Legislature(1993 - 1994)

03/16/1994 09:10 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  SENATE BILL NO. 148                                                          
       An Act relating to the Alaska Railroad Corporation; and                 
       providing for an effective date.                                        
  Co-chair  Pearce  directed that  SB  148 be  brought  on for                 
  discussion.   She noted that it  was introduced by committee                 
  in the  first session  of the current  legislature, and  she                 
  referenced 1993 adoption of   work draft CSSB 148  (Fin) (8-                 
  LS0583\X,  Utermohle 4/12/93)  and Amendments  1 through  3.                 
  Co-chair Pearce next  directed attention to an  updated work                 
  draft (8-LS0583\I,  Utermohle 3/11/94)  which she  explained                 
  incorporates the  previously adopted  amendments.   Co-chair                 
  Frank MOVED for adoption  of CSSB 148 (Fin), "I"  version in                 
  place of the previously  adopted "X" version.   No objection                 
  having  been  raised,  CSSB  148  (Fin),  "I"  version,  was                 
  Co-chair Pearce referenced  a pending Amendment No.  4 and a                 
  March  11, 1994, memorandum  (copy on file)  thereto.  DAVID                 
  SKIDMORE, aide to Senator Frank, came before committee.   He                 
  explained  that  the  proposed  bill  would  bar  the  chief                 
  executive  officer of  the Alaska Railroad  Corporation from                 
  serving as the  member of  the railroad  board of  directors                 
  required  by  statute  to  have  certain types  of  railroad                 
  experience.    If   the  bill   were  to  become   effective                 
  immediately, it would render Mr.  Hatfield's position on the                 
  board illegal.  Amendment No.  4 creates a transition period                 
  to delay the  effective date of  that provision of the  bill                 
  until  the Governor  appoints a board  member who  fills the                 
  railroad  experience qualification.    The Amendment  states                 
  that  the Governor  is  to appoint  an  individual with  the                 
  necessary  qualifications,  this  fall,  should  either  Mr.                 
  Chapados or Mr. Lounsbury  fail to continue to serve  on the                 
  Co-chair Pearce noted  that Amendment No. 4  was drafted for                 
  incorporation  within  the  previously adopted  version  "X"                 
  which has  since been  replaced by  version "I."   She  then                 
  voiced   need  to  conceptually   adopt  the  amendment  for                 
  inclusion in  the proper  place within  CSSB 148  (Fin), "I"                 
  version.  Co-chair Frank MOVED for adoption of Amendment No.                 
  4.  No  objection having  been raised, Amendment  No. 4  was                 
  CONCEPTUALLY ADOPTED into CSSB 148 (Fin).                                    
  MARK HICKEY, next testified on behalf of the Alaska Railroad                 
  Corporation.    He  remarked  that  the newly-adopted  draft                 
  addresses a  number of concerns raised by  the railroad, but                 
  three areas of concern remain:                                               
       1.   Sec.  7,  page   3,  contains  language   allowing                 
            by  board members  by  teleconference.    This  is                 
            current practice.  Sec. 7 may not be necessary.                    
       2.   Sec. 8, page 4, lines 8 through 12, raises concern                 
            regarding the debt limit, particularly in light of                 
            SB  338.   There appears  to be a  problem between                 
            these two pieces  of legislation.   Although  non-                 
            recourse revenue bonds are  proposed, debt of  the                 
            railroad will  be  issued and  the  railroad  will                 
            already have exceeded "the total aggregate limit."                 
            A  possible fix  might  involve exemption  of non-                 
            recourse revenue  bonds from  this language.   The                 
            language was included as a way to deal with equity                 
            participation  in  non-transportation  activities.                 
            Since that is addressed by subsection (6), another                 
            means of curing  the problem would be  deletion of                 
            subsection (3) (lines 8 through 12).                               
       3.   Sec.  8, page 4, line 18, contains a limitation to                 
  prevent        the   railroad   from  obtaining   an  equity                 
                 position  in  a  non-transportation activity.                 
                 The board of directors  adopted a policy that                 
                 the  railroad   would  not   enter  such   an                 
                 arrangement.  That policy remains in  effect.                 
                 Placing this  language in statute  may create                 
                 potential for litigation.                                     
  Mr. Hickey next referenced provisions relating to the Nenana                 
  land  fill  and informed  members  that the  railroad  is no                 
  longer pursuing the project.  Parties involved found that it                 
  was   not  financially   feasible,  and   there  was   local                 
  Speaking  to the  above-noted limitation  on  debt, Co-chair                 
  Frank explained that  it arose from  the fact that  statutes                 
  presently require  that  the  railroad  receive  legislative                 
  approval  prior  to   issuance  of   bonds.    The   Senator                 
  acknowledged  numerous methods of issuing  debt.  It was the                 
  intent of the legislature, when it authorized acquisition of                 
  the railroad  from the  federal government,  to include  the                 
  legislature "in  the loop"  when the  railroad issued  debt.                 
  Mr. Hickey noted that  the original bill required that  debt                 
  exceeding $1 million be approved by the legislature.                         
  Discussion followed  between Co-chair  Frank and  Mr. Hickey                 
  regarding language associated  with issuance of  debt rather                 
  than bonds.  The Co-chair said he would not support allowing                 
  the railroad to issue  debt of any kind while  maintaining a                 
  limitation on bonds.                                                         
  Senator Rieger  advised of his  preference for incorporation                 
  of the railroad as  a stock corporation and issuance  of all                 
  shares of common stock to the state.  That represents a step                 
  toward  independence  and  eventual  privatization  of   the                 
  railroad.   He observed  that the proposed  bill provides  a                 
  good vehicle for  development of that structure.  Chapter 40                 
  would then become the by-laws of the corporation, instead of                 
  statute.    Mr.  Hickey  explained  that,  at  the  time  of                 
  purchase,  there was  discussion of  a similar  arrangement.                 
  One of the  principal concepts involved the  permanent fund,                 
  and  that  raised   many  concerns.     That  approach   was                 
  subsequently dismissed,  and the state conducted a "straight                 
  purchase."  The railroad board has  not devoted time to this                 
  issue.  The  approach raises many questions "about  how this                 
  would ultimately work  down stream."   Senator Kelly  voiced                 
  his  understanding  that selling  the  railroad would  be in                 
  direct conflict with  the intent of  the proposed bill.   He                 
  suggested  that  entities seeking  to purchase  the railroad                 
  would not buy  it "to  run trains" but  to develop  railroad                 
  land.  That is where the value is.   Co-chair Frank observed                 
  that  "that  would be  fine" if  the entities  were private.                 
  Senator Rieger concurred, advising that  if the railroad was                 
  private, the  legislature would not be  adjudicating endless                 
  issues   relating   to  competition   with   truckers,  land                 
  developers, etc.  Privatization would relieve 20 to 40 hours                 
  of  finance committee time  per session.   He suggested that                 
  that effort be set in motion.                                                
  End:      SFC-94, #32, Side 1                                                
  Begin:    SFC-94, #32, Side 2                                                
  Mr. Hickey stressed need to consider transportation services                 
  provided by the railroad and the importance of that service.                 
  He concurred that private entities would be "very interested                 
  in portions of the real estate . . . ."  A mechanism has yet                 
  to  be   developed  that   would   ensure  continuation   of                 
  transportation services under  privatization.  That is  what                 
  precipitated purchase  of the  railroad by  the state.   The                 
  transportation services save  the state considerable  moneys                 
  in terms of what moves on the railroad versus on the highway                 
  system.  Real  estate assets are  key to continuance of  the                 
  transportation role.  Freight was an overall loss during the                 
  past year.  That service, even when well run, in marginal.                   
  Senator  Rieger commented  on  inability  to  secure  tariff                 
  charges  to  evaluate  the  economics  of  railroad  freight                 
  service with respect  to the private sector.   Senator Kelly                 
  suggested   that   lack    of   competition   to    railroad                 
  transportation would  result in  problems were  the railroad                 
  privatized.    He  pointed to  lack  of  airline competition                 
  between Juneau and Anchorage as an example.                                  
  Co-chair Pearce referenced page 4,  line 9, noted provisions                 
  precluding  aggregated  debt  exceeding   $50  million,  and                 
  concurred that  passage of SB  338 would "arguable  put them                 
  over that limit."  Senator  Kelly suggested that addition of                 
  "excluding  non-recourse  revenue  bonds"   would  cure  the                 
  problem.  Co-chair Pearce voiced  her understanding that the                 
  proposed language would preclude  the railroad from  issuing                 
  bonds of  more than  $50 million  for its own  use, but  the                 
  current "federal window of  opportunity" could be exploited.                 
  In  response to a  question from  Senator Kelly,  Mr. Hickey                 
  explained that the state wrote the majority of the  transfer                 
  act.  It  sought to ensure  that the railroad  would have  a                 
  wide range of authority, equal to public entities elsewhere,                 
  to engage in railroad related projects  to support the goals                 
  and viability of the railroad without a state subsidy.                       
  Co-chair Frank advised  that his staff had been working with                 
  legal services  on issues relating to  legislative approval.                 
  Mr.   Utermohle   has  said,   and   will  provide   written                 
  confirmation, that subsection (3) ceilings set forth at page                 
  4, lines 8 through 12, would  not apply to debt specifically                 
  authorized by  the  legislature.   Co-chair Frank  suggested                 
  that  language  offered by  Senator  Kelly would  provide an                 
  exclusion  from legislative  approval  for all  non-recourse                 
  bonds. Both Co-chair Pearce and Senator Kelly noted language                 
  within Sec. 8  (2) requiring  legislative approval prior  to                 
  issuing bonds.   Co-chair Frank raised concern  that another                 
  form  of debt would  be utilized.   Co-chair  Frank stressed                 
  need to work  with legislative  attorneys on development  of                 
  workable language.  Senator Kelly voiced committee intent to                 
  ensure that if the  railroad issues the $55 million  in non-                 
  recourse revenue bonds, the issue is  excluded from the debt                 
  cap.   Senator  Rieger  voiced  his belief  that  draft  "I"                 
  language  is sufficient to  accomplish committee intent, and                 
  no amendment would be necessary.  Co-chair Pearce asked that                 
  Mr. Utermohole provide a written opinion.                                    
  Senator Rieger inquired  concerning the  net profit for  the                 
  railroad over the past  year.  Mr.  Hickey advised of a  net                 
  loss of $2.6  million comprised of  $800.0 in freight and  a                 
  one-time  write  down of  $1.8  based on  reorganization and                 
  early-out  retirement payments  to  reduce  the work  force.                 
  Senator  Rieger  remarked  that the  railroad  should  pay a                 
  dividend  similar  to AHFC.    Mr. Hickey  spoke  briefly to                 
  continued losses in passenger services.   Since that service                 
  returns a considerable  dividend to the state,  the railroad                 
  has  covered  the  loss from  operating  moneys  rather than                 
  seeking a subsidy.                                                           
  Senator Sharp voiced his understanding that the transfer act                 
  provided  tax  exempt  status   for  financing  of  railroad                 
  upgrades and railroad related activities.  He then suggested                 
  that the tax exempt benefit might be  lost if it is used for                 
  other financing.  Mr. Hickey noted that railroad real estate                 
  (and  flexibility  in  its  development)  was   critical  to                 
  purchase of  the railroad and its viability.   Senator Sharp                 
  voiced need for  testimony from the chief  executive officer                 
  and railroad board  of directors on both SB 148  and SB 338.                 
  Discussion  of  the relationship  of the  two bills  and the                 
  railroad's position on them followed.                                        
  Co-chair Frank  directed  attention to  Sec.  10  provisions                 
  relating  to the  regional  land fill  at  Nenana and  noted                 
  earlier comments that it could be removed from the bill.  He                 
  expressed  reluctance to  do  so  without consultation  with                 
  legislators  from  that   area.    Mr.  Hickey   voiced  his                 
  understanding that there is a  possibility discussion of the                 
  landfill will resume in the near term, at the proposed site.                 
  There is potential over the next  two to five years that the                 
  project might make sense.                                                    
  Senator  Rieger pointed  to  information  from the  railroad                 
  charting   the  corporation's   real  estate   revenue  plan                 
  projected for 1993 through 1998 and cautioned that until the                 
  railroad is privatized, the legislature will "have many more                 
  hours at this table  discussing the equity of each  of those                 
  projects . . . ."                                                            

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