Legislature(2003 - 2004)
05/12/2003 09:12 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 216
"An Act relating to international airports revenue bonds; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
AT EASE 9:36 AM / 9:37 AM
Co-Chair Wilken stated that this bill introduced by the Senate
Rules Committee at the request of the Governor "increases the
authorization for international airport revenue bonds by $70.6
million for capital improvements for the Anchorage and Fairbanks
international airports."
MIKE BARTON, Commissioner, Department of Transportation and Public
Facilities, testified this bill would provide the necessary bonding
authorization to complete the C Concourse of the Terminal
Redevelopment Project begun in 1999. He emphasized the revenue
bonds would be repaid from revenues generated by the airport
facilities and would not be an obligation of the State. He informed
that in the event of a default insurance would become the "ultimate
payer" to the bondholders.
Mr. Barton have a history of the projects, noting that the Ted
Stephens Anchorage International Airport and the Fairbanks
International Airport are included in the State's international
airport system (AIAS) and operated together, with costs and
revenues polled. He stated that the Airport Operating Agreement
governs the two facilities and he defined the Agreement as a
contract between the airports and airlines that establishes the
business relationship and obligates the airlines to pay the costs
of operating and maintaining the airports, including capital
projects and bonded indebtedness. He furthered that the Agreement
obligates the airport to secure agreement on costs for operating
the airports, including capital projects. He continued that in
1997, the airlines agreed to finance the terminal redevelopment
project and that two previous bond issues have occurred in 1999 and
2002. He stated that the proposed issuance "follows the same
format" as the earlier issuances. He told of the agreement with the
airlines that Terminal C must be completed, which this bond
issuance would allow.
Mr. Barton cited the bond issuance amount at $76.6 million, with
approximately $50 million of the amount for actual construction
costs. He stated that $13.5 million would be used to secure federal
funds and the remaining funds would be utilized for bond financing
costs.
Mr. Barton warned that the cash supply would be depleted by
September 2003 without this authorization. He stated the project's
expected completion date is approximately one year from the current
date.
Senator Taylor clarified this legislation does not relate to
additional construction, but rather to "clean up cost overruns" of
an existing project undertaken during the previous gubernatorial
administration.
Commissioner Barton responded that the additional costs result from
three sources, $33 million in "design problems and differences in
interpretation of seismic codes", $20 million resulting from the
Transportation Safety Administration (TSA) security requirements
resulting from the events of September 11, 2001, and the reminder
for additional space requested "post design". He stated that the
additional space request was agreed upon with the intent that it
would be financed with interest from the bonds.
Senator Hoffman asked the total cost of the project including the
amount included in this legislation.
Commissioner Barton gave the estimated cost of Concourse C at $308
million.
Senator Hoffman asked the total cost of "all retrofitting" and
modification to the airport building.
Commissioner Barton replied that a definitive figure would not be
known until the design is completed, although he estimated the
amount to be approximately $110 million.
Senator Hoffman asked the likelihood that the Department would
request additional funds given that a definitive amount is not
available.
Commissioner Barton clarified any request would be for additional
bonding authority.
Co-Chair Wilken understood $418 million would fund the completion
of Concourse C.
Commissioner Barton detailed that $308 million would fund the
completion of Concourse C and that $110 in bonding authority would
be requested in the future to upgrade Concourse A and Concourse B.
Co-Chair Wilken asked the amount of funds authorized in this
legislation would be allocated to the Anchorage project and the
amount allocated to the Fairbanks project.
Commissioner Barton replied that the majority of the funds would be
appropriated to the Concourse C project in Anchorage and that $3.5
million would be utilized as matching funds to secure federal funds
for use in Fairbanks.
KEN SURA, Landrum and Brown, testified via teleconference from an
offnet location that he had prepared a presentation.
Co-Chair Wilken requested a brief overview.
Mr. Sura informed that the firm prepared a feasibility study in the
year 2002 based on key statistics: enplanements or passenger
activity and operations of aircraft and airline schedules. He
stated that passenger activity and cargo tonnage are the "two most
important drivers at Anchorage" and is two-percent higher than
forecast in 2002. As a result, he surmised the debt capacity for
the additional bond issuance is sufficient.
Senator Olson commented on the "impressive amount of work" invested
in the project. He asked if the projections were accurate.
Mr. Sura affirmed.
Senator Olson asked if therefore the cost overruns are the result
of unforeseen obstacles. He noted declining passenger revenues and
subsequent employee layoffs and reduced flight schedules, as well
as the inability for airlines to fund airport improvements. He
asked how the economic difficulties were affecting the airport
projects.
Mr. Sura assured that the projects are "conservative by design"
given the "potential investors". He noted that other airports are
undergoing improvements and expansions and that airport funding
comprises only five to six percent of airlines' operating expenses.
He acquiesced that some airlines had made adjustments in certain
markets; however, "in a market as strong as Anchorage and
Fairbanks" future scheduling does not indicate significant
reductions in flight frequency and number of seats.
Senator Taylor understood the Ted Stevens Anchorage International
Airport is the single largest economic driving faction in
Anchorage, much of which is derived from Asian cargo. He supported
the expansion efforts. He indicated other communities would benefit
from funding to construct roads throughout the State.
Mr. Barton expressed he would welcome such funding for roads,
although no general funds are involved in the airport projects,
which are instead paid by the airlines through rates and fees.
Co-Chair Wilken informed of the proposed $2.5 billion funding for
roads under consideration at the congressional level.
Senator Bunde pointed out airline passengers, not the airlines
themselves pay the airport construction costs and that if extra
roads were constructed the "people of Alaska" would pay those
expenses as well.
Senator Hoffman stated he had concerns when the Anchorage airport
project was first proposed. He requested from the Department,
passenger forecasts as well as the commitments made by each
affected carrier.
Co-Chair Wilken referenced a handout provided by the Department
titled, "Alaska International Airports System Business Planning
Information, Presentation to State of Alaska Legislature, May 9,
2003" [copy on file] that includes the information requested by
Senator Hoffman. He noted this handout was prepared for a
presentation to the House Finance Committee and he suggested the
Department make a presentation on the matter to the joint finance
committees in January 2004. Co-Chair Wilken then corrected that
cargo carriers pay the majority of the construction costs rather
than the passengers. He was concerned that advancing airline
technology allowing planes to fly farther, as well as the opening
of airport facilities in Russia could result in lesser revenues to
the airports in Alaska with which to repay the bonds. He emphasized
the need to have the bonds paid before this time to ensure the
costs are not transferred to passengers.
Co-Chair Wilken further referenced the handout as detailing the
projected traffic and landing fees in conjunction with the bonding
debt.
SFC 03 # 88, Side B 10:00 AM
Co-Chair Wilken commented to the importance to adequately
understand this issue, although he pointed out the amount of time
remaining in the legislative session is insufficient to do so.
Senator Hoffman requested supporting documentation for the
information contained in the handout. He wanted to know the date
the data was last updated to reflect changes incurred relating to
the events of September 11, 2001.
KIP KNUDSON, Deputy Commissioner of Aviation, Department of
Transportation and Public Facilities, testified via teleconference
from an offnet location that this information would be provided to
the Committee.
Senator Olson asked the amount of outstanding bonds and the effect
the proposed bonds would have on the existing balance.
Mr. Sura noted this information is included in the handout and he
listed the total amount of outstanding bonds for the AIAS at $379
million, $368 million of which is outstanding principal remaining
on those bonds. He informed that rating agencies and potential
investors request future forecasts of other projects contemplated
for the system.
Senator Olson asked if the debt repayment is on schedule, ahead of
schedule or behind schedule.
Mr. Sura replied that the schedule is set when the bonds are sold
with a prescribed schedule for each series of bonds. He qualified
that it has been advantageous to refinance some of the debt to
realize economic savings. He furthered that airlines and airports
would sometimes agree to retire a particular series of bonds in the
event of an ability to make a "lump sum payment"; however, he noted
that airlines prefer to debt finance airport capital projects due
to the relation of repayment to the useful life of the facility.
Senator Olson again asked if the debt repayment is progressing as
scheduled.
Mr. Sura affirmed and noted funds are transferred monthly to the
trustee.
TOM BOUTIN, Deputy Commissioner, Department of Revenue, told of the
"refunding opportunity" that the bond committee would undertake
concurrently if this bill passes into law.
Senator Olson calculated that this legislation would result in
doubling amount of bond debt. He was concerned that the proposal
contains no assurances that the current situation would not result
again. He referenced Co-Chair Wilken's emphasis on the need for
business plans. Senator Olson challenged that with the exception of
"some verbal nods", a business plan has not been presented to his
satisfaction. He spoke to recent rental increases imposed on
airlines that had invested in hangers.
Co-Chair Wilken requested the Department address the business plan,
specifically the involvement of user groups.
Mr. Barton told of the process of the "signatory airlines" for the
airport operating agreement that occurs every five years. He
explained the process involves negotiations and discussions with
the airlines about necessary capital projects and identification of
potential sources of revenue to finance the cost of projects. He
stated this agreement operates as the business plan.
Co-Chair Wilken understood that all parties of the airport
operating agreement must agree to support the revenue bonds.
Mr. Barton affirmed and furthered on the formal process involving a
balloting system.
Co-Chair Wilken asked the extent that terminal lessees participate
in the agreement.
Mr. Knudson replied that most of the lessees, those that occupy the
majority of terminal space are the signatory airlines. He informed
that the few concessionaires who also lease space comprise a small
portion.
Senator Hoffman referenced the landing fees data cited in the
handout and asked when the initial feasibility study was conducted
and the reason for the variance between it and the revised
forecast.
Mr. Sura replied that the initial detailed study was conducted in
April 2002 and the revised forecast was prepared specifically for
this legislation approximately two weeks ago. He pointed out the
initial study was completed approximately six months after
September 11, 2001 and reflected a conservative approach, as the
recovery cycle of cargo and passenger activity was unknown. He
stated that the primary difference between the two forecasts is
that the earlier study did not include the bond issuance requested
in this legislation.
Senator Hoffman was concerned that the figures differ by over 40
percent for the year 2010 and remarked that a difference of as
little as two percent would have a significant impact on a project
of this magnitude.
Co-Chair Wilken calculated the landing fees of a loaded Boeing 747
aircraft to be $1,300.
Senator Bunde commented that although this project is necessary, he
has "never met State projects that couldn't go over budget."
Co-Chair Green offered a motion to report SB 216 from Committee
with individual recommendations and accompanying fiscal note.
Co-Chair Wilken stated that Senator Bunde's concerns are currently
under scrutiny.
There was no objection and SB 216 with accompanying fiscal note #1
for $7,813,000 from the Department of Revenue MOVED from Committee.
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