Legislature(2015 - 2016)SENATE FINANCE 532

04/10/2015 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 140 Presentation: Overview FY17 Operating Budget TELECONFERENCED
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled: TELECONFERENCED
Moved SB 71 Out of Committee
HOUSE BILL NO. 140                                                                                                            
     "An Act authorizing the  Alaska Railroad Corporation to                                                                    
     issue  revenue  bonds  to   finance  a  positive  train                                                                    
     control   rail  transportation   safety  project   that                                                                    
     qualifies  for  federal  financial  participation;  and                                                                    
     providing for an effective date."                                                                                          
9:16:11 AM                                                                                                                    
REPRESENTATIVE  STEVE  THOMPSON,   SPONSOR,  introduced  the                                                                    
legislation.  He explained  that HB  140 will  authorize the                                                                    
Alaska  Railroad  Corporation  (ARRC)  to issue  up  to  $37                                                                    
million  in  tax-exempt  bonds  backed  by  Federal  Transit                                                                    
Administration  (FTA)  formula  funds received  annually  by                                                                    
ARRC. Bond proceeds  will be used to  finance Positive Train                                                                    
Control  (PTC): a  safety program  mandated  by the  federal                                                                    
government  without   any  correlating  funding,   which  is                                                                    
estimated  to cost  ARRC  approximately  $158 million.  ARRC                                                                    
proposes  to refinance  $66 million  in  existing bonds  and                                                                    
extend the  repayment date in  order to issue  an additional                                                                    
$37  million in  bonds to  pay for  a major  portion of  the                                                                    
remaining $55 million in PTC  costs. Under AS.42.40.285 ARRC                                                                    
is required to receive  legislative approval to issue bonds.                                                                    
In no event  will the general credit of the  State of Alaska                                                                    
or  ARRC  be  pledged  for the  repayment  of  these  bonds.                                                                    
AS.42.40.500 requires that all  liabilities incurred by ARRC                                                                    
shall be satisfied "exclusively"  from the assets or revenue                                                                    
of ARRC and not the State.   Debt payment for the bonds will                                                                    
come from a portion  of Federal Transit Administration (FTA)                                                                    
formula funds which are statutorily  mandated by Federal law                                                                    
and received  annually by ARRC.  Issuing debt backed  by FTA                                                                    
formula funds  is authorized through FTA  regulation and has                                                                    
already been used by ARRC  to issue bonds. PTC is technology                                                                    
designed to stop  or slow a train  before human-error causes                                                                    
an  accident to  occur.  In 2008,  the  federal Rail  Safety                                                                    
Improvement  Act required  certain  railroads  to install  a                                                                    
fully functional  PTC system by  the end of 2015;  by virtue                                                                    
of  its   passenger  service,  ARRC   is  subject   to  this                                                                    
requirement. A failure  to implement PTC will  force ARRC to                                                                    
severely curtail or eliminate  passenger service and/or face                                                                    
severe fines  for non-compliance.  Estimates  for this large                                                                    
research and development project  indicate that it will cost                                                                    
approximately $158  million to  implement. Since  1997, ARRC                                                                    
has invested $68.9 million to  develop a PTC system. In 2013                                                                    
and 2014, ARRC received an  additional $19.1 million and $15                                                                    
million respectively  from the  State of Alaska  to continue                                                                    
work  on  PTC. Between  2016  and  2018, an  additional  $55                                                                    
million  will   be  required  for   ARRC  to   complete  the                                                                    
development  and installation  of PTC  by 2018.  This figure                                                                    
does not include the estimated  $5 million to $7 million per                                                                    
year of  operating and capital maintenance  costs related to                                                                    
the system that ARRC will fund after PTC is installed.                                                                          
Vice-Chair Micciche  shared that  he was  not in  support of                                                                    
PTC, but  understood that the  state did not have  a choice.                                                                    
He expressed support for the legislation.                                                                                       
Senator Dunleavy appreciated the legislation.                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
9:21:36 AM                                                                                                                    
Senator Hoffman wondered how much  unutilized land was owned                                                                    
by the Alaska Railroad.                                                                                                         
BILL  O'LEARY, CEO,  ALASKA RAILROAD,  explained that  there                                                                    
was roughly 36,000  acres of land owned  by the corporation.                                                                    
Approximately 18,000  acres of  that land was  used directly                                                                    
in rail  operations, such as right-of-way.  Therefore, there                                                                    
was a  remaining 18,000  acres available  for other  use. He                                                                    
recalled that  there was approximately 2600  acres that were                                                                    
under lease or permit.                                                                                                          
Senator Hoffman  queried the future  plans of  the remaining                                                                    
15,000 acres. Mr.  O'Leary replied that there was  a hope to                                                                    
develop  the   unused  land.  There   were  some   plans  in                                                                    
Fairbanks,  Anchorage, and  Seward  with the  hopes to  move                                                                    
Senator Hoffman  wondered if the undeveloped  acres would be                                                                    
available to  create jobs to  incur investment.  Mr. O'Leary                                                                    
replied that  it was  of great  concern to  the corporation,                                                                    
and  was a  part of  the financial  picture. He  stated that                                                                    
there was a hope to utilize the railroad land.                                                                                  
Senator  Hoffman  queried   the  corporation's  position  on                                                                    
selling  any  of the  land.  Mr.  O'Leary replied  that  the                                                                    
corporation was  not often interested  in selling  the land,                                                                    
because the  ownership of the  land was  a key piece  in the                                                                    
financial structure.                                                                                                            
Senator Hoffman  wondered if the corporation  would sell the                                                                    
land  upon threat  of closing  the  railroad operations,  as                                                                    
they  are  with the  PTC  federal  requirement. Mr.  O'Leary                                                                    
responded that the  corporation was not in  favor of selling                                                                    
the  land,  because  of  the possibility  of  the  need  for                                                                    
continuous revenue stream.  He felt that the  selling of the                                                                    
land would not  produce enough funds in the  short time that                                                                    
the funds were needed for the project.                                                                                          
Senator  Hoffman surmised  that  the  railroad would  rather                                                                    
close  down  operations, than  sell  the  land to  keep  the                                                                    
railroad operating. Mr. O'Leary disagreed.                                                                                      
Vice-Chair Micciche shared that  he was supporting the bill,                                                                    
because the  state would not  have bond liability.  He asked                                                                    
for  further explanation  of the  bond. Mr.  O'Leary replied                                                                    
that the debts  to the Alaska Railroad  were not liabilities                                                                    
of the  state. There would be  no recourse to the  state for                                                                    
the bond, as was explicitly  outlined in the bond documents.                                                                    
There  was also  no recourse  to the  general credit  of the                                                                    
Alaska  Railroad.  The  only  security  for  the  bonds,  as                                                                    
proposed,  was  from   the  Federal  Transit  Administration                                                                    
formula funding.                                                                                                                
HB  140  was  HEARD  and   HELD  in  committee  for  further                                                                    

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