Legislature(1999 - 2000)

03/30/1999 01:05 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                             
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                                                               
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                                                               
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                                                                   
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.                                                                                              

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