly and then it narrows down again and extends all the way as a walking area to the international terminal. This seems like an unusual design, particularly it's less square feet from a volume area, but like going all the way ... What was the reason for going all the way to the international terminal, number one, and number two, is the design going to accommodate the expansion if you had to put another pier out there to add additional gates later?" MR. KETNER addressed Representative Rokeberg's first question and said, "The connection between the seed extension in the north terminal -- so someone takes the movement of passengers between the north terminal and the south terminal, it is, as you may know, we are utilizing -- during the construction of the terminal we will be moving Delta Airlines' operation to the north terminal. In the long term as we construct domestic facilities toward the north terminal, I think we'll see a greater and greater need to provide a transit connection there between the north terminal and the south terminal, and to give passengers that as a walking alternative." He referred to Representative Rokeberg's second question regarding the design accommodating additional gates. He said the solution that was selected by the airlines as a long-term expansion alternative is to provide another concourse between what is now Concourse B in the international terminal. He indicated that they could fairly inexpensively provide a new concourse/pier midway between the north terminal and Concourse B. He said the design that they're looking at for 2005 anticipates the construction of that new pier and currently they're showing the pier coming on line with eight gates to service passengers in the year 2015. REPRESENTATIVE ROKEBERG asked what the cost would be for that. Number 0075 MR. KETNER said to a certain degree it will depend on when it comes on line and what escalation is between now and then. He thinks it will be in the $150 million range. REPRESENTATIVE ROKEBERG asked what the cost would be, using today's dollars, for an eight-gate pier. MR. KETNER replied that an eight-gate pier would be comparable to the north terminal that they currently have, which is close to 300,000 square feet. He said they're into building essentially an eight-gate facility, which would be a future project that would have to be voted on by the airlines and it would be triggered by actual enplanement increases and as they grow in enplanements, they would grow in revenue. REPRESENTATIVE ROKEBERG asked if there are any domestic flights using the international terminal currently. MR. KETNER responded in the affirmative. He indicated all of the domestic charter flights currently go through the international terminal and there is a connection to the regionals that they have identified, particularly during the summer. He noted that in the interim basis during the construction, which will probably be a three to four year period, Delta Airlines will be operating out of the international terminal. REPRESENTATIVE ROKEBERG said, "Yeah, but the connection won't help Delta then." He asked, "How much would we save if we lopped off the connection from the end of the passenger terminal use for the regional carriers over the international carriers?" MR. KETNER replied that he thinks that the cost of that facility was approximately $1.2 million. REPRESENTATIVE ROKEBERG referred to a question he asked at the last committee meeting regarding the coring shell versus the finish work cost for the fit-up of the premises, particularly as it related to the office space for the operation of administration of the airport. He said he is also curious about any preliminary designed on the whole baggage system and how it all fits together to be able to come up with the dollar figures that's needed for the project. MR. KETNER said they are in an early schematic design at this point in the project. He indicated that they have some very preliminary ideas with regard to exactly how the baggage systems would be laid out. He said the raw construction cost for the terminal expansion is about $142 per square foot. They recently received a report which showed that it compared fairly favorable with other terminal projects nationwide. REPRESENTATIVE ROKEBERG asked, "That was just your core and shell costs though, wasn't it?" MR. KETNER replied that is what he would call his raw construction costs. In other words, it would be the actual construction cost of the bid packages for the contractors. REPRESENTATIVE ROKEBERG asked if it includes the finish work detail and the other fit-up for the items inside. MR. KETNER said that cost per square foot would include finishes, except for those areas that would be leased as a shell area. REPRESENTATIVE ROKEBERG noted that Mr. Halford indicated that he was looking at the preliminary project cost with the extensions. He asked if the committee received copies of those figures. MR. PARKAN referred to Representative Rokeberg's question about office space and said there is a response in the committee's packet of questions. REPRESENTATIVE ROKEBERG said, "I know, that's not the response, though." MR. PARKAN said the office space will be approximately the same space as currently being used. REPRESENTATIVE ROKEBERG reiterated that his question was how much is it going to cost and how much is allocated to the finish work cost for the office space. REPRESENTATIVE PHILLIPS said she appreciates DOT/PF's answers on the baggage claim system and also on the glycol disposal areas and the recycling center for the glycol. She requested that the minutes from the meetings regarding glycol recycling be sent to her. She indicated that she has three questions. The airport operating agreement expires July 30, 2000, and she asked what is being done to renew this. In light of all the major expansion required, and apparently all of the future projects that they are looking at, she asked if anyone did a cost analysis of starting over at ground zero with a brand new terminal project on the other side of the north/south runway. In conjunction with that she requested DOT/PF to send the committee a list of all of the possible projects that they have on their drawing board for the entire airport to cover the next 25 years. She said what she is trying get is a cost analysis of just starting it over with a brand new facility. Last, she asked if the tower facility is satisfactory for the proposed expansion. She indicated that she doesn't need the answers to her questions today, but would like the answers at the next committee meeting. REPRESENTATIVE RYAN asked if any consideration has been given to segregating commuter traffic and general aviation traffic away from the larger jets so that that they're not commingling with smaller aircraft. Number 0215 MR. PARKAN said they would be happy to provide that answer to the committee at the next meeting. CHAIRMAN COWDERY referred to the questions/answers from DOT/PF on page 8 which reads: What prioritization have you done to achieve a scaled back scenario of there was a 100 basis point rise in interest rates? CHAIRMAN COWDERY indicated that the 100 point rise in the interest rate equated to approximately $30 million. He indicated DOT/PF's answer was: The Plan of Finance provides for a 100 basis point cushion in the sizing of the bond. No scale back scenario would be required for a 100 basis point rise. CHAIRMAN COWDERY said it seems to him that they have a $30 million contingency plan potential. He asked, "What would you do with the money?" Number 0235 GEORGE KING, Financial Consultant, HUDSON AIPF, LLC, testified via teleconference from New York. He said he believes there is some confusion because there are a couple of different factors that are coming into play at the same time. First, the $30 million number is a reference to the cost of a 150 basis point increase in a $100 million portion of the financing. He said, "If we were to split it into two pieces and we were subjected to an interest rate increase in the interim period of time before the second bond issue, so that's what that reference was from." He said the reference to the 100 basis point cushion is a comparison between current interest rates and the assumed interest rates, which were put into the financial model at the time they ran it. He referred to his last testimony and said they included interest rates that were 100 basis points higher than the rates at the time because they were and are experiencing 20-30 year lows in the interest rate market, and they did not feel that it was correct to assume that they would have access to those rates. They hope they do, but they didn't think it was fair to assume access to those great rates when they were showing the airlines what their model rates and charges would be. He referred to an earlier question regarding what would they do with the money if they were fortunate enough to have access to the current interest rates at the time they actually went to market. He said they would, on the issue of interest rates and every other aspect of the financing, do the absolute most efficient job at the time that they go to market, and any savings that result will result in lower debt service payments that will be in effect for the next 25 years. He said that will be locked in at the time they go to market, which will result in lower rates and charges. Number 0267 CHAIRMAN COWDERY asked Mr. King to put his testimony in writing. He referred to another question regarding who's design concept was it. Did AIA tell the architect what they wanted, or did the architect come up with the idea? He commented that he would like written answers to the questions raised in today's committee meeting from DOT/PF.
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