Legislature(2001 - 2002)

05/03/2001 01:12 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 64-INTERNATIONAL AIRPORTS REVENUE BONDS                                                                                    
[Contains discussion of SB 218]                                                                                                 
CHAIR KOHRING  announced that the committee  would consider HOUSE                                                               
BILL NO. 64,  "An Act relating to  international airports revenue                                                               
bonds; and providing for an effective date."                                                                                    
Number 0111                                                                                                                     
REPRESENTATIVE  MASEK  made  a   motion  to  adopt  the  proposed                                                               
committee substitute  (CS) for HB 64,  version 22-GH1060\C, Cook,                                                               
5/2/01, as  a work draft.   There  being no objection,  Version C                                                               
was before the committee.                                                                                                       
KURT  PARKAN, Deputy  Commissioner, Office  of the  Commissioner,                                                               
Department of  Transportation & Public Facilities  (DOT&PF), came                                                               
forth to explain HB  64.  He stated that [HB  64] is an important                                                               
bill for the international airport  system, and represents a time                                                               
when  the state,  the  airport system,  and  the airlines  worked                                                               
cooperatively.    He  explained that  the  international  airport                                                               
system is composed  of the Fairbanks and Anchorage  airports.  An                                                               
operating  agreement is  used  with the  carriers  that fly  into                                                               
those  two airports.    That operating  agreement  has been  five                                                               
years in  length and expired last  July.  He said  the department                                                               
has been  in "holdover"  since then,  by continuing  the existing                                                               
operating  agreement,  and  has  been in  negotiations  with  the                                                               
airlines  for about  a year  and a  half to  come up  with a  new                                                               
operating agreement.                                                                                                            
MR. PARKAN  remarked that  one of the  benefits of  the operating                                                               
agreement, which  is a residual  agreement, is that  the airlines                                                               
are  willing to  pay  the costs  of  operating, maintaining,  and                                                               
building the  airport system.   In  exchange, [the  airlines] are                                                               
able to  review and concur  with approval projects  that [DOT&PF]                                                               
brings forward.   He added that it is unique  in state government                                                               
in  that  those  who  are  essentially paying  the  bills  -  the                                                               
airlines - have  an opportunity to work with  [the department] in                                                               
developing the  capital improvement program and  to give [DOT&PF]                                                               
the  go-ahead to  do those  projects; [DOT&PF]  then brings  them                                                               
forward  to  the  legislature  for authorization.    There  is  a                                                               
mechanism  in the  event that  [the airlines]  reject a  project,                                                               
whereby  [DOT&PF] can  come back  the following  year and  do the                                                               
Number 0357                                                                                                                     
REPRESENTATIVE  WILSON asked  for clarification  on what  happens                                                               
when a project is rejected.                                                                                                     
MR. PARKAN responded that if  the airlines don't want [DOT&PF] to                                                               
do  a project,  [DOT&PF]  comes  back the  next  year, brings  it                                                               
forward  to  [the  airlines],  and  can then  bring  it  to  [the                                                               
legislature] for its ultimate decision-making.                                                                                  
MR.  PARKAN  continued,  explaining that  when  [DOT&PF]  started                                                               
negotiations this  time, the  airlines want  to take  a different                                                               
approach to how the capital program  is funded.  They want to use                                                               
a model that  is used in almost every other  major airport in the                                                               
country,  which   is  bond  financing   of  their   CIP  (capital                                                               
improvement project).                                                                                                           
MR. PARKAN said the reasons are  these:  They want some certainty                                                               
regarding the  costs for  doing business  at the  airport system.                                                               
Every year  there is a  CIP, that could go  up or down,  and [the                                                               
airlines]  don't really  know what  to expect  in terms  of their                                                               
rates and fees;  therefore, they want something  that goes beyond                                                               
one  year.   Furthermore, [the  airlines] want  [DOT&PF] to  come                                                               
forward with  more than just  a year's  package of projects.   He                                                               
said [DOT&PF]  agreed to the  concept and worked out  a five-year                                                               
CIP  that   essentially  lasts  the   length  of   the  operating                                                               
Number 0589                                                                                                                     
MR. PARKAN informed  members that HB 64 represents  the first two                                                               
years of those  projects.  The intent would be  to sell the bonds                                                               
this fall, and [DOT&PF] would  use interim financing to deal with                                                               
the construction of some of those  projects.  He added that there                                                               
is a 20-year payback [which he  later clarified is 25 years] with                                                               
the  bonds  through  the   international  airport  revenue  fund.                                                               
Essentially, the airlines pay the debt.                                                                                         
REPRESENTATIVE SCALZI asked Mr. Parkan  to explain more about the                                                               
increase [in the years of the operating agreement].                                                                             
MR. PARKAN  answered that the  operating agreement has  the five-                                                               
year CIP,  but the projects  themselves are an attachment  to the                                                               
agreement.    Therefore,  [DOT&PF]  has been  locked  into  those                                                               
projects.   He  said  [DOT&PF] feels  the  two-year bond  package                                                               
would allow a reasonable amount of time.                                                                                        
REPRESENTATIVE   KAPSNER  asked   Mr.  Parkan   to  explain   the                                                               
international airport  fund and  whether it  is federal  money or                                                               
taxes paid by consumers.                                                                                                        
Number 0821                                                                                                                     
MR. PARKAN responded that the  international airport revenue fund                                                               
is an enterprise  fund and is not related to  the general fund or                                                               
a federal  fund.   All the costs  associated with  doing business                                                               
and maintaining the airport system are  borne by the users of the                                                               
system.   Passengers  contribute by  paying the  airline tickets.                                                               
They also  pay passenger  facility charges:   $3 every  time they                                                               
leave either Fairbanks  or Anchorage and go outside  Alaska.  All                                                               
concessions  such as  rental-car  companies  and parking  garages                                                               
contribute to the operations of the system.                                                                                     
MR. PARKAN noted that there  are federal AIP (Airport Improvement                                                               
Program) funds through FAA  (Federal Aviation Administration) for                                                               
construction.   That money is  based on  [DOT&PF's] entitlements,                                                               
which  are  determined by  the  amount  of  cargo and  number  of                                                               
passengers.   He noted that  Anchorage Airport is the  number one                                                               
cargo airport in the country in terms of landed weight.                                                                         
CHAIR KOHRING  asked whether that  is what the  governor referred                                                               
to  in  the  third  paragraph  of his  letter  [provided  in  the                                                               
committee  packets], when  he wrote  that federal  capital grants                                                               
are a source of money to pay off the bonds.                                                                                     
MR. PARKAN answered in the affirmative.                                                                                         
REPRESENTATIVE  WILSON  asked Mr.  Parkan  to  explain the  added                                                               
language [on page 2 of the proposed CS, Version C].                                                                             
MR. PARKAN  responded that  the language  looks identical  to the                                                               
language that the Senate  Transportation Standing Committee added                                                               
to  its  version [SB  218].    It  requires [DOT&PF]  to  provide                                                               
reporting on the projects.                                                                                                      
Number 1008                                                                                                                     
REPRESENTATIVE  MASEK  asked  why  the funding  is  less  in  the                                                               
proposed CS, on page 1, line  8, than what the governor suggested                                                               
in his letter.                                                                                                                  
MR.  PARKAN  answered  that  the  $5  million  reduction  in  the                                                               
proposed  CS was  at  [DOT&PF's] recommendation.    There was  $5                                                               
million that [DOT&PF] had identified  as a project for relocation                                                               
costs.  The airlines preferred  that [DOT&PF] not bond funds, but                                                               
cash-fund them.  He said [DOT&PF]  has some residual money in its                                                               
account that will be rolled forward in credit to that project.                                                                  
Number 1088                                                                                                                     
[There was  a motion to move  CSHB 64 from committee,  but it was                                                               
withdrawn in order to take testimony.]                                                                                          
CHAIR KOHRING  noted that the  Senate has passed  legislation and                                                               
that  there are  two  major issues:   one  is  the dollar  amount                                                               
difference, and the other is the accountability issue.                                                                          
Number 1153                                                                                                                     
KIP  KNUDSON testified  via teleconference  and  stated that  the                                                               
bill is  of great interest to  all the airlines at  Anchorage and                                                               
Fairbanks.  He  stated that it was a long  process to achieve the                                                               
agreement between the airlines and  the airport; he noted that he                                                               
had participated on the negotiating committee.                                                                                  
CHAIR  KOHRING stated  that it  is good  to hear  from a  private                                                               
sector  company  in support  of  the  bill.    He asked  how  the                                                               
proposed   CS   differs   from   the   original   bill   in   its                                                               
MR.  PARKAN  responded  that the  additional  language  asks  the                                                               
department to  annually give a  report to the legislature  on its                                                               
anticipated needs for the next  fiscal year and its expenses from                                                               
the previous year.                                                                                                              
CHAIR KOHRING asked  Mr. Parkan to address the  problems with the                                                               
current  reconstruction of  the  Anchorage airport.   There  were                                                               
some seismic concerns, which cost the state money.                                                                              
MR. PARKAN deferred to David Eberle.                                                                                            
DAVID EBERLE,  Regional Director,  Central Region,  Department of                                                               
Transportation    &    Public     Facilities,    testified    via                                                               
teleconference.  He answered that  the project, called Phase One,                                                               
is  the foundation  in structural  steel for  the new  concourse.                                                               
That contract  was awarded  a little  over a year  ago.   At that                                                               
time [DOT&PF]  was in  the process  of securing  building permits                                                               
through the  Municipality of Anchorage, and  anticipated a 70-day                                                               
timeframe.    Shortly  after  the  award  of  the  contract,  the                                                               
municipality,   in   reviewing   the  design   and   the   permit                                                               
application, discovered  some design errors and  brought those to                                                               
the attention of  the designer.  The designer  then responded and                                                               
made  appropriate changes.    On that  basis,  he said,  [DOT&PF]                                                               
procured the  steel through the  construction contract  and began                                                               
some  of the  foundation  work.   Further  into  the review,  the                                                               
municipality's reviewer  requested more detail regarding  some of                                                               
the design assumptions and wanted  to see a full-fledged computer                                                               
model  that  simulates  the  behavior of  the  building  and  the                                                               
seismic condition.                                                                                                              
Number 1438                                                                                                                     
MR. EBERLE continued, stating that  the contractor became engaged                                                               
in a  lengthy debate over  the adequacy of  that model.   It took                                                               
over six  months to resolve  how the  building would behave  in a                                                               
seismic event.   The result of  not having permits, he  said, was                                                               
that [DOT&PF] basically had its  contractor in a holding pattern.                                                               
After   lengthy  discussions   between  the   designer  and   the                                                               
municipality,  it was  agreed that  the municipality  as well  as                                                               
[DOT&PF] would hire third-party engineering  firms to take up the                                                               
reviews.  Those two third-party  firms made decisions on anything                                                               
that  had controversy.   He  stated that  they now  have all  the                                                               
foundation permits  and should have  all the permits for  the new                                                               
concourse by the end of May or early June.                                                                                      
MR. EBERLE  remarked that there  are some changes  to foundations                                                               
previously built that will have  to be undertaken; however, those                                                               
are relatively minor in nature  and will total less than $100,000                                                               
worth of work.  The biggest  impacts are having the contractor on                                                               
hold;  changes to  the  foundations that  have  occurred as  this                                                               
process went  on; and the  time delay.   The second phase  of the                                                               
project, he said,  is "on the street" now for  bids.  Bid opening                                                               
will be  in early June,  but not  until all the  building permits                                                               
are secure.                                                                                                                     
Number 1582                                                                                                                     
CHAIR  KOHRING   asked  how  much   money  is  involved   in  the                                                               
MR.  EBERLE reiterated  that redoing  the work  is not  the major                                                               
cost.   The  major cost  is  the delay  time and  the changes  to                                                               
foundations from bid time to  what is ultimately constructed.  He                                                               
added that there are also going  to be some changes to the steel,                                                               
but those are relatively minor.   Mainly, it is an impact cost to                                                               
the  construction and  having the  contractor and  consultants on                                                               
for an extra year.                                                                                                              
CHAIR KOHRING asked whether those numbers have been added up.                                                                   
MR. EBERLE answered that [DOT&PF] does  not have a firm handle on                                                               
all the costs, but is anticipating  that the costs will exceed $5                                                               
million and could approach $10 million.                                                                                         
Number 1620                                                                                                                     
REPRESENTATIVE  SCALZI  asked whether  this  is  going to  impact                                                               
other contracts  the contractors may  have, and whether  they are                                                               
secure in the delay.                                                                                                            
MR. EBERLE  responded that [DOT&PF's]  intention is to  treat the                                                               
construction contractors fairly.  This delay is not their fault.                                                                
MR. PARKAN  clarified that there  is a 25-year [payback  with the                                                               
bonds], not a 20-year payback as he'd mentioned earlier.                                                                        
CHAIR KOHRING noted  that the fiscal note in  the packet reflects                                                               
the original legislation.  The  proposed CS reflects the Senate's                                                               
version of the fiscal note [for SB 218].                                                                                        
Number 1734                                                                                                                     
REPRESENTATIVE MASEK made  a motion to adopt the  fiscal note for                                                               
[SB 218, the  companion bill].  There being no  objection, it was                                                               
so ordered.                                                                                                                     
DEVEN MITCHELL,  Debt Manager,  Treasury Division,  Department of                                                               
Revenue,  came forth  and  stated  that the  fiscal  note in  the                                                               
committee packets is for the CS for SB 218.  He noted:                                                                          
     Similar  to the  transaction we  entered into  in 1999,                                                                    
     the ...  bonds for the [terminal]  development project,                                                                    
     we  would have  a similar  plan of  finance with  these                                                                    
     bonds.    We  would   have  two  years  of  capitalized                                                                    
     interest, where we would pay  our interest expense from                                                                    
     principal  that we  issue upfront,  so there  we be  no                                                                    
     impact  on  the  revenues  of the  system  during  that                                                                    
     period of  time.  Then  debt service would begin  in FY                                                                    
     [fiscal  year]  '04.    We'd had  half  a  year's  debt                                                                    
     service, approximately  $4.7 million,  ramping up  to a                                                                    
     levelized  debt  service  of $12.25  million  per  year                                                                    
     through the 25-year term of the bonds.                                                                                     
MR.  MITCHELL stated  that he  used an  interest rate  assumption                                                               
that  is  relatively  conservative.    He  said  he  expects  the                                                               
ultimate  debt-service  payments to  be  well  below the  numbers                                                               
indicated in the fiscal note.                                                                                                   
Number 1825                                                                                                                     
CHAIR KOHRING  noted that, philosophically,  he thinks this  is a                                                               
good approach as far as the  packaging.  He asked Mr. Parkan what                                                               
assurances there are that DOT&PF will  not be coming back to [the                                                               
legislature] for more money.                                                                                                    
MR.  PARKAN responded  that before  the  committee is  [DOT&PF's]                                                               
annual CIP  that [DOT&PF]  always comes  to the  legislature for.                                                               
He said  [DOT&PF] will be  coming back  in two years  for another                                                               
series of projects  that will last through the  next three years.                                                               
He  added  that  there  will  also be  some  projects  that  will                                                               
continue  to be  cash-funded, and  [DOT&PF] will  be coming  back                                                               
every year for those.                                                                                                           
Number 1915                                                                                                                     
REPRESENTATIVE  MASEK  moved  to  report  CSHB  64,  version  22-                                                               
GH1060\C,  Cook,   5/2/01,  out  of  committee   with  individual                                                               
recommendations and the accompanying fiscal  notes.   There being                                                               
no  objection,   CSHB  64(TRA)  was   reported  from   the  House                                                               
Transportation Standing Committee.                                                                                              

Document Name Date/Time Subjects