Legislature(1993 - 1994)

04/05/1993 08:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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  SENATE BILL NO. 16                                                           
                                                                               
       An  Act  relating  to the  financing  authority  of the                 
       Alaska Industrial Development and Export Authority  and                 
       giving  approval  of  the  issuance  of  bonds  for  an                 
       Anchorage airport seafood  facility; and providing  for                 
       an effective date.                                                      
                                                                               
  Co-chair  Pearce  directed  that SB  16  be  brought on  for                 
  discussion.                                                                  
                                                                               
  SENATOR JOHNNY  ELLIS and RILEY  SNELL, Executive  Director,                 
  AIDEA (Alaska  Industrial Development  Authority), Dept.  of                 
  Commerce  and Economic  Development, came  before committee.                 
  Senator Ellis voiced need to  foster private sector economic                 
  development meeting three tests:                                             
                                                                               
       1.   Create jobs for resident Alaskans                                  
       2.   Leveridge significant private sector investment by                 
                 drawing outside dollars into the state.                       
                                                                               
                                                                               
       3.   Add value to state resources prior to export.                      
                                                                               
  Alaska's export of  raw resources  also means that  refining                 
  jobs are exported.                                                           
                                                                               
  The proposed Alaska  Seafood Center  meets the above  tests.                 
  The  project is not  new.   It was  included in  last year's                 
  AIDEA bond bill but was dropped during special  session when                 
  it was determined  that a  stripped down bill  had a  better                 
  chance  of passage.  Necessary  plans and financing were not                 
  in place  at that time, and  the decision was made  to delay                 
  until this year.                                                             
                                                                               
  The  Center  would  provide  450  year-round  jobs  and  750                 
  indirect jobs outside of Anchorage.   Approximately 200 jobs                 
  in  the  construction phase  would  be created  in  the near                 
  future, once authorization  is provided.   Between $100  and                 
  $115 million in new, outside,  private investment would flow                 
  to Alaska for  the Center.   The Alaska Seafood Center  will                 
  not compete with existing primary processors or contract any                 
  of its own fishing.  The Center would make major, year-round                 
  product purchases from Alaska's  primary processors for  use                 
  in  secondary,   value-added  processing.     Following  the                 
  secondary  processing,  the  product   will  be  shipped  to                 
  domestic and international markets.  The Center will make 45                 
  million  pounds   of  cold   storage  available   to  Alaska                 
  processors  and other Alaskan  businesses.  That  has been a                 
  great need  in Alaska for some  time.  The Center  will also                 
  provide reliable  and economical transportation  services to                 
  primary  processors.  The  volume involved will  be of great                 
  benefit.    Money  will  flow  through  Alaska  rather  than                 
  directly to Seattle.                                                         
                                                                               
  Anchorage will provide  the transportation link  for product                 
  coming to and leaving from a central point.                                  
                                                                               
  Senator Ellis  said that  the ultimate  test of the  project                 
  lies in the $15  million in revenue bonds.  If the economics                 
  of the  project  are not  favorable,  it will  not  proceed.                 
  Financiers would match the bonds with $100 to $115  million.                 
                                                                               
                                                                               
  Further, the project is ready to  proceed in that it is  not                 
  tied up in mental health issues  nor are there protests from                 
  interest groups.  Local  government is extremely supportive.                 
                                                                               
                                                                               
  Co-chair  Pearce referenced  accompanying zero  fiscal notes                 
  from  AIDEA  and  the  Dept.  of Transportation  and  Public                 
  Facilities as well as  a supportive position paper from  the                 
  Dept.  of  Commerce and  Economic  Development.   A position                 
  paper from the Dept. of Transportation and Public Facilities                 
  states support but also raises concern regarding location of                 
  the facility near the airport because of a possible increase                 
                                                                               
                                                                               
  in  the  number of  birds in  the  vicinity.   Senator Ellis                 
  explained that  the Center would  not be located  on airport                 
  property.   The airport  intends to  reserve that  for other                 
  uses.  There are suitable locations  for the Center in close                 
  proximity to  the airport.  The processing undertaken by the                 
  Center is not  the type  that would produce  fish waste  and                 
  attract birds that might interfere with aircraft.                            
                                                                               
  Riley Snell  briefly  spoke before  committee,  advising  of                 
  AIDEA belief that significant advancements have been made in                 
  both the financing plan and marketing since last session.                    
                                                                               
  HOWARD  M.  BENEDICT,   President  ASC,  next   came  before                 
  committee.  He  explained that  he first came  to Alaska  in                 
  1976 and  moved to the state in 1981.   Prior to applying to                 
  AIDEA, Mr. Benedict said that he and his family invested $ 6                 
  million in the project.   Feasibility and marketability have                 
  been  determined.    Additional  marketing  since  the  last                 
  session has produced  significant results.  A market for all                 
  of the Center's product appears to be available.                             
                                                                               
  The  Center will  be the first,  value-added facility.   The                 
  high  technology operation will  bring new infrastructure to                 
  Alaska.    There  is   presently  no  substantial  secondary                 
  processing occurring in the state.                                           
                                                                               
  Speaking to human  resources, Mr. Benedict advised  that the                 
  center intends to provide profit sharing to all employees as                 
  well as child care.                                                          
                                                                               
  Last Week, lenders in New York indicated they could increase                 
  the amount of cash available and  decrease the amount of the                 
  mortgage.  Mr.  Benedict reiterated  that the project  would                 
  bring $100 to $115 million in outside money into Alaska.  No                 
  subsidy is being sought.  The Center will repay AIDEA  as it                 
  does commercial lenders.                                                     
                                                                               
  Senator Sharp referred to the  position paper from the Dept.                 
  of Commerce and Economic Development and inquired  regarding                 
  contracts with primary  processors as well as  contracts for                 
  sale of the  product.   Discussion followed between  Senator                 
  Sharp and Mr. Snell regarding the type of analysis conducted                 
  by AIDEA prior to commencement of a project.                                 
                                                                               
  Co-chair Pearce advised of concern by Senator Jacko relating                 
  to  location  of  the  facility  in  Anchorage  rather  than                 
  Dillingham or Dutch Harbor.  Mr. Benedict said that location                 
  had  been  studied  in  great detail.    The  facility would                 
  experience  a  $2.5 million  disadvantage  per year  per 100                 
  million pounds of  production for  being located in  Alaska.                 
  That disadvantage is caused by the fact that product will be                 
  brought  to  Anchorage at  2.1  cent  a pound  and  taken to                 
  Seattle  for  approximately 8  cents.   That  is a  2.5 cent                 
  disadvantage.   Practical  methods of  overcoming that  have                 
                                                                               
                                                                               
  been  developed.   Construction  elsewhere  would  lose  the                 
  transportation advantage provided by the Anchorage  Airport.                 
  Power  is another factor.   The  facility must  compete with                 
  Seattle's power costs.   The proposed  facility will be  the                 
  "largest,  single,  private  power user  in  the  city"--a 4                 
  megawatt power consumer.   A  location other than  Anchorage                 
  would  put  the  cost  of  electricity totally  out  of  the                 
  economic picture.  Seattle power  currently costs 3.81 cents                 
  per kilowatt hour.  The agreement with the City of Anchorage                 
  for an interrupted demand rate is  2.76 cents.  That is  38%                 
  below the Seattle cost.                                                      
                                                                               
  End, SFC-93, #47, Side 2                                                     
  Begin, SFC-93, #49, Side 1                                                   
                                                                               
  In response to an inquiry from  Co-chair Frank, Mr. Benedict                 
  said he  had hired "one  of the finest  secondary processing                 
  people."    He has  resided in  Anchorage  for the  past two                 
  years.  He previously built a plant the same size as the one                 
  proposed for Anchorage and  brought it in on time  and under                 
  budget.    Mr.  Benedict  said  that  the  hire  effectively                 
  eliminated financial  institution concern  that the  project                 
  was starting  something that  had not  been  done in  Alaska                 
  before.                                                                      
                                                                               
  Mr. Benedict  explained that  secondary processing  involves                 
  taking frozen blocks  of seafood, cutting them  into serving                 
  pieces, and breading,  or battering, or topping  with sauce.                 
  This work is now being done in Seattle or on the East Coast.                 
  Frozen fish does not have much  odor.  The concern regarding                 
  additional birds at the airport is not a great one since the                 
  plant will "only do 15 or 20% primary."                                      
                                                                               
  Mr.  Benedict advised  that only top  management positions--                 
  four  or  five  individuals--that  must  possess   necessary                 
  background and knowledge  of this  type of processing  would                 
  not be local hire.  The intent is to hire Alaskans.                          
                                                                               
  In  response to a  further inquiry from  Co-chair Frank, Mr.                 
  Benedict  said the end  product will not  have a  brand.  It                 
  will be produced for other companies.  He further advised of                 
  his intent that the  quality of the product would  be higher                 
  than currently available.                                                    
                                                                               
  Responding  to   a  further  question   regarding  financial                 
  arrangements aside  from AIDEA,  Mr. Benedict  said "In  the                 
  overall picture, our project is  $165 million."  Between $35                 
  and  $50  million  will  be cash,  equity  in  the project--                 
  provided by  an investment  banking firm  in New  York.   In                 
  addition, there will  be approximately  $80 million in  bank                 
  financing as a first mortgage.  The foregoing is in addition                 
  to the $50 million request to AIDEA.                                         
                                                                               
  Co-chair Frank sought  assurance that  AIDEA funds would  be                 
                                                                               
                                                                               
  the  last dollars  rather than  the first  committed  to the                 
  project.  Both Mr.  Benedict and Mr. Snell assured  that all                 
  other commitments would have to be made  prior to commitment                 
  from AIDEA.  Mr. Snell said that he had been in contact with                 
  the New York investment banking firm and the bank that would                 
  raise the  balance of the funds.   Everything is now  in the                 
  working stage.   Nothing is  yet firm.   Mr. Benedict  noted                 
  that part of the  reason the project remains in  the working                 
  stage is that  it "lost  a great deal  of credibility"  when                 
  legislation for the project did not pass last year.  As soon                 
  as  there  is  a  commitment   from  the  state,  the  other                 
  arrangements will be  finalized.  Mr. Benedict  advised that                 
  his investment  banking firm  raised over  $1.5 billion  for                 
  internal projects over the last six weeks.  The proposed $35                 
  million request is small by comparison.                                      
                                                                               
  Discussion followed between Co-chair  Frank and Mr. Benedict                 
  regarding the means utilized to overcome cost  differentials                 
  between Anchorage and Seattle.  Mr. Benedict cited decreased                 
  electrical  costs, an adequate labor supply, and manufacture                 
  of  "extremely  efficient" equipment.    Many  existing East                 
  Coast manufacturers have not upgraded their equipment.  They                 
  thus do far  too much hand labor.  A total of nine different                 
  elements not only overcome the  differential but overcome it                 
  substantially.  Mr. Benedict voiced his assumption that once                 
   the  proposed plant  is operational  and successful,  others                
  will follow.  Someone must break ground first.                               
                                                                               
  In  response  to  a  question  from  Senator  Kerttula,  Mr.                 
  Benedict  said  that eighty  percent  of production  will be                 
  committed to  the "Lower  Forty-eight."   The remaining  20%                 
  will either  be sold within  the United States  or overseas,                 
  which ever  is best in terms  of the strength of  the dollar                 
  and other financial considerations.  Mr. Benedict noted that                 
  Americans eat  little seafood compared  to the  rest of  the                 
  world.  The  average in the U.S. is  14.9 pounds per person.                 
  Europeans average 50  to 60 pounds, and the Japanese average                 
  150 pounds.                                                                  
                                                                               
  Responding  to questions  from Senator  Kelly, Mr.  Benedict                 
  noted that  fish sticks  will comprise  the low  end of  the                 
  product  line.    Packaging  will  include family  packs  in                 
  addition  to  single dinners.    The Center  will  also work                 
  directly with the food service industry to serve restaurants                 
  and  cruise  ships.   Both have  expressed  need for  a high                 
  quality product that is not now available.                                   
                                                                               
  In reply  to  a further  question from  Co-chair Frank,  Mr.                 
  Benedict indicated that interest rates  are presently so low                 
  that  AIDEA's  interest  component  will  not  be  of  great                 
  assistance.   The project  needs a  strong demonstration  of                 
  state  support.   During  further  discussion, Mr.  Benedict                 
  spoke to outside perception that Alaska has more  money than                 
  it knows what  to do with.  Investment banking firms seek to                 
                                                                               
                                                                               
  utilize funding  in areas  evidencing demonstrated need  and                 
  strong local support.                                                        
                                                                               

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