Legislature(1997 - 1998)
05/03/1997 08:10 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 55 - ALASKA RR BUDGET AND LAND The next order of business to come before the House State Affairs Standing Committee was HB 55, "An Act relating to the fiscal operations of the Alaska Railroad Corporation and to land acquired by the State of Alaska under the Alaska Railroad Transfer Act of 1982 or otherwise acquired for railroad purposes; and providing for an effective date." Number 0720 CHAIR JAMES explained the plan for the bill was to hold it over until Tuesday, May 6, 1997, in order to take additional testimony. Number 0799 REPRESENTATIVE TERRY MARTIN, Alaska State Legislature, explained the bill was introduced on behalf of the Legislative Budget and Audit Joint Committee after allegations that the Alaska Railroad was not following the procedure act for the state of Alaska. A letter by Norman C. Gorsuch, Attorney General, dated May 26, 1984, indicated that the state should not neglect its responsibility to privatize the railroad. The legislature only wanted to be a conduit to save the railroad because the federal government wanted to get rid of it. Since then there had been efforts to privatize the railroad and to stop it, but that was a different battle. The bill did not deal with privatization, selling the railroad, or the land. It only dealt with bringing the corporation under the Executive Budget Act (EBA) like every other corporation in the state. Last year, a letter from Tamara Brandt Cook, Director, Division of Legal and Research Services, indicated that the state must bring the Alaska Railroad under the EBA. Therefore, the legislature on behalf of the public would be able to protect the land, resources, and other assets that belonged to the state. Number 1070 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, was the next person to testify in Juneau. The Administration was not in support of the bill. The opinion from 1984 referred to by Representative Martin was being misrepresented. There were varying types of corporations in the state in different business. The legislature had chosen to treat each of the corporations differently under the EBA. There had been other corporations that had been totally off budget. The opinion in 1984 was a value judgement of the type of entity that would operate the Alaska Railroad. The legislature chose that it would be an entity that was capable of conducting business as a private corporation, but also recognizing that it was a governmental entity. The legislature wanted it to run without subsidy on a business type budget, not a governmental type budget; otherwise, it would be bound by the state's fiscal year, line- items, and the requirements of the EBA. MR. BALDWIN further stated there was concern that access to the credit market would be impaired by placing the railroad under the EBA. The railroad took advantage of a small issuers exemption to the Internal Revenue Code which gave a better interest rate because it was under $10 million. If the railroad was lumped with the state under the EBA it would not be considered less than $10 million and the cost of borrowing would be more. Number 1285 DOROTHY URBACH was the first person to testify via teleconference in Seward. She was opposed to the bill because it would limit flexibility to the customers on long-term contracts. It would also limit financing for future acquisitions. The Alaska Railroad had a very efficient board of directors and was making a profit. "Why destroy it?" she asked. Number 1337 JOHNE BINKLEY was the next person to testify via teleconference in Fairbanks. He currently served on the board of directors for the Alaska Railroad. He had also served in the Alaska State Legislature, and had been part of a family business for his entire life. There were many reasons to oppose the bill and there was only one reason to pass the bill. MR. BINKLEY further stated the Alaska railroad retained its earned revenue unlike any other agency. The bill would preclude the railroad from enjoying the status that allowed it to get a lower interest rate from banks. It would also violate the covenant in the existing long-term debt and would have the banks call on the notes. The banks would no longer be able to enjoy the tax break from the Internal Revenue Service (IRS). MR. BINKLEY further stated it would preclude the railroad from borrowing money in the future for capital expenditures because it would require a legislative appropriation. The railroad relied heavily on equipment. It would be disastrous to try and get money from the legislature. MR. BINKLEY further stated it would increase the risk to the state of Alaska. The Alaska Railroad purchased its insurance for catastrophic single occurrence coverage for up to $75 million. There had been dozens of lawsuits against the Alaska Railroad Corporation and not once had the state been named. MR. BINKLEY further stated the railroad's peak season was the summer months. The EBA would force the railroad to adopt the state's fiscal year which ended on June 30. It did not make any business sense to interrupt the fiscal year in the middle of the busiest season. The railroad's fiscal year was the calendar year ending in the off season which allowed for more efficiency. MR. BINKLEY further stated that the federal government realized in running the Alaska Railroad that it would not work if political power was the board of directors. Political power was why the railroad lost huge sums of money over the years. It was also why the Railroad Act said to set it up as a private or separate corporation. The bill would be in violation of the act, but he did not know if the federal government would take action. MR. BINKLEY further stated the only one reason to pass the bill was to allow for the legislature to have more influence over the running of the Alaska Railroad. He did not believe that the bill would only allow for a small line in the front section of the budget because he had seen how the legislature worked and how it affected the operations of state agencies. The railroad ran on the same principles as the private sector - customer service and profit. In addition, he was appalled that a republican run legislature was even considering this type of bill. Number 1782 REPRESENTATIVE HODGINS asked Mr. Binkley if he received any compensation from the Alaska Railroad now? MR. BINKLEY replied, "Yes." He received a stipend as a board member as called for in law. REPRESENTATIVE HODGINS stated he now understood the testimony of Mr. Binkley. Number 1800 MR. BINKLEY replied, if Representative Hodgins was suggesting that he was testifying because it was benefitting him financially, he took exception to the comment. He worked in a family business with over 140 employees that received a paycheck every Friday. His employees were his primary focus. He was asked to serve on the board. He did not serve because of a stipend. He served because he felt a true and genuine obligation to keep something going that worked for the state of Alaska. Number 1832 REPRESENTATIVE HODGINS apologized to Mr. Binkley. Number 1837 REPRESENTATIVE DYSON stated he was really uncomfortable about just what happened. He was also uncomfortable because of the laughing in the audience when people were testifying telephonically. CHAIR JAMES asked the committee members and the audience to control their gestures. Number 1903 BILL SHEFFIELD, Chairman, Board of Directors, Alaska Railroad Corporation, was the next person to testify via off-net in Anchorage. He noted today was Railroad Day in Anchorage and Jolene M. Molitoris, Federal Railway Administration, was here as well wishing to testify. MR. SHEFFIELD further stated there were three basic categories of flaw in the bill: the impact on the private businesses that thrived on the railroad, the governmental problems, and the damage to the fundamental way the railroad was organized. MR. SHEFFIELD explained the railroad was purchased from the federal government so that Alaskans could control a vital transportation corridor. The legislature understood that governmental railroads were often run for political reasons and by bureaucrats. And, if it had to compete for money with hospitals and schools, it would fall into disrepair. Therefore, the railroad was set up precisely to avoid the pitfalls. It was separated so that it could hire professional managers whose goals were to provide good service, earn a profit, and focus on safety. The bill would violate the separation. MR. SHEFFIELD explained the bill was bad for business and for the contractors. Its business year was established to met the business flow. The state's fiscal year would rip its business year right down the middle of its busiest season. The railroad had to act quickly because it was a service business. It could not wait for the legislature to increase its budget or to collect the extra revenue. The bill would also hurt its ability to borrow money to upgrade equipment, expand its service, or track for example. The loans were not written so that the interest and principle were depended upon legislative appropriation. It was hard to believe that a commercial lender would loan the railroad money at the current interest rates if repayment was dependent upon legislative appropriation. This would cause the railroad to either go under or force it to go to the legislature for subsidy. MR. SHEFFIELD explained the bill had been sold to the public as a good governmental bill with no real oversight or added responsibility for the state. The Alaska Railroad Corporation was intentionally separated from the government so that any financial obligations would not fall back to the state in the case of default or liability. If the bill passed the state would be liable regardless of the new tort reform law because with control came responsibility and real cost. MR. SHEFFIELD stated, in conclusion, the bill would add a layer of governmental bureaucracy to a profitable and self-sustaining asset. It would increase the cost of doing business and strain the ability of the railroad to obtain financing for improvements affecting customer service. It would undue the intent of the legislature in 1985, and it would expose the citizens and the Governor to substantial liability. Number 2245 JOLENE M. MOLITEROS, Administrator, Federal Railroad Administration, was the next person to testify via off-net. The Clinton Administration was committed to a partnership that enhanced rail transportation for the twenty-first century. She was here to focus on the safe operations of the railroad and to enhance the partnership. The railroad was a crucial transportation resource for the future of the state. It was unique in the United States because it represented the artery of the state's transportation system. It was important to know that there was federal legislation that would help the railroad compete for existing transportation resources enhancing its ability to become more profitable and safe. She reiterated she had been impressed with the partnership around safety and customer service. It was the type of relationships that the president believed would enhance the transportation system in the twenty-first century to meet global competition. TAPE 97-56, SIDE B Number 0001 TROY STRASS was the next person to testify via teleconference in Seward. He started his career with the Alaska Railroad in passenger services. He was concerned about the impact of the bill on the budget cycle of the railroad. It was important to have the money for the busy season in the summer months. He could not see how the railroad could expand under the fiscal cycle of the state. CHAIR JAMES announced the public testimony was closed for today. The bill would be scheduled again for Tuesday, May 6, 1997. Number 0068 REPRESENTATIVE DYSON apologized to Representative Martin for his reaction earlier in light of the realization that he was not being contemptuous to the testifiers.
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