Legislature(1999 - 2000)
03/30/1999 01:05 PM TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HCR 3 - PASSENGER FACILITY CHARGES AT ANCHORAGE CHAIR MASEK announced that the first order of business was House Concurrent Resolution No. 3, Relating to use of passenger facility charges at the Anchorage International Airport. REPRESENTATIVE COWDERY explained that HCR 3 has been put forward by the subcommittee appointed by Chair Masek, consisting of Representatives Cowdery, Kemplen and Sanders. The resolution came about after hearing extensive testimony in a joint meeting of the House and Senate Transportation Standing Committees, and Era Aviation is the only party on record who opposes passenger facility charges. REPRESENTATIVE COWDERY stated, "I favor this resolution because I think it is in the public interest. Right now, Alaskans are paying about $3.5 million per year in PFCs [Passenger Facility Charges] that go to outside airports. If the governor starts collecting PFCs at the Anchorage International Airport, we'll then capture that $3.5 million for Alaska, and also collect about another $1.5 million, for a total of about $5 million per year to fund airport improvements." Number 0201 PETER TORKELSON, Researcher for Representative John Cowdery, Alaska State Legislature, came forward to provide details on HCR 3 and answer questions. He reiterated that the spirit of this measure is to capture funds that are now going out of state, and giving the airport system a more stable revenue base. Currently, PFCs are paid by Alaskans who travel to Juneau and Ketchikan. Passenger Facility Charges are supported by Alaska Airlines, Northern Air Cargo, Reeve Aleutian Airways, Federal Express and the Federal Aviation Administration (FAA). Era Aviation is the only airline that opposes PFCs at Anchorage, and their fear is that they'll lose traffic due to an increase in ticket costs. MR. TORKELSON said he was told that Horizon Air had similar concerns when PFCs were implemented in Eastern Washington and Oregon, and he felt those fears turned out to be largely unjustified, as the traffic did not go down significantly from those airports. This is especially interesting when considering that those areas have four-lane freeways that do not go over avalanche-prone passes; this makes automobile traffic even more of an alternative for them than it is, potentially, for people from Kenai. Mr. Torkelson expressed respect for Era Aviation's position; however, it is his belief that PFCs will "do more good for more people." Number 0335 REPRESENTATIVE HALCRO wondered if the legislature would need to come back and create legislation that would allow PFCs to be charged, or if this can be done simply by application to the Department of Transportation and Public Facilities (DOT/PF). MR. TORKELSON reported that DOT/PF does not require legislative authorization to implement a PFC program, and HCR 3 merely states a position. It is, however, an extensive application process with broad opportunities for public testimony and public input, specifically, input from airport users who will be most affected by these charges. He noted that the FAA must approve every program that PFC receipts are used for, and they have to be in the best interests of airport users. Number 0421 REPRESENTATIVE COWDERY noted that Era Aviation had concerns about the Kenai Airport. He referred to a letter he received from the John Williams, Mayor of Kenai, which indicated that they oppose PFCs "at this time," and Representative Cowdery felt that the Kenai Airport will, in time, look at PFCs. He read the last paragraph of that letter as saying, "Due to the uncertainty of the future status of the Anchorage AIP [Airport Improvement Program] funding program, the city of Kenai will have to look at the PFC program if the need arises. It is our request that the state legislature take no action that would restrict the ability of the city of Kenai to implement a PFC program." He summarized that letter by stating his belief that Kenai is "keeping their options open." REPRESENTATIVE HUDSON clarified that nothing in HCR 3 would preclude the city of Kenai from implementing a PFC program in the future. Number 0593 REPRESENTATIVE COWDERY added that he was informed by FAA that there are certain exemptions of rural communities that are a concern to most people. They cannot guarantee what they will do until the application is made, but when Juneau applied for PFCs, he believes, the FAA approved all but one of the requested exemptions. MR. TORKELSON said it is important to note that this resolution only addresses the PFC issue at Anchorage. He reported that United States Senator Ted Stevens is working to amend the PFC legislation to allow broader exemptions for some Alaskan communities; however, their information is that this legislation probably will not go through this year. Number 0647 REPRESENTATIVE HALCRO felt that the concerns raised by Era Aviation were well-founded. They serve markets that are traditionally lower in fare, but they also had some concerns about amendments that U.S. Senator Stevens was proposing on a federal level regarding exempting carriers that have 18 seats or less. On some runs, at the last minute, they can go from an 18-seat plane to a 37-seat aircraft. He reported that they also had some concerns regarding central air service, as some cities, like Cordova, compete head-on with Alaska Airlines, which would be exempt from collecting the PFC. He emphasized that he wholeheartedly supports PFCs; however, he reminded the committee that there was, at one point, discussion about exempting intrastate travel from PFCs. He asked the sponsor if that is still an opportunity. Number 0743 REPRESENTATIVE COWDERY thought that issue would be addressed by DOT/PF at the time of application. REPRESENTATIVE HALCRO explained that Era Aviation is just concerned about making sure there is a level playing field. He noted that Reeve Aleutian Airways supports PFCs; however, if the amendments supported by U.S. Senator Ted Stevens were approved, Reeve Aleutian Airways would never collect a PFC, as all of the locations they service are communities are less than 10,000 in population and not connected by a highway system. He felt it was important for the committee to keep in mind that Reeve Aleutian Airways' glowing support of PFCs is in light of the fact that their customers might not have to pay for them. He added that Kenai and Homer are relatively low-fare markets, and it is important that one or two carriers are not disenfranchised. Number 0866 KURT PARKAN, Deputy Commissioner, Office of the Commissioner, Department of Transportation and Public Facilities, testified on behalf of DOT/PF in support of HCR 3. He said the department intends to apply for PFCs and welcomes the legislature's discussion and support of this resolution. CHAIR MASEK asked if Mr. Parkan could respond to some of the questions and concerns previously raised in this meeting. MR. PARKAN reopened the question of intrastate-versus-interstate exemption, and he noted that this issue was something DOT/PF looked at in the past. He believes the state of Hawaii tried to implement this exemption so that only incoming tourists would pay PFCs, but the FAA denied it, stating they could not put a barrier at their border. He supposed it was conceivable to request some statutory change to PFC legislation, but the approach DOT/PF has taken is an attempt to not set up a flag in everyone else's mind throughout the country. Their goal was to implement something fairly minor and innocuous that would not receive a lot of scrutiny from other senators and congressmen. Mr. Parkan said, "If you tried an exemption that drew a line at the border, you would have a major, I would think, battle on your hands." Number 0961 REPRESENTATIVE HALCRO referred to the second-to-last paragraph of the letter of support from DOT/PF Commissioner Joseph L. Perkins, and noted that it expressed DOT/PF's support for waiving PFCs for rural and remote areas, using the guidelines of U.S. Senator Stevens: communities less than 10,000 in population and not connected to the land highway system. He agreed that past discussions indicated that borders could not be put up. He stressed, however, that some of these communities are unique in nature and require last-minute changes in aircraft. In an effort to not create an unfair burden of collection, yet ensure that these small communities are covered, he asked if the 18-seat-or-less exemption could be possibly be "bumped up." Number 1026 MR. PARKAN agreed. He pointed out that DOT/PF did not participate in the development of 18-passenger aircraft exemption language. He also felt that the concerns of Era Aviation are legitimate and need to be addressed, and he confirmed that changing aircraft would create a problem with the exemption. REPRESENTATIVE HALCRO wondered if that was something DOT/PF could apply for. MR. PARKAN assured Representative Halcro that DOT/PF is not pursuing the use of an 18-passenger exemption, and that he has forwarded those concerns raised at the last meeting to Washington, D.C., to share with U.S. Senator Stevens. REPRESENTATIVE HALCRO clarified, "Is it possible for you, in your application to the FAA, to say, 'We request a waiver for aircrafts 30 seats or smaller or 35 seats or smaller'?" MR. PARKAN indicated that DOT/PF could request that as one of their possible exemptions; however, he suspects the FAA would not grant that request, because it would not be made a statutory change to the law. Number 1125 REPRESENTATIVE COWDERY reported it was his understanding that money collected from rural airports could be pooled to do repairs or construction at those airports. MR. PARKAN noted that the state of Alaska does own virtually all of the airports in the state. He confirmed that it was possible to use money collected at one airport for a project at another airport, provided they are all under the sponsorship of the state; however, it is not the intent of DOT/PF to do so at this time. Number 1181 REPRESENTATIVE HUDSON wondered if it would be helpful to consider a further resolve, and he brought up the following: "Be it further resolved that the application take into consideration measures to reduce or exempt passengers traveling to or from small communities within Alaska." He explained the intent of this resolve as not being specific, rather general in nature but instructive to DOT/PF to essentially hear these other voices and further work with them. He noted that he was not offering this amendment at that time, but was just bringing it up for discussion. Number 1263 REPRESENTATIVE COWDERY expressed understanding that DOT/PF already intends to do this, but he asked Mr. Parkan if this is the case. MR. PARKAN stated that he would have to hear the language again. He understood the resolve to be directing DOT/PF to consider the small communities that would be affected, and he agreed that Kenai would be one of those communities. REPRESENTATIVE HUDSON reread the statement to Mr. Parkan. MR. PARKAN said, "It seems like a reasonable addition. I don't think we [DOT/PF] have any problem with that." Number 1352 REPRESENTATIVE HALCRO agreed that DOT/PF is already addressing those concerns by applying for the exemption of small communities and those communities not connected to a land-based highway system. He reiterated that he strongly supports this legislation, but continued to express concern. He cited the following example: a 14-day "Super Saver" fare from Barrow to Anchorage, round trip, is about $325, and no PFC would be required. However, Kenai to Anchorage or Homer to Anchorage is $57 round trip, and a $3 PFC will be charged. In addition, equipment will vary, so an individual may or may not have to pay the PFC. He felt that this is not evenly applied, and that it is flat charge instead of a percentage charge. REPRESENTATIVE HALCRO summarized his concerns by stating, "If we are going to make exceptions based on geographic locations, then we should make exceptions on smaller communities' fare base. You know, I've traveled to Valdez several times, and flown in on a small plane, and then the flight has been canceled and you've got ... two flights backed up, and so they bring in a larger plane. Now, if PFCs were in place and I flew in on an 18-seater, I wouldn't pay it, but if they come in with a larger aircraft ... to get the two flights, how are they going to collect it? Are they going to stop me at the gate? Do I have to pay at the counter?" He expressed concern that PFCs would not equally apply to everyone. MR. PARKAN reiterated that it is not the intent of DOT/PF to pursue the 18-passenger exemption. Number 1466 REPRESENTATIVE KOOKESH said he feels sure that most of the rural communities, even those not tied to road-based systems, have costs associated with their airports. He asked, "Why don't we just charge everybody three dollars and, somehow, designate that three-dollar charge back to the rural airports?" He added, "Everybody needs money. If we exempt them, nobody gets it." He pointed out that all airports need maintenance work. REPRESENTATIVE HALCRO sought clarification as to whether money collected could be used at other airports. MR. PARKAN said that is correct. REPRESENTATIVE KOOKESH suggested collecting the PFC and allowing the money to be used at rural airport, adding that he was certain none of the rural airports would object. He felt that current objections by those rural areas have to do with the fact that they would be paying but not getting anything out of it. Number 1536 REPRESENTATIVE HUDSON stated, "What I am hearing is that perhaps my amendment would not be useful, that it might preclude us from making a collection from small communities arriving and departing from the Anchorage area, and then sharing, in some sort of a pooling mechanism, those funds for the smaller airports at other parts of Alaska. ... I think, in fact, it might be restrictive ... of pooling the money for the smaller airplanes." He added, "I wouldn't wish to offer it under those circumstances." REPRESENTATIVE HALCRO noted that a previous presentation by DOT/PF explained that there had to be a certain amount of passengers per small, medium and large airport to make it cost-effective to collect a PFC. MR. PARKAN said that was correct. REPRESENTATIVE HALCRO expressed concern that funds collected will actually be given back to those small airports. MR. PARKAN reminded Representative Halcro that PFCs would be collected at Anchorage for flights leaving Anchorage. He felt Representative Halcro was concerned about the problems that would occur with collecting PFCs at some of the smaller communities themselves. Number 1646 KIP KNUTSON, Marketing Director, Era Aviation, testified via teleconference from Anchorage in opposition to HCR 3. He read the following key points regarding their opposition into the record: The community of Kenai is Era's largest passenger market. We have served Kenai for over 15 years and have seen six other air carriers come and go in that time frame. More than any other market we serve, Kenai is highly price-sensitive, and currently Era is their only carrier. Our biggest competition is the new and improved roadway that has cut driving time to Anchorage by approximately one hour. Era's full "walk-up" fare between Anchorage and Kenai is $55.00. Included in that amount is an 8 percent transportation tax, and the reason for 8 percent, rather than the normal 7.5 [percent], is that Kenai is within a 75-mile radius of Anchorage International [Airport], and is considered a "non-rural airport." Due to this proximity, Era must also collect an additional tax in the form of a two-dollar "segment fee" from each passenger. That increases the out-of-pocket fare to $57.00. To saddle Kenai passengers with yet another tax in the form of a three-dollar Passenger Facility Charge would mean that approximately 15 percent of each full fare is pure tax. Obviously, the tax percentage increases with discounted and advance-purchase fares. The PFC alone would constitute just over 5 percent of the airfare to Kenai. On long-haul flights to Seattle and beyond, PFCs are well below 1 percent of the total airfare. Residents of the Kenai Peninsula should not be subjected to such unbalanced taxation. Now, as you've heard from several people, [U.S.] Senator [Ted] Stevens has sponsored some language in the FAA Reauthorization Bill, and that bill will most likely pass. Among regional air carriers based in Anchorage, Era would carry a disproportionate share of the load in collecting PFCs. The exemptions that Senator Stevens has written into the bill exclude communities with a population of less than 10,000, and those not connected by a land or vehicular way to the land-connected National Highway System; that includes cities served by the marine highway system. In effect, this means that Anchorage-based carriers such as Reeve [Aleutian Airlines] and PenAir would not be required to collect a PFC on local airfares. With the exception of Iliamna, every Era destination would be subject to PFCs, by virtue of the fact that they are connected by either road or the marine ferry system. This is an inequity which singles out both Era and its customers. Now, if the Senate Bill passes that Senator Stevens has worked on, it would also exempt carriers from collecting PFCs aboard and aircraft having a seating capacity -- it is actually less than 20 seats. Era currently operates 18-passenger aircraft, 37- and 50-passenger aircraft, in the Kenai and Homer markets. Passenger loads can jump in the final hours before departure, justifying an upgrade from the 18-seat aircraft to the 37-seat aircraft. The reverse is also true. In any case, it is not realistic to have a two-tier pricing structure in a common market whereby passengers riding on the larger aircraft pay more than those on a smaller aircraft. It would be impossible to collect PFCs in advance, not knowing which aircraft would be on what. The 20-passenger seat exemption places an insurmountable burden on Era Aviation, and, as you further debate this issue, I might bring to light ... the fact that a worthwhile seat exemption limit would be 60 seat(s). That corresponds to FAA regulation, part 107, and is the dividing line for security screening and secure areas in airports. Any aircraft over 60 seats, passengers have to be screened, that is, you go through the x-ray machines, etc. Anything below that, ... that is not required. So, the 60-passenger exemption would make more sense, and it would actually be tied to an existing regulation. Number 1842 MR. KNUTSON continued: An interesting situation exists in Cordova, a market served by both Era and Alaska Airlines. According to FAR [Federal Aviation Administration Regulations], part 158.9, Alaska Airlines cannot collect a PFC, because they are the Essential Air Service (EAS) subsidy provider in Cordova. Era does not receive that EAS subsidy, and, therefore, would have to collect a PFC under current language. This puts Era in an immediate price disadvantage in a common market with our own partner, Alaska Airlines. While no one questions that PFCs can provide a reliable revenue stream to the Anchorage International Airport, the question that must be answered is whether or not the push for PFCs is an attempt to mask the known cost overruns on the terminal expansion project. Before we apply a Band-Aid, we must first address the wound. Era withdrew its objections to the terminal expansion and has not changed that position; however, as the second largest carrier of passengers to and from the Anchorage International Airport, it is our desire to seek other solutions before we disproportionately shift the tax burden onto our customers. It is important to note that approximately 75 percent of Era's passenger traffic is local in nature. These are not passengers whose PFC money is now winging its way south. In actual fact, these are passengers who did not necessarily need the expanded terminal project in the first place, but will certainly be forced to carry a disproportionate share of the load if PFC legislation ... PFC regime, is enacted, particularly those from the community of Kenai. With respect to regional carriers in Alaska, either all should be required to collect PFCs, with no exemptions whatsoever, or all should be excluded. Era Aviation clearly prefers the latter approach. However, we are willing to seek equitable alternative solutions. One alternative approach might be for regionals to collect a PFC for Anchorage, but only in conjunction with a down-line ticket, that is to say, a passenger traveling Kenai to Anchorage and then beyond, outside of the state's borders. Thank you for you time and your consideration of Era Aviation's position on this issue. Number 1960 REPRESENTATIVE HALCRO made a motion to move HCR 3 out of committee with individual recommendations and the attached fiscal note(s). There being no objections, HCR 3 moved out of the House Transportation Standing Committee.