Legislature(2003 - 2004)
05/12/2003 05:36 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 315-INTERNATIONAL AIRPORTS REVENUE BONDS CO-CHAIR HOLM announced that the next order of business would be HOUSE BILL NO. 315, "An Act relating to international airports revenue bonds; and providing for an effective date." Number 0620 MIKE BARTON, Commissioner, Department of Transportation & Public Facilities (DOT&PF), presented the sponsor statement for HB 315, which was sponsored by the House Rules Standing Committee by request of the governor. He said the bill would raise the bonding authorization for revenue bonds for the Ted Stevens Anchorage International Airport and the Fairbanks International Airport by $76.6 million and that the request is for authorization to sell revenue bonds to finance the additional costs. He said that a briefing of the additional costs had been provided in mid-March. COMMISSIONER BARTON said his intent was to provide some background information and that people were on line to answer questions in greater detail. He began by saying that the Fairbanks and Anchorage airports were operated as a system. The operation is governed by what's known as an "airport operating agreement," which is essentially a contract between airports and airlines and establishes a business relationship between the two parties. It obligates the airlines to pay for the cost of running and maintaining the airport, including capital projects and bonded indebtedness, through the fees that are charged at the airport. It also obligates the airport to a secure agreement on costs including capital projects. COMMISSIONER BARTON said that in 1997 the airlines agreed to fund the terminal re-development projects. Two sets of revenue bonds were previously issued, one in 1999 and one in 2002, and HB 315 is somewhat similar in that it does not constitute an obligation to the state, the bonds are insured, and it does not involve general fund monies. COMMISSIONER BARTON continued that there have been discussions with the airlines since January about how to cover the additional costs and agreements have been reached on a number of things. One is that Concourse C needs to be completed; the airlines agree with that. The department has agreed to defer $60 million in capital projects to later years in order to minimize the impact of this on the airlines, and has also agreed to continue with capital projects that are largely funded by federal money. Commissioner Barton mentioned that Dave Eberle [DOT&PF] was on line, and could walk the committee through the "Legislative Briefing" in the committee packet, although it would largely be a repetition of what was presented in mid-March. CO-CHAIR HOLM responded that it wasn't necessary to review the briefing, as it was presented during a subcommittee meeting as well as at an [overview on March 13, 2003]. COMMISSIONER BARTON then referred to the "Alaska International Airports System Business Planning Information" included in the committee packet that was put together by a financial consultant, and in particular, Ken Sura of Landrum & Brown, Inc., in Chicago, a company that's been involved with various airport projects, including projects in Chicago, Toronto, Cleveland, San Jose, and San Diego. He directed the committee to page 18, indicating the request for a bonding authority amount of $76.6 million. He pointed out that of that amount, $48.0 million is for the terminal project, $10.0 million is for the capital improvement project (CIP) for Anchorage for fiscal year 2004 (FY 04) - and is the match money for federal funds - and $3.5 million is for CIP funding for Fairbanks, which is also match money for federal funding, and there are other financing costs for the bond package, which is $15.1 million. Number 1048 COMMISSIONER BARTON explained the context for the bond request and the expectations regarding economic activity and continued airport operations over the next several years. He said that no general fund monies are involved, nor is the credit of the state involved; the bonds are secured by the revenues generated by Anchorage and Fairbanks, and the insurance company is the ultimate payor in the event of a problem. CO-CHAIR HOLM inquired about [previous] testimony regarding net revenues amounting to 1.25 times [the Aggregate Annual Debt Service]. COMMISSIONER BARTON responded that the airport is required to collect from the airlines 1.25 times the annual debt service. CO-CHAIR HOLM asked if this amount - 1.25 times the annual debt servicing - includes, with projections, the $76.6 million that is being requested. COMMISSIONER BARTON confirmed that this was the case. CO-CHAIR HOLM thereby confirmed that projections indicate that the amount can be managed. He then referred to the [House & Senate joint overview meeting of March 13, 2003] in which fees, including landing fees, were indicated, and asked why Anchorage's fees were so low, noting that the amount was significantly lower than that for Seattle or Los Angeles. COMMISSIONER BARTON commented that the Anchorage airport is very efficient, is well run, and is a reasonably low-cost operation. Number 1236 KEN SURA, Vice President, Financial Planning & Program Implementation, Landrum & Brown, Inc., said that primarily, landing fees are a function of the structure of the operating agreement as well as a function of where the airports are in their particular development cycles - that is, the investments being made in capital programs. He said that the taking of such a "snapshot" presents an uneven comparison of Anchorage and Fairbanks with other airports. CO-CHAIR HOLM replied that this did not answer his question, and asked if a "snapshot in time" was taken with given parameters set, so that apples were being compared to apples rather than comparing applies to oranges. He asked why the landing fees in Anchorage are so much less than those of other airports. MR. SURA said this was due in part to the take-off weight from cargo carriers because that helps to reduce the landing fee, and is a function of how the agreement with the airlines is negotiated. COMMISSIONER BARTON offered that Anchorage is the busiest cargo airport in the country. CO-CHAIR HOLM added that in addition to acknowledging that, Alaskans pay the highest amount in the country for traveling from points a-to-b. He questioned why the landing fees were so low and what the correlation might be between these fees and the high costs of travel in Alaska. He noted that a one-way ticket from Fairbanks to Anchorage was $170, while flying from Seattle to San Diego could be as low as $99. MR. SURA responded that these prices were not a function of the landing fees, terminal rentals, or other charges, but were a function of what the market would bear. Because of the necessity to have air service from Alaska to the Lower 48, in a capitalistic market, the airlines will charge what they can charge. CO-CHAIR HOLM responded that he was aware of that, but wondered if the cost of transportation in Alaska was being elevated by virtue of subsidizing the landing and take-off fees for commercial freight handling and wondered what the relationship was between that and the cost of passenger travel. He mentioned that he just flew roundtrip and the TSA [Transportation Security Administration] fees were $52. He asked if there should be some commensurate increase in the landing fee to offset some costs, and asked if this had been addressed. MR. SURA said this had not been addressed. He indicated that across the country there is a lot of conversation regarding how the new TSA security requirements would be funded, and airports are working to get additional funding. Currently, there is no funding specifically identified by the TSA or the DOT. Number 1548 COMMISSIONER BARTON told the committee that $20 million of the added cost is a result of TSA security requirements, and referred to page 20 [of the "Alaska International Airports System Business Planning Information"] which addresses the [Alaska International Airport System (AIAS) Plan of Finance, Landing Fees], according to the anticipated completion of the whole terminal project as well as some capital projects and future bonding. To recapture the $20 million that has been invested in Anchorage for TSA requirements; that is captured in this landing fee. He said that the department is pursuing direct reimbursement with the TSA as well, and that a number of airports across the country are doing that, however, not very successfully, so far. REPRESENTATIVE OGG asked about the timeframe involved. COMMISSIONER BARTON answered that the bonds would be paid off in 25 years. CO-CHAIR HOLM referred to the [AIAS Plan of Finance] on page 20, commenting that there is a significant difference between the feasibility study and the plan for financing by nearly 50 percent. MR. SURA replied that the 2002 feasibility study did not contemplate this particular bond issue or the other bond issues seen in this presentation. The 2002 feasibility study was based on what at that time was a negotiated agreement between AIAS, the airport system, and the airlines, to fund a $333 (indisc.) five-year CIP. He reiterated that the feasibility study numbers reflect the negotiated agreement between the airlines and the airport system that was to fund $333 million over a five-year period. The AIAS revised forecast includes the completion of Concourse C as well as the expected funding for the completion of Concourses A and B and the completion of the CIP program. He said, "That's why the numbers vary in the years beyond what's anticipated." Number 1781 REPRESENTATIVE KOHRING asked if the original amount that was authorized by the legislature several years ago was approximately one-quarter million dollars. COMMISSIONER BARTON said that $330 million was originally authorized. REPRESENTATIVE KOHRING, commenting that this amount was about 1/3 of $1 billion, questioned why more was needed than was originally requested, asking if it was due to major modifications made to the original design as well as from accommodation overruns. COMMISSIONER BARTON replied that the additional monies are needed for the TSA requirement, in the amount of $20 million, and that $30 million is for redesigning the structure as a result of some differences in the early stages in interpretation of seismic codes; the delay in resolving that, as well as the changes, resulted in $30 million. He also said there were some added space requirements that have been financed. REPRESENTATIVE KOHRING asked, given the size of this major project and the amount of debt, if the commissioner was confident that the projected revenues would be available. COMMISSIONER BARTON confirmed that the risk would be minimal. REPRESENTATIVE KOHRING then asked what assurances were available to indicate that the revenues would be adequate. COMMISSIONER BARTON replied that the bulk of the revenue from the airport comes from cargo carriers, and the cargo market looks good, with the forecast for the improvement of cargo looking good, as well. The Asian cargo market is projected to be the leader of that increase. He said that there will be some increase in passenger traffic. He referred to page 5 [AIAS Business Planning Information] indicating a trend line that shows what has happened over the past 40 years regarding how the system has responded to various shocks; the trend line has grown from 60 million [U.S. Revenue Enplanements] in 1960 to a projection of about 650 million in 2001. COMMISSIONER BARTON then referred to page 6, which shows what's happening in the Asia cargo market, and page 8, which shows cargo projections [Total Gross Take Off Weight] and lists amounts such as 5 percent, or 3.4 percent. REPRESENTATIVE KOHRING said he heard the original legislation several years ago, perhaps in 1999, and that although he is disappointed that the cost is greater, he recognizes the reasons for the increase. He referred to the original design, which called for a connection with the International Terminal, and wondered why this had been changed. COMMISSIONER BARTON responded that this was deferred as part of a capital project deferral in order to minimize the impact [of the increase]. He confirmed that this connection remains a plan for the future. Number 2174 CO-CHAIR MASEK moved to report HB 315 out of committee with individual recommendations and the accompanying fiscal notes; she requested unanimous consent. There being no objection, HB 315 was reported from the House Transportation Standing Committee.
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