Legislature(2017 - 2018)SENATE FINANCE 532
03/05/2018 09:00 AM Senate FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| State Assessment Review Board Appointment: Brad Pickett | |
| SB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 86 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 86
"An Act relating to the sale or other disposal,
leasing, or encumbrance of Alaska Railroad Corporation
land; and providing for an effective date."
9:13:38 AM
SENATOR JOHN COGHILL, SPONSOR, discussed the reason for the
bill. He shared that the railroad was significant in his
community. He stated that the Port of Anchorage and the
Port of Seward supplied the interior. He shared that he had
been historically critical of the railroad about some of
their leasing policies. He noted that the issue came up of
disposing land into private hands, so the bill attempted to
give the railroad the right to deal with real estate that
they were currently barred from addressing. He stated that
the bill would repeal a position that barred the railroad
from selling real estate, and gave a three-year window to
sell that real estate. The benefit to the state would be
greatly significant, especially beneficial to interior
Alaska. He stated that there were a couple of parcels of
land that were leased, so allowing the purchase of the land
made it financeable.
Senator Olson noted that there was historically a tension
between the railroad and the landowners. He queried any
opposition to the bill. Senator Coghill responded that
there was not much opposition to the bill. The issue
related to right of way along the more populated corridors.
Senator Olson wondered whether the funds would be put into
the general fund, or whether the railroad would have
control of that money. Senator Coghill replied that there
was an examination of the original act that brought the
railroad to Alaska from the federal government. He stated
that the funds would be intended for railroad use. He felt
that Ms. Moss could provide further research on the
subject.
9:20:16 AM
RYNNIEVA MOSS, STAFF, SENATOR JOHN COGHILL, discussed the
Sectional Analysis and the Explanation of Changes (copies
on file). She stated that Sections 1, 3, 6, 8, 10, and 12
eliminated the statutory requirement for legislative
approval of land sanctions affecting utility corridors,
land leases, or land disposal if it was a land sale or
lease longer than 95 years. She noted that Sections 2, 4,
7, 9, 11, and 13 were added in the Senate Resource
Committee substitute that repealed Sections 3, 6, 8, 10,
and 12 in three years; and reinstated the statutory
requirement for legislative approval. She announced that
Section 12 required the right of first refusal for current
leases. She recommended that the committee consider an
amendment that would give the leassee 90 days to exercise
that right. She stated that Section 12 had added verbiage
that allowed for first right of refusal. The two changes
were the three year sunset and the right of first refusal.
She shared that Section 5 reenacted legislative approval
required in three years.
Co-Chair MacKinnon queried a historical perspective or
other comments on the bill. Ms. Moss read under State
Operation of Public Law 97.468, which was enacted January
14, 1983:
The revenues generated by the state-owned railroad
shall be retained and managed by the state-owned
railroad for railroad and related purposes.
Ms. Moss referenced the congressional record, under which
Senator Ted Stevens explained the Railroad Act:
The public law specifies that the state-owned railroad
shall retain and manage its own revenues. The purpose
of this provision was to avoid the need for annual
appropriations by the state for the railroad.
Ms. Moss stated that it was state land, but under state and
federal law the proceeds were generated directly to the
railroad. She furthered that under state law there was a
separate accounting system set up by the railroad.
Senator Olson noted that there were current financial
struggles for the railroad and the state. He felt that the
state had a revenue stream from the railroad. He wondered
how to avoid a future financial problem. Ms. Moss replied
that the reason for the three-year sunset was to provide an
opportunity to prove to be good property managers.
Senator Stevens wanted to ensure that the money derived
from the sale were not used to run the daily operation of
the railroad resulting in no land. Ms. Moss commented that
she had heard lengthy discussions with the railroad and
Senator Coghill.
9:25:29 AM
Co-Chair Hoffman wondered how much land the railroad owned
in the non-corridor real estate portfolio, and requested a
map of the locations. Ms. Moss replied that 36,000 acres
were appropriated by federal law; approximately on-half was
used in the corridor; so there was approximately 18,000
acres of land. She agreed to provide a map.
Co-Chair Hoffman queried the valuation of the acreage. Ms.
Moss replied that she did not know that value, but felt
other testifiers could provide an estimate.
Co-Chair MacKinnon wondered whether that were any
encumbrances on the titles of the property that was
transferred from the federal government. She recalled a
lawsuit where the university began moving through land that
resulted in suing related to leases. Ms. Moss deferred to
authorities from the railroad.
9:27:49 AM
BILL O'LEARY, PRESIDENT AND CEO, ALASKA RAILROAD
CORPORATION, introduced himself.
9:27:59 AM
JON COOK, CHAIRMAN, BOARD OF DIRECTORS, ALASKA RAILROAD
CORPORATION, stated that he had been on the board since
late 2009. He shared that he had served on the Real Estate
Committee the entirety of his tenure on the board; and had
served three years as chair. He shared that the railroad
had prided itself from an operational perspective of being
self-sufficient and self-sustaining. He remarked that there
was some economic decline with freight revenues decreasing
from a peak of $100 million in 2011 to an unaudited figure
in 2017 of $72 million dollars. Therefore, there was a 28
percent decline in freight revenues driven largely by the
closure of Flint Hills Refinery and the elimination of coal
export out of the Usibelli Mine. He remarked that there was
also general economic slowdowns in the North Slope and
other areas. He remarked that the railroad had remained
profitable, but struggled trying to offset the declines in
revenue. He stated that in his tenure, the railroad had
seen three restructurings. He shared that 300 employees had
been cut from a peak of approximately 800 employees to 500
employees. He shared that there had been a restructuring of
business in terms of reducing freight service from to five
days a week to Fairbanks, and the organization had been
flattened. He remarked that, from a cost perspective, there
had been an overall significant decrease, with little left
on the cost side. He shared that when the railroad was
established in the state, the federal government had given
the Railroad Endowment to provide revenues to shield the
railroad through some of the economic cycles. He remarked
that the railroad was over 500 miles with minimal density
and a small population with a cyclical commodities market.
The real estate portfolio had provided significant revenue
stream to the railroad. He shared that over the recent 10
years the real estate net income provided 86 percent on
average of total net income. He stressed that it was
critical to ensuring operation of the company and invest
enough necessary capital.
9:33:46 AM
Co-Chair MacKinnon queried the valuation of the available
land. Mr. Cook replied he did not have a value, because it
was extremely expensive to appraise the parcels. He
furthered that the value of the 18,000 acres was hundreds
of millions of dollars.
Co-Chair Hoffman queried the last time the railroad came to
the legislature for a approval to sell land, and wondered
how much land had been sold in the recent five years. Mr.
Cook replied that he had a list of transactions. He stated
that in the last five years there were no sales.
Co-Chair MacKinnon announced that the legislature had
approved many sales, but most recently the approvals were
mostly transfers.
9:35:29 AM
Co-Chair Hoffman queried the process to identify parcels
that were up for sale, or would that be left to individuals
interested in parcels. He wondered whether the disposal
process would be a competitive bid. Mr. Cook replied that
most of the sales were to Department of Transportation and
Public Facilities (DOT/PF) and other municipal entities. He
noted that there were very few sales with the private
sector. He shared that Chena Landing were lots on the Chena
River that were too shallow for commercial purchases, so
they could be used as single family residences.
Co-Chair Hoffman surmised that it was possible for the
railroad, under the legislation, to negotiate a sale
without the land being subject to a competitive bid
process. Mr. Cook replied in the affirmative, because that
was in existing statute. She stressed that it would not
change. It would either be appraisal or competitive bid. He
stressed that there was a public noticing requirement with
any transaction.
Senator Micciche stressed that there was no land sold since
2009. He felt that the logic for the need for the board
having tools similar to DOT/PF and the Alaska Mental Health
Trust Authority (AMHTA) was to make the land more leasable.
He wondered why there was an examination of property that
was already leased. He felt that the first right of refusal
could result in a loss of value for the railroad. Mr. Cook
replied that because the railroad was a public corporation,
so there was a requirement to respond to the tenant and the
state. He shared that there was some activity predating
some of his time on the board, when the federal government
had extremely low lease rates. He remarked that when the
state took over, the state attempted to otain fair market
value. He felt that the attempt was slightly misleading,
because the appraisal was fair market value, but there was
pressure on the legislature to limit those increases. He
understood that limitation, because of business needing to
provide for cash flow. He stressed that there was a process
to reappraise lands every five years. He noted that many of
the leases were subject to caps at no more than 25 to 35
percent in any five year period.
Senator Micciche remarked specifically about the lack of
competitive bid process. He wondered whether there was a
vision like the AMHTA land office. He wondered what would
occur should there be an offer from someone on a piece of
property without competitive bid. He asked whether there
would be a lock in the sale price with the public notice.
Mr. Cook responded that he did not intend to pursue policy
that would sell currently leased land, unless it was from
the existing lease holder. He shared that there was also a
fair market value appraisal process that would be utilized
without a clamor for the lot.
Senator Micciche surmised that there could be an offer from
an entity that wanted to purchase a piece of property, so
public notice occurred, would there be an opportunity for
the railroad to legally change its mind to a higher bidder
at that point. He noted that the process would be
streamlined, so there would be no more legislative
oversight. He understood the worry related to working
between legislative sessions, but asked whether the sale
went to the highest bidder. Mr. Cook felt that there would
not be transactions without the belief that the railroad
would receive full value. He remarked that it would depend
on the purchase and sale agreements.
9:45:32 AM
Senator Micciche stressed that there would be a
relinquishment of the tool of the excuse of the
legislature. Mr. Cook replied that there was a fear at the
board level that there would be a run on the land. He
stressed that he did not want to operate from a position of
fear. He felt that the railroad needed to evolve, and
understood bearing the market on what was reasonable in
attempting to sell the lands. He understood that the
legislature could be an "out", but he never had a problem
saying no. He remarked that three years was not much time
in the real estate developing world, but felt that it was a
reasonable amount of time to show that the sales and
proceeds could be managed by the railroad.
Senator Stevens understood that the funds from sales would
not be used for the day to day operations of the railroad,
rather would be reinvested in the railroad. Mr. Cook
replied in the affirmative. He explained that the intent
was not to take the one-time money for a one-time expense.
He stated that there was a tentative award to put a road
into the subdivision.
Co-Chair Hoffman queried the intent of the board and
administration, should the legislature not pass the bill,
related to the Chena parcels. Mr. Cook responded that that
the thirteen acres had been rezoned and up for sale with
the caveat that it was subject to the legislative
authority. He stated that there would be a refund of the
earnest money.
Co-Chair Hoffman felt that the railroad should have asked
for the approval before offering to sell the land. He
wondered whether there had been other dialogs with
individuals or corporations about selling land upon passage
of the legislation. Mr. Cook noted that the list of
transactions showed a lack of private sector names. He felt
that the legislative process was a daunting task for
potential homeowners.
9:51:26 AM
Co-Chair Hoffman surmised that there were no other dialogs
with individuals or corporations for potential sale through
the legislation. Mr. Cook replied that there had been
several transactions that were either signed subject to the
bill or in discussions. He stated that there were some firm
deals.
Co-Chair Hoffman queried the property value. Mr. Cook
replied that the exchanges did not bring revenue to the
corporation. He asserted that the land value of all the
parcels were close to between $7 million and $9 million.
9:53:52 AM
CURTIS MCQUEEN, CEO, EKLUTNA INC, EAGLE RIVER (via
teleconference), spoke in support of the bill.
9:59:37 AM
EVELYN ARNOTT, PRESIDENT, GREATER FAIRBANKS BOARD OF
REALTORS (via teleconference), spoke in support of the
legislation.
10:01:13 AM
TIM WORTHEN, OWNER, PREMIER ALASKA TOURS (via
teleconference), spoke in support of the bill.
Co-Chair MacKinnon CLOSED public testimony.
Co-Chair Hoffman queried the status of the subsurface
rights. Mr. Cook deferred to Mr. Behrend.
10:07:24 AM
ANDY BEHREND, CHIEF LEGAL COUNSEL, ALASKA RAILROAD
CORPORATION (via teleconference), replied the railroad held
the entire federal interest in right-of-way in the transfer
from the federal railroad, including mineral rights. He
remarked that those rights could be sold where they were
located.
Co-Chair Hoffman wondered whether the mineral rights would
be specifically identified of which ones were assumed to be
transferred. Mr. Behrend replied that it was a
determination to be made by the board when the transactions
were approved. He noted that it was typical to identify
whether it was full fee simple, which would include the
mineral rights.
Co-Chair Hoffman wondered whether gravel was considered
surface or subsurface rights. Mr. Behrend replied that
typically gravel would be considered subsurface rights. The
standard approach to gravel was that an license would be
issued for excavation with public notice. The prices were
set based off of DOT/PF prices.
10:10:18 AM
Co-Chair Hoffman noted that an individual could bypass the
process, and receive the gravel to sell. Mr. Behrend
agreed. He assumed it would be part of the appraised value
of the property.
Vice-Chair Bishop wondered how much of the remaining 18,000
acres of the 36,000 acres would be fee simple. Mr. Cook
replied that the vast majority of the railroads property
was fee simple.
Co-Chair MacKinnon queried more information about fair
market value, best interest finding, and "or" versus "and"
in the appraisal process. She asked for a restated of the
process as a board to determine value for the railroad. Mr.
Cook replied that there were two different paths. He stated
that there would be advertised property. He furthered that
folks would approach the railroad looking to purchase
properties. He stated that under either scenario, the
railroad would enter into a purchase and sale agreement
with the individual. He explained that there would be an
appraisal on an unadvertised parcel, or a competitive bid
process. He stressed that once a purchase and sale
agreement was signed it would trigger the public notice
requirements, and assuming no adverse public comment the
sale would be closed. He stressed that there must be a best
interest finding.
Co-Chair MacKinnon understood that the board would approve
the best interest findings. Mr. Cook replied in the
affirmative.
10:15:12 AM
Co-Chair MacKinnon surmised that it was the intent to sell
fee simple property with subsurface rights. Mr. Cook
replied in the affirmative. He stated that there was gravel
potential at Eklutna, so there may be an examination during
the land exchange to value those rights. He stressed that
for a single family home there would be a fee simple
bundle.
Co-Chair MacKinnon asked whether that would occur for the
Healy Reserve, which was the largest railroad reserve in
the state. Mr. Cook replied in the affirmative. He stressed
that the transactions in Healy had nothing to do with the
mineral value of those properties.
Co-Chair MacKinnon announced that the Denali Borough
comments spoke to multiple layers of land situations across
the state. She stated that it specifically pointed to the
Tri-Valley Community Center sitting on leased land. Mr.
Cook agreed.
Co-Chair MacKinnon wondered whether there would be a
proposal to sell that property. Mr. Cook replied that there
were discussions. He stated that it was the intent of the
railroad to sell the land, and then there would be sales to
individual landowners.
Co-Chair MacKinnon wondered whether there would be a rider
on the sales agreements, rather there would be a fee simple
sale to keep out of the transaction. Mr. Cook agreed.
Co-Chair MacKinnon wondered whether the federal government
retained any restriction on the properties. Mr. Cook
replied in the negative. He stated that the only barring in
statute was right of way, and essential for railroad
operations.
Co-Chair MacKinnon wondered whether non-essential right of
way could be sold. Mr. Cook replied in the negative. He
stressed that right of way could not be sold.
10:20:11 AM
Senator Micciche wondered whether there were sales of
Alaska Railroad land in the past. Mr. Cook replied that he
was not aware of any sales of land to private entities.
Senator Micciche stressed that he had been warned about the
life lesson of never touching the principal. He noted that
the no other transfers had not resulted in a loss of
subsurface. He queried any indication of the value of the
minerals on the land. Mr. Cook replied that he was not
aware of any other mineral potential other than gravel and
hard rock reserves.
10:25:32 AM
Vice-Chair Bishop surmised that "hard rock" referred to the
aggregate and not hard rock mineral potential such as gold
or silver. Mr. Cook agreed.
Senator Micciche noted that the railroad had compared
themselves to the other agencies, but the other agencies
did not relinquish subsurface rights. He wanted to research
that issue further.
Co-Chair MacKinnon stated that she would follow up with
determining whether that was an accurate comparison.
Co-Chair MacKinnon wondered whether ninety days was an
adequate timeline to exercise first right of refusal for a
current lease holder. Mr. Cook replied that there was no
intent to unwillingly sell land that was currently leased.
He noted that the ninety day number was for those who had
potentially already had financing. He felt that ninety days
would seem reasonable for the finance process.
Co-Chair MacKinnon understood that Mr. Cook had the best
intentions, but noted that he would not always be the chair
of the board.
Co-Chair MacKinnon wondered whether the $17 billion of
bonding authority from the stranded gas pipeline was still
on the books, and whether there was a stipulation on the
language to not allow for use. Mr. O'Leary replied that the
$17 billion authorization was designed so the railroad
could access its abilities to gain advantage for the gas
pipeline through tax exempt financing. There was a
stipulation in the current language that said it could only
be used if there was an agreement with a third party to pay
that debt service over the term of those bonds.
10:31:20 AM
Co-Chair MacKinnon wondered whether the third party could
be a partner that was currently in negotiations with the
state to trigger the bonding authority. Mr. Cook replied in
the affirmative.
Co-Chair MacKinnon cautioned the committee about the lack
of oversight. She wondered whether the bonding authority
existed with or without the legislature's approval. Mr.
O'Leary replied that the bonding authority could be used
subject to the third party agreement.
Co-Chair MacKinnon wondered whether the title could
incorporate the elimination of the bonding authority. She
was concerned, because giving away rights for a pilot
period could trigger the bonding authority by the governor.
She wondered whether there was a loss of revenue form the
lost coal contracts from Healy. Mr. Cook replied in the
affirmative.
10:34:15 AM
Co-Chair MacKinnon understood that there was huge support
from her community about commuting into Anchorage by
commuter rail. She wondered how commuter rails functioned
on the same track with the moved aggregate. She queried the
timing and safety issue. She felt that there would be
unique timing to accommodate a commuter rail, and provide
the revenue for the aggregate. Mr. O'Leary replied that
commuter rail had been discussed for decades, and there was
a recent resurgence of interest with the development of a
Commuter Rail Task Force. He remarked that commuter rail
would require funding that was outside what the railroad
would provide, because it was heavily subsidized. He noted
that there was some double track, but it was mostly single
tracked. He stated that the commuter rail would compete
with the other activities. He stated that there would be a
seasonal demonstration project, so it would not compete
with the gravel moves. He noted that there would be some
organizing around other Anchorage freight activities.
Co-Chair MacKinnon stated that she had not been invited to
the task force meeting, but she had been an advocate so she
might have some value to add to the conversation about how
the commuter rail was not cost effective.
Vice-Chair Bishop wondered whether there was any
outstanding land transfers from the federal government to
the state. Mr. O'Leary responded that he did not believe
that there was anything left to be transferred. He believed
that there may be some final paperwork on the patents. He
deferred to Mr. Behrend.
Mr. Behrend furthered that, through interim conveyances,
all of the property had been conveyed. The process, under
the federal statute, required for the areas that had not
been surveyed that the surveys be issued before the final
patents. He stated that it was almost complete, with
between 1 and 3 percent of the property that was waiting
for final patents.
Vice-Chair Bishop discussed the fiscal note.
Co-Chair MacKinnon announced that amendments were due by
5pm the upcoming Wednesday. She also discussed the week's
schedule.
SB 86 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2018 State Assessment Review Board 43.56.040.pdf |
SFIN 3/5/2018 9:00:00 AM |
Confirmations 2018 |
| FIN ASSESSMENT REVIEW BOARD Pickett.pdf |
SFIN 3/5/2018 9:00:00 AM |
Confirmation 2018 |
| SB 86 - ARRC FAQs.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - ARRC Overview of Legislation.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - ARRC Summary of Benefits.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - ARRC Real Estate Background.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - Congressional Authorization for Alaska Railroad.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - Letters of Support.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - Sectional.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 - Sponsor Statement.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 Letter of Support for AK RR Land Transfer.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |
| SB 86 AK Railroad Response to SFC Questions.pdf |
SFIN 3/5/2018 9:00:00 AM |
SB 86 |