Legislature(2009 - 2010)CAPITOL 17

03/12/2009 01:00 PM TRANSPORTATION

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
Moved CSHB 114(TRA) Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 127-ALASKA RAILROAD BUDGET                                                                                                 
1:13:30 PM                                                                                                                    
CHAIR WILSON announced that the final order of business would be                                                                
HOUSE BILL  NO. 127, "An  Act providing that the  Alaska Railroad                                                               
Corporation is subject to the  Executive Budget Act and providing                                                               
that expenditures of the Alaska  Railroad Corporation are subject                                                               
to appropriation; and providing for an effective date."                                                                         
1:14:07 PM                                                                                                                    
REPRESENTATIVE BILL  STOLTZE, Alaska State Legislature,  as prime                                                               
sponsor of HB 127, explained that  the bill would address a major                                                               
policy issue.  However, he opined this  is not a new issue and is                                                               
one  that has  often been  debated.   He pointed  out the  Alaska                                                               
Railroad Corporation  (ARRC) is the  only state entity  not under                                                               
the Executive Budget  Act.  He remarked that he  is glad the ARRC                                                               
is  under  state ownership  since  it  serves his  community  and                                                               
traverses many communities in the  state.  He emphasized he would                                                               
like to maintain  state ownership of the ARRC.   He stressed that                                                               
he  does  not  want  the ARRC  "cannibalized"  by  private  party                                                               
wishing to  buy it.  He  pointed out that  he is not an  enemy of                                                               
the ARRC,  but is a  staunch supporter of  the ARRC.   He pointed                                                               
out that  his own  property lies adjacent  to the  ARRC property.                                                               
He related that  while he does not have any  specific concern, he                                                               
has overall  general policy  concerns.   He observed  the current                                                               
happenings in the  federal government led to his  belief that the                                                               
corporate  veil  over the  ARRC  should  be  removed.   He  noted                                                               
Congressmen can grill the chief  executive officers and professed                                                               
he  does not  want  to  model that  behavior  with the  railroad.                                                               
However, he said he does want  to ask tough questions, to inquire                                                               
about bonuses and financial questions  to avoid the embarrassment                                                               
that faces  other corporations in  the U.S.   He offered  that he                                                               
has  no interest  in micromanaging  the  ARRC.   He remarked  the                                                               
Alaska Housing  Finance Corporation  is a model  corporation that                                                               
was once exempt, but has been  under the Executive Budget Act for                                                               
14  years.    He  further   opined  that  AHFC  has  thrived  and                                                               
prospered, has  won national  awards, and  has improved  its bond                                                               
ratings.   He  stated that  this bill  is not  an economic  death                                                               
sentence or  a shackle for  the entity.   He further  opined that                                                               
the legislature  should have broad  authority over  a corporation                                                               
the size and scope of the ARRC.                                                                                                 
1:19:41 PM                                                                                                                    
REPRESENTATIVE  STOLTZE offered  the criticism  that the  ARRC at                                                               
times  displays a  corporate arrogance,  which he  said is  not a                                                               
healthy attitude  for a  public corporation.   He  concluded that                                                               
the  ARRC could  mature under  the Executive  Budget Act  without                                                               
constraining  its  ability to  operate  as  a critical  corporate                                                               
business and transportation entity in the state.                                                                                
1:20:32 PM                                                                                                                    
REPRESENTATIVE MUNOZ inquired  as to whether the  autonomy of the                                                               
ARRC  would be  affected  by  being under  the  authority of  the                                                               
Executive Budget Act.                                                                                                           
REPRESENTATIVE  STOLTZE  surmised  that  the  ARRC  will  express                                                               
concerns  to   state  that   such  a   change  will   affect  its                                                               
relationships with  private contractors.  However,  he opined the                                                               
Executive Budget Act will provide  the appropriate oversight.  He                                                               
related his understanding  that some changes will  happen, but it                                                               
is appropriate for  the state to examine  the railroad's business                                                               
relationships.  He stated that  prior to the legislative session,                                                               
"there was  a lot of talk  about the railroad buying  Flint Hills                                                               
Refinery."   He related  that this matter  has quieted  down, and                                                               
may or may  not resurface, but ultimately  the legislature should                                                               
have a role in these types of decisions.                                                                                        
1:22:45 PM                                                                                                                    
REPRESENTATIVE GRUENBERG offered that he  was not involved in the                                                               
federal transfer  of the railroad to  the state.  He  inquired as                                                               
to  whether  anything in  the  federal  law would  prohibit  this                                                               
REPRESENTATIVE  STOLTZE answered  that  he thought  he had  taken                                                               
down a note on the matter.                                                                                                      
REPRESENTATIVE  GRUENBERG suggested  that if  it is  necessary to                                                               
make any changes,  the legislature would need  a joint resolution                                                               
to ask the Congress  to change the law.  He  recalled a bill came                                                               
before  the House  State Affairs  Standing  Committee that  would                                                               
allow  employees  to  take  unpaid  leave  to  work  on  disaster                                                               
matters, but  the ARRC  asked for a  specific exemption  from the                                                               
bill.   He highlighted that  other such exemptions  might already                                                               
be in  place for the ARRC  and suggested the sponsor  may wish to                                                               
investigate that matter.                                                                                                        
1:25:15 PM                                                                                                                    
REPRESENTATIVE  STOLTZE   agreed  to  work   with  Representative                                                               
Gruenberg  to  review  and research  the  laws.    Representative                                                               
Stoltze  related his  understanding that  the bill  would provide                                                               
sufficient flexibility.   However, he suggested that  HB 127 will                                                               
offer many issues to debate.                                                                                                    
1:25:57 PM                                                                                                                    
CHAIR  WILSON inquired  as  to  how the  bill  would affect  ARRC                                                               
employees' status.                                                                                                              
REPRESENTATIVE STOLTZE  explained that  the employees  would have                                                               
the same  status as  other corporate entities  such as  the AHFC.                                                               
He characterized the  status as a hybrid status, but  the ARRC is                                                               
more complicated  due to the  union status.   He related  that HB
127 does not intend to change an employee's status.                                                                             
1:27:43 PM                                                                                                                    
JOHN  BITNEY, Staff,  Representative  John  Harris, Alaska  State                                                               
Legislature, stated  that he  currently works  for Representative                                                               
John Harris, but Representative Stoltze  asked him to help assist                                                               
him with background  issues for HB 127.  However,  he stated that                                                               
he is not speaking in favor of the bill.                                                                                        
MR.  BITNEY  related that  various  state  statutes define  state                                                               
agencies.   He pointed  out that  the ARRC  is exempted  from the                                                               
State Procurement Act and the  Administrative Procedures Act.  He                                                               
related his  experience, noting  that his  AHFC service  time did                                                               
not count as  credited service, and when he returned  to work for                                                               
the administration  his time at  AHFC did  not count.   He opined                                                               
that HB  127 is  intended to  subject the  ARRC to  the Executive                                                               
Budget Act under AS 37.07,  which outlines the procedures for the                                                               
budget  process including  the  responsibilities  of agencies  to                                                               
submit their  revenues and expenditures to  the governor's office                                                               
and to  the Office of Management  & Budget, and the  timeline for                                                               
the governor to announce his/her  budget on December 15th as well                                                               
as other  timelines.   He reiterated that  this bill  would bring                                                               
the ARRC in as a public corporation.                                                                                            
1:30:58 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG   said  he  appreciated   Mr.  Bitney's                                                               
presence and that he could  point out agencies in similar status.                                                               
He characterized HB 127 as an extremely important bill.                                                                         
CHAIR WILSON  related her  understanding that  the purpose  of HB
127 is to  prevent what happened in Washington  from happening in                                                               
REPRESENTATIVE  STOLTZE related  that as  anecdotal comment.   He                                                               
stated that  the ARRC should  not have a  veil of secrecy  over a                                                               
public entity.   He highlighted that  he does not want  to micro-                                                               
manage  the ARRC,  but offered  he would  not want  to hear  that                                                               
bonuses were paid or vacations were  paid.  He opined that HB 127                                                               
will help  to ensure basic  good government and is  long overdue.                                                               
In further response to Chair  Wilson, Representative Stoltze said                                                               
that the  administration should have  oversight of the ARRC.   He                                                               
recalled  conversations   with  some  undisclosed   sources  that                                                               
related the bill is long overdue.                                                                                               
1:34:47 PM                                                                                                                    
CHAIR  WILSON  asked  if  the   purpose  was  to  understand  the                                                               
activities of the ARRC.                                                                                                         
REPRESENTATIVE STOLTZE  related he would like  the legislature to                                                               
have   the   same   thorough,   transparent,   and   professional                                                               
relationship with the ARRC as with  the AHFC.  He opined that the                                                               
AHFC has thrived and prospered.                                                                                                 
1:35:44 PM                                                                                                                    
MR. BITNEY  concurred with Representative Stoltze's  remarks.  He                                                               
offered that  the AHFC  has been fully  subject to  the Executive                                                               
Budget Act and  has had two credit rating upgrades.   He surmised                                                               
the  same  was true  with  AIDEA  and  the Alaska  Commission  on                                                               
Postsecondary  Education  (ACPE).   He  related  that the  credit                                                               
agencies  became comfortable  over time  with the  AHFC's status.                                                               
He referred  to the language  in the  section of the  budget that                                                               
contains appropriations for corporations.   He offered his belief                                                               
that   the   state's   corporations   have   received   unlimited                                                               
appropriation authority  from the  legislature in terms  of their                                                               
ability to  receive and  expend funds.   He opined  the Executive                                                               
Budge  Act process  is more  of a  codification of  a process  to                                                               
participate in  overall policy decision-making in  establishing a                                                               
corporation's budget.                                                                                                           
1:38:10 PM                                                                                                                    
CHAIR  WILSON  related  that  she  has  reviewed  the  commentary                                                               
contained in  members' packets.   She inquired as to  whether the                                                               
state would be liable for the ARRC under the current bill.                                                                      
REPRESENTATIVE STOLTZE  stated that  he does not  think liability                                                               
would change  under HB 127.   He  acknowledged that the  ARRC has                                                               
raised the issue  of torts and liabilities.   However, he offered                                                               
his belief  that the  state would have  the same  liability under                                                               
the bill.                                                                                                                       
1:39:22 PM                                                                                                                    
MR.  BITNEY  explained  that  the   reason  why  corporations  or                                                               
authorities are  set up as enterprise  funds is an effort  to try                                                               
to separate  the liabilities  from the state.   He  remarked that                                                               
the state  does not  want the  debts, such  as AIDEA  bonds since                                                               
those bonds are not state debts.                                                                                                
CHAIR WILSON recalled  the student loan program  under the Alaska                                                               
Commission on  Postsecondary Education  (ACPE), and  related that                                                               
the ACPE  can not buy bonds  due to the downturn  in the economy.                                                               
She  asked for  clarification about  what would  change under  HB
1:41:07 PM                                                                                                                    
MR. BITNEY explained that the  Executive Budget Act was passed in                                                               
1970.   He related  his understanding that  after the  1969 lease                                                               
sale,  the  legislature  formalized   the  budget  process.    He                                                               
remarked  that the  ARRC's act  outlines the  budget process  and                                                               
identifies each agency's responsibilities  in the budget process.                                                               
He  stated  that in  practical  terms,  the  ARRC would  need  to                                                               
receive  an  appropriation  in the  annual  budget  to  authorize                                                               
expenditure  of  their  funds.    He  remarked  that  nothing  is                                                               
currently  in the  operating  budget  for the  ARRC  budget.   He                                                               
surmised that this  is the only public corporation  in Alaska not                                                               
in the  operating budget.   He related  that the  remaining state                                                               
enterprises  have  a line  item  in  the  operating budget.    He                                                               
indicated  the  biggest difference  would  be  there would  be  a                                                               
section  in the  budget for  the ARRC.   In  further response  to                                                               
Chair Wilson, Mr. Bitney stated  the ARRC is a public corporation                                                               
of the state.                                                                                                                   
1:43:18 PM                                                                                                                    
REPRESENTATIVE STOLTZE offered  that the state will  not have any                                                               
input  in  which projects  are  funded  in the  stimulus  package                                                               
funding.   He  stated that  the  ARRC funding  from the  stimulus                                                               
funding should  be part of  a comprehensive discussion of  all of                                                               
the  transportation  needs  in   the  communities  of  Anchorage,                                                               
Fairbanks, and any community along the Railbelt.                                                                                
1:44:05 PM                                                                                                                    
CHAIR  WILSON  inquired  as  to  whether  the  ARRC  should  give                                                               
REPRESENTATIVE STOLTZE  answered no.   He noted  that all  of the                                                               
other public  corporations do  pay dividends.   He  recalled that                                                               
the  ARRC said  it was  not planning  on issuing  dividends.   He                                                               
offered his  belief that some  arrogance within the  ARRC exists.                                                               
He pointed  out that  the Department  of Transportation  & Public                                                               
Facilities  has  safety  crossing   projects  that  compete  with                                                               
funding projects,  yet the  ARRC will  not consider  assisting in                                                               
funding.   He said he  hopes those are  the types of  things that                                                               
might  be considered.   He  opined that  it would  not be  micro-                                                               
management,  but  rather  responsible   interaction  of  a  major                                                               
corporation that transects our communities.   In further response                                                               
to  Chair  Wilson,  Representative   Stoltze  agreed  that  if  a                                                               
community  existed and  the ARRC  wanted to  build a  railroad in                                                               
those instances the ARRC would accept the responsibility.                                                                       
1:46:32 PM                                                                                                                    
REPRESENTATIVE MUNOZ  inquired as  to whether AHFC  employees are                                                               
considered state employees.                                                                                                     
MR. BITNEY surmised that technically,  they are not.  However, he                                                               
surmised the AHFC  employees are subject to  the Public Employees                                                               
Retirement  System  (PERS),  but  are  partially  exempt  so  the                                                               
employees  are  not  part of  the  Supplemental  Benefits  System                                                               
(SBS).  In  further response to Chair Wilson,  Mr. Bitney offered                                                               
that the  University of  Alaska also  has a  different retirement                                                               
system.   He remarked that  a small  block of AHFC  employees are                                                               
part of a union.                                                                                                                
1:48:00 PM                                                                                                                    
REPRESENTATIVE MUNOZ  asked if ARRC employees  qualify for Public                                                               
Employees Retirement System (PERS).                                                                                             
MR. BITNEY  said he was not  certain, although he knew  that many                                                               
of   the   ARRC's   employees    participate   in   labor   union                                                               
BILL   O'LEARY,   Vice   President,  Finance,   Alaska   Railroad                                                               
Corporation  (ARRC), mentioned  that  Patrick Gamble,  President,                                                               
ARRC  is also  available  for  questions.   He  related that  the                                                               
employees of  the ARRC  are not state  employees, but  are Alaska                                                               
Railroad Corporate  employees.  The  ARRC is responsible  for the                                                               
benefit packages for its employees, he stated.                                                                                  
1:51:54 PM                                                                                                                    
MR.  O'LEARY  addressed  the  question  relating  to  procurement                                                               
rules.  He  stated that the ARRC  is not subject to  AS 36.30 but                                                               
has substantially equivalent procurement  rules.  He related with                                                               
respect to federal  stimulus package funding, that  the ARRC will                                                               
hope to  receive funding, but  the funding will not  detract from                                                               
funds of  other agencies.  He  stated that the ARRC  is enshrined                                                               
in  formula programs  of the  federal Transit  Administration and                                                               
the federal  stimulus funds are  due to the  ARRC's participation                                                               
in the formula programs.                                                                                                        
1:53:13 PM                                                                                                                    
CHAIR  WILSON  related  that  the  sponsor  was  concerned  about                                                               
expenditures   of  the   stimulus   funding.     She  asked   for                                                               
MR. O'LEARY  answered that the  only restrictions on  the federal                                                               
funding  are  constraints  by   the  federal  agencies  including                                                               
timelines,  eligibility of  projects,  primarily  related to  the                                                               
ARRC's  passenger  service.   He  mentioned  that one  source  of                                                               
federal  stimulus package  funding is  from the  Federal Highways                                                               
Administration's Rail Fixed Guideway  System, which is designated                                                               
for railroads.                                                                                                                  
1:54:52 PM                                                                                                                    
MR. O'LEARY, in  response to Chair Wilson,  opined that currently                                                               
the  ARRC's liabilities  by statute  are the  ARRC's liabilities.                                                               
He  expressed concern  that  the more  control  exerted over  the                                                               
ARRC, the greater  the chance the state  will assume liabilities.                                                               
He pointed out  that he is not an attorney.   In further response                                                               
to Chair Wilson, Mr. O'Leary  expressed some concern with respect                                                               
to long-term  contracts as they  relate to the ARRC's  ability to                                                               
serve its customers,  as well as serve its  citizens.  Additional                                                               
concern exists on  debt obligations of the  ARRC, since initially                                                               
the debt  was not incurred subject  to legislative appropriation.                                                               
He expressed  another concern  that it may  be more  expensive to                                                               
borrow future funds.                                                                                                            
1:57:16 PM                                                                                                                    
CHAIR WILSON  asked whether  HB 127 would  hamper the  ARRC since                                                               
the bill represents a major policy shift.                                                                                       
MR. O'LEARY referred  to ARRC comments in  the committee members'                                                               
packet that  outline the impact  of HB 127.   He opined  that the                                                               
bill would be a radical shift for the ARRC.                                                                                     
1:58:32 PM                                                                                                                    
REPRESENTATIVE HARRIS inquired  as to the effects on  the ARRC if                                                               
it operated under the Executive Budget Act.                                                                                     
MR. O'LEARY  reiterated that  the ARRC  prepared a  briefing memo                                                               
that outlines some concerns.   He expressed concern that it could                                                               
be more difficult for the ARRC to respond to customers' needs.                                                                  
REPRESENTATIVE HARRIS  asked for an  explanation of how  it would                                                               
be more difficult for the ARRC to respond to customers' needs.                                                                  
MR.  O'LEARY  offered  that  one  area would  be  the  hiring  of                                                               
employees.   He  related the  ARRC's  budget is  approved by  its                                                               
board, which is  reforecast given changes in customer  needs.  He                                                               
related a scenario in which  the ARRC anticipates in November the                                                               
equipment  and staffing  in  its budget  process  to transport  a                                                               
certain amount  of gravel.  However,  in the event that  the ARRC                                                               
realizes in May  or June that the Department  of Transportation &                                                               
Public  Facilities  let  additional contracts  and  significantly                                                               
more gravel  will need to moved,  the ARRC must react  quickly to                                                               
expend   additional  resources   to  meet   customer  needs,   he                                                               
2:01:07 PM                                                                                                                    
REPRESENTATIVE HARRIS  opined that  other state agencies  must do                                                               
so.   He  acknowledged that  the ARRC  is somewhat  similar to  a                                                               
private sector business.   He related his  understanding that Mr.                                                               
O'Leary  is relating  that the  ARRC  would be  hamstrung by  the                                                               
Executive Budget Act in terms of hiring employees.                                                                              
MR. O'LEARY  answered that  it is unclear  how the  process would                                                               
work for the ARRC.  He stated  that it appears as though it would                                                               
be problematic.   He  related his  understanding that  much would                                                               
depend on  the structure the  legislature would set,  and whether                                                               
it would have a fixed budget.                                                                                                   
2:01:53 PM                                                                                                                    
REPRESENTATIVE  HARRIS  recalled that  a  number  of people  have                                                               
expressed that  the ARRC is  arrogant, that  it does not  need to                                                               
listen to  anyone.  He  offered that he  is not stating  that the                                                               
ARRC  represents  that  culture,  but rather  that  it  has  that                                                               
reputation.  He  reiterated that the generally  held viewpoint is                                                               
that the ARRC does not answer  to anyone.  He recognized that the                                                               
ARRC is a  wholly owned subsidiary of the state.   He inquired as                                                               
to whether Mr. O'Leary understands the viewpoint.                                                                               
MR. O'LEARY related that he  understands the concern.  He offered                                                               
his  belief that  under  Mr. Gamble's  leadership,  the ARRC  has                                                               
taken extraordinary  efforts to  listen to the  various community                                                               
concerns, its  customers, and the  public.  He  acknowledged that                                                               
any number of issues can  spark controversy since the ARRC covers                                                               
650 miles  of track  and is  bound to impact  people.   He opined                                                               
that some  people will not  always be pleased with  the decisions                                                               
that the  ARRC makes.  However,  he further opined that  the ARRC                                                               
has come  a long  way in  terms of the  ability of  management to                                                               
listen and act  in the best interests of the  ARRC and the state.                                                               
He commended Mr. Gamble's leadership of the ARRC.                                                                               
2:04:37 PM                                                                                                                    
MR. O'LEARY  related that the venue  for public input is  a seven                                                               
member board, appointed  by the governor.  He  mentioned that two                                                               
commissioners  serve on  the  ARRC board,  that  it holds  public                                                               
meetings that take  public comment.  Aside from  the formal board                                                               
process, the ARRC  has undertaken outreach to  entities that have                                                               
expressed concern, he stated.                                                                                                   
REPRESENTATIVE HARRIS maintained that  he is expressing the views                                                               
that he has heard in the legislature.                                                                                           
MR. O'LEARY answered that  he understands Representative Harris's                                                               
2:05:31 PM                                                                                                                    
MR. O'LEARY,  in response  to Representative  Gruenberg, answered                                                               
that  in terms  of  legal issues  that the  ARRC  legal team  has                                                               
identified  a number  of issues  that it  believes would  require                                                               
analysis as  to the  impacts of  HB 127  on the  federal transfer                                                               
act, the  Alaska Railroad Transfer  Act of 1982 (ARTA),  prior to                                                               
moving forward.                                                                                                                 
REPRESENTATIVE   GRUENBERG  requested   that  all   public  legal                                                               
documents concerning HB  127 be made available  to the committee.                                                               
He  inquired as  to whether  Mr. O'Leary  was aware  of the  ARRC                                                               
employees' position on the bill.                                                                                                
MR. O'LEARY  answered that he  can not  purport to speak  for the                                                               
employees, many of whom belong to five separate unions.                                                                         
2:07:47 PM                                                                                                                    
MR. O'LEARY,  in response  to Representative  Gruenberg, answered                                                               
that  during  the discussions  prior  to  passage of  the  Alaska                                                               
Railroad Transfer Act of 1982  (ARTA), placing the railroad under                                                               
the  Executive Budget  Act was  considered, but  significant work                                                               
and studies  were performed  and a decision  was made  to exclude                                                               
the ARRC to allow it to be flexible and serve its customer base.                                                                
MR.  O'LEARY   recalled  that   during  the   federal  government                                                               
ownership, using  a federal  process that  was equivalent  to the                                                               
state's  Executive Budget  Act proved  problematic for  the ARRC.                                                               
He  surmised  that the  railroad  also  had significant  deferred                                                               
maintenance,  and  that funding  and  resources  were not  always                                                               
available under the federal process  to serve customers well.  He                                                               
opined that  the legislature determined that  the preferred model                                                               
was  one that  would be  a self-sustaining  entity, yet  would be                                                               
flexible enough to change with business fluctuations.                                                                           
2:10:20 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG expressed  concern  that  HB 127  would                                                               
have  a major  impact on  the legal  framework of  the ARRC.   He                                                               
opined that  not all of  the issues have  yet arisen.   He stated                                                               
that he was very interested in the bill.                                                                                        
CHAIR  WILSON  offered  that some  additional  questions  may  be                                                               
answered by other testimony on the bill.                                                                                        
2:11:10 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG inquired  as  to whether  circumstances                                                               
have significantly changed that  would require the legislature to                                                               
make  a change.   He  expressed  interest in  not just  reviewing                                                               
whether  the  decision  to  transfer the  railroad  to  a  public                                                               
corporation was appropriately made,  but if circumstances warrant                                                               
making a change at this time.                                                                                                   
MR.  O'LEARY commented  that the  ARRC  is trying  to figure  out                                                               
"what is  broken" that requires  a change.   He opined  that from                                                               
the  ARRC's perspective,  the  railroad is  operating  on a  good                                                               
model,  and  while  many  things  have  changed,  the  model  has                                                               
withstood time.   He further  opined that  this is not  the first                                                               
time the question has been  raised, but each time the legislature                                                               
has considered  making changes, the  consensus has been  that the                                                               
model in place is the most appropriate model.                                                                                   
2:13:19 PM                                                                                                                    
REPRESENTATIVE HARRIS inquired  as to whether anyone  at the ARRC                                                               
has contacted the  sponsor of HB 127 to determine  the reason for                                                               
the bill.                                                                                                                       
MR.  O'LEARY related  his understanding  that conversations  have                                                               
been  held with  the sponsor's  office.   In further  response to                                                               
Representative  Harris, Mr.  O'Leary indicated  that the  ARRC is                                                               
willing to hold discussions with Representative Stoltze.                                                                        
2:15:09 PM                                                                                                                    
REPRESENTATIVE JOHNSON recalled that at  the time of the transfer                                                               
to the  ARRC, the state was  not interested in the  railroad.  He                                                               
opined that  the federal  government did  not manage  the entity,                                                               
that  it  was losing  money,  and  the  state  did not  want  the                                                               
railroad under  the Executive  Budget Act  since it  would assume                                                               
the responsibility for potential  cleanup and liabilities.  Thus,                                                               
the  entity was  established so  the  state would  not have  that                                                               
responsibility.   He  further opined  that  he was  not sure  the                                                               
state  would do  a  better job.   He  surmised  that the  history                                                               
provides some  reasons why the  state did not place  the railroad                                                               
under  the DOT&PF,  just as  it hosts  the Alaska  Marine Highway                                                               
System (AMHS).   He offered his  belief that the ARRC  works, and                                                               
he is not sure the state  should backtrack.  He acknowledged that                                                               
he  has experienced  the  arrogance.   He  said,  "If that's  the                                                               
situation, maybe  we don't want  to throw  the baby out  with the                                                               
bathwater, but this is a  conversation that's very important that                                                               
we start  having."  He offered  that it may be  the best solution                                                               
but  highlighted   that  the   legislature  should   explore  all                                                               
possibilities prior to bringing  government into running what has                                                               
been a fairly  successful business model.  He said,  "I'd like to                                                               
spin off  some more of our  agencies as opposed to  bringing more                                                               
2:17:14 PM                                                                                                                    
CHAIR WILSON inquired as to overall budget for the ARRC.                                                                        
MR.  O'LEARY answered  in 2008  the ARRC  expenditures were  $140                                                               
million, and  it had a net  income of $12.5 million.   He offered                                                               
that  the  2009 Capital  Budget  is  approximately $138  million,                                                               
which he  stated is larger this  year.  Mr. O'Leary,  in response                                                               
to Chair Wilson, answered that  the ARRC is preparing for federal                                                               
stimulus projects  and has a list  of projects ready to  meet the                                                               
federal  deadlines.   In further  response to  Chair Wilson,  Mr.                                                               
O'Leary  explained  that  depending  on  the  project,  the  ARRC                                                               
partners with  the private sector.   He described one  project in                                                               
which the  ARRC will provide  management, but the  private sector                                                               
will  provide contractors.   Another  project is  to rebuild  the                                                               
railroad  track  between  Anchorage  and Fairbanks,  which  is  a                                                               
project  that is  in its  fourth of  five years  and the  ARRC is                                                               
using almost  exclusively using ARRC  labor union employees.   He                                                               
characterized the labor sources as a mix.                                                                                       
2:19:13 PM                                                                                                                    
CHAIR WILSON inquired as to  whether all ARRC employees are union                                                               
MR.  O'LEARY  answered that  three-fourths  of  its workforce  is                                                               
union labor, which is comprised of five unions.                                                                                 
2:19:33 PM                                                                                                                    
REPRESENTATIVE  HARRIS recalled  the  legislature's concern  over                                                               
the  status of  the  Flint  Hills -  Alaska  North Pole  Refinery                                                               
(Flint Hills).   He further  recalled that the  refinery produces                                                               
approximately 40 percent  of the ARRC's freight.   He inquired as                                                               
to  whether if  passage of  HB 127  will have  any effect  on the                                                               
ARRC, with respect to the Flint Hills refinery.                                                                                 
MR. O'LEARY acknowledged that Flint  Hills refinery represents 40                                                               
to 45 percent  of the ARRC's revenue stream.   He stated that the                                                               
ARRC has no  plan to purchase the refinery.   He offered that the                                                               
Department  of Natural  Resources is  having an  ongoing dialogue                                                               
with Flint  Hills, and the  ARRC has had  peripheral involvement.                                                               
However, he surmised that any  major capital expense for the ARRC                                                               
would need to be financed  through public debt.  Thus, currently,                                                               
the ARRC would  need to request authorization to  issue bonds, if                                                               
it were  to purchase the  refinery.  He  said he was  not certain                                                               
how that would  work if the ARRC were under  the Executive Budget                                                               
MR. O'LEARY offered to provide the information to the committee.                                                                
2:22:27 PM                                                                                                                    
JASON  BRUNE, Executive  Director,  Resource Development  Council                                                               
(RDC), stated that he is testifying  in opposition of HB 127.  He                                                               
explained that  the RDC is statewide  nonprofit membership funded                                                               
organization founded in 1975.   He offered that its membership is                                                               
comprised  of individuals  and companies  from  Alaska's oil  and                                                               
gas, mining,  timber, tourism, and fisheries  industries, as well                                                               
as  Alaska's Native  corporations,  local communities,  organized                                                               
labor, and industry  support firms.  He noted  that RDC's purpose                                                               
is  to  link these  diverse  interests  together to  encourage  a                                                               
strong diversified  private sector in Alaska.   Additionally, RDC                                                               
hopes   to  expand   the  state's   economic  base   through  the                                                               
responsible development of its natural resources.                                                                               
MR. BRUNE opined  that HB 127 seeks to make  a fundamental change                                                               
in  the operation  of the  railroad  despite that  fact that  the                                                               
current operational structure has served  the state well for over                                                               
20 years  and has produced  substantial benefits to  Alaska since                                                               
it was  acquired from the  federal government  in the 1980s.   He                                                               
further  opined  that the  ARRC  is  a well  run  self-sustaining                                                               
entity that provides safe,  economical transportation services to                                                               
residents,  visitors, the  military, and  many of  RDC's members.                                                               
Since  the ARRC  has fallen  under state  ownership, it  has been                                                               
profitable for  over 20 years  and has made hundreds  of millions                                                               
of dollars in capital improvements.   He related that an in-depth                                                               
assessment  conducted  before  the transfer  to  state  ownership                                                               
determined that most of the  financial problems encountered under                                                               
federal  ownership  resulted  from  following  federal  budgeting                                                               
procedures  rather  than  allowing   its  management  to  develop                                                               
operating and capital  programs on the same basis  as a privately                                                               
owned railroad.   He offered his belief that it  is imperative to                                                               
heed advice of  this assessment and not doom the  railroad to the                                                               
same fate.  He opined that  the current business model works well                                                               
for the  ARRC.  Although  the ARRC  is exempt from  the Executive                                                               
Budget  Act, it  has significant  state oversight  over operation                                                               
and  management  practices.   He  noted  that the  RDC's  members                                                               
believe the ARRC  provides a valuable and efficient  service.  He                                                               
said, "We are proud of the fact  that it pays its own way and has                                                               
a good  relationship with its  customers, nearly all of  whom are                                                               
members  of the  RDC.   In our  view it  makes no  sense to  make                                                               
sweeping changes when something isn't broken."                                                                                  
2:25:39 PM                                                                                                                    
BOB THOMAS stated that he worked  on issues with the railroad six                                                               
years ago,  but since then a  change in management has  brought a                                                               
new  attitude,  which seems  to  embody  "the end  justifies  the                                                               
means."   He  opined that  the  ARRC puts  special interests  and                                                               
political influence above  the community's and public  needs.  He                                                               
further opined that  the ARRC has shown a  complete disregard for                                                               
regulations and has  deliberately tried to mislead  the public in                                                               
Fairbanks.    He  said,  "They   show  the  willingness  to  even                                                               
compromise their own operations to satisfy special needs."                                                                      
2:28:29 PM                                                                                                                    
CHAIR  WILSON  asked  if  he could  provide  details  that  would                                                               
demonstrate the ARRC's inability to listen.                                                                                     
MR. THOMAS answered that an  ARRC project in Fairbanks would have                                                               
rerouted  the railroad  line through  Fort Wainwright  instead of                                                               
following  the  Parks  Highway.   The  latter  route  would  have                                                               
eliminated all  of the  railroad crossings.   He  maintained that                                                               
instead,  the  ARRC attempted  to  route  the track  around  Fort                                                               
Wainwright  for political  purposes.   He related  that the  ARRC                                                               
informed  the community  that  it could  not  parallel the  Parks                                                               
Highway  since it  would need  to "double  track" the  line.   He                                                               
advised that the ARRC board  verified that was not a requirement.                                                               
Additionally,  a Freedom  of Information  Act (FOIA)  request did                                                               
not provide most of the information  which he surmised was due to                                                               
the  security nature.   He  stated the  ARRC dropped  the project                                                               
routed through  Fort Wainwright due to  the community's inability                                                               
"to get their act together."   However, he noted that resolutions                                                               
were provided  by every local  government requesting the  ARRC to                                                               
include in its  studies the route that would  have eliminated all                                                               
2:32:11 PM                                                                                                                    
DON LOWELL,  President, Alaska Transportation Consultants,  and a                                                               
member of the Rail Safety and  Development Group.  He stated that                                                               
he  forwarded an  earlier  statement.   He  asked  to testify  in                                                               
support of  HB 127.   He related that main  goal is to  place the                                                               
ARRC  under the  Executive  Budget Act,  which essentially  would                                                               
require the ARRC to seek  legislative approval prior to expending                                                               
federal funds.   He  opined that  the ARRC  needs to  do so.   He                                                               
offered that  the ARRC is a  state owned system, which  is one of                                                               
four  vital   transportation  modes,  yet  it   operates  without                                                               
legislative oversight.   All state and  local governments require                                                               
legislative  approval,   including  the  DOT&PF   which  receives                                                               
authority for its expenditures.   He further opined that the ARRC                                                               
operates with impunity, and has  misused millions of dollars on a                                                               
fatally flawed study to reroute  the railroad on Fort Wainwright.                                                               
Last  year, the  community reported  to the  House Transportation                                                               
Standing  Committee  that  the  ARRC  did  not  have  legislative                                                               
authority  to  reroute  the  railroad.     He  related  that  the                                                               
committee informed  the Federal  Railroad Administration  and the                                                               
ARRC dropped the project.                                                                                                       
2:34:40 PM                                                                                                                    
MR. LOWELL  stated that  $36 million was  budgeted on  the flawed                                                               
Fort Wainwright  project.   Since its  transfer from  the federal                                                               
government the  ARRC has spent  hundreds of millions  on projects                                                               
without legislative approval or public  hearings.  He opined that                                                               
HB  127 would  ensure  that all  publically  owned agencies  will                                                               
receive the  same public scrutiny  and approval on  their budgets                                                               
and expenditures  of federal and  state funds.  He  surmised that                                                               
since the  ARRC misled his  community that  legislative oversight                                                               
is imperative.  He referred to  the ARRC program and projects and                                                               
specifically to  the Seward  coal loading  facility.   He pointed                                                               
out that  the ARRC spent  $9.5 million to purchase  a 20-year-old                                                               
Korean facility, anticipates it will  spend $650,000 this year in                                                               
repairs, and  will require several  million dollars  to modernize                                                               
the obsolete  facility.  He  highlighted that the  ARRC purchased                                                               
the  facility without  legislative approval  or public  hearings.                                                               
He further opined  that if the ARRC had been  under the Executive                                                               
Budget Act  that it  is questionable  that the  legislature would                                                               
have  approved  the  purchase, considering  that  the  Matanuska-                                                               
Susitna port  will eventually be  the coal-loading facility.   He                                                               
asked what  would happen to  Seward's coal-loading  facility when                                                               
that occurs.   This bill is very important to  the state since it                                                               
will require complete oversight and public hearings, he stated.                                                                 
2:37:07 PM                                                                                                                    
DONALD  CALLAHAN,  member,  Rail Safety  and  Development  Group,                                                               
stated that  his community  is interested  in energy  problems in                                                               
Fairbanks.   He opined that a  number of entities are  "not happy                                                               
with the Alaska  Railroad."  He acknowledged that the  ARRC is in                                                               
the business of  making money.  However, he opined  that the ARRC                                                               
should not  do so to  "the detriment of  the overall good  of the                                                               
people of the  State of Alaska."  He maintained  that the ARRC is                                                               
often to  the detriment of the  state.  He highlighted  that some                                                               
properties  that  are  leased  could  be  better  used  by  state                                                               
entities.    He surmised  that  the  "railroad makes  deals  that                                                               
perhaps benefit  major shippers."   He  offered examples  such as                                                               
the  Usibelli Coal  Mine, Inc.  and ExxonMobil  Corporation.   He                                                               
pointed  out that  the legislature  should be  familiar with  the                                                               
agreements and  the details  of any agreements.   He  opined that                                                               
the ARRC,  as a semi-private corporation  is a good model  but it                                                               
needs  oversight.   He offered  the Rail  Safety and  Development                                                               
Group's strong support for HB 127.                                                                                              
CHAIR WILSON commented that she  wished the Alaska Marine Highway                                                               
System had  a similar system so  it could lease land  adjacent to                                                               
the waterways.                                                                                                                  
2:40:35 PM                                                                                                                    
PAT  DAVIDSON,  Legislative   Auditor,  Division  of  Legislative                                                               
Audit,  Alaska State  Legislature, explained  to members  that an                                                               
audit  report ten  years ago  commented  that the  ARRC could  be                                                               
brought under  the Executive  Budget Act.   She related  that the                                                               
division  performed seven  or eight  audits  in the  1990s.   The                                                               
auditors observed poor decision-making on  the part of the ARRC's                                                               
executives, non-adherence to  their own procurement requirements,                                                               
and potential  ethics violations.   She emphasized  those reports                                                               
were  ten years  ago.   However,  the impetus  for providing  the                                                               
comment,  and not  a  recommendation, that  the  ARRC be  brought                                                               
under the  Executive Budget  Act is the  view that  the Executive                                                               
Budget Act gives  the opportunity of the  legislature to evaluate                                                               
the financial activities of the  ARRC.  Additionally, besides the                                                               
Executive Budget  Act, the Fiscal  Procedures Act,  the Personnel                                                               
Act, and  a series of  statutes impose requirements  on agencies.                                                               
She offered that the auditors  viewed the Executive Budget Act as                                                               
an opportunity for the legislature  and the governor to have some                                                               
input due to the ARRC's past problems.                                                                                          
2:43:03 PM                                                                                                                    
CHAIR WILSON inquired  as to whether any recent  audits have been                                                               
MS.  DAVIDSON   answered  no,  that  the   audits  were  specific                                                               
legislative requests  that came  before the Legislative  Budget &                                                               
Audit Committee  (LB&A).  She  related that the division  has not                                                               
had more  recent audit  requests.  Thus,  she related  she cannot                                                               
speak to  the current status  of the  ARRC with respect  to prior                                                               
issues and management of the ARRC.                                                                                              
2:43:30 PM                                                                                                                    
CHAIR  WILSON  inquired as  to  whether  she could  provide  more                                                               
details about the "unwise decisions" mentioned in the audit.                                                                    
MS. DAVIDSON  offered to  provide copies to  the committee.   She                                                               
recalled some issues  had to do with the  Ship Creek development,                                                               
and the  lack of cost  benefit analysis  in the decision  to sell                                                               
heavy  equipment   and  enter  into  lease   agreements  for  new                                                               
equipment.    She related  in  various  contracts that  the  ARRC                                                               
entered into,  that it  used a first  come first  served approach                                                               
without    consideration    for   open    competitive    business                                                               
opportunities.  She highlighted that  the ARRC has assets such as                                                               
land.   She said,  "There's a lot  of business  opportunities for                                                               
the  railroad  and  it  was  in those  things  that  we  saw  the                                                               
2:45:22 PM                                                                                                                    
PATRICK GAMBLE,  President and  CEO, Alaska  Railroad Corporation                                                               
(ARRC), offered to provide additional  details on questions posed                                                               
to Mr. O'Leary.  He  highlighted that an opportunity exists since                                                               
it  has  been ten  years  since  the legislature  has  considered                                                               
bringing  the ARRC  under the  Executive Budget  Act.   He agreed                                                               
that the review  needs to be done  periodically, since conditions                                                               
change and if the legislature's  expectations have not been fully                                                               
met, it  is important to  determine the  reasons it did  not meet                                                               
expectations and  the ARRC should  provide a remedy.   He offered                                                               
his  support  for  that  process.   He  said  that  this  process                                                               
necessitates  that  the  corporate  act, AS  42.40  needs  to  be                                                               
reviewed in  great detail.   He related  that during  his initial                                                               
review  he found  50  items  that will  need  to  be examined  to                                                               
determine  the effect  of placing  the ARRC  under the  Executive                                                               
Budget Act.                                                                                                                     
2:48:07 PM                                                                                                                    
MR. GAMBLE related  the history of the Alaska  Railroad such that                                                               
the federal government  wanted to divest itself or  shut down the                                                               
railroad.  However,  he offered that the state  decided it needed                                                               
a railroad.   He  surmised that  the state  wanted to  change the                                                               
federal  model   to  avoid  similar  problems   and  underwent  a                                                               
wholesale rewrite  which resulted in  the corporate act  that the                                                               
ARRC currently  operates under.   He opined that  the fundamental                                                               
principle  was for  the  ARRC to  operate  as an  entrepreneurial                                                               
business except  for certain elements  of control that  the state                                                               
needed  to maintain.   He  related about  eight pertinent  items,                                                               
such as  board membership and  audits.  He emphasized  the single                                                               
most repeated statement  in Alaska Railroad Transfer  Act of 1982                                                               
(ARTA), is  the overriding  concern that  in selling  bonds, that                                                               
the Alaska Railroad not over obligate.                                                                                          
2:50:21 PM                                                                                                                    
MR. GAMBLE opined that the  provisions that pertain to bonds were                                                               
carefully written  into the  enabling act.   However,  he pointed                                                               
out that some  provisions were relaxed, such as the  need for the                                                               
ARRC to  act independently.   He said,  "It doesn't say  in there                                                               
that  the railroad  should act  arrogantly.   And  of course  I'm                                                               
struck by  that term.  I  heard that a  lot when I first  came on                                                               
the  railroad  and  we've  worked  very,  very  hard  to  try  to                                                               
understand what that means and then get rid of it."                                                                             
MR. GAMBLE  said that what  he's found  over eight years  is that                                                               
arrogance is in the  eyes of the beholder.  He  said, "If I don't                                                               
contact anybody,  if I won't  talk to anybody,  if I won't  go to                                                               
their office  or go visit or  whatever and simply look  the other                                                               
way,  close the  drapes, that  gives  pretty good  evidence of  a                                                               
conscientious desire to be aloof and arrogant."                                                                                 
MR. GAMBLE noted that the ARRC  has demonstrated a good record of                                                               
speaking publically in every possible  forum.  He said, "I cannot                                                               
recall  a single  time that  I  have ever  refused to  meet in  a                                                               
public forum  or contact a legislator.   And so I  hope that some                                                               
of that  kind of talk  doesn't say otherwise because  that simply                                                               
is not true."  He opined what is  true is that the railroad is an                                                               
operating entity "with wheels turning,  with smoke belching, with                                                               
ripping  up  tracks and  moving  through  people's property  that                                                               
families owned  many, many years  ago."  He stressed  the natural                                                               
friction that  occurs when encountering noise  nuisances and land                                                               
issues.   He stressed in instances  in which a person  who wishes                                                               
to purchase property that he/she  is leasing, and the ARRC denies                                                               
the request,  that the  ARRC is  sometimes accused  of arrogance.                                                               
Instead,  he   emphasized  that   the  ARRC  has   listened  very                                                               
carefully, but has a fiduciary  responsibility to manage the land                                                               
and cannot sell  it.  Thus, it is sometimes  necessary to say no.                                                               
He offered that  if it is the intent of  the legislature that the                                                               
ARRC should  sell state  land, it  may be  one of  the conditions                                                               
that have  changed that  needs to  be examined.   He  offered his                                                               
belief that the problem will not  be solved solely by placing the                                                               
ARRC under the Executive Budget Act.                                                                                            
2:53:29 PM                                                                                                                    
MR. GAMBLE  highlighted that he has  a concern about what  is not                                                               
working and  why the  ARRC should be  under the  Executive Budget                                                               
Act.   He stressed the ARRC's  record.  He offered  that the ARRC                                                               
has  nearly $1  billion  in capital  improvements  from a  little                                                               
railroad that  was purchased for  $22 million.  He  further noted                                                               
that the  ARRC's assets have  grown to  nearly $900 million.   He                                                               
explained that  the ARRC  has experienced  a 21  percent combined                                                               
average growth rate for its capital  program.  He pointed out the                                                               
ARRC has won awards for passenger  service and safety.  He opined                                                               
that there  is not a shred  of evidence that the  ARRC would work                                                               
better under a plan that is similar to federal ownership.                                                                       
2:54:44 PM                                                                                                                    
MR. GAMBLE  offered his belief  that the  issue is not  just this                                                               
bill, which would  place the ARRC under the  Executive Budget Act                                                               
for budget  approval, but the  likelihood that other  bills would                                                               
be introduced  that could affect  the ARRC, depending  on routine                                                               
constituent  complaints  or  rate  issues.    He  indicated  that                                                               
instead  of contacting  the ARRC  Board  in a  public meeting  to                                                               
voice his/her  concern, that  a person would  take the  matter to                                                               
his/her  legislator for  resolution.   He surmised  that type  of                                                               
model  would not  be a  model that  would improve  the ARRC.   He                                                               
highlighted  that   with  respect   to  the  source   of  current                                                               
discontent  in Fairbanks,  the issue  had  often been  discussed,                                                               
including discussions  held in public forums  before the assembly                                                               
and the  mayor.   He opined  that the  community and  ARRC simply                                                               
disagree.   He said, "That's  business."  He further  opined that                                                               
it is a stretch to suggest the ARRC does not care.                                                                              
2:56:40 PM                                                                                                                    
MR.  GAMBLE offered  his belief  that when  issues become  heated                                                               
comments are made about arrogance.   He highlighted that the ARRC                                                               
must say no  sometimes and that can be perceived  as unfeeling or                                                               
uncaring.  He said:                                                                                                             
     I've  told my  staff we  have to  learn how  to say  no                                                                    
     without saying no.   That my policy is when  we have to                                                                    
     say  no, we've  got to  do it  with full  knowledge and                                                                    
     background, that  we owe an  explanation, that  we have                                                                    
     put the facts  forward, that our documents  are open to                                                                    
     the public  - that we say  no in a public  forum on the                                                                    
     record,  just  like  I've done  time  and  time  again.                                                                    
     Because that's the  way we show people that  it's not a                                                                    
     case of  being unfeeling or  uncaring, but it's  a case                                                                    
     of  as a  business or  as  a fiduciary  holders of  the                                                                    
     state's  responsibility in  land management,  there are                                                                    
     times when we are simply going  to have to say no.  I'm                                                                    
     sorry  if  it comes  across  as  arrogance and  I  will                                                                    
     continue to work that very,  very hard because I do not                                                                    
     want this railroad,  whether I'm still here  or not, to                                                                    
     have a  reputation like that.   And if I can  take some                                                                    
     suggestions, specifically,  on how  to get rid  of that                                                                    
     reputation,  which continues  to kind  of bother  us, I                                                                    
     would  be  very  happy  to take  suggestions  from  the                                                                    
2:58:31 PM                                                                                                                    
CHAIR WILSON announced that the committee would continue                                                                        
testimony at a subsequent meeting.                                                                                              
MR. GAMBLE offered to meet with the bill sponsor to discuss some                                                                
of the issues.                                                                                                                  
2:59:49 PM                                                                                                                    

Document Name Date/Time Subjects
ARRC Exec Summary.pdf HTRA 3/12/2009 1:00:00 PM
HTRA 3/17/2009 1:00:00 PM
HB 127
ARRC HB127 Commentary.pdf HTRA 3/12/2009 1:00:00 PM
HTRA 3/17/2009 1:00:00 PM
HB 127
hb114 CS TRA.pdf HTRA 3/12/2009 1:00:00 PM
HB 114
hb114 sponsor stmt.pdf HTRA 3/12/2009 1:00:00 PM
HB 114
HB127 Sponsor Stmt.pdf HTRA 3/12/2009 1:00:00 PM
HTRA 3/17/2009 1:00:00 PM
HB 127