Legislature(1997 - 1998)
04/28/1997 08:10 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 42 ALASKA RR BUDGET AND LAND Testimony was heard from SAM KITO III, JAMES BALDWIN and RANDY WELKER. SB 42 was HELD for further consideration. SB 42 ALASKA RR BUDGET AND LAND SAM KITO, III, Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities, testified in opposition to the bill. He explained that the Alaska Railroad Corporation had been set up to function as both a public and a business entity. To operate effectively, they needed the flexibility to make business decisions unencumbered by yearly appropriations. Long-term lease agreements would be hampered by the uncertainty of legislative approval for repayment on a yearly basis. He referred to an ISER report that described disadvantages of subjecting the railroad to state oversight. The most critical would be the inability to obtain capital investment funds. He believed by placing the railroad under the executive budget act would result in the kinds of limitations mentioned in the ISER report. SENATOR PHILLIPS brought up AHFC and AIDEA, noting that similar fears of putting them under the executive budget act were not occurring. He believed it would improve communications between the railroad and the state and provide a better working relationship. End SFC-97 #130, Side 2 Begin SFC-97 #131, Side 1 SENATOR PHILLIPS briefly continued his comments. JAMES BALDWIN, Assistant Attorney General, Department of Law, testified that public corporations could be made subject to legislative appropriation, but there was no consistent way of dealing with them based on different circumstances of the various corporations. He described certain areas that were not made subject to appropriation with regard to AHFC and AIDEA. SB 42 would made debt service of the railroad subject to appropriation and that would present a severe business problem. He referred to a broad statement on page 3, line 12 of CSSB 42 (STA). It had been the intent of the legislature to operate the railroad budget as a business entity. As the bill currently reads, it would be disastrous to the railroad. Debt was negotiated without consideration of an appropriation risk. It may create an incident and enough uncertainty with lenders to declare the right to accelerate the debt. SENATOR PARNELL inquired if a legal opinion had been requested regarding whether the bill would result in acceleration of current indebtedness. MR. BALDWIN said there had not been a request. There was additional discussion on this matter between SENATOR PARNELL and MR. BALDWIN. RANDY WELKER, Director, Division of Legislative Audit, gave a brief overview of the bill, noting it had come from issues raised during overviews early in the session. The state would benefit from bringing the railroad under the executive budget act. The intent was not to limit the railroad to a specific dollar amount or line items. Language provides that the amount necessary to operate the railroad would be appropriated. It would be in keeping with the important aspect of oversight by the legislature which had been missing in the past. The railroad was the only state entity not subject to the oversight process and he believed it would be a healthier situation to bring the railroad into the process. In response to a question from SENATOR PHILLIPS, MR. WELKER had no comment regarding debt service. SENATOR PARNELL stated his opinion that a legal opinion was needed to shed light on whether the bill would trigger acceleration of debt. MR. BALDWIN indicated the railroad had established about $4-5 million in a line of credit. General language in the loan agreement had terms regarding when the lender felt insecure. SENATOR PARNELL brought up environmental liability that the Department of Law would have to take over. MR. BALDWIN noted that had been removed under the State Affairs CS. SENATOR PARNELL reiterated a request for an opinion regarding debt acceleration. MR. BALDWIN indicated he would pass the request on to the railroad. SENATOR PHILLIPS inquired about the difference between this and AHFC debt service. MR. WELKER responded that appropriations for AHFC didn't cover debt service on outstanding bonds, so it was not a significant issue. The main concern was with the process of oversight. SENATOR PHILLIPS asked what the railroad's response would be if they removed debt service language from the bill. MR. BALDWIN indicated that their position would be a preference to not be covered under the executive budget act at all. COCHAIR SHARP briefly mentioned lines of credit and bonds. He concluded the discussion by stating an opinion would be requested. SB 42 was HELD for further consideration.