Legislature(1995 - 1996)
04/10/1996 01:08 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 136 - MANDATE SALE OF ALASKA RAILROAD Number 0048 CHAIRMAN GARY DAVIS announced the first item on the agenda was HB 136, an act mandating the sale of the Alaska Railroad; and providing for an effective date. He said a committee substitute was developed as a result of the testimony that was presented at the last meeting. Number 0078 REPRESENTATIVE JERRY SANDERS made a motion to adopt CSHB 136 (TRA), version F, dated April 9, 1996. Hearing no objection CSHB 136 (TRA) was now before the House Standing Committee on Transportation. Number 0125 TOM ANDERSON, Legislative Aide for Representative Martin, testified on CSHB 136 (TRA). He provided a sectional analysis and said in response to Representative James' concerns, although he could not say that all of her concerns were addressed in CSHB 136 (TRA), and the concerns of other committee members, CSHB 136 (TRA) changes the emphasis and inserts a more definitive plan for the sale of the Alaska Railroad. He said CSHB 136 (TRA) is identical to the Senate companion bill SB 64, by Senator Rieger. Number 0252 CHAIRMAN GARY DAVIS said there is a short time frame in CSHB 136 (TRA) and asked if the bill only referred to this year. He said an request for proposal might go out in October of 1996 and in February 15, 1997, it indicates that the Governor shall enter an agreement, if an agreement is reached. He asked if any information could be given on the timing. Number 0301 MR. ANDERSON said it was done to expedite the process and concurred that CSHB 136 (TRA) offers one window of opportunity without any carry over. He said legislation would need to be resubmitted regarding this issue in following years if there was not a response or the offers were not sufficient for the selling of the Alaska Railroad. Number 0337 CHAIRMAN GARY DAVIS said existing statute allows for the sale of the Alaska Railroad at any time. MR. ANDERSON said, yes, a sale could occur and that CSHB 136 (TRA) merely stipulates the provisions during this time frame. Number 0363 CHAIRMAN GARY DAVIS said CSHB 136 (TRA) relates to the appraisal of the lands, as well as ownership and appraisal of all the railroad properties. He said a question regarding the value was asked, and added the concern that this being an election year it would be unclear to know who would return to work on this issue in the upcoming years. Number 0444 REPRESENTATIVE TOM BRICE referred to Section F, page two, "contract for the appraisal under this section is exempt from 36.30" and clarified that this referred to the procurement procedure. MR. ANDERSON said the second page of the sectional analysis states that this language relates to the procurement procedure in (j). Number 0490 CHAIRMAN GARY DAVIS asked about the fiscal notes regarding the appraisal. Number 0498 MR. ANDERSON said a fiscal note was not available, but requested that a fiscal note be adopted. He said the Senate Finance Committee, through the guidance of Mr. Hickey, recommended a fiscal note for a fair market report, as compared to an appraisal, to be set at $900,000. He said an appraisal could lead to a fiscal note of $2 million as projected by the Alaska Railroad Corporation, who said a fair market report would "entail primarily the same." Number 0563 REPRESENTATIVE BRICE referred to Section C, "Upon entering into an agreement to sell the Alaska Railroad, the Governor shall immediately submit the agreement to the legislature for review during a regular session of the legislature." and asked if this precluded a special session called by the Governor to review this bill. MR. ANDERSON said yes it would preclude a special session and referred to the four month window of opportunity to buy the Alaska Railroad which would make it difficult to incorporate action during a special session. Number 0629 REPRESENTATIVE SANDERS referred to Section 1(a) and asked for a definition of what the "other assets" entailed. Number 0652 MR. ANDERSON deferred to Mr. Hickey to address those questions. A discussion ensued regarding the hotel property that the railroad owns 40 percent of and what would happen to that upon the sale of the railroad. Number 0679 REPRESENTATIVE DON LONG asked if there was a provision in CSHB 136 (TRA) for expansion of the railroad. Number 0691 MR. ANDERSON said CSHB 136 (TRA) does not address this issue. The bill addresses that operations must continue for 20 years and referred to the sectional analysis (b) that the purchaser accept all the contracts including the collective bargaining agreements and retirement obligations as well as provide for or above a fair market price. He said CSHB 136 (TRA) does not address the expansion issue, but said it could do so. Number 0725 REPRESENTATIVE BILL WILLIAMS referred to page two, Section 1(d), "The Alaska Railroad Corporation may not enter into a contract or other agreement.." and asked that this be explained further. Number 0725 MR. ANDERSON said this was included to prevent any pre-changes which could occur through the corporation prior to CSHB 136 (TRA) becoming effective. He said once CSHB 136 (TRA) went into effect, this provision would go into the act, but the sponsor felt that there might be a shift or an attempt to sell a portion or transfer a portion and he wanted to maintain everything as is up to the sale. Number 0803 MARK HICKEY, Representative, Alaska Railroad Corporation, said he would be available to answer any questions. Number 0805 REPRESENTATIVE BRICE asked how much land the Alaska Railroad had outside the easements and rolling stock yards. Number 0861 MR. HICKEY said the total acreage is around 38,000 acres. He said 12,000 of this is tied up in the right-of-way and directly adjacent to switching yards and sidings. He said quite a bit of the other 26,000 acres is under active lease to (indiscernible), many of whom are customers of the railroad. He said there are three or four large, vacant areas along the railroad line where the majority of the acreage is. He clarified that this remaining 26,000 is tied up in leases or is in three or four specific spots along the line such as the 5,000 acres in Healy. Number 0925 REPRESENTATIVE BRICE asked if the corporation sells the land or just participates in leases. Number 0940 MR. HICKEY said the Alaska Railroad Corporation primarily participates in leases and said state law prohibits the disposal of the full interest and real property without legislative approval. He said the legislature has given their approval once or twice on very special matters. Number 0975 REPRESENTATIVE BRICE said if the railroad was sold, there did not appear to be anything in CSHB 136 (TRA) which would continue this legislative oversight and added that this would be an issue he would want to address. He asked if it was reasonable to provide an appraisal by next January. Number 1031 MR. HICKEY said when the Alaska Railroad was purchased, the United States Railway Association (USRA) did a fair market value assessment, what was called an evaluation. He said, as part of this evaluation, a full appraisal of real property was done as well as an analysis of "going concern assessment" of the operation in a ten year length of operation, as required under federal law, and then discounting that back to present value. He said the process took eight months. He said the weather, winter time conditions, and when various people involved will be on the property need to be factored into this time process. He said the question of whether or not there is enough time depends on how detailed you want the evaluation to be. He said four months is a tight timeline and it could be a problem. Number 1108 REPRESENTATIVE BRICE asked how much a contract would cost for this type of appraisal. Number 1115 MR. HICKEY referred to the USRA figure which is what the Senate Finance Committee was given yesterday and was used by them to determine the $900,000 fiscal note. He said the price, that the Alaska Railroad Association could recall, was $863,000 in 1983 to perform the evaluation. He said the group that did the evaluation was at that time a branch of the federal government and the appraiser was a firm out of Philadelphia. He said there were travel costs as a result. He concluded that these types of costs would be involved as there is not that type of expertise available in the state. He said the cost also depends on the scope of the fair market value assessment. Number 1175 REPRESENTATIVE BRICE expressed concern about exempting the contract from the procurement procedure as it is a substantial amount of money not to have any legislative oversight. Number 1225 CHAIRMAN GARY DAVIS asked what the railroad would recommend for the Comfort Inn property. Number 1234 MR. HICKEY said the Alaska Railroad Corporation owns 40 percent interest in the partnership, which owns the Comfort Inn. He said the railroad obtained that equity position by foregoing a land lease and forming a joint venture. He said the Comfort Inn is an asset of the corporation and said there is no current position on what would occur in a disposition or sale. He said the Comfort Inn is a performing property, part of the asset base and contributes to the bottom line of the operation. He said a purchaser would probably be interested in obtaining the position that the railroad has. Number 1300 REPRESENTATIVE JAMES said she understood that the arrangement regarding the Comfort Inn was going to be done on a lease basis, not ownership by the railroad. Number 1315 MR. HICKEY concurred with what she said, it is a straight ground lease. He said if he finds out any different information he will let her and the committee know. Number 1346 REPRESENTATIVE JAMES said, when she was involved in this situation, there was a negotiated agreement between the city of Fairbanks and the railroad for the railroad to put some money into water and sewer for that section in order to create a subdivision and allow other people to use their land. She said CSHB 136 troubles her because it does not seem workable. She referred to Section 1(e), "Notwithstanding other provisions of this act, the state of Alaska shall retain an easement for transportation, communication, and transmission purposes on all land within the right-of-way of the Alaska Railroad received by the state under the Alaska Railroad Transfer Act of 1982.." and asked, if the railroad is the only access available for gas or an oil pipeline why would a purchaser let them have this easement. Number 1440 MR. HICKEY said this is an issue of concern. He said this provision was included as part of the federal transfer law which has some specific language about what happens to the right-of-way if there is a failure to continue rail service. He said if there is a 18 year period of non-use, there is a reversion of the remaining "easement" and said he believed this was included in the federal law to address this issue. He said this inclusion creates the problem of who then has the authority over the right-of-way for these kinds of purposes as well as a second problem that there is not this level of interest throughout the right-of-way for the state to retain. Number 1513 REPRESENTATIVE JAMES said she is in favor of privatizing the railroad, but if this right-of-way is important to the state, then the state might not want to sell. She referred to Section 1(2) which would require a purchaser to, "accept assignment of all contracts, including collective bargaining agreements and retirement obligations and agreements with connecting carriers, shippers, or other persons concerning services, operation, property, and facilities...provided that the contracts are assignable under terms of the contract..." and said this seemed to also be restrictive for a purchaser. She said this provision means that the purchaser would run the railroad as it is currently being run. Number 1575 MR. HICKEY said this provision is similar to the provisions that the state had when they took over the Alaska Railroad Corporation. He said there were concerns regarding this provision at the time of the takeover and a thorough job was conducted to determine what liabilities would be involved. He said, in the state transfer, there were some timelines regarding how long this provision would be in effect to allow the state, as the new owner, to have flexibility to run the railroad differently. He said shippers, employees and various entities which have contractual relationships will need some level of comfort that it will "be business as usual" to every extent possible. He said this provision would be a concern to the buyer about how much their hands are going to be tied as well as concerns by Alaskan businesses and employees who depend on the railroad. Number 1663 CHAIRMAN GARY DAVIS said the sale of the railroad would have some detrimental impacts on business in the state if contractual agreements were voided. He mentioned such contracts as Suneel, who haul coal from Healy to Seward, and MAPCO. Number 1694 REPRESENTATIVE JAMES asked if there had been any evaluation or any kind of report on any suspected environmental clean-up that needs to be done along the railroad, the properties including the Fairbanks rail yard. Number 1714 MR. HICKEY said he would get back to the committee regarding this issue. He said there is some environmental clean-up and that there has been an ongoing effort to deal with those types of questions in various places around the railroad, the Anchorage yard in particular. He said he did not know the details around the Fairbanks situation. He said this issue has involved the Environmental Protection Agency (EPA) as well as the Federal Railroad Administration because, under the transfer law any problems, pre-dating the acquisition by the state of the railroad, belong to the federal government. He said there has been work on these issues, but could not say to what extent. Number 1758 REPRESENTATIVE SANDERS said it had been his understanding that the Alaskan Railroad owns the docks down in Seward. He asked if this is correct, what would happen to those docks under a sale. Number 1770 MR. HICKEY said the railroad owns the railroad dock in Seward, it does not own the coal loading facility despite the fact that this facility is on land leased from the railroad. He said the state helped to build some of that facility. He said the railroad also owns a facility in Whittier. He said these properties would probably be viewed as an integral part of the rail operations as it is tied to the moving of freight. He said the communities might want to do something different and the state might not want to see that property in private hands. Number 1829 REPRESENTATIVE SANDERS referred to Section 1(c) and said CSHB 136 requires legislative approval and the legislature would have the opportunity to object to the ultimate sale once the conditions of the sale were known. Number 1844 MR. HICKEY said a number of answers could be provided to the legislature, but mentioned the short time span and said how thoroughly things are thought through depends on how good of a job is done. He said CSHB 136, according to his interpretation, states that the Governor has to enter into an agreement with the most responsive offer so long as that offerer agrees to conditions one, two and three. "It does come to you and if you act to disapprove it doesn't occur, but if you fail to act, as I read it, then it does go forward." He said CSHB 136 (TRA) does not require a subsequent act by the legislature to allow the sale to happen, but it does give the legislature one opportunity to stop the sale. Number 1886 REPRESENTATIVE BRICE said requiring affirmative action by the legislature to stop the sale, rather than a positive action by the legislature to agree to the sale raises some concerns which will need to be addressed in the amendment process. He asked what happens to those jointly owned assets such as facilities which were bought by the state and used by the railroad, specifically the coal facility. He also asked what would happen to the coal cars which the legislature has appropriated money to purchase. Number 1938 MR. HICKEY said on the question of the coal dock, currently, it is a lease arrangement. He referred to Section 1(b)(2) and said it would require the continuation of that arrangement, but the new private owner would be the lessor. He said other assets would have to be evaluated on a case by case basis. He said he had forgotten about the Wishbone Hill money which was an appropriation to the Alaska Railroad, for a specific asset to facilitate the Wishbone Hill coal project and the movement of coal if it comes on line. He said this issue would have to be addressed now in legislative input. Number 2000 REPRESENTATIVE BRICE asked if there were other appropriations which would be similar to the Wishbone Hill and asked about those assets bought by the state. Number 2021 MR. HICKEY said there is one other appropriation for Ship (ph.) Creek. An issue currently being debated for reappropriation by the Anchorage caucus. He said this appropriation was for facilitating development, using private money on a matching basis. He said another appropriation involves the purchase of railcars for the Ag. (Agricultural) Project, but he said he believed these cars were all gone. He said these are the types of questions that arise when you consider a sale. He said the better part of four years was spent, going through federal and state legislation, three maybe four separate sessions of the legislature dealing with the acquisition, and two years for the Alaska Railroad Corporation to get on its feet and run. He said the Alaska Railroad has successfully run without the need for any state money and money earned has been reinvested into the company. Number 2089 REPRESENTATIVE JAMES said there is $11 million that is in the Wishbone Hill account and cannot be spent without appropriation by the legislature even though it remains in the bank. Number 2109 MR. HICKEY said the Wishbone Hill fund is an appropriation to the railroad for purchases by the railroad which consists of a contractual agreement signed by the state, the Department of Transportation Commissioner, and questioned if it would or would not be transferred to the purchaser. Number 2130 CHAIRMAN GARY DAVIS said the passage of CSHB 136 (TRA) will bring about a lot of questions and it is a benefit that those questions will be answered. He said different requests have been made to find out if the railroad is for sale, such as the expressed interest by Montana Rail Link. Number 2171 CHAIRMAN GARY DAVIS said he would like to keep CSHB 136 (TRA) intact. Number 2203 REPRESENTATIVE BRICE made a motion to adopt proposed Amendment 1, striking, "by February 15, 1997," and capitalizing, "Governor". He said the date limits it to ten months and questioned whether or not it was a realistic timeline. Number 2262 REPRESENTATIVE WILLIAMS objected to proposed Amendment 1. He said the smaller amount of time that a business is up for sale, the smaller the impact on the business. Number 2299 REPRESENTATIVE JAMES concurred, but added another objection which was that she did not believe CSHB 136 (TRA) was workable and said removing the date just makes it more unworkable. She said she would want to amend the whole bill, but since she can't do that she doesn't want to see it amended at all. Number 2315 REPRESENTATIVE BRICE said once CSHB 136 (TRA) is put into law, potentially it would become law in May or June. He said the Railroad Corporation has stated that an honest appraisal might take upwards of eight months, yet the time constraints in the bill limit this from occurring. He said a realistic time frame must be included in legislation. Number 2352 A roll call vote was taken on Amendment 1. Representative Brice voted yea. Representatives Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Representative Masek was absent for the vote. Amendment 1 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 2416 KENNETH HUBBARD was next to testify via teleconference from Mat-Su. He said this sale would be too sudden and that replacement cost appraisals should have been received before this bill was proposed. He said the bridges and (indiscernible) may be worth more than what will be offered for the railroad. He said freight companies might make an offer or Princess Tours and said it should be a closed bid process. TAPE 96-16, SIDE B Number 0000 REPRESENTATIVE BRICE referred to Section 1(c) and said CSHB 136 (TRA) is requiring an affirmative action by the legislature to disapprove of the sale. He said language needs to be added to approve of the sale. He said, considering the amount of questions, that a sale proposal should go through the committee process. Proposed Amendment 2, on line 11, Section 1(c), read, "the legislature may approve the agreement by a concurrent resolution, if the agreement is not approved by the legislature before the adjournment of the regular session during which the agreement was submitted the agreement is disapproved." Number 0075 REPRESENTATIVE JAMES objected to the proposed Amendment 2. Number 0078 CHAIRMAN GARY DAVIS said he objected because a sale would come before the legislature anyway. Number 0085 REPRESENTATIVE BRICE said a sale would only come before the legislature if "a majority member, to put it bluntly, wants to disapprove of the contract." He said assets of this type and size, which affects the private and public economic well being of the state, should require an affirmative action by the legislature. Number 0144 A roll call vote was taken on Amendment 2. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 2 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0171 REPRESENTATIVE BRICE proposed Amendment 3 in Section 1(f), deleting, "A contract for the appraisal under this section is exempt from AS 36.30." and striking Section 1(j). He said this is a potential million dollar contract that will not receive one iota of public oversight. He said the procurement procedure would allow for oversight to insure that the necessary appraisals, determining the valid cost, were done in an appropriate manner. REPRESENTATIVE JAMES objected to the proposed Amendment 3. Number 0248 A roll call vote was taken on Amendment 3. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 3 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0264 REPRESENTATIVE BRICE said he is proposing Amendment 4 which would give the Alaskan Railroad employees the first right of refusal to insure that if they come up with a proper amount of money they be given the first opportunity to purchase the railroad. REPRESENTATIVE WILLIAMS objected to the proposed Amendment 4. Number 0325 REPRESENTATIVE JAMES said she would not want to change CSHB 136 (TRA) today, but said the employees should have the opportunity to buy the railroad. Number 0347 CHAIRMAN GARY DAVIS said there was no provision in CSHB 136 (TRA) precluding the employees from making a bid to buy the railroad. Number 0365 REPRESENTATIVE BRICE said the reason behind giving the employees the first right of refusal gives them a legal standard by which they must be considered. Number 0248 A roll call vote was taken on Amendment 4. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 4 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. REPRESENTATIVE BRICE proposed Amendment 5 which would require the sale of the Alaska Railroad to be approved by the railroad employees as it is such an important change. He said giving the employees this power would give them the surety and the stability that they need. Number 0471 REPRESENTATIVE JAMES objected to the proposed Amendment 5. She said the legislature does not think as businesses do. She said if she was the person who had the money to buy the railroad, made an offer and then found out that the offer was contingent upon whether or not someone could meet that offer, she did not think she would make the offer in the first place. She said the proposed Amendment 5 does this when it gives the employees of the railroad 90 days, after the Governor enters into an agreement, to make an offer to purchase the railroad. Number 0514 REPRESENTATIVE BRICE said if this amendment does anything, it is to require that the purchasing group to be involved with the employees of the corporation, which would prevent any displacement of employees. A roll call vote was taken on Amendment 5. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 5 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0600 REPRESENTATIVE BRICE said there are too many questions surrounding CSHB 136 (TRA) which have not been answered. He said the timelines are unrealistic, there are no real assurances for the employees of the corporation, nothing that requires the legislature to address this issue once an agreement has been made and the legislation does not allow for any scrutiny by the public, the Administration or the legislature. He said there is no oversight regarding the "contract" and said anyone can participate in this without any scrutiny. Number 0700 REPRESENTATIVE JAMES disagreed that anyone is qualified to bid on this, CSHB 136 (TRA) states that it needs to be done by a qualified railroad appraiser and she said she doubted whether or not anyone on the committee would fit that standard. Number 0720 REPRESENTATIVE JAMES said she is not comfortable with CSHB 136 (TRA), but could not find any easy way to fix it. She said she liked the provision for the continuation of the railroad for a minimum of 20 years and agree to all signed labor contracts and agreements. She questioned whether or not the amount of the purchase price should exceed the fair market value of the railroad or equal the amount the state has expended to obtain, maintain and subsidize the Alaska Railroad. She said, when you sell an asset, it is not realistic to say that the state is going to get the money back. She said everything that is sold is based on fair market value, which could be more or it could be less. She said all the appraisals in the world can be done, but if no one is willing to offer that amount, then that appraisal is incorrect. She said enough time should be given to make offers yet prevent the disruption of the railroad and avoid the appearance of a "fire sale." She said the state should avoid acting like they need to get rid of the railroad "before next Tuesday." Number 0793 REPRESENTATIVE JAMES said CSHB 136 (TRA) has a good intent, the state should move forward to privatize the railroad and find a purchaser who has the money and the ability to expand the railroad. She said the railroad will never expand as long as it is under the control of the state and it should pay money to the tax rolls for its operation. She does not believe that CSHB 136 (TRA) is going to do anything. She moved CSHB 136 (TRA) from the committee with the attached fiscal note and individual recommendations. Number 0833 REPRESENTATIVE BRICE said CSHB 136 (TRA) requires a qualified railroad appraiser and then questioned what this was as there was nothing in statute to define what that was. Number 0843 REPRESENTATIVE SANDERS said he was going to vote for CSHB 136 (TRA) to "stir things up." He said the bill protects the workers because it requires the purchaser to comply with all the bargaining agreements. Number 0877 A roll call vote was taken on whether to move CSHB 136 (TRA) out of committee. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted yea. Representative Brice voted nay. The CSHB 136 (TRA) was moved from the House Standing Committee on Transportation.
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